Tractor Supply Co.
might not seem like the coolest places to sell apparel, but brands can’t afford to be picky these days.
is the latest to embrace them: The denim brand plans to expand its presence to 500 from 140 Target stores by next fall. Levi’s had been selling its lower-priced brand Denizen at Target for almost a decade, but began selling its more expensive main label at the big-box retailer last year and is happy with the results. It is also launching a separate partnership with
Dick’s Sporting Goods,
another relative retail winner during the pandemic.
These partnerships come as department-store sales remain depressed. In the most recent reported quarter,
saw sales decline by 36% and 52%, respectively, compared with a year earlier.
At the same time, mass merchants have been winning more apparel business. Apparel and accessories sales jumped 11.7% at Target in the quarter ended Aug. 1 compared with a year ago, while Walmart-owned Sam’s Club saw its home and apparel revenue grow 10.8% in the same period. Even Tractor Supply Co. saw double-digit percentage growth in apparel. That is also good for the mass merchants because apparel falls into one of their higher-margin categories.
Steve Madden is another brand that gave a shout-out to big-box retailers in its latest earnings call, saying that those vendors would be its “growth customers” in 2021. Walmart and Target already accounted for 31.5% of Steve Madden’s accounts receivable last year, and the apparel brand said in a late July earnings call that sell-through rates at those wholesalers had returned to pre-pandemic levels.
For apparel companies losing business at traditional department stores, jumping on the bandwagon of relative foot-traffic winners such as Walmart and Target seems like an obvious solution. Yet many remain hesitant to make that switch because they are afraid of brand dilution, notes Paul Lejuez, analyst at Citigroup.
That stance will get tougher the longer sales remain muted. Some brands prefer to sell to off-price retailers instead, but those sales come with low margins. Levi’s experience with Target shows that it is possible to sell full-priced items at big-box retailers, contrary to the assumption that mass merchants could sell only budget apparel. The brand said on last week’s earnings call that the average price of a unit sold at Target was higher than the rest of its wholesale selling channel. Moreover, Levi’s products didn’t cannibalize the brand’s own longstanding budget line Denizen at Target.
“These are two different consumers,” Levi’s chief executive said.
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It is possible that those full-price apparel consumers are now picking clothes up at mass merchants to consolidate their shopping trips. As long as the pandemic persists, which could be a while, consumers will continue to prefer retail locations that sell necessities over those that sell only discretionary items. Department stores already were losing foot traffic to big-box retailers before Covid-19. It isn’t difficult to imagine a post-pandemic world in which people become accustomed to picking up fashionable T-shirts and jeans alongside groceries.
Shifting more sales to big-box retail seems very doable for brands that have obvious price tiers within their product lines. Levi’s breaks down its selection to “good, better, best,” with its most expensive products being reserved for its mainline stores. The shift could be even easier for brands that sell more basic, less fashionable items, says Simeon Siegel, analyst at BMO Capital Markets.
is one example; Walmart and Target are its two largest customers.
As Mr. Siegel notes, brands are always walking the “tightrope of staying cool while also trying to become ubiquitous.” If the quintessential denim brand shows that it can do it, plenty of others could follow suit.
Write to Jinjoo Lee at [email protected]
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