As shoppers buy more of their clothes online, fewer retailers stand to win

A shopper looks through clothes on her iPad device.

Source: Twenty/20

Shoppers didn't go to stores last year to buy new clothes. They stayed at home and surfed the web for sweatpants and pajama sets. And as those new purchasing habits stick, few apparel retailers stand to gain market share, leading to continued store closures and bankruptcies.

Sales of apparel and footwear online increased 27.2% to $121.5 billion in 2020, according to an analysis released Thursday by Coresight Research. As that happened, the total market for clothes and shoes in the U.S. shrank roughly 12.1%, it said using Euromonitor estimates, as Americans have been purchasing fewer items for their wardrobes during the Covid pandemic.

Coresight expects online apparel and footwear sales to either remain flat or grow low-single digits in 2021, as the total apparel market rebounds slightly, climbing around 7%. Growth will be fueled, in part, by people returning to stores, albeit not at pre-crisis levels. Coresight Chief Executive Deborah Weinswig said she expects many consumers are going to keep their new online shopping habits.

Coresight is calling for mid-single-digit growth online for the apparel category in 2022 and 2023.

Online sales of apparel and footwear accounted for 37.4% of total spending in the category last year, versus a little more than a quarter of it in 2019, according to Euromonitor.

Coresight cautioned its outlook "remains highly uncertain, with the still-serious health crisis set to be counterbalanced by the rollout of vaccines, and with considerable uncertainty around the retention of recent consumer habits."

"We assume that the health crisis will moderate through 2021, and that any return to more regular ways of living, working and spending will occur predominantly in the second half of the year and into 2022," Weinswig said.

A quick response

A number of apparel retailers already do more than 30% of their business online, including American Eagle Outfitters, Foot Locker, Gap and Nike, while Dick's Sporting Goods, Levi's and VF Corp. are closely below that threshold, Coresight said.

American Eagle made quick investments in its online business during the early days of the pandemic to respond to surging sales, said Taryn Racin, manager of store communications for American Eagle, during a virtual presentation Wednesday at the National Retail Federation's annual Big Show.

"We fast-tracked our buy online, ship from store, and our curbside platforms, to make sure we could meet the needs of our customer ... and using our stores as little mini-distribution centers," she said. "And that will continue."

The department store chain Nordstrom said Wednesday when it reported holiday sales that its digital business during the nine-week period ended Jan. 3 represented 54% of total sales, compared with 34% a year ago. Overall, its net sales during the holidays dropped 22% from 2019 levels, while its digital sales rose 23%.

Apparel brands on the brink

The apparel retailers that haven't been able to keep up online are often the ones that struggle the most. In 2020, more than three dozen retailers filed for bankruptcy, including a number of apparel brands: True Religion, Ann Taylor parent Ascena Retail Group, Tailored Brands and New York & Co. parent RTW Retailwinds.

Christopher & Banks, a Minneapolis-based clothing chain that caters to women over 40, announced Thursday it filed for Chapter 11 bankruptcy and is planning to close a large portion, if not all, of its stores.

Another apparel name found more luck this week. Express said Thursday it's entered into a definitive loan agreement with the private-equity firm Sycamore Partners, along with Wells Fargo and Bank of America Merrill Lynch, to bolster its liquidity by $140 million, to help it through the pandemic. The company, which caters to men and women looking for work wear, has struggled to connect with customers over the past year. During its fiscal third quarter, net sales fell 34% year over year, to $322 million.

— CNBC's Nate Rattner contributed to this data visualization.

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