Higher Traffic and Lower Markdowns Fuel More Optimism for Back Half, Analysts Say

Following a wave of strong retail earnings, the pent-up demand for fashion is fueling more optimism, according to two new reports.

Retailers are poised to see a “robust rebound” in sales in the second half of 2021 — driven by less markdown activity and a jump in shopper traffic, analysts from Cowen Research said in a report released Monday. 

At around 30%, markdowns are trending better than the 40-50% seen a year ago. In athletic footwear specifically, promotions are at 19% compared with 23% a year ago, the report said.

And while inventory is down over the past six to nine months, the analysts noted this could be “a risk factor” if there is ongoing demand for retail goods.

We are constructive on the sector as demand is coming back strong. Apparel should continue to rebound, and shoppers are healthy,” the analysts wrote. “There has been an encouraging significant decline in the amount of promos across all categories.”

Traffic expectations play a large role in the sales forecast, too, driven in part by sales in the home category. “Late spring, we saw mall stores significantly underperforming street stores. That trend has reversed and over the past three months mall traffic has outperformed non-mall traffic,” the analysts wrote.

These sales expectations come even despite increases in footwear prices being handed down to consumers.

The forecast for the important back-to-school shopping period is also looking positive. Mastercard SpendingPulse said last week that consumer back-to-school sales are expected to rise 5.5% from July 15 to September 6 from in-store and online sales. When compared with 2019, sales are seen rising 6.7%. Expectations exclude automotive and gas sales.

“This year, the broader reopening brings an exciting wave of optimism as children prepare for another school year, and the grown-ups in their lives approach a similar ‘return to office’ scenario,” said Steve Sadove, senior advisor for Mastercard and former CEO and chairman of Saks Inc., in a June 10 statement. “This back-to-school season will be defined by choice as online sales remain robust, brick and mortar browsing regains momentum and strong promotions help retailers compete for shoppers’ wallets.”

Notably, e-commerce sales are seen declining 6.6% compared with 2020 levels but should jump 53.2% versus 2019, Mastercard said.

The apparel category is expected to see a 78.2% rise in sales, while department stores sales are expected to increase 25.3%. “Buy online, pick-up in store as well as technologies such as contactless will remain important as consumers continue to seek low-contact experiences,” the report said.

The Cowen analysts also noted that the child tax credits rolling out in July from the government coincide well with the b-t-s and back-to-college shopping period. “As a retailer, it is important to get that product out there and make sure it is at the right place because schools across the nation will most likely be opening,” the analysts said.

Kohl’s is one department store the analysts expect to take advantage of this spending rebound driven in part by its rollout of Sephora at 200 stores and online. 

The Cowen analysts cautioned, however, that going into 2022, retailers will likely need to reset expectations around promotions and pricing. According to the analyst team, next year, “consumers may not be as ready to spend.”

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