Not Just Food — Israeli Apparel Sales Also Declined in 2014

Increased competition and consumers lower spending power took their toll.

Emil Salman

It isn’t just food sales that slumped last year — apparel sales also declined for much the same reason: consumers lower purchasing power and tougher competition that forced retailers to cut prices.

Clothing stores at Israel’s malls fell 1.5% last year on a sales-per-square-meter basis, according to data that retail research firm RIS collected from 2,600 stores across the country. That followed a 0.3% decline in 2013.

People in the retail industry say the decline was even worse than RIS reported because population growth should automatically provide an increase every year.

“In practice the drop in sales was bigger that the reported data — it was down 3% down at least — because every year at least 45,000 new households are formed,” said Tamir Ben-Shahar of consulting firm Czamanski & Ben-Shahar.

“In any case, the RIS figures relate mainly to chain stores. You can assume that smaller independent stores experienced bigger sales drops because they can’t advertise and market.”

In fact, even RIS says the 2014 decline would have been bigger save for an unexpected pick-up in sales during November, which lifted fourth-quarter per-meter sales 2.25% from a year earlier. November saw a sharp 11.5% increase in apparel sales from the same time in 2013.

A particularly cold and wet month in 2014, compared with a warm and dry one in 2013, brought shoppers into stores to stock up on winter clothing, as did an unusual December sale organized by Ofer Malls. Still, December sales dropped 4.9% year on year.

The decline mirrors a similar drop in food sales, which in the first 11 months of 2014 were down 1.7% in shekel terms from the same time in 2013, according to figures from the retail researcher Storenext, which collects data from supermarket checkouts around the country.

Retail executives say one reason for the decline in per-square-meter terms is an onslaught of competition. Apparel chains, like supermarkets, have expanded faster than shoppers are increasing their spending, so chains end up cannibalizing their own sales.

“We’ve gotten to the point that opening up new floor space hurts sales,” said an industry executive who asked not to be identified.

On top of that, consumers have seen their discretionary spending fall amid a decline in real wages and the high cost of housing.

As a result, discounters are taking a bigger slice of the share of consumer spending. “More and more people are buying at discount stores for the whole family,” said the executive. “Almost no one is buying blouses of 500 or 600 shekels [$127 or $152].”

As has happened in the United States, growing income gaps are creating two different retail markets. “The market is going in the direction of price or shopping experience,” the executive said. “There has been growth in the sportswear and lifestyle segment, but the middle of the market is being squeezed.”

The discount segment is about to get a new contender with the Carolina Lemke group, a designer and retailer of low-cost sunglasses, planning to open the first outlet of its Urbanica chain in May in Rishon Letzion.

The group, which operate Hoodies and Topten stores, is promising to sell clothing at a steep discount — jeans between 39 and 79 shekels, T-shirts between 9.90 and 19.90 shekels, and handbags between 49 and 79 shekels.

Modeling itself on Europe’s successful Primark chain, Urbanica stores will have more floor space than most Israeli shops and offer apparel for women, men, children and babies. But the company is promising a better shopping experience than discounters usually offer.

“The idea is to earn smaller margins on each product but to sell a lot of them,” said a spokesman. “We want to make the same revolution we did in the optical market with Carolina Lemke.”