The return-to-work clothing boom is underway

The dual activity of buying leisurely summer clothes and traditional office attire for the return to the office — both occurring in earnest for the first time in more than a year due to the COVID-19 pandemic — is finally starting to show up in some data other than out-of-stock messages on retailer websites.

There was a notable turn higher in the two-year growth rate of spending at clothing and department stores for the seven days ending June 19, said Bank of America's head of U.S. economics Michelle Meyer in a new research report Thursday. Meyer cites data compiled from BofA credit and debit card transactions.

The two-year sales growth rate at clothing stores rose 13 percentage points to 36%, Meyer finds. As for department stores, the two-year growth rate surged 25 percentage points to 16% (see charts below).

Says Meyer, "This could simply be noise in the data and a reversal from some softening last week or perhaps an indication of people refreshing wardrobes as people return to the office, travel and socialize."

Department stores are getting pretty crowded.
Department stores are getting pretty crowded.
New clothing for a hybrid work life anyone?
New clothing for a hybrid work life anyone?

In all likelihood, consumers are overhauling their wardrobes based on other tidbits from the retail space of late.

A generally favorable demand backdrop for apparel was cited this week at a closely-watched Jefferies consumer conference, for instance.

"Consumer strength continuing into June," remarked Jefferies retail analyst Randal Konik in a note to clients after day one of the event. "Tone was broadly upbeat on the strength of the consumer. In footwear, Shoe Carnival noted better than expected momentum in June, contributing to the confidence to issue a full-year outlook, while Caleres also pointed to continued strength. Abercrombie & Fitch was notably bullish on its women's business."

The appetite to buy new apparel this summer is likely to persist into the critical fall shopping season, which kicks off with back to school in August.

"Several companies cited expectations for a strong back-to-school season, given pent-up demand and child tax credits. Management teams also noted improved visibility into the timing/format of the back-to-school season, with all signs pointing to key markets returning to in-person, on time start dates (vs. delayed, largely virtual last year)," Konik explains.

Investors have started to position for the apparel buying boom well underway.

The Amplify Online Retail ETF — which tracks the performance of apparel brands such as Lands' End and Stitch Fix —is up over the past month. Wear-to-work apparel plays such as Macy's and Dillard's are up 6% and 35% in the last month, according to Yahoo Finance Plus data.

Macellum Capital Management CEO Jonathan Duskin (who led successful activist campaigns at Bed Bath & Beyond and Kohl's) told Yahoo Finance Live this week the apparel sector has several positive catalysts lurking, including consumers rebuilding their closets and the kicking in of the child tax credit come the key back-to-school shopping season.

"We think it's a unique time for retailers, particularly apparel retailers. There is a lot of dynamics that will favor them, much like we saw coming out of the Great Recession. I think apparel retailers are poised to outperform over the next two to four years for a host of reasons. Inventories are low. They learned to do more with less during COVID-19. Stores are now a weapon," Duskin said.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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