This Week in Retail: The Plus Size Problem

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Welcome back to This Week in Retail! This week we’re discussing some of the challenges facing the plus size business and structural problem that need to be fixed before expansion into extended sizing can be successful.

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The Rocky Road to Inclusivity

Over the last several years, the words “size inclusivity” have suddenly become a very common buzz-phrase used by retailers when talking about future growth. But in the backdrop of an extremely challenging and volatile economic environment, the road to size inclusivity has been anything but smooth for retailers.

Just last year, Loft dropped their entire plus size line, citing “ongoing business challenges” as the reason for phasing out their extended sizes. Workwear start up M.M. LaFleur provided similar reasons for pulling back on their plus size line.

One of the most striking examples of this is when Old Navy reported that sales dropped by 19% from a year ago, largely attributing this to a failure of their size-inclusivity program. Just a year ago, Old Navy had announced that they were going to offer 100% of their core styles in sizes 0-30. Customers were excited at first, but unfortunately, sales began to decline almost immediately after the launch.

So what went wrong?

What’s Holding Plus Back?

Nearly 70% of American women are size 14 or larger, yet plus size clothing only makes up 19% of the total apparel market. Expansion into this underserved market seems like a no-brainer for both retailers and brands. However, the plus market has some unexpected production and pricing challenges that are holding back success.

There are three primary issues with the plus size business that are causing retailers to question their investment in this space:

Lower margins

Economies of scale

Inventory Challenges

Let’s unpack this.

1. Lower Margins

Overall, the plus business (sizes 14+) is a lower margin business than the core sized business (sizes 0-14), stemming both from the inputs of raw materials and labor, as well as the retail pricing itself.

Let’s breakdown each.

Inputs

Overall, the cost of goods is typically higher for plus styles. It takes more fabric to produce each plus size garment, which means that the cost of raw materials is going to be higher per garment. Retailers have received backlash over charging more for plus styles. However if they don’t charge more, they find themselves in a lose-lose situation, where they either have to eat the cost themselves or spread it across all sizes.

Plus size production is new to factories as well so there is often an additional investment required in terms of both equipment and specialized labor. Alexandra Waldman, co-founder of size-inclusive label Universal Standard, told Vogue Business, “Factories often lack experience in making clothes of an extended size and looms are often not designed to make sweaters in larger sizes, especially if you’re looking to make something seamless.”

“Factories often lack experience in making clothes of an extended size and looms are often not designed to make sweaters in larger sizes, especially if you’re looking to make something seamless.”

–Alexandra Waldman, co-founder of size-inclusive label Universal Standard

Pricing

Then there is the pricing challenge, which is a tricky problem to understand. Plus customers historically are more price sensitive, but it’s unclear if this is driven by a lack of options on the market or a true desire to spend less. In any case, plus size customers typically opt for cheaper clothing and definitely do not want to be charged more than a regular sized shopper. This makes plus a losing financial endeavor for retailers, as the costs of creating plus styles are higher even as they are charging the same amount.

2. Economies of Scale

The economies of scale is a really interesting problem for retailers and brands. Typically, when a brand produces core styles, they are able to work with the factory to get better pricing when they produce more units. This isn’t the case with plus styles because they are producing very few units, which increases the cost even more.

3. Inventory Challenges

Managing inventory is one the biggest challenges that retailers and brands face. Investing in the correct sizes and then allocating those to each store and online is a constantly evolving process in the world of retail. Retailers are accustomed to managing sizes 0-14, which is difficult in itself. Add ten to fifteen additional sizes on top of that and it becomes almost impossible to optimize your inventory.

Old Navy is the best example of this; they severely overstocked their stores with plus size inventory and missed out on sales of their regular size business as a result. They are now walking back plus size inventory in their stores in an effort to rightsize their inventory glut and improve in-store sales.

A Volatile Economic Backdrop

All of these challenges come at a time when retail has experienced some of the most volatile years they’ve ever had. The Coronavirus shutdowns coupled with a recession has put retailers in a position where they need to cut costs and double down on their core money-making businesses. Unfortunately, extending sizing initiatives are some of the first to get cut during times of economic distress and that is exactly what we’re seeing happen right now.

The Bottom Line

Plus is a massive business opportunity in the US, with the market for U.S. plus-size apparel valued at $24 billion in 2020, up from $20.5 billion in 2016. As demographics shift towards larger sizes, this is space that retailers need to address, but there are some structural and pricing issues on the backend that will need to be fixed before it can be successful.

Retail+Tech News:

Amazon Halts Corporate Hiring

Amazon is pausing hiring for roles in its corporate workforce, the company announced in a memo to staff Thursday.

The company had already halted new hires for corporate retail jobs.

CEO Andy Jassy has moved quickly to cut costs by ending some projects and shedding warehouse space.

Estée Lauder Slashes Outlook in China

The cosmetics company expects its full-year sales to fall as China’s zero-Covid policy and global inflationary pressures continue to weigh on performance.

Performance in China was dampened by diminishing travel retail in the key shopping province Hainan, and limited bricks-and-mortar traffic throughout the rest of the country.

Starbucks US Sales Climb

Starbucks beat Wall Street’s expectations for its quarterly earnings and revenue.

The coffee chain said U.S. consumers were spending more on their orders this quarter.

Outside the U.S., Covid-19 restrictions in China continued to weigh on Starbucks’ international performance.

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-Jackie