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Ugly Chart of the Month!

In a 'how could I not have seen this coming' moment, I realized that my '3 points in lost margin over 3 years' thesis for apparel has another nail in the coffin - a meaningful slowdown in the growth of the number of core customers.

All my clients (and then some) know my thesis on apparel - that the industry will give back 3 margin points over 3 years as the supply chain gets stress-tested to a degree not seen in over 10 years. This will be driven by 1) a reversal in a massive sourcing tailwind, 2) tightening capacity in Asia, and 3) the US consumer heading into a 'consumption depression' as the personal savings rate heads higher to offset at least a temporary pause (if not long term) in a 25 year bull market for home prices and equities.

I think that the lack of sourcing savings disarms the industry of a powerful weapon previously used to stimulate per capita unit demand (up 50% in 15 years). But shame on me for not accounting for the chart below. Demographics for this space are absolutely abysmal.

While it's easy to look at the aggregate population numbers in the US, those usually don't mean much when looking at a specific industry with unique consumers. My Jr Analyst Zac (one of the best collegiate sailors in the world) took this analysis to the next level and calculated the percentage of apparel spending by age group versus the growth in each of each of those individual age groups.

His major takeaway is that from 2001-2005, the apparel population grew at a favorable rate relative to the overall population. This rate started to roll in 2006 (around the time the industry started to show more stress) and headed lower into 2008. The bad news is that this rate accelerates further all the way through 2012. This is bad bad bad.

Not only are my previous concerns enough to take out 3 points of margin, but now the demographic picture seems like the nail in the coffin. Again, I completely realize that the future demographic trend is not a new development, but that my realization of it is. But I've been covering this industry for a long time. If it's news to me, then I'm willing to bet that its news to most others as well.

I'm not trying to be negative here folks, but these are facts I simply can't ignore.