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How Digital Commerce Has Changed the Face of Apparel Retail

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Taking a break from the hot U.S.-China friction headlines, here we bring for you an interesting observation on how apparel retailing has been adapting well to e-commerce and omni-channel techniques.

Looking almost a year back and before, the apparel retail segment witnessed a setback due to the evolving trends in the retail industry as smart phones started becoming the primary avenue to make purchases. From then, there has been a revolutionary change in the business models of most apparel and accessories retailers as these strive to provide the best customer experience and keep pace with industry trends.

Transformation Takes Charge

To put it simply, there has been a sea change in consumer preferences as to when, where, how and why to shop. To catch up with this new consumer behavior, the retail industry has undergone a huge transformation where online and brick-and-mortar goes hand in hand to deliver upon customers demands.

Well, this transformation is true for the Retail – Apparel and Shoes industry as well, which forms a key segment of the retail sector. Today, apparel retailing is not confined to stores. In fact, a major part of the total apparel sale in the United States comes from online. This is the reason apparel retailers have been rolling out new omni-channel and digital capabilities to attract customers.

Some traits prevalent across the apparel industry are increased investments in the multi-channel growth strategy, where players are keen on improving merchandise offerings, developing IT infrastructure to enhance web and mobile experiences, renovating and expanding physical stores, as well as enabling speedy delivery to customers.

Further, companies are focused on inventory management initiatives to provide the right merchandise at the right time and place. Another area that these companies are working on is customer loyalty programs that can aid in boosting the loyalty score.

Digital Investments – The Key to Growth

The efforts and investments in digital growth have been well reflected in the top and bottom-line performances of the players in the specialty apparel segment. Digital sales have been the prime contributing factor in the top-line growth of most retailers in the space. Additionally, this has led to a revival in the comparable store sales (comps) trend for these retailers. Looking ahead, the use of artificial intelligence and providing customized products is likely to be the winning strategy for retailers vying for the top spot.

Given these efforts, the graph of the Retail – Apparel and Shoes industry has witnessed 4.4% growth in the past year.

As per National Retail Federation (NRF), total retail sales increased 4.4% year over year in February and 0.3% from January. This included a 10.5% increase in online and other non-store retail sales. Moreover, sales for the clothing and clothing accessories segment alone increased 5.2% year over year in February.

That said, let’s take a look at some individual stocks from the industry, throwing light on their growth endeavors and the resulting benefits.

Apparel Stocks Focused on Digital Growth

Starting with The Gap Inc. (GPS - Free Report) , we note that it has been making constant efforts to boost digital and mobile offerings, alongside improving product acceptance. Notably, the company has increased online presence across all of its brands, and its online division is one of its most profitable, posting double-digit sales growth. Recently, the company announced plans to launch the “buy online, pick-up in-store” service, a new personalization engine that is powered by customer data, and continued significant investment in its omni-channel services. Backed by these efforts, the company has delivered positive earnings and sales surprises in the trailing four and five quarters, respectively. Additionally, the stock surged 26.6% in the past year. It carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Abercrombie & Fitch Company (ANF - Free Report) has been a prime beneficiary of the growth in digital era as it has made a significant progress in expanding digital presence, augmenting its direct-to-consumer and omni-channel capabilities. The company’s investments in mobile, omni-channel and fulfillment have significantly aided the growth of the direct-to-consumer (DTC) business, which delivered double-digit growth in both the United States and international markets in fourth-quarter fiscal 2017. Overall, the DTC business accounted for nearly 34% of net sales in the fourth quarter, recording an 18% increase in comparable sales. In fiscal 2018, the company plans to continue investing in DTC capabilities, alongside bringing innovations in this channel, using customer insights and data analytics.

Driven by these efforts, the company has delivered positive earnings surprise in three straight and a sales beat in the trailing four quarters. Further, the company’s comps improved sequentially throughout fiscal 2017. Consequently, this Zacks Rank #3 (Hold) stock has witnessed whopping 152.4% growth in the past year.

Pittsburgh, PA-based American Eagle Outfitters Inc. (AEO - Free Report) has witnessed grave recovery in its comps driven by strong growth in online sales that stems from the efficient use of omni-channel capabilities to enhance customer experience. Notably, the company’s comps have improved in the last 12 quarters and for three consecutive years now. In an effort to develop its omni-channel platform, American Eagle is not only enhancing its digital presence but also investing in its store fleet. Consequently, digital sales improved more than 20% in fourth-quarter fiscal 2017 and trends improved in brick-and-mortar stores as both AE and Aerie stores reported positive in-store comps. This was the company’s 12th straight quarter of double-digit e-commerce growth. This makes it clear that a winning marketing strategy in retail is providing the best combination of digital and physical store experiences. Further, this Zacks Rank #3 stock surged 57.2% in the past year.

Nordstrom Inc. (JWN - Free Report) seems to be enhancing market share via persistent store expansion and strengthening capabilities through further investments, particularly in digital growth. This has been significantly boosting its top-line and comps performance. This Zacks Rank #2 company continues to efficiently allocate a major portion of its capital toward its multichannel growth strategy. It also makes regular amendments to its clearance strategy in order to better manage its inventories, keep up with customer demands and provide them with a better shopping experience. Also, we believe that the price integrity initiatives undertaken by the company will help in building a healthy relationship with customers, thereby enhancing customer loyalty.

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