The Apparel Industry

The author considers the apparel industry, acknowledging that it has certain idiosyncrasies, but also because it has a number of characteristics that are common, though less immediately evident, in other lines of goods: competition is high, consumer tastes are fickle, the merchandise has a significant mark-up, merchandise has seasonal appeal, etc.

The degree to which these factors impact sales in this particular industry is dramatic and illustrative - and as such, the actions and consequences are more readily observable in this particular industry.

Many Types Of Apparel Businesses

The apparel business includes a long distribution chain from the makers (or even growers) of materials, through middlemen, to the retailers who purchase the final product. Even among retailers, there are significant varieties from those that sell an article for a few dollars (Wal-Mart) to others that sell essentially the same items for thousands of dollars (high-end boutiques in New York, Paris, and Milan).

To that end, the author will focus largely on mass merchandisers (department stores and the brands they stock) to avoid the extremes of cheap/expensive clothing, and to consider retailers for whom clothing is their primary product line.

The author also mentions the category killers in the apparel industry, which cover both the low-end for price-conscious shoppers (Dress Barn) and mid-range for quality-conscious shoppers (Victoria's Secret). He notes that these types of stores are becoming more prevalent because they require less space and can easily fit into small footprints in shopping malls and strip stores.

Mass merchandisers generally do a lower volume business of items with a high markup. For example, a grocer typically sells most goods such as paper towels at a 2-4% margin whereas a department store sells goods such as blue jeans at a 50-60% markup. This gives them a great deal of flexibility in sales promotion and discounting - though his can be treacherous as a retailer who sells too much inventory at too low a margin will have difficulty covering its overhead. As such, analytics are critical to success.

Retailer Location and Building

Issues or real estate are significant to retailers. Location is known to be of primary importance, in terms of proximity to buyers and to other merchants to create a combined attraction of goods. Many department stores do better business when they are attached as an "anchor" to shopping malls than they do when they are built as stand-alone operations in commercial districts.

Anchor locations at malls are generally taken by major departments stores such as JC Penney, Dillard's, and Macy's. These stores draw customers to the shopping mall, but also benefit from increased traffic by this location. Smaller merchants, such as Kohl's, Fashion Bug, and the like often serve as the anchor for strip malls.

Many smaller retailers benefit from location in malls and strip centers, drawing traffic from customers that primarily visit the anchor stores as well as creating collective attraction for specialty goods.

Specialty clothing merchandisers also benefit from this arrangement: a brand that has a small target market, such as Eddie Bauer (young middle-class men) or Sixteen-Plus (middle-aged female office workers) have brisker sales when located in a shopping mall. It's also noted that these stores have a heavy presence in Internet retailing.

Aside of the location of a store, the physical aspects of the building also have a strong influence on sales: a store that has a larger footprint can stock more merchandise; a store that has multiple entrances is more convenient for shoppers and draws a lot of pass-through traffic in mall locations.

Who Is My Customer?

Because of increased size and mobility of customers over the past several decades, many retailers are becoming specialized to specific demographics - instead of one "general" store in a town that serves people from all walks of life, there are many specialty stores that serve specific groups in a wider region.

The author notes that youth markets drive the apparel business heavily, but does not explain the factors that make this so, except as a passing mention that youth have more disposable income and more input into the buying decision now than in previous generations.

The author then does something of a messy rephrase of generational marketing - Boomers, Generation X, Generation Y, Internet Generation, and Innovators. (EN: It might be interesting for retailers, who need to more tightly define age groups, but my sense is that Cam Marsten's analysis is a bit less random and more well-though-out, so I'm omitting the author's take from my notes.)

(EN: Also worth noting is that, aside of generational differences, the author doesn't consider the other factors such as location, income, etc. that are highly influential in determining the tastes and habits of customers, particularly in the apparel industry. My sense is that this is too broad a topic for the present book, but failing to mention them at all seems omissive.)

Evolution Of A Brand

The apparel industry is subject to the momentary wiles of fashion, but more predictably by the changes in tastes over time, which can have dramatic effects.

The author Considers Levi's blue jeans, which were originally created in 1873 as work pants, and later became a fashionable item for the middle-class, and later appealed to the international market as an American fashion. In the present day, people of all age and income groups the world over wear blue jeans, and there are now more than fifty brands.

Of particular interest is that there are premium jeans that can cost upwards of $500 to $900 per pair, whereas the standard Levis retails for about $30. A great deal of market analysis is necessary to launch a new brand of jeans, or ensure that an existing brand remains appealing to its target market.

The author mentions the NPD group (National Purchase Diary) as the leading firm in apparel in North American markets. Leveraging their data, and cross-referencing it against that of other companies (Spectra Marketing, Nielsen, MRU, etc.) is essential to determining how many consumers or dollars are available to be spent on a merchandise class and how many suppliers are currently vying for it, given specific target market definitions.

Risks of Diversification

Diversification is a double-edged sword in apparel retailing: firms seek to attract a broader range of customers by offering a broader range of merchandise. This can be successful, but damaging to the brand: if a high-end apparel retailer also stocks low-end merchandise to capture more customers, it loses the prestige value of its brand for the high-end customer and may, in time, evolve from a prestige boutique into a discount chain.

A common method of mitigating this risk is to establish different brands. Manufacturers will use different clothing brands to separate its prestige lines from discount lines. Some retailers leverage the same stratagem: Old Navy (low cost) and The Gap (prestige) are operated by the same parent company

Another method is geographic diversification: a store that serves a given area carries products that are appealing to customers who live in that area, such that a store in one town has different merchandise than a store in another - or a store on one side of town offers different merchandise than a store on another.

(EN: My sense is that this latter tactic is becoming more questionable. Especially because of the Internet, as well as a more mobile population in general, consumers expect to find the same items in each brick-and-mortar store and on the Internet. The cross-town differentiation has been especially thorny, in that consumers and the media suggest that tailoring merchandise selection to a location is discriminatory - the same store on the shabby side of town offers low-quality merchandise because it is bigoted against the economic class or ethnicity of the people who live in one area versus another.)

Idiosyncrasies of Apparel Analytics

The apparel industry is highly idiosyncratic, and ignoring some of its peculiarities can have a detrimental effect on analysis.

Seasonality and Fashion

Primarily, fashion is fickle. The tastes of consumers can change dramatically and in large numbers, seemingly at a whim. This factor has been a constant plague on retailers, who must often place orders with manufacturers a year or more in advance and accumulate inventory to be sold later.

Aside of consumer taste and preferences, apparel is seasonal: fashion lines are generally created for the climate, which changes through the seasons, and which changes at different times for different parts of the country. There is little demand for winter coats, ever, in Florida; a shortened season of demand in southern states; and a long season of demand in northern states. An unusually long winter can be disastrous to a retailer who has not predicted the pattern - they will not have enough cold-weather clothing and too much spring clothing for a given calendar year.

Also due to seasonality, merchandise is regularly turned. Inventory that is not sold in the first few months of a season is marked down to liquidate it before the season's end. The markdowns can be dramatic, 50% to 75% and more, even selling merchandise at a loss to dispose of it. Aside of the cost of storing inventory, there will not be much demand in the next year for "last year's fashions."

There are also smaller, but dramatic, events within seasons. Apparel sold for specific holidays (such as Christmas or Easter) or seasonal events (high school proms) has a very short season, with demand dropping to practically nothing the day after the event.

There's also a passing mention of international retailers, who do business in both hemispheres. Australia's seasons are opposite those of Britain, and a retailer with outlets in both nations must accommodate.

As such, analytics must consider the seasonal and geographic impact in order to produce accurate and useful results. The timing of initiatives must be coordinated with fluctuations in demand based on seasonality. And given the long lead time, the analytics that inform buying decisions made a year in advance are highly treacherous: one small mistake can be very costly. "Analytics is not for the weak of heart."

There is a counterpoint: certain apparel products are staple goods that do not vary much with the season: consider items such as the standard dress shirt, which is in demand year-round. To some degree, t-shirts, underwear, athletic socks, and hosiery are the same. These will be exempted from seasonal adjustments.

Merchandise Placement and Presentation

The location of merchandise within a store will also influence consumer buying behavior, and the effect in apparel is much greater than in other industries.

The same item, if placed on a multi-tier rack facing an aisle, will move more quickly than if it is on a shelf or spinner racks that is not readily visible. If an item is included in a display with other items (suggesting that a set of items are intended to be worn together), it will benefit from the collective pull of the other items. Items modeled on mannequins or displayed in shop windows will also sell more briskly.

Merchandising can have an effect on sales in any retail environment - but for apparel, the effect is far more dramatic.

Accessories and Next Best Offers

Accessories (scarves, belts, purses, shoes, etc.) are often high-margin cross-sell items for which clerks are often offered a financial bonus or commission. Understanding how customers are motivated to purchase accessories can be a huge money-maker for apparel - whereas in other industries, accessories are often an afterthought that are offered to accommodate the customers needs. Determining customer motivations for accessories is an excellent target for analytics, in that it is difficult to assess from mere observation.

The idea of accessories can also be broadened to "next best offers." In a specific sense, an accessory might be an item purchased because it "goes with" an item that has been purchased and is purchased immediately: a man buys a necktie that goes with a shirt. A next-best offer may be an unrelated item (the dress-shirt buyer then buys a casual shirt) or service (the buyer considers getting a store credit card). This can also be informed by analytics.

One example is an observation of purchase cycles: by examining basket data, the author discovered that women who purchase fashion jeans would often purchase jewelry at a later visit, most often a week afterward. Leveraging that data, the firm adjusted performance - suggestive selling by store clerks and a mailing jewelry advertisements to rewards program shoppers immediately upon he purchase of fashion jeans. He does not present the specific results, but states the offers were "very appealing" to customers.

He also suggests, in a general sense, that marketing accessories and next-best products is important for capturing share-of-wallet. Customers may discover their ancillary needs after making a purchase, and if you are not proactive in making suggestions, you increase the risk they will buy these items from your competitor.


Events such as sales and promotions are critical to apparel retailers, to the degree that they are considered their "life blood."

Disambiguation: a markdown is a price reduction to move merchandise, generally to liquidate items that are not selling, and often without any form of advertising or messaging to the customer. A promotion may involve a price reduction, but it is done to stimulate sales of primary items, generally earlier in the season, and is generally accompanied by customer communications.

In addition to sales events, retailers do periodic advertising and send out circulars and catalogs to advertise merchandise. These latter forms often increase sales without discounting prices.

There's also the use of a sale to draw customers into a store, such that the sales of all products, not just the ones advertised, are listed. A retailer who has just received and stocked his spring inventory may advertise a close-out sale on winter merchandise and find that the sale of his spring lines are increased - even to the degree that the increased revenue from the markup on the new lines covers a loss taken on the liquidation of the leftover merchandise.

Impulse Buying

The definition of an impulse buy is fairly general: it applies to the purchase of any item the customer did not intend to buy when they walked into a store. The volume of items sold due to impulse buying can be significant, and even contribute more to revenue than to the planned purchases. This holds true across all types of retailing.

The most obvious venue for impulse marketing is the checkout display, but impulse items are also interspersed with regular inventory throughout a store: free-standing displays, shelf hangers, end caps, and other locations within a store offer impulse items. That is, any merchandise that is placed in a special location, rather than a regular slot on the shelves, is being positioned for impulse sales.

Market basket data is the primary key to identifying impulse buying. Fundamentally, it analyzes the purchases of some customers who intentionally purchased items to identify those that might be appealing to less thoughtful or deliberate customers.

A few examples:

The author notes that manufacturers often have to offer additional funding to retailers to get the to adopt some of the more unusual ideas - but once retailers notice the increase in their own revenue, they are less reluctant to such suggestions.