Clothing Chains to Spend $35 Billion in U.S. Growth Bet: Retail

June 7 (Bloomberg) -- Bloomberg's Sheila Dharmarajan reports that retailers are spending big on store improvements to accentuate the shopping experience in an effort to boost sales. She speaks on Bloomberg Television's "In The Loop." (Source: Bloomberg)

For all the concern that the U.S. economy may be slowing, retailers from Express Inc. (EXPR) to Finish Line Inc. (FINL) are poised to spend the most on capital improvements since the recession.

Having focused on growing online and internationally in recent years, U.S. retailers are accentuating the shopping experience in an effort to boost sales amid increasing online competition. With consumer spending on the rise, the industry will boost capital spending to $35 billion this year, compared with $29 billion in 2009, according to Fitch Ratings.

“We think the consumer is getting more confidence, and with that, the stores are getting more confident to expand,” said Laura Pomerantz, founder of commercial real estate advisory firm PBS Real Estate LLC in New York. “Stores have to be entertainment, they have to be service-oriented, which has clearly become very, very important to the consumer.”

Now that they are opening fewer stores in the U.S., retailers are trying to extract more dollars from each one. Store designers are striking a balance: making stores more Weblike, with mobile check-outs and kiosks, while turning them into hangouts, where shoppers can experience a retailer’s brand in ways they can’t online. They are also finding ways to add merchandise without making stores seem cluttered.

Photographer: Jin Lee/Bloomberg

A woman holds an Abercrombie & Fitch Co. shopping bag in New York. Close

A woman holds an Abercrombie & Fitch Co. shopping bag in New York.

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Photographer: Jin Lee/Bloomberg

A woman holds an Abercrombie & Fitch Co. shopping bag in New York.

The splurge on stores is lifting design and architecture firms, as well as the suppliers of lighting fixtures, flooring and signage, which lost business after the worst recession since the Great Depression stifled consumer spending. Retailers spent at least $13.4 billion on interiors last year, according to the non-profit Association for Retail Environments.

Consumer Confidence

While U.S. stocks suffered the worst decline since September and last month’s gauges of consumer confidence showed mixed results, the more than 20 chains tracked by researcher Retail Metrics LLC have reported average same-store sales increases every month starting in September 2009. And though Express shares slid 6.4 percent this year, the Columbus, Ohio- based chain is refurbishing 100 of its more than 600 shops in the next three years.

Before the recession, retailers typically asked for “tweaks” to their store prototype, and now they’re asking for advice on how to create the “store of the future,” said Lee Peterson, executive vice president of creative services for WD Partners in Columbus, Ohio, a design and architecture company that has worked with the likes of New Balance Athletic Shoe Inc. and Abercrombie & Fitch Co. (ANF)

“There’s definitely more capital in the marketplace,” he said. “I think everybody is fairly cautious, but less cautious so far this year than last year, and I’m knocking on wood, a hell of a lot more aggressive than two years ago.”

Wonderwall Design

Express, hired Wonderwall, the Japanese design firm that planned the interior of Fast Retailing Co.’s Uniqlo flagship in Manhattan, to create a new prototype last year. Wonderwall understood how to add more merchandise to the floor without crowding the space and the need to organize by style, adding sophisticated lighting and attractive shelving, said Michael Weiss, chief executive officer of the apparel company.

“We really believe it gives the consumer a more elegant shopping experience, a more upscale shopping experience, much more aspirational,” he said in an interview at the company’s New York office last month. By organizing the merchandise by lifestyle -- wear-to-work, going out, jeans-wear and casual -- customers often buy whole outfits versus a single item, driving a measurable increase in sales, he said.

Customer Experience

Opening new stores and renovating existing locations will help drive a jump in capital expenditures to as much as $108 million this year from $77.2 million in the similar period ended Jan. 28, the company said in its May earnings call.

“People are understanding that you’ve got to entice the customer with the experience, and the experience is a whole lot of things,” Weiss said.

Athletic-wear retailer Finish Line is testing a prototype that boosts collaboration with such brands as Adidas and Nike, and plans to have mobile registers in all its stores this year.

The Indianapolis, Indiana-based retailer may boost capital expenditures to $85 million from $29 million in its most recent fiscal year, as it refreshes and remodels stores, opens 25 new stores, tests its new store prototype and adds point-of-sale technology, according to a March 30 earnings call.

Complete Message

“We have received more requests recently to participate in projects where we are not only redesigning a retail space, but rebranding or redefining the brand image itself to create a more complete message for the consumer,” Masamichi Katayama, principal of Japan’s Wonderwall said in an e-mail.

Aeropostale Inc. (ARO), the New York-based teen retailer, is in the early stages of redesigning its more than 1,000 stores.

“Our key focus is designing a store that is innovative, fun and inviting, while providing an environment that the kids want to hang out in and stay a while,” Kenneth Ohashi, a company spokesman, said in an e-mail.

With higher expectations and capital expenditures still measured compared to before the recession, retailers want more statistical evidence on what works and what doesn’t in terms of prototypes, said Irwin Miller, a Los Angeles-based director at design and architecture firm Gensler.

They’re also better informed about what their consumer wants based on sharing across social networks like Pinterest, Facebook and Instagram, he said.

“What really good retailers around the world are now looking at is how do they create a unique experience in the physical store that gets people come in and want to participate in that,” said Wendy Liebmann, chief executive officer of WSL Strategic Retail in New York. “There are so many reasons for people not to come or not to come as often. It becomes really important to create more compelling and easier to shop environments that people feel is theirs, their store.”

To contact the reporter on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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