Amid the progression of the COVID-19 vaccine rollout and the steady reopening of the United States economy, some retailers are poised to see — and capitalize on — an influx of shoppers, armed with pent-up demand and fiscal stimulus.
According to analysts at J.P.Morgan, which hosted its annual retail roundup last week, the overarching message surrounding the retail sector is “optimism” — underpinned by a “strong” consumer and macroeconomic backdrop. (The firm’s chief economist indicated that the country could see its strongest consumer spending since the early ’80s.)
They suggested that overall spending in mid-March exceeded pre-pandemic levels in 2019 by more than 9% on average, and the inflection was fueled by an uptick in discretionary purchases.
In a distribution note, J.P.Morgan noted that it had raised the price targets of eight companies in the apparel and footwear industry: department stores Macy’s Inc. and Kohl’s Corp.; specialty retailers American Eagle Outfitters Inc., Abercrombie & Fitch Co., Gap Inc. and Urban Outfitters Inc.; as well as off-pricers Burlington Stores Inc. and Ross Stores Inc.
Hosting fireside chats and group meetings with top executives at Macy’s and Kohl’s, J.P.Morgan found that department stores continue to see strength in sportswear along with “recent sparks” in non-athletic clothing and shoe brands. Macy’s reported strength in categories such as fine jewelry and watches, luxury handbags and brands like Birkenstock, Steve Madden and Michael Kors, while Kohl’s shared it was leaning into its active mix and building on “underrepresented” offerings through Eddie Bauer and Cole Haan.
“Larger picture, management teams cited continued category leadership in athletic and home, with a more mobile consumer post-pandemic potentially expanding the total addressable-market for each category,” added the firm. “On lead indicators, management teams cited recent ‘green shoots’ in more social-driven apparel, notably dresses, non-athletic footwear, luggage and swimsuits tied to travel and leisure planning, with luxury remaining strong.”
What’s more, as the health crisis took hold, off-pricers like Burlington Stores and Ross Stores faced challenges due to a limited or even no online presence and “thrill of the hunt” experience that proved difficult to replicate online. However, according to J.P.Morgan, which harkened back to the post-recession ’09 and ’10 fiscal years, off-price chains tend to see “strong” performances following financial crises. It also suggested market share opportunities for the sub-sector, given its brick-and-mortar consolidation at a time of e-commerce acceleration and heightened consumer focus on value and convenience in the pandemic era.
As for specialty chains, J.P.Morgan pointed out an accelerated momentum in dresses as younger demographics appear to be “going out more” than Gen X and older generations. This type of consumer, explained the firm, is helping drive both store traffic and digital gains.
In addition, analysts predict back-to-school growth for Abercrombie & Fitch, American Eagle Outfitters and Gap, whose executives anticipated strength in denim and casual attires during the approach to the back-to-school season. At Urban Outfitters, on the other hand, top management suggested signs of improvement in wedding and events wear.
J.P.Morgan analysts said, “Domestically, management teams broadly cited a favorable forward catalyst path for demand, with first-quarter stimulus-fueled spending moving to second-quarter vaccination and recovery — notably among younger millennials and Gen Z — with current indicators pointing to ‘outsized’ back-to-school strength in the third quarter, noting incremental second-half 2021 government assistance or stimulus on tap.”