There are warning signals that some U.S. retailers are bracing for apparel and footwear sales to fall off sharply during the next several quarters. That would be a sign that the better-than-expected retail sales data may give way to deeper declines in the coming months.

Holiday season

The value of retail purchases climbed 0.3% after a 0.4% gain in April, Commerce Department data released June 15 showed. But the outlook for the end of this year and next looks bleaker. Some factory owners say they are starting to see big drops in retailers’ holiday orders as companies become increasingly cautious about consumers’ budgets. At least one company that works with major brands has heard about plummeting demand from retailers for merchandise it plans to sell in the spring and summer of 2024.

The drop-off in apparel orders further bolsters the view that a U.S. economic recession is increasingly likely after the Federal Reserve said it’s prepared to raise interest rates again.

The quantity of apparel imports tumbled 31% in the first four months of this year versus a year earlier, according to U.S. government trade figures.

“You can really see the anxiety in the apparel market,” said Sheng Lu, an associate professor of apparel studies at the University of Delaware.

Some of the decline is retailers slowing down their imports while they focus on whittling down the piles of merchandise they accumulated in 2022 amid supply-chain turmoil. But the decline in imports — like the drop in orders — also underscores retailers’ concerns that years of strong spending is beginning to falter as they prepare for the crucial back-to-school and holiday seasons.

Employment weakens

Overall employment in the apparel production sector in California fell 4.6% in April, steepening a drop that began in October, according to the most recent data available from S&P Global Market Intelligence. That’s relevant because California — home to Los Angeles County, the heart of apparel manufacturing in the U.S. — has about one-third of all U.S. jobs in the sector.

Dan Leahy runs retail analytics platform MakerSights, which works with some of the world’s largest apparel and footwear brands to keep inventory aligned with consumer demand. Some big retailers in North America and Europe are slashing what they plan to buy from major U.S. brands for the spring and summer 2024 season by more than 50% versus the previous year, Leahy says.

“Normally that’s up or down 5% to 10%,” Leahy said.

Some of the biggest pullback is from ecommerce retailers that are readjusting their revenue forecasts, Leahy said, after they overestimated the staying power of the surge in online sales during the pandemic.

Also, he added, “retailers are worried about how much inventory they already have relative to the demand signals they are seeing from their customers.”

Usually louder

At his knitwear factory about 20 minutes from downtown Los Angeles, Wei Wang says he can tell the apparel sector has a hard year ahead just by listening to the hum of his automatic knitting machines.

“Usually, it’s a lot louder,” he said. “We should be picking up for the fall and holiday sweater season production.”

But orders are down 30% to 40% this year versus last year.

Wei, chief executive officer of Andari Fashion Inc., recently returned from a trip to visit factories that he works with in China. Managers there told him they’ve already finished their sweater production for the upcoming holiday season. In a normal year, the Chinese factories would be busy making sweaters through September or October.

“All of our customers are placing smaller orders or delaying orders because everybody’s being more conservative,” Wei said.

His Andari Fashion factory can produce around 30,000 sweaters a month at full capacity. It works with brands including Ralph Lauren Corp. and luxury sweater company the Elder Statesman. Wei said Ralph Lauren is producing its 2024 Olympics outfits at Andari and, unlike other brands, has held orders steady.

“The factory is the leading indicator of brands’ projections,” Wei said. The brands “might be right and they might be wrong. But that’s what they’re thinking right now.”

Wei has automated the factory as much as possible in recent years, in part by installing around 90 flatbed knitting machines. As he talks, one of the machines looks like it’s printing out three separate pieces of a bright green sweater. No one has figured out how to automate the process to stitch those three panels together, though, so Wei has highly skilled sewers on staff to do that. Andari employs around 100 workers, down from around 130 pre-pandemic.

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