When Numbers Don't Tell the Truth About Apparel Retail Sales

Last Updated Nov 19, 2010 6:42 PM EST

When do the numbers lie? When a customer preference survey ranks apparel retailers and the top-rated aren't quite showing their stuff on the balance sheet. Indeed, a study conducted by LE.K. Consulting showed H&M, Victoria's Secret (LTD), Old Navy (GPS), Ann Taylor Loft (ATL) and Limited were the top five. And only Limited, which owns Victoria's Secret, could claim significant gains in net sales and comps.

To be fair, L.E.K's Retailer Preference Index is designed to "help retailers gauge who their nearest competitors are, based on consumer preferences." I'd wager they already know who's nipping at their heels. However, what the retailers' management teams might take away from such a study is what's resonating with customers.

Take Gap, for example. Owner of its namesake stores in addition to Old Navy and Banana Republic, each of the retailer's brands have been struggling this year. So while Old Navy may have snagged the coveted third place in the survey, the low-priced chain's third quarter sales dropped 2 percent versus a 10 percent increase last year. This may mean that Old Navy is coasting on laurels earned when recessionistas were shopping for bargain basics. But now that consumer confidence is rising (albeit slowly), Old Navy can't afford to stay idle.

To continue luring cost-conscious customers and appealing to new ones, its management team must up the ante and turn out high style at lower prices. The (perennial) problem with Old Navy is that much of its assortment is poorly crafted of inexpensive materials. Competitors Forever 21 and H&M have mastered the art of sourcing quality fabrics and manufacturing. That makes a $20 skirt look just as good as one found in a better department store.

The namesake Gap chain was ranked lower. It's not surprising as Gap continues its fight to regain lost cachet, running a series of initiatives to draw customers and get back to its roots shilling simple, stylish basics. In particular, Gap invested heavily in its Premium Denim campaign, dropping a pile of dough in traditional advertising as well as social media, a documentary, a new design office, etc. The result of a "very promotional third quarter" was a hit to gross margin. Comps were flat and earnings were down, too.

But that's not reason for discouragement. Gap still landed in the top 10 which means consumers still value the brand. By consistently churning out cool threads at reasonable prices, it won't be long before it can gain ground â€" and profits.

Ditto for Ann Taylor (ranked 16) and its daughter, Ann Taylor Loft. Loft is riding high appealing to a younger customer, while mother Ann attempts to regain relevance among career women over 30. The problem is that Ann Taylor is trying too hard to look like more successful brands (think J. Crew). Loft too, suffers from copy-cat syndrome but because both chain's garments are generally priced lower than J. Crew's -- and there are plenty of discount promotions -- Ann Taylor reported sales gains in the third quarter. (Those promotions nipped the gross margin slightly.)

WWD reported that Andrew Rees, vice-president and head of both the North American retail and consumer products practices at L.E.K. said Ann Taylor Loft is in a position to take market share, but Ann Taylor is not. I'd argue they're both in good shape. Now their designers just need to stop following the trends and start setting them.

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