Other than the U.S, Abercrombie & Fitch also possesses a robust presence across Europe, where, in spite of a weak macroeconomic environment, online retail sales is expected to follow a growth rate of around 11% over the next few years.
In addition, the retailer is making considerable efforts in strengthening its mobile commerce channel; during 2010 it made its website compatible to all internet enable devices coupled with a launch of its first iPad application. At present, mobile-commerce is a relatively small contributor to overall online sales; however, going forward it is expected to become a key revenue driver with growing popularity of smartphones and tablets.
Why invest in the retail sector?
In order to rationalize your investment in the apparel retail sector, it becomes essential to examine how other retailers are positioned to capitalize on the growth experienced in the direct to consumer channel.
Other than Abercrombie & Fitch, The Gap Inc. (NYSE:GPS) has also experienced tremendous growth through its direct to consumer channel. Similar to Abercrombie & Fitch, The Gap Inc. (NYSE:GPS) also launched its iPad application approximately three years back. Additionally, retailer’s mobile customized site enables its loyal customers to purchase online and locate nearby stores.
Recently, the company extended its omni-channel initiative to Old Navy, where online orders can be addressed through store inventory. Initially this particular service was only limited to The Gap Inc. (NYSE:GPS) and Banana Republic. Going forward, The Gap Inc. (NYSE:GPS) is expected to launch a new service called “Reserve in Store,” which predominantly allows customers to reserve their favorite items online and purchase them from nearby stores. The initiatives made by The Gap Inc. (NYSE:GPS) clearly exhibit its intent on bolstering its direct to consumer business.
Similarly, Urban Outfitters, Inc. (NASDAQ:URBN) is making considerable efforts to bolster its direct to consumer business. The company is experimenting by creating new catalog designs and offering an exclusive web based product mix.
The company benefited from an increase in its product assortments by approximately 50% during the first quarter of fiscal 2014. Furthermore, its new intimate apparel line has posted robust growth recently, as it now contributes a little over 15% to the overall e-commerce revenues.
Similar to The Gap Inc. (NYSE:GPS), Urban Outfitters, Inc. (NASDAQ:URBN) also offers an omni-channel service, which allows the company to address orders through store inventory. It is noteworthy, if the omni-channel service was not in place during the last quarter of the previous fiscal year, Urban Outfitters, Inc. (NASDAQ:URBN) would have experienced an order cancellation of approximately $12 million. Going forward, the company eyes its mobile-commerce channel as a primary driver behind online revenues, therefore, it has several initiatives lined up for the coming quarters.
The apparel retail sector will exhibit tremendous improvement with increasing employment leading to higher discretionary spending. Based on the efforts made by these apparel retailing giants to capitalize on the direct to consumer channel, I believe these three stocks will yield strong returns in the coming years.
Kiran Gulati and Equity Dimensions have no position in any stocks mentioned. The Motley Fool recommends Urban Outfitters. Kiran is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article The U.S. Retail Sector Is Primed to Benefit from the Direct to Consumer Channel originally appeared on Fool.com is written by Kiran Gulati.
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