Customers are cutting back on spending at Gap and Old Navy, particularly in a specific category that shows just how much families are feeling the pinch of inflation.
In difficult times, parents often cut corners on themselves and focus on meeting the needs of their growing children. But Gap and Old Navy said Thursday they now see less spending on baby and children’s items.
“Kid spending is one of the last areas where most parents cut back, so the softness in the Gap and Old Navy suggests that some households are under significant financial pressure,” said Neil Saunders, an analyst at the retail industry and CEO of Globaldata.
Because these brands cater to lower-middle-income buyers, this decline in spending is a very real indicator of how deeply budget-conscious households are feeling the pain of higher prices. They have been forced to resort to their last resort.
Headline inflation rose 7.7 percent compared to 2021, even as the latest reading of the prices households pay for necessities and discretionary purchases showed a slight slowdown.
The cut in children’s clothing spending at Gap Inc., which operates its namesake Gap, Old Navy, Banana Republic and Athleta divisions under its corporate umbrella, was part of the company’s third-quarter earnings report on Thursday.
While the company’s overall sales rose 2 percent from last year to $4 billion for the quarter ended Oct. 29, the retailer noted that sales growth at both Gap and Old Navy were was offset by weaker sales in the children’s and baby categories.
“Old Navy customers still have a propensity to buy. That said, it continues to experience weakness in spending and purchase frequency from its lower-income consumers,” said Bobby L. Martin, interim CEO of Gap Inc., to analysts during earnings calls on Thursday.
It’s not just Gap. According to market research firm NPD, purchases of baby and toddler clothing have declined this year: From January to October, sales of infant and toddler clothing declined 3% in revenue and 6% in units sold. compared to the same period last year. .
“This is a great indicator of financial stress,” said Marshal Cohen, NPD’s chief retail industry analyst. “You have to look at the big picture. Are families switching to less expensive products and stores or is it a general regression?”
“The other thing to look at is how long the pullback lasts,” he said. “Parents can spend so much time in clothes that are getting a little small, but not for long. So a quarter slip is one thing: multiple quarters. [of decline] send a strong message.”
GOING TO RESALE
As parents buy fewer new items, they are turning to resale platforms to buy children’s clothing and other necessities for less.
Reselling platform Mercari said a March survey of more than 2,000 parents by Globaldata found that 62 percent said they bought second-hand items for children at some point in the past year. More than a quarter said inflation motivated those purchases, and half of the parents surveyed sold a second-hand item in the category of baby and children’s items.
Mercari said that parents of children under the age of two are the most active second-hand buyers on its platform, according to its survey.
“This change [to reuse] is gaining momentum in 2022 as consumer prices rise amid inflation and ongoing uncertainty,” said Mercari CEO John Lagerling in the Mercari Reuse Report 2022: Family Edition.
“Americans spent a total of $143 billion on baby and children’s items alone in 2021. By 2030, this number is expected to rise to $182 billion. In our view, that’s simply too much,” he said.
Thrift shopping is becoming a lifeline for budget-minded households, said Burt Flickinger, retail expert and managing director of retail consultancy Strategic Resource Group.
“Families rely heavily on credit cards to pay rent, food and gas bills and everything else. Household wealth has gone down, while the cost of food has gone up,” Flickinger said. “If they didn’t plan ahead, parents are buying on resale and receiving thrift items from family and friends.”