MARKET INTELLIGENCE SHORT READ
PART 1
2022 APRIL ISSUE
Written by : Andrew Sia
Share this article !
Contents:
New York is Setting Up Fashion Milestone
Fast Retailing’s Valuation Gap with Inditex
Chanel’s Fight over the Red Camellia in China
Reebok’s Top Designers Is Leaving
Prices Increase Extended to Luxury Market
Apparel Brands Are Faring Well During the Cost Increase
Dolce & Gabbana Is Bring Beauty Business In-House
New York Fashion Week February 11 – 17, 2022
The Secondhand Clothing Business
Benetton Paralleling Its Physical Store to Mirror Its Virtual Store
Fashion Business’s Prospects
New York is Setting Up Fashion Milestone – New York Times, January 9, 2022
On January 7, the Fashion Sustainability and Social Accountability Act, also known as Fashion Act, unveiled in New York and will make New York the first state in the country to pass legislation that will effectively hold the biggest brands in fashion to account for their roles in climate change.
Sponsored by State Senator Alessandra Biaggi and Assemblywoman Anna R. Kelles, and backed by a powerful coalition of nonprofits focused on fashion and sustainability, including the New Standard Institute, the Natural Resources Defense Council and the New York City Environmental Justice Alliance, and also the designer Stella McCartney, the law will apply to global apparel and footwear companies, with more than $100 million in revenues, doing business in New York.
This covers pretty much every large multinational names, from the very high end like LVMH, Prada, Armani, to fast fashion giants as Shein and Boohoo.
Specifically it would require companies under this category to disclose a minimum of 50% of their supply chain, starting from farms where the raw materials originate, and disclose along the supply chain where they have the greatest social and environmental impact when it comes to fair-wages, energy, greenhouse emissions, water and chemical management. They also require companies to disclose their production material volumes, such as cotton, or polyester and leather they sell and the information will have to make available online.
The companies will have 12 months to comply with the mapping directive and for any violations would be fined up to 2% of their annual revenues.
Maxine Bédat, founder of the New Standard Institute, mentioned that the fashion industry is one of the least regulated business because of its extensive supply chain that can include many countries and continents. For companies to make concrete plans to control their carbon emissions in according to the targets set by the Paris Climate Accords is quite impossible. And to address to the human rights issues, using governmental watchdogs and consortiums like the Fair Labor Association, and the use of Higg Index to address the supply chain reporting which become very vague as they can vary widely.
Maxine Bédat continued to say that the Fashion Act is to meet the industry where they are and to come up with the common standard. This bill will now make its way through Senate and Assembly committees in late spring. Meantime a broader coalition will need to build to support the act with the leaders in the fashion industry, manufacturers and labor rights activists to become the law.
Fast Retailing’s Valuation Gap with Inditex – FT, January 17, 2022
The Japanese fast-fashion chain, Uniqlo, is increasing its investment in China which is also its biggest foreign market. In this year it will operate its automated warehouse in Shanghai area as part of a ¥100 billion ($865 million) investment.
Part of the automation is to offset the rising labor cost and the impact of the aging population that is happening in both Japan and China. These main markets provide 80% of its total revenue.
Its margin peaked in 2012 at more than 13% and it has declined. It expects same store sales drop 11% in the year to August. Fast Retailing shares are down 35% over the past year, compared with Inditex’s gain of 8%.
Fast Retailing has to rely on the U.S. market for growth. It has only 43 stores there compared to 1,700 in both Japan and China. It is totally out of proportion. Fast Retailing is over dependent on China for its input, materials and labor and on top it is carrying the political risk.
The U.S. customs blocked a shipment of Uniqlo shirts under the allegation of using the Xinjiang forced labor. The recent tension between Japan and China can also post the threat to Fast Retailing.
But its valuation with Inditex and other peers have begun to narrow.
Chanel’s Fight Over the Red Camellia in China – WSJ, February 1, 2022
Chanel SA has a new cosmetics range using red camellias and was accused by a Chinese competitor, Forest Cabin, a Shanghai based cosmetics company who was using the same flower and staged a battle using the netizens. Chanel pointed out that the company has been using the camellia for several centuries and it is also being used by several skin-care brands around the world.
The way that the founder of Forest Cabin, Sun Laichun handled the attack has backfired as the Chinese consumers expressed their dissatisfaction for using the nationalism to bully the consumers and forced them to choose. Although the post drawn the attention of 100 million views, it has not drawn the result that Forest Cabin was hoped for.
Chanel went on to explain that it has a long association with the white camellia as it was the founder, Coco Chanel’s favorite flower. It started to use the red camellia for a new global brand called Chanel No. 1 and the line includes creams, serums and lotions formulated with red camellia extracts, including oil from the flower seeds. Chanel started working on the line five years ago before Forest Cabin’s launch.
China’s luxury sales reached $66.9 billion in 2021.
Reebok’s Top Designers Is Leaving – WSJ, February 4, 2022
Adidas AG reached a deal last year with Authentic Brands Group to sell Reebok for $2.5 billion. Authentic Brands Group owns a portfolio of lifestyle and entertainment companies.
It is reported that its global creative director, Kerby Jean-Raymond, is leaving the brand at the beginning of March. He only came on board in late 2020 while the new owner tried to overhaul its business. Kerby Jean-Raymond is 35 years of age, grew up from Brooklyn and founded a high-end fashion label, Pyer Moss in 2013. In 2017, he formed a partnership with Reebok for a line of sneakers. His fusion of streetwear staples with couture flourishes earned him recognition from the fashion industry.
In 2018, he took top prize in the Council of Fashion Designers of America.
His final collaboration will be sold in the stores in the late March.
Adidas, one of the world’s largest sportswear company acquired Reebok in 2006 for $3.4 billion and said in 2020 that it was trying to sell it as they have found too many areas that are similar to each other’s brand. Authentic Brands own Barneys New York, Forever 21, and Sports Illustrated.
Prices Increase Extended to Luxury Market – WSJ, February 7, 2022
We read that consumer prices for goods and services rose 7% in December, its fastest pace since 1982, it is because of the rising costs of raw materials, labor and transportation. It has been mentioned that the Federal Reserve in going to raise interest rates in March.
The news has reported that the French fashion house has been raising prices at a faster pace than other luxury brands. And Chanel SA has increased the most among all brands, as it has been regularly adjusting prices to take into account for the production costs, raw material costs, and exchange rate fluctuation.
In fact, all the luxury brands in the industry is raising prices, but there is absolutely no resistance to any increases. And among all brands Chanel has the most frequent increases. It is reported that Hermès has raised the prices by roughly 3% for 2022, and it is slightly more than the 1% to 1.5% in previous years. Rolex has increased 3.4% for instance.
The increase has made the secondary market more attractive.
Apparel Brands Are Faring Well During the Cost Increase – WSJ, February 9, 2022
Disregard the shutdowns of garment factories during this time, and shutdowns of the Vietnamese factories have been looking so dire for the apparel brands, but reports of healthier-than-expected revenues are found.
Ralph Lauren saw its sales grow more than 25% compared with a year earlier in the three months ended December 25. Its operating margin at 16%, was the highest seen in a comparable quarter since 2013.
Capri Holdings which owns Michael Kors, Versace and Jimmy Choo, saw its revenue grew by 24%, compared with a year earlier, and its operating margins grew by 6%.
Levi Strauss and PVH—owner of Calvin Klein and Tommy Hilfiger, saw healthy margin growth in their latest quarters compared with 2020 and 2019.
All these key players of the apparel brands were off by 15% since the start of 2022 until their latest earnings have been reported and they are just down by 1% now. All this was because of a strong holiday season and the bigger surprise was that they were able to pass along higher supply-chain and freight cost to the consumers.
For their current fiscal year, which will all end in March, will expect revenue to grow by 10%, and for Levi’s, it would at least double its five-year average growth pace before the pandemic.
It has largely to do with the consumers who were broadly pivoted to casual clothes in 2020 and 2021, but in the second half of 2021 began the “return-to-normal” wardrobe after adopted hybrid work-from-home with work-from-office arrangements.
The ease of supply-chain and more inventory is available helps the market supply. On average, the Americans were spending 3% of their total expenditure on clothing and footwear, which is the highest since 2015 and it helps to take the pressure of the price increase on the brands.
Dolce & Gabbana Is Bring Beauty Business In-House – FT, February 8, 2022
Dolce & Gabbana has been outsourcing their high-end perfumes and cosmetics business of €476 million and has now decided to produce them inhouse. It will be the first Italian fashion brand to produce its own products.
Chanel was the first company to introduce its fragrance in 1921, together with Dior, they were manufacturing the distributing their beauty products. The rest of them have licensed to third-party specialists.
D&G licensed the business through Shiseido, and now D&G believed that it can be a substantially larger business for the group, with annual retail in seven years can expand from €1 billion to €1.25 billion and for wholesale for about €1.25 billion. In total, it is going to invest €300 million.
Burberry took over its beauty business in 2013, and in 2017 reached a licensing agreement with Coty.
All big beauty categories grew in the US in 2021, but none of them grew faster than the $6.36 billion fragrance industry, which was up 35% on pre-pandemic levels.
New York Fashion Week February 11 – 17, 2022 – BOF, February 11, 2022
Here are the general opinions and we have to know that we are under the shadow of the Covid-19.
The fashion week is more for the fashion editors and buyers, rather than a market spectacular for the consumers. Pragmatism is also a key reason as many of the smaller designers showing are coming out of the pandemic grateful for still being able to survive. They are very careful with their budget and would not want to risk it on a splashy show. In these days the young designers are savvy with social media but still know that they will need the fashion retailers.
During this time the winter sports are important, you can easily connect that with the Winter Olympic. And the National Football League playing at the Super Bowl has been trying to win back the audiences from the record-breaking viewers this time.
The luxury brands can always command a sizable audience on social media and their own channels. But this time they realize the need to connect with their customers through the e-commerce.
The Secondhand Clothing Business – New York Times, February 3, 2022
You may say that it is because of the pandemic, or concern over the environment, or a bit of both that people are shopping more for secondhand clothing. This time we are going to speak about Malaysia, a tropical country in the Southeast Asia.
First of all, it is the fastest growing sector in the global fashion marketplace. This time the consumers are looking for affordable, eco-friendly alternatives than fast fashion.
In the 2021 report from the resale platform ThredUp and the analytics firm GlobalData projected that this business can reach to $77 billion from today’s $36 billion. This is happening online with resale sites like Etsy, eBay and Grailed. It is surprising to find out that large numbers of sellers are operating in Southeast Asia, in Malaysia in particular.
We try to understand why this is the case and the answer is coming from the supply and demand. In Malaysia, the secondhand shopping is also known as bundle shopping as there are thrift stores across the country. It is ranging from roadside stalls to vast warehouses run by corporate chains.
The way it works is to buy clothes in bulk from clothes donated by people to the Goodwill and Salvation Army in the Western world and import them in countries like India, Pakistan and Malaysia who would open the bundle and sort them. Normally they will buy them by weight and sell them in pieces through online around the world.
Through the Observatory for Economic Complexity, which tracks international trade, the largest exporter for used clothing in 2019 was the United States where the exports of $720 million was recorded. The top importers were Ukraine for $203 million, Pakistan for $189 million, Ghana for $168 million, Kenya for $165 million and Malaysia for $105 million. Obviously the increased part was the markup part for the exporters.
The secondhand clothing from the developed countries is often considered as the “dumping” behavior of unwanted clothes for those less affluent countries. But it is a business of itself. The market wants them and bought by their local people, then there are the wholesalers who help to distribute them across the country.
This business has caused controversy in countries like Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda during 2015. Later this developed into a ban of importing used clothing in 2019 in order to protect their homegrown garment industries like those tailor shops for their national clothing. The used clothing was too cheap for them to compete.
The U.S. trade organization known as the Secondary Materials and Recycled Textiles Association (SMART), complained the ban on imported clothes would meant 40,000 American jobs and $124 million in export. At the time it was the Trump administration and he threatened to raise import tariffs from those countries. As the response, it was only Rwanda who backed down.
Malaysia was one of the countries in the Southeast Asia taking place in this business, and it included Thailand and Indonesia. Then there are Ukraine and Latvia in the Eastern Europe who are in the business. But Malaysia has a population who is very receptive to fashion and has disposable income for this kind of business.
Malaysia is known for its manufacturing of electronics and it can ship large shipments to the end customers like Dell and Intel in the U.S.
For this kind of business the infrastructure to distribute them throughout the country is absolutely necessary, but unfortunately in Africa, only Kenya can handle the distribution. It is another type of business that is complicated by its nature and to set up the network, both inside and outside the country can be not so easy. You will also need to be very patience and have the knowledge of knowing all the brands.
Benetton Paralleling Its Physical Store to Mirror Its Virtual Store – Just Style, February 24, 2022
United Colors of Benetton is transforming its Corso Vittorio Emanuele store in Milan to mirror its virtual store in the metaverse where its visitors can obtain QR codes to make purchases in physical stores. It is offering the brand’s experience in tune with the language of the younger crowd.
This set-up will coincide with Milan Fashion Week and will remain in the store for four weeks to attract visitors to its metaverse store. The store is redecorated in pink to coincide with the Milan Fashion week from February 22 to March 8.
Its chief digital officer, Antonio Patrissi, who said that it is Benetton’s aim to offer a dimensional link between the present and the future, that means the real and virtual experience. Benetton will be the first brand to experiment this model.
Fashion Business’s Prospects – Economists, February 19, 2022
This time the American shoppers spent 3.8% more in January that they had in December. This is under the shadow of inflation and covid-related uncertainty. This was also the fastest growing month in nearly a year. In Britain, the online fashion continued to grow year-on-year.
Ralph Lauren, a relatively upmarket American brand opened 40 new shops in the third quarter of last year alone. This included a flagship store in Milan, and shops in Atlanta, Chicago, Detroit and Miami.
Sales at Hannes & Mauritz are back to pre-pandemic levels and profitability has improved. Its CEO, Helena Helmersson, who took over the position in January 2020 was just in time for the covid, has proclaimed that she wants to double the group’s sales by 2030 and operating margin above 10% within three years.
High-end labels like Christine Dior or Gucci are immune to economic turmoil. Many of their customers may hardly notice an increase but not those mass market brands. Some passé brands, such as Topshop, Laura Ashley in the U.K. and Ann Taylor, Brooks Brothers and J. Crew in the U.S. are either gone or exited bankruptcy with new investors, but Shein, a Chinese super discounter, Britain’s Asos and Germany’s Zalando have proved to be successful with their online sales.
But fashion retailers’ success last year was driven by unusual circumstances that will not last, and once if the market has normalized, they will begin to feel the competition once again.
The Fashion Business Manual on Bêhance
