California Apparel News

With earnings season upon us, several retail and apparel companies are reporting year-end and quarterly results that tell a happy story.

Levi Strauss & Co. in San Francisco recently said its first-quarter profits in 2013 more than doubled, hitting $107 million, compared with $49 million for the first quarter of 2012.

Gap Inc., another big San Francisco–based company, turned a major retail corner. In 2012, its same-store sales for all its major store brands—Gap, Old Navy and Banana Republic—and online sales were up 5 percent, compared with being down 4 percent in 2011. Net sales for 2012 hit $15.7 billion, up from $14.5 billion in 2011. Retailers and manufacturers may have rejiggered their formula for success, but they have done so by working harder and smarter and figuring out how to attract consumers into their stores. Big sales have played an important part.

“We saw this incredible surge on Presidents Day weekend because 91 percent of consumers now believe holiday weekend sales are the best sales of the year,” said Britt Beemer, a retail analyst and chairman of America’s Research Group, which every week polls 1,000 consumers on their shopping habits and economic mood. “You are seeing these huge peaks, and then it subsides. Today you have more consumers than ever looking for deals. Seventy-six percent of the consumers we talked to said they were more deal-oriented than last year.”

That’s because Beemer sees that the average consumer is very concerned about money. “In the 34 years I have been doing research, I have never seen more consumers worried about everything,” he noted.

In a recent survey, Beemer asked couples what they talk about in the evening after their children go to bed. Five years ago, the No. 1 topic of conversation among parents was about what they were going to buy next. Today, the No. 1 topic of conversation is how to pay for a child’s college education. Beemer noted that in the past, 40 percent of children’s college education was paid by their parents’ equity in their home. But in many areas across the United States, home values are way below their 2007 peak.

“You have to look at the fact that 81 percent of those surveyed said they were cutting back on movies or casual dining. You had 56 percent who said they have cut back on cable or Internet services to lower price points, and then you have 48 percent of consumers who say they have moved away from name brands to store brands,” the retail analyst said. “But then there are the 17 percent of consumers who don’t feel concerned at all about the economy and are spending pretty freely.” Consumer spending is a hot topic because it contributes to 70 percent of the United States’ economic activity.

With that in mind, economists have been closely watching how shoppers respond to a 2 percent increase in the payroll tax, which took effect on Jan. 1, trimming about $1,000 to $1,200 a year off the average worker’s paycheck. Financial pundits are also observing how federal budget cuts, known as sequestration, might affect the economy.

But consumers seemed to be undaunted so far by either event. “Only 4.8 percent of consumers mentioned the payroll tax at all,” Beemer said. “I did a survey last weekend and asked about sequestration. Less than 36 percent had even heard about sequestration.” California dreamin’

Despite payroll-tax hikes and budget cuts, California consumers appear to be fairly optimistic because housing prices have been climbing steadily over the last few years.

Also, the stock market is rising at a galloping pace. The Dow Jones Industrial Average has jumped 12 percent this year. On April 11, it closed at another historical high of 14,865. “With stocks and home prices going up, it has a nice positive wealth effect,” said Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University in Orange, Calif.

But Adibi noted that job creation in California needs to be aggressive to counter any turnaround in home prices or the stock market. “If you don’t have strong job creation, who are the people who are going to rent those apartments or buy those houses?” he asked. “Right now, investors are jumping into the housing market. What concerns me is investors come and go. If investors feel the job market is softening, they will unload those houses for a quick profit, and the supply of homes can turn around in two or three months.”

Home prices have been on a steady upswing for the last 11 months. In February, the median price in the six-county Southland area was $320,000, up 21 percent compared with the same month in 2011. But median home prices remained well below their high of $505,000 in 2007 and the same as they were in 2003.

Those high home prices contrast sharply with California’s employment outlook. The state has one of the highest unemployment rates in the country. In February it stood at 9.6 percent, compared with 7.7 percent nationwide during the same month.

Los Angeles County’s unemployment rate was even higher, at 10.3 percent. But Los Angeles County has been adding jobs faster than the state and the nation. “For February, non-farm jobs grew by 2.3 percent over the previous year in Los Angeles County, and for California, jobs grew by 2.1 percent,” said Robert Kleinhenz, chief economist at the Los Angeles County Economic Development Corp. “That was much better than the 1.4 percent increase for the nation.” Los Angeles County has experienced job growth in almost all sectors, except for manufacturing and government jobs, Kleinhenz said.

“The trend over the past few years since the recession hit has been a decline in government jobs. Manufacturing job losses preceded the recession, accelerated during the recession and continued after the recession,” Kleinhenz said. In Los Angeles County, apparel manufacturing has been steadily shrinking. In February 2012, there were 45,000 people employed in apparel manufacturing. Now there are 44,500 working in the industry.

The warehousing industry and transportation sector have added 3,400 county jobs, up 2.5 percent over last year. But activity at the ports of Los Angeles and Long Beach has been slow. “Port activity and port-related jobs haven’t really come back all that much since the end of the recession,” Kleinhenz said.

He noted that in 2012, the two ports saw cargo-container traffic rise less than 1 percent. In 2013, economists are predicting that cargo-container volumes will inch up to 14.3 million containers, only a tad higher than the 14.1 million containers that passed through the ports in 2012.