Deflationary Influences on Apparel Prices

Over the past decade, the apparel industry has witnessed unprecedented deflationary pressures on prices, for a variety of reasons. One of the most compelling reasons is that consumers' personal consumption expenditures on apparel have declined from 6.2% in 1970 to 4.2% in 2001. In addition, the casualization of America has resulted in increased sales of casual apparel (at lower average prices), while sales of tailored apparel have declined. Yet another factor is the significant market share that mass merchants, such as Wal-Mart, Kmart and Target, have been able to capture from traditional department and chain stores.

Top

Against the backdrop of these changes, retail floor space continues to expand. According to the International Council of Shopping Centers (ICSC), square footage of shopping centers (excluding leased department stores) increased from 1.5 billion in 1970 to 5.6 billion in 2000, while retail sales of apparel only doubled.

Top

Based on the most recent ICSC data, total shopping center revenue was approximately $208 per square foot. This figure is modest compared with the $690 per square foot that Wal-Mart stores garnered during the same time period. This mass merchant not only enjoyed three times the retail sales volume per square foot of shopping centers, but also had twice the volume of customer traffic, on an annual basis. Wal-Mart accomplished this feat with just 302 million square feet of U.S. retail floor space.

Although shopping centers' retail sales per square foot have been growing, they have been flat when adjusted for inflation. Since 1990, the adjusted dollar volume of retail sales per square foot has remained constant at $120, thus squeezing the margins that retailers located in shopping centers have been able to capture. The expansion in retail floor space has outpaced retail sales, resulting in an oversupply and thus contributing to the downward spiral in apparel prices.

Top