The Great Recession had a dismal effect on the US economy, including the Men's and Boys' Apparel wholesaling industry. With decreased discretionary spending in 2008 and 2009, retailers offered deep discounts to consumers to retain sales. Due to weak downstream demand, wholesalers were left with excess inventories and slashed their own prices to move stock. In their ongoing quest to cut expenditures and sustain profit margins, powerful retailers set low prices, causing wholesalers to engage in fierce competition with each other.
“While industry revenue fell during the recession, it has been slowly recovering since 2010,” says IBISWorld industry analyst Caitlin Newsom. Steadily increasing downstream demand from men's clothing stores and department stores has contributed to limited industry growth. Per capita disposable income and consumer sentiment have been growing since 2010, bolstering downstream demand.
IBISWorld expects revenue will slightly increase at an average annual rate of 0.9% over the five years to 2013. Imports accounting for an increasing share of domestic demand for upstream manufacturers hampered industry growth. Because these imports are made with cheap labor, they cost less and so retailers prefer them. As a result, wholesalers are left with lower demand.
Due to limited growth some participants have exited the industry, unable to sustain operations in light of the declining market. The number of companies has fallen during the past five years, averaging 1.4% per year to 8,656 wholesalers by 2013. Mergers and acquisitions have been common as well. Major player VF Corporation picked up premium brands Rock and Republic and Timberland, while industry operator Phillips-Van Heusen purchased Tommy Hilfiger in early 2010.
Other operators have left the industry because of poor returns. As consumers regain confidence and purchasing power, demand for men's and boys' apparel will climb, boosting revenue 5.6% to reach $43.5 billion during 2013. According to Newsom the industry is expected to grow steadily through 2018. However, internal competition will continue and imports in the upstream manufacturing industry are also projected to increase, limiting industry revenue growth over the next five years. IBISWorld anticipates companies will continue to exit the industry through 2018, due to increased mergers and acquisitions and decreasing profit margins.
The Men's and Boys' Apparel Wholesaling industry has a low market share concentration, defined as the top four players accounting for less than 40.0% of industry revenue. This low concentration reflects the fragmented market that has a mix of small and medium participants. The highly competitive nature of this industry will continue to place pressure on participants to close operations or to merge to maintain profitability.
Over the past five years, concentration has slightly increased, from about 10.9% in 2008. This growth is primarily due to Phillips-Van Heusen's acquisition of Tommy Hilfiger in 2010, which nearly doubled its market share. Despite recent mergers and acquisitions within the industry, concentration levels are only expected to increase by a small amount over the next five years.
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