After a two-year slump, big US clothing and footwear brands look set to rebound

Moody’s predicts a good 12 to 18 months ahead for many big US brands, including Ralph Lauren.
Moody’s predicts a good 12 to 18 months ahead for many big US brands, including Ralph Lauren.
Image: AP Photo/Mark Lennihan
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The past two years have been rough for a number of big US clothing and footwear brands. Many have regularly struggled to sell the inventory they’ve made, and have fallen back on heavy and endless discounts—sinking their profits. They’ve had to contend with a string of bankruptcies among some of their largest retail partners, along with high-profile store shutterings. Shoppers, meanwhile, are spending less of their money on clothes, and seem to only want to buy on sale.

But there are indications that better times lie ahead, according to a new report from Moody’s, an investor service and research firm. The analysis is based on 26 US brands that together comprise a significant share of the US clothing and footwear industry, including Nike, Levi’s, Hanes, Ralph Lauren, Under Armour, Wolverine, and PVH Corp., the parent company of Calvin Klein and Tommy Hilfiger.

Some of these brands have fared better than others in the last couple years, but Moody’s estimates that their profits collectively declined -3.2% and -2.4% in 2016 and 2017, respectively. In 2018, however, it projects that profits to grow 3%-5%, and over the next year to 18 months, to rise 4%-6%.

The reasons for the rebound are varied. First, brands are finally starting to get their inventories under control, which means less need for markdowns. At the same time, returns from investment in direct-to-consumer (DTC) and international sales are starting starting to roll in. A weakening US dollar is making these companies’ products more affordable overseas, new products and innovations are set to hit the marketplace, and the retail situation overall overall is improving.

To be clear, Moody’s still describes retail’s outlook as just “stable.” While it’s an improvement over the last two years, the grade still falls slightly below previous expectations. Moody’s also believes the reliance on discounts won’t fully disappear since competition for market share remains tough—and that many brands will reinvest their profits to fuel growth.

Much of that reinvestment will be in international and DTC sales, which are only growing in importance. Moody’s notes, for instance, that DTC sales—both online and in brick-and-mortar stores—give brands more control of their all-important branding and the shopping experience. And as it points out about overseas business: ”Emerging markets, and China in particular, will continue to be a source of growth not only because greater economic expansion helps fuel branded apparel purchases, but also US brands remain relatively underpenetrated, leaving significant ‘white space’ for growth,” Moody’s notes.

Nike is a key example of these trends. While it has been dinged by falling sales in North America and the high US dollar, it has looked to growth of its overseas sales, especially in China, and its thriving DTC business to keep its business strong.

Moody’s cautions that its outlook could change. The forecast could turn negative, for instance, if the US puts tariffs on Chinese imports, or if there’s a spike in the cost of cotton or value of the US dollar. But it could also swing more positive if conditions keep improving and companies find they’re able to continue raising prices.