California Apparel News

In the last year, gas prices in California have fallen 26 percent and the state’s unemployment rate has shrunk 1.3 percent, but skittish shoppers are still acting like there is a recession.

Retail sales in the United States dropped for three consecutive months until March, when shoppers helped nudge sales up 0.9 percent from February and 1.3 percent from last year, the U.S. Commerce Department reported.

That is a big improvement from when retail sales decreased 0.6 percent in February, declined 0.8 percent in January and dipped 0.9 percent in December.

“I think retailers are finding ongoing challenges, and consumers are looking for value and price,” said Jack Kleinhenz, chief economist for the National Retail Federation. “We have been seeing some very competitive pricing.”

That was clearly evident when Gap Inc. reported its same-store-sales results for March. The mid-tier Gap stores saw same-store sales off by 7 percent. The more career-oriented Banana Republic experienced a 3 percent decline while the value-oriented Old Navy retail chain saw same-store sales mushroom 14 percent.

Retailers are wondering where the consumers are hiding because all indicators point to an economy that is marching steadily forward. The U.S. gross domestic product is predicted to rise 3 percent this year compared with 2.4 percent last year. Gas prices should remain low for the next few years, and the unemployment rate keeps dropping.

But economists observed that wages still are not on par with pre-recession levels, and consumers are paying more money in rising fees, taxes and other expenditures.

“A long trend in place is that consumers have less income to be spending. A lot of that job creation we are seeing is part-time work, temporary work or low-wage hiring and hasn’t translated into upward pressure on wages,” said Lindsey Piegza, chief economist for the financial-services firm Sterne Agee.

Piegza added that in 2014, a four-person family was spending on average $3,000 more a year on health-insurance premiums while at the same time paying down debt and boosting savings accounts. That translates into people either shopping less or cutting their clothing budget. “We do see more of a shift in activity to more discounted offerings and more price-conscious shoppers,” the Sterne Agee economist said.

Missing merchandise

Retailers have been battling on another front. Since last September, many stores saw their merchandise sitting on cargo-container ships anchored off the breakwater of the Port of Los Angeles and the Port of Long Beach while the ports resolved a shortage of chassis and the International Longshore and Warehouse Union members negotiated a new five-year contract.

Work slowdowns at the port contributed to as many as 28 cargo-container vessels stuck at anchor in February while they waited for a vacant berth. After a tentative labor contract was reached Feb. 20, the congestion eased up but has not disappeared completely. As of April 15, there were four cargo containers still anchored beyond the breakwater at the Los Angeles/Long Beach port complex.

Major retailers have complained that their spring selling season was dampened by a lack of merchandise. “We think the longshoreman [issue] had a significant impact on retailers,” said the NRF’s Kleinhenz. “They couldn’t get product in time, especially spring merchandise. We are already beginning the summer season.”

Getting the right product mix is essential for going forward. Retail analyst Britt Beemer, who surveys 1,200 consumers weekly, said having the right merchandise mix is key.

Levi Strauss & Co. is redoing its selection of women’s merchandise, which will debut in stores in late July to early August. In a first-quarter earnings call on April 14 with analysts, Levi’s President and Chief Executive Chip Bergh said the company’s ability to execute this new women’s relaunch will have a “strong determining factor on how our women’s [category] performs for the full year.” Womenswear accounts for 25 percent of the San Francisco company’s overall sales.

Executives at the company would not detail how the new women’s merchandise would be different from the old merchandise, noting they will raise the curtain on that new look in July.

Bergh admitted the company recently missed a few trends, such as brightly colored denim pants, but he noted the company is in sync with the distressed denim look and the boyfriend jean.

Levi’s first-quarter earnings saw revenues shrink 7 percent to $1 billion from $1.13 billion during the same period last year, and net income declined 23 percent in the most recent quarter to $38 million from $50 million last year. However, there was a shift in the company’s financial calendar year with the first quarter of 2015 ending on March 1, which did not include Black Friday, compared with last year, when the first quarter ended on Feb. 23.

Also, currency fluctuations and the strong dollar meant that net revenues from Europe were off by $46 million in the first quarter. “It’s still a tough environment out there,” Bergh said.

California’s growing economy

Economic indicators for California portend a strong year of growth. The state has seen a 3.1 percent growth in jobs in the last year compared with the nation’s 2.4 percent increase in employment. “Just about every segment in the state added jobs,’ said Robert Kleinhenz, the chief economist for the Los Angeles County Economic Development Corp. (and the brother of economist Jack Kleinhenz).

In February, California’s unemployment rate hit 6.7 percent, down from 8 percent during the same month last year. “We are finally at the point where we have gone past the point of calling this a recovery,” Robert Kleinhenz said. “Last June we shifted from recovery to expansion,”

Job growth was most active in the areas of leisure and hospitality, which includes restaurants, hotels and bars; scientific and technical services, which includes lawyers, architects, accountants and engineers; and healthcare and social assistance.

The UCLA Anderson Forecast, released in March, calls for continued steady gains in California’s employment numbers through 2017 with the unemployment rate hovering around 6.5 percent this year, averaging 5.5 percent in 2016 and dipping to 5.1 percent in 2017.