Industries' Outlook on Amazon, Part 2

Part
01
of four
Part
01

Apparel Industry Overview

The US apparel industry is currently valued at $364.87 billion and is forecast to hit $386.59 billion in the near future (2023) at a CAGR of 1.9%. While efforts are being intensified to recall and curb importation of apparel and outsourcing of its production, bulk (more than 95%) of the apparel in the US markets are either imported or outsourced to overseas companies for production. COVID-19, technology, and the entrance of new players are some factors disrupting the US market.

Current State of the Industry

  • The US apparel industry is currently worth $364.87 billion.
  • From 2019 to 2020, the US apparel market grew by two percent.
  • 77.8% of the industry revenue will be generated through offline sales, while 22.2% will be from online sales.
  • Over 95% of the apparel in the US market is imported from overseas.
  • China accounts for approximately 40% of the total import.
  • Approximately three percent of the total apparel in the US is manufacture in the country.
  • The current outbreak of COVID-19 has made importation from China near impossible, and retailers in the US industry are looking elsewhere. For example, Trybus, a Texas-based menswear company that previously sourced about 30% of its supply from China, is currently sourcing its supply from other countries for its supply to reduce its dependence on China.
  • Some apparel manufacturers in the US have diversified into the production of face masks in response to the urgent need for personal protective equipment (PPE) by healthcare workers in the front line of fighting COVID-19, an example of such company including the Los Angeles Apparel.

Growth of Industry Category

Women

  • The women's segment of the industry is the largest in terms of revenue and volume of apparel.
  • In terms of revenue, this segment of the industry accounts for $190.79 billion and is predicted to reach $202.37 billion by 2023.
  • Currently, the volume of women’s apparel expected to be sold in the US is 11.79 billion and is projected to hit 12.28 billion by 2023.
  • In terms of revenue, the growth of this segment is forecast to decline from 2.06% in 2020 to 1.96% by 2023.

Men

  • Revenue-wise, the men’s category is projected to grow from $119.12 billion in 2020 to reach $126.96 billion by 2023.
  • In terms of revenue, the growth of this segment is predicted to decline from 2.21% in 2020 to 2.14% by 2023.
  • The men’s segment is forecast to increase from 7.68 billion in 2020 to 8.03 billion by 2023 in terms of volume.

Children

  • The children’s segment of the industry is predicted to grow from 10.59 billion in 2020 to 10.87 billion by 2023 in terms of volume.
  • In terms of revenue, the children’s segment is forecast to increase from $54.96 billion in 2020 to $57.25 billion by 2023.
  • Revenue-wise, the growth of this segment will increase from 1.29% in 2020 to 1.33% by 2023.

Segmentation Based on Channel

  • The industry is categorized into two segments based on sales channels, online and offline.
  • Offline is the largest, accounting for 78% of the industry revenue in 2020. The share of this segment is forecast to decline to 69% by 2023.
  • In 2020, the online segment accounts for 22% of the US apparel industry revenue. The market share of this segment is forecast to grow to hit 31% by 2023.

Segmentation Based on Luxury and Non-Luxury Brand

  • The industry is segmented into luxury and non-luxury brands.
  • Currently, non-luxury brands of the industry in the US account for the largest market share, 95%, while luxury brands account for five percent.
  • The non-luxury and luxury are forecast to grow at a flat rate from 2020 through 2023, each segment retaining their share of the market of 95% and five percent, respectively.

Future State of the Industry

  • The US apparel industry is forecast to reach $386.59 billion by 2023.
  • In terms of volume, 31.17 billion pieces are expected to be sold by 2023. Men, women, and children apparel segments will account for 12.28 billion, 8.03 billion, and 10.87 billion, respectively.
  • Revenue generated the online segment is forecast to increase to 30.6%, while offline sales will drop to 69.4% by 2023.
  • The luxury and non-luxury segments of the industry are predicted to experience flat growth during this period. The luxury segment will account for five percent of the industry’s revenue, while the non-luxury segment will account for 95% from 2020 through 2023.
  • Apparel production outsourced to countries overseas will be brought back to the US, according to experts, this will be driven by growing demand for made in the US apparel by customers.

Factors Expected to Disrupt the Industry

Part
02
of four
Part
02

Shoe Industry Overview

The projected 2020 market size of the U.S. shoe/footwear market is about $93.334 billion, while the market is anticipated to reach $99.925 billion in 2023. Some disruptors/threats to the industry include tarrifs on goods imported from China, including shoes, the dependency on Chinese goods, tepid growth, and the coronavirus outbreak.

Market Size (2017-2019)

Projected Market Size (2020-2023)

  • According to Statista, the U.S. shoe/footwear market, in dollar terms, is projected to generate $93.334 billion in revenue in the year 2020. Also, it is anticipated that the market's volume will be about 2.643 billion pairs of shoes in 2020.
  • The projected market size of the U.S. shoe/footwear market for the years 2021, 2022, and 2023 is $95.506 billion, $97.704 billion, and $99.925 billion, respectively.

Revenue Breakdown

  • In 2019, the textile and other segment accounted for the largest share of revenue for the U.S. shoe/footwear market, with $39.433 billion.
  • Leather footwear produced up to $35.102 billion in revenue for the market in 2019. Finally, athletic footwear accounted for approximately $16.653 billion.

Imported Vs Exported

  • The market value for exports and imports of footwear in the United States was $1.6 billion and $26.6 billion, respectively, in 2018. In dollar and volume terms, China remains the country's greatest source of footwear imports with 49.8% and 66.6%, respectively.
  • As of 2019, around 99% of the footwear that are sold within the United States are imported. At least 2.5 billion different pairs were imported in the year 2019. Only 25 million pairs are actually produced in the country each year.
  • U.S. footwear exports in 2018, which was mostly composed of footwear parts, merely accounted for 28% of the industry's revenue in the country. Also, footwear that was produced domestically made up 1% of the overall U.S. footwear market.

Key Players

  • The top footwear company in the United States and worldwide is Nike, which earned around $22.3 billion in revenue in 2018. That same year, Adidas generated $12.8 billion in revenue. Nike, Adidas, and Under Armour serve as the top sneaker producers.
  • The top selling shoes of 2019 in the United States included 1) Nike Air Max 270, 2) Nike Air Force 1 Low, 3) Nike Tanjun, 4) Adidas NMD R1, 5) Air Jordan 4 Retro, 6) Adidas Yeezy Boost 350 V2, 7) Vans Ward, 8) Converse Chuck Taylor OX Low, 9) Nike Air Max 97, and 10) Jordan 11 Retro.

Employment

  • Overall employment in the U.S. shoe/footwear industry is 217,000 employees. According to IBIS World, footwear wholesaling employs 30,045 individuals in the United States. Footwear manufacturing employs about 12,470, as of 2018.

Disruptors/Threats

  • One disruptor/threat for the shoe/footwear industry is the implementation of tariffs on imported goods from China. Legislation enacted in 1930 currently forces the shoe industry to pay around $3 billion in tarrifs each year. Additional tarrifs imposed in 2018 by the Trump administration on imported goods from China are anticipated to increase that amount.
  • U.S. shoe companies are somewhat dependent on goods from China for their operations, resulting in the United States importing about $14.8 billion in shoes from the nation in 2017.
  • Another disruptor/threat to the industry is its rather mild growth over the past few years. In 2017, shoe revenue in the United States rose merely 1%, while it is expected to grow only 2.3% in 2021. The situation is worse when factoring in the anticipated volume growth in 2021, which is just 1.2%.
  • The U.S. shoe industry's dependency on imported shoes is also a concern, leading to employment in the manufacturing segment falling by 80% over the past 28+ years (1990-2018). Part of the reason for this is that shoes are cheaper to make overseas than domestically, as there is typically a $50 price difference.
  • These issues are compounded by the recent coronavirus outbreak. In January 2020, footwear imports to the United States from China fell by 15.7% due to the pandemic, resulting in the highest year-over-year decrease in the past four years. This development is a serious concern and could have a lasting impact, considering 70% of all shoes sold in the nation originate from China.

Technology

  • There are a number of technological advancements that are helping to change the shoe/footwear industry. One such advancement is smart footwear, which despite being a new development, has altered how people wear their shoes. Some new footwear contain sensors to monitor certain capabilities, including activity tracking, calorie tracking, in-depth tracking, and location monitoring.
  • Garneau Carbon Team Footwear produced insoles that have xylitol woven into them, and it converts an individual's sweat molecules into coolants.
  • Another advancement in the shoe/footwear industry in the United States is both virtual and augmented reality, which enables shoppers to search for shoes without having to try them on. Some shoe/footwear businesses now utilize virtual prototypes to help consumers and craft brand new designs is shorter times, including Nike (in partnership with NOVA).
  • Shoe knitting technology is also a technological advancement in the shoe/footwear industry in the United States, which is helping to alter the shoe-making process.
  • Some examples of technologically advanced sneakers on the market include the Nike HyperAdapt 1.0, Adidas Futurecraft 4D, Under Armour ArchiTech, ShiftWear, Adidas Speedfactory AM4LDN, DigitSole, Nike MAG, The Puma Fi, and Nike Adapt BB. These shoes are expensive, as their listed prices, according to Interesting Engineering, range from as low as $330 to as high as $75,000.

Consumer Demand

  • The volume of shoes in the market in the United States in 2017, 2018, and 2019 is 2.550 billion, 2.582 billion, and 2.613 billion pairs, respectively.
  • Furthermore, the expected volume of shoes in the U.S. market in 2021, 2022, and 2023 is 2.675 billion, 2.706 billion, and 2.738 billion pairs, respectively.
  • More than half (52%) of shoppers intended to spend less money on shoes in 2019, while 14% wanted to spend more.
  • Roughly 16% of American consumers state that they purchased their footwear on Amazon.
  • Out of those that shop online for shoes, 21% claim that they find better prices online, 18% liked to observe the inventory variety available, and 12% say that it is convenient.
  • Regarding their purchasing decisions for new shoes, 37% of Americans buy them to replace an older pair, and 30% of them are influenced by the price of footwear.
  • A brand's social mission is important to many consumers, as a 2018 survey revealed that 27% of participants purchased a pair of shoes from a brand because of it, which is significantly higher for Millennials (40%).
Part
03
of four
Part
03

Outdoor Products Industry Overview

The U.S. outdoor products market is growing at a modest 3.1% CAGR, but is expected to reach $20.9 billion in 2024. Car racks, coolers, activity trackers, electrolyte powder, bags, and solar power providers are products that are growing in the outdoor segment. More people are participating in outdoor activities, which is driving the market growth. Some new entrants or disruptors in the industry include Cotopaxi, OLovesM, and Big Agnes, among others.

Market Outlook

  • In 2020, the sports and outdoor market segment is expected to reach $18.5 billion in the U.S.
  • Over the next four years, this segment is expected to grow at a CAGR of 3.1% to reach $20.9 billion in 2024.
  • Currently, user penetration for the sports and outdoor market in the U.S. is at 19.8% and is expected to grow to 26.3% by 2024.

Top Selling Products

  • In 2018, the top selling outdoor gear products were Thule car racks, YETI coolers, and wrist instruments like GPS and fitness trackers.
  • In units sold, GU Stroopwafel was first, followed by Skratch labs electrolyte powder, YETI replaceable tumbler top, Hydro Flask replaceable screw top, and GU chews.
  • One reason for the rise in sales of YETI coolers and Hyrdro Flasks is the sustainability movement, as "one in three buyers rate sustainability as extremely important in their purchasing decisions."
  • Additionally, market sales have increased for "travel packs (+5%), duffle bags (+3%), luggage (+2%), and fanny/waist packs (+9%)."
  • Cargo boxes for the top of vehicles has grown by 8%, dry boxes and bags have grown by 5%, sleeping pads and mattresses are up 4%, trekking poles are up 5%, and solar power products to provide power for electronics grew 34%.

Enthusiasm for Outdoor Activities Grows

  • In 2016, approximately 150 million Americans participated in at least one outdoor activity, with hiking increasing by 7% and climbing increasing by 6%.
  • Nearly 40% of visitors to the United States put visits to National Parks on their itineraries.
  • Participation in running is down by 5%, but running-related activities like triathlon, adventure racing and trail running all made gains in popularity.

Gear Rentals

  • A trend that began to take off in 2019 was the idea of gear rentals so that more people could experience the outdoors before purchasing their own, often expensive gear.
  • Additionally, gear rentals mean that people don't have to lug their own gear across the country, racking up extra baggage fees, if they are looking to experience the outdoors in another state.
  • This trend specifically caters to millennials, who would rather spend their money on the actual experience rather than the gear.

New Entrants and Disruptors

  • Cotopaxi is an outdoor gear company that practices sustainability by donating 1% of sales to "addressing poverty and supporting community development." It is currently donating to the COVID-19 Crisis Fund and is matching up to $100,000 in donations.
  • Camber Outdoors is an organization that works to support inclusivity in outdoor activity for women, people with disabilities, and minorities. This organization is a disruptor because it will cause companies to design outdoor gear for all consumers, not just those who traditionally participate in outdoor activities.
  • OLovesM is a company that makes outdoor bags using unconventional materials and seeks to be a disruptor in the industry in terms of sustainability. Customers can also donate 1% of their purchase price to a variety of charities.
  • Big Agnes is a company that makes tents, sleeping bags, sleeping pads, camp furniture, and bags that is disrupting the industry through innovation. The products are designed for comfort, which traditionally has not been a part of sleeping outdoors.
Part
04
of four
Part
04

Industries Not Directly Impacted by COVID-19

Several industries that have not been directly shut-down by closures due to COVID-19 are still expected to suffer financial loses due to a weakened economy. The technology industry is having supply chain issues and also expects to see reduced consumer spending on tech devices. In addition to experiencing supply chain issues that are depleting their inventory, the cosmetics industry is now expected to have its largest decline in sales in over 60 years. The fashion industry has already experienced sharp declines in revenue due to its struggles in drawing customers to online stores, and many companies are expected to close within the next three months. The automobile industry is expected to suffer significant declines in sales, with roughly 15% losses for 2020, due to the weaker economy. Information on how each of these industries current forecasts and how companies are responding to them are detailed below.

Technology Industry

  • Currently, many major technology companies are experiencing supply chain issues that are interrupting product development schedules because of the industry's reliance on suppliers in East Asia that have had to close down because of COVID-19. For example, LG Display and LG Innotek had to close South Korean factories due to a workers testing positive for COVID-19. Other major tech companies, like Apple and Samsung, have also been experiencing supply chain issues that have caused them to have to move production several times.
  • This supply issues are putting tech companies in a poor position to deal with expected declines in consumer spending. Experts are predicting that the "US and global tech market growth [will slow] to around 2% in 2020. That assumes that the US and other major economies have economic declines in the first half of 2020 but recover in the second half. But we think there's a 50% probability that US and global tech markets will decline by 2% or more in 2020, if a full-fledged recession hit."
  • Other predictions indicate that consumer spending on computers and communications devices will potentially decline between 5% to 10% in Q3-Q42020.
  • Right now, technological companies are primarily focused on handling their supply chain issues so that they can avoid delaying future product launches. Multiple major tech corporations have already had to cancel or postpone important industry events, conventions, and releases. Apple was scheduled to make a budget device release in March but was unable to launch due to supply chain interruptions.
  • Companies like Apple, Samsung, and LG have been investing resources into finding new suppliers and speeding up product. Apple in particular has spread out production between a larger number of suppliers to avoid future issues, and "Samsung has asked the Vietnamese government to exempt 700 of its engineers entering the country from its 14 day mandatory quarantine. The engineers are en-route to a Samsung Display factory that assembles displays for upcoming products from Apple and Huawei."

Cosmetics Industry

  • With retail locations having to close, cosmetics chains Sephora and Ulta had to close 490 and 1,254 locations in the US and Canada in March, and many other smaller brands, like Glossier, Benefit Cosmetics, Winky Lux, Credo, and Follain have also closed their stores. Most brands have pushed to attract customers to shop online, but these companies are struggling to smoothly transition their staff and management to working from home. Also, they are beginning to experiencing moderate production issues that are slowing down production and limiting their available stock.
  • Due to expectations of a weaker economy due to COVID-19, the forecast for the $75 billion cosmetics market "indicate a decline of 2.5% in 2020 as the most likely outcome, with the best-case scenario reflecting a 1.5% gain and the worst-case scenario at an 8.1% drop. And given the current state of the pandemic, with lockdowns now inching closer toward summer months, our current worst-case scenario may, in fact, become the most-likely scenario." These declines in revenue would be worse than during the 2008 financial crisis and would take 3 to 5 years to recover from.
  • In response to the growing pains of shifting to primarily online operations, "virtual events are replacing live events when possible; and some industry allies like the Base Beauty Creative Agency are even actively reaching out to new and existing clients to help keep everyone connected during this time of self-quarantines, lockdowns, and social distancing."
  • Direct-to-consumer brands appear to be the companies with the best leverage to survive the upcoming economic downturn, and they are offering virtual reality technology, bonuses, rewards, and free trial programs to entice customers to begin using their services. One D2C company, trèStiQue has said "70-80% of try-before-you-buy customers opt to purchase the collection—a very good conversation rate as brands look for ways to keep business moving during this time.

Fashion Industry

  • The fashion industry has also had to transition to online sales, but although they're seeing relatively high levels of engagement online, those interactions are not resulting in sufficient sales to make up for brick and mortar store closures. "Many retailers report that e-commerce sales two weeks ago were flat compared with the same period last year and down 20 percent last week. They anticipate further declines of 30 percent or more this week. "
  • A survey conducted in March 2020 with US consumers revealed that "63 percent of respondents said that they expect to spend less on apparel than they usually do." That finding has been supported by data from Amazon, which showed that apparel sales "fell by an average of 40 percentage points between mid-February and mid-March."
  • In China, "industry sales have declined up to 85 percent...in the space of two months, during the country’s lockdown period. In countries like Italy, France and Spain, the decline has reached 95 percent. This drastic drop represents an existential danger for fashion companies, which are traditionally poor in cash, are often dependent on private equity and can have high debt levels." Experts believe that fashion companies will face the worst effects of the weaker economy on consumer spending on apparel between April and June and expect many apparel companies to default during this period.
  • In response to current and expected future declines in sales, apparel retailers "are heavily discounting spring and summer 2020 inventory. The specialty-apparel and department-store channels have already reached peak promotional frequency online, so it will be difficult for brands to break through with clear, differentiated offers that stand out to consumers." Additionally, due to reduced demand, European and American fashion buyers have already canceled $1.5 billion worth of clothing orders from hundreds of clothing manufacturer facilities in Bangladesh.
  • Fashion brands are attempting to anticipate the decreased demand by investing in digital strategies that will lead to increased sales by improving the user experience, shifting their regional focus from Europe to China and South Kora, and downsizing or delaying their clothing orders for the Spring and Summer 2020 seasons to decrease operating costs in the coming months.

Automobile Industry

  • Following the start of the COVID-19 outbreak in China, automobile sales in the country fell 80% in February 2020. Due to disruptions in the supply chain in China as well as health concerns, European car manufacturers started temporarily closing factories in early March, and the US auto industry soon began experiencing similar declines in sales, although car dealerships are considered essential businesses and have not been officially closed by government shelter-in-place orders.
  • In March 2020, vehicle sales are currently estimated to have been 35.5% lower compared to sales in March 2019.
  • Overall for 2020, the weakened economy is expected to drastically reduce car sales in the U.S., with an expected 15.3% decline in total sales. Electric vehicle sales are expected to be hit particularly hard during 2020, as consumers are expected to avoid EV purchases to cut costs and reduce what they view as "luxury" spending. From February to March, Tesla has already lost more than 50% of its stock value, "due to a mix of demand fears and links to Chinese supplier shutdowns." Global car sales "are expected to fall by more than 12% in 2020 to 78.8 million vehicles."
  • In response to these market forecasts and decreased demand, US automakers "are doling out aggressive incentives to try to keep sales humming, with some offering to make several months of payments for new car buyers. Others are offering long-term 0% loans," and many dealerships are taking advantage of their "essential business" status and "keeping their doors open for now, saying they provide an essential service for people who still need vehicles to get around. Some have been forced to shut down showrooms while keeping their service departments open."
  • At the same time, car manufacturers are beginning to take measures to drastically cut operating costs in response to decreased demand and the most recent market forecasts. In Europe, "multiple car manufacturing facilities are temporarily closing or heavily scaling back production...including VW, Daimler, Ford, Fiat Chrysler (FCA), PSA Group and Renault. While FCA and PSA Group indicated operations would stop until the end of March, Renault did not indicate when its plants will reopen. BMW, VW, Toyota, Honda, and Nissan have also halted production in the UK with Jaguar Land Rover expected to follow suit." In the US, "the big three automakers — GM, Ford, and FCA US, under pressure from unions to protect employees, and to follow government advisories, decided to idle their plants in North America. Toyota, Honda, Tesla, and Nissan also announced a temporary suspension of production in North America."

Sources
Sources

From Part 02