MARKET INTELLIGENCE SHORT READ
PART 1
2022 JANUARY ISSUE
Written by : Andrew Sia
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Contents:
Rent the Runway Went for IPO
Hermès Secondhand Market
Darling in the Stock Market for the E-Commerce
Would China’s New Policy Changed the Behavior of the Consumers for the Luxury Brands
Holiday Season in the United States
Alibaba Singles’ Day Posts Record Sales
COP26 for the Fashion Business
Farfetch-Richemont Deal to Shape the Future of Luxury Online
Singles’ Day Double 11 The World’s Largest Shopping Event
Fashion Charter’s Response at the COP26
Geopolitics is Hurting International Brands in China
The Singles Day Shop Fest Was Dampened by Many Factors
Wool is Used in the New Sustainable Fashions
A Hundred Years of Prêt-à-Porter
Climate Change Effect on the Apparel Industry
The First Glimpse at the Retailers at Yearend
Lego’s New Plan in Asia to Meet Market Demand
Rent the Runway Went for IPO – WSJ, October 21, 2021
It called itself, Closet-in-the-Cloud, went for filing on October 25 with the valuation of $1.5 billion, which is roughly half a billion dollars more than when it was valued in March 2019 before the pandemic. In its prospectus it cited gross profit excluding product depreciation. It is only quoting gross profit including its costs, expenses and capital expenditures. And for the fiscal year ended January 31, 2021 in its prospectus showing a gross profit exclude product depreciation of 54%. But based on adjusted earnings before interest, taxes, depreciation and amortization, the e-commerce company hasn’t made any money since spring 2019.
Rent the Runway, a New York based company, is a business through subscription and one-time fashion rentals and resale offering. It was founded in 2019 and claimed to have 144,000 subscribers and went on public during the pandemic when the revenue fell nearly 39% and active subscribers by nearly 59% versus the previous year. Its assets are the clothes, altogether 18,000 styles across more than 750 designers in sizes ranging from 00 to 22.
Having describing itself as “Closet-In-the-Cloud”, the company is using technology and data to capture its customers their demand for brands to determine the lifetime value of its inventory. It has the costs for physically sending the garments across the country, going through the physical wear and tear, cracking of the hemming, missing pieces for the decorative and sequences, and stained by spilled drinks.
Its business is confined to internet and has spent less than 10% of its total revenue on marketing.
On October 27, its CEO, Co-Founder and Chair of the Board at Rent the Runway, Jennifer Hyman, took the company for IPO. By renting the closet it claimed that they could reduce the environmental impact on fashion.
Already the market is saying that its valuation is too high compared with its peer companies like Poshmark, doing business with buy and sell new and used clothes, shoes and jewelry, and ThredUp, an online consignment and thrift shop, and even Stitch Fix, a young company selling new, rather than renting used clothing and has more than four million active customers.
Hermès Secondhand Market – WSJ, October 22, 2021
Its sales over the three months through September increased by 40% compared with the same period of pre-pandemic 2019. The brand is in strong demand in both the US and China market.
The Kelly and Birkin handbags are caught in a supply crunch as the French factories had to shut down for weeks during the lockdown due to the pandemic. It has caught short in supply and the people are turning to secondhand market for supply.
It is one of the few luxury brands, like watch makers Patek Philippe and Rolex, whose products are more expensive to buy used than the new ones.
Darling in the Stock Market for the E-Commerce – WSJ, October 19, 2021
Saks Fifth Avenue has spinoff it e-commerce, Sakes.com and is looking for a target valuation of $2 billion in its IPO.
Macy’s e-commerce operation has shown impressive revenue growth compare with its bricks and mortar business. In 2019, its e-commerce grew 7.7% and last year, in 2020 it grew 23.7%. Its physical store sales dropped 16.3% and when compared with 2019. But also Macy’s has closed the less productive stores during the lockdown.
Investors are more generous with the e-commerce spinoff and Macy’s valuation is close to $6 billion for the spinoff. Its business is expected to grow to $10 billion in the next three years.
Would China’s New Policy Changed the Behavior of the Consumers for the Luxury Brands – FT, October 25, 2021
Chinese consumers are still craving for luxury goods although its leader, Xi Jinping babbled “common prosperity”, “ability to get rich”, and the bashing of the technological giants would have yet to see its intention.
Chinese luxury market is estimated at $54 billion in 2020 and it is almost certain that it will grow in 2021. This has already been taken into account that Chinese tourists have no access to travel to Paris and Tokyo for shopping and not to mention about any of those duty-free hubs.
It would be interesting to see when the Chinese tourists are allowed to travel again and would they have any self-refrain in their shopping behavior. Or would it be like the opening of the floodgate?
Holiday Season in the United States – WSJ, October 23, 2021
Goods are in short supply and perhaps it can become obvious from the display at the shelves in the stores. They are short in supply, slow from being shipped from overseas, and hard to get clear from the dock and move to the stores. It some cases it is taking roughly twice as much time to move products from Asia to North America as in normal time. There has already been the shortage of truck drivers, and at this time the situation is more obvious.
From the retail side, there were 1.3 million job openings in this sector in end August. In August 2019, this vacancies were 901,000 in according to the Labor Department. Both Amazon.com and Walmart announced that they would like to hire 150,000 seasonal workers at this time. And for shops who are unable to hire enough labor will suffer because of their struggling to serve customers during the most profitable time of the year.
Already more shipments are arriving at the four busiest container ports in the United States—Los Angeles and Long Beach Port on the West Coast and New York and New Jersey, and Port of Savannah on the East Coast. The value of inventory at general merchandise retailers, a group that includes giants like Walmart and Target, as well as department stores came to $87.2 billion in August 2021, compared with $76.3 billion in August in 2020. But the year before in 2019, it was $82 billion. August 2021 was the all-time high, but this can also be the reason that the retailers have tried to bring the shipments earlier to ensure the inventory.
Alibaba Singles’ Day Posts Record Sales – BOF, November 12, 2021
The e-commerce company’s shopping festival posted record sales of ¥540.3 billion or $84.5 billion which is a boost needed for the firm following a year of heightened regulatory scrutiny.
COP26 for the Fashion Business – BOF, November 8, 2021
It was a two-week of frenzied negotiations aimed to keep this climate summit from default. It has pointed out that the fashion industry is responsible for between 2 and 10% of global emissions. The general outline is still to cap the global warming at 1.5 degrees Celsius about pre-industrial levels.
The two-week marathon of technical talks and political arguments and Barack Obama, Leonardo DiCaprio and Greta Thunberg were among the celebrities who spoke during the Glasgow event.
Some signs of progress, the US and China, the world’s number 1 and 2 carbon emitters, finally issued a rare joint declaration to cooperate on climate change, although China has not made an effort to join the COP26.
This time, methane emissions have been brought out and cutting down on methane, a potent warming gas, has been a key US priority at COP26, and the US-EU pact is to cut methane emissions by 30% by 2030.
For the fashion industry, the UN Fashion Industry Charter for Climate Action steps up its commitment for its new goal to achieve 130 signatories, aligning efforts to cap global warming as well. And under the refreshed charter, signatory brands must pledge to reach net-zero emissions no later than 2050 and either halve their emissions by 2030 or set science-based, means credible targets by the end of 2023.
The growing consumption of fashion will result the increase of 50% more emissions by 2030 in according to estimations in the new report from the Apparel Impact Institute and World Resources Institute.
One of the way to reduce the emissions is by shifting the energy to renewable sources and phase out coal from the supply chain by the end of 2030.
Different initiatives are taken by groups like the Nonprofit Textile Exchange launched a call for the use of the preferred materials, such as organic cotton or recycled fibers. Initiatives like the lowering of the tariffs and import duties for such materials can be taken as an encouragement.
We all know that price is always an issue and they get squeezed along the supply chain, but this time the farmers should have been spared and cost should be leveled in such a way that farmers are unaffected.
Farfetch-Richemont Deal to Shape the Future of Luxury Online – BOF, November 14, 2021
Farfetch is a British-Portuguese online luxury fashion retail platform that sell products from over 700 boutiques and brands from all over the world with its headquarters in London. It was founded in 2007 by José Neves.
Richemont is a Switzerland-based luxury goods found in 1988 by a South African businessman, Johann Rupert. It sells jewelry, watches, leather goods, pens, clothes and accessories. It owns many luxury brands and in its stable, it carries all the following labels.
A deal is going on and a partnership will soon take place that can seal the future of the online business with the luxury brands. Richemont is not a total stranger in the e-commerce as it has spent billions of dollars to make it work through Net-a-Porter which it acquired. Then it was spun off and merge with Yoox which it acquired again. But this time it wants to control its online business through Farfetch.
Something to watch out there is Mytheresa, which is a German e-commerce luxury fashion company with its head quarter in Munich, Germany. It was founded in 2006 and it operates in local-language based website for international markets in English, German, Spanish, French, Italian, Arabic, Chinese and Korean. Its CEO is Michael Kliger.
Ssense, it is a multi-brand retailer based in Montreal specialized in the sales of designer fashion. It was founded as an e-commerce platform in 2003 by three brothers: Rami, Bassel and Firas Atallah.
Singles’ Day Double 11 The World’s Largest Shopping Event – Jing Daily, November 4, 2021
Its pre-sale kicked off on October 20, and it is expected that 900 million shoppers to take part in the festivals. This is set to be the biggest one yet. Luxury brands like Gucci, Burberry, Chopard, and Coach are among the record of 290,000 brands that have all signed up to reach the 900 million Chinese customers out there.
The lead players are no longer Alibaba, Tmall and JD.com, but through Douyin, as well as Pinduoduo, Kuaishou and Xiaohongshu have their own marketing campaigns.
China rides on the back of the global climate summit COP26 which coincide with its closing date after the official kickoff of Double 11. China wants to emphasize that it is also the victim of natural disasters caused by the global warming, not only historically but also quite recently. This year we saw the devastating flooding in Hunan province and luxury brands donated millions for the relief effort.
During the last week of October, China released a white paper outlining its effort to tackle global warming and proposed its detailed road map and plan to achieve those targets. It also tied in with Xi Jinping’s “concrete actions”.
In the meantime, the Chinese younger generations are shifting towards an environmentally-friendly lifestyle and the typical example is the majority of luxury resale buyers in China who are under 30.
Campaign like “green-shopping voucher” worth $15.7 million is to encourage consumers to shop sustainably. And already a notably 8% of consumers who took the survey by Alibaba expressed to spend less this time for the sake of sustainability. This Double 11 will be its greenest festival so far.
On top of all these, it claims that by 2025, China will become the world’s biggest luxury market globally and it will overtake the US.
Fashion Charter’s Response at the COP 26 – FT, November 11, 2021
The signatories to the updated UN fashion charter, including LVMH, Kering, Chanel, Nike, Adidas and Puma, represent only a small fraction of the apparel and footwear industry.
During this time the fashion brands like Burberry and H&M are among the 130 companies who have pledged to halve their greenhouse emissions by 2030. But now they realized that their original target for cutting the carbon emissions by a third which was set in 2018 was inadequate.
The global fashion industry was responsible for about 4% of the total greenhouse emissions in 2018 which is comparable to the combined emissions of France, Germany and the UK.
The brands have 12 months to submit their plans on how they will reach the updated target.
The textiles sectors are called for using the “environmental preferred” materials such as organic cotton and recycled fibers. Approximately 70% of the industry’s greenhouse emissions are coming from energy-intensive raw material production. The brands are going to use their influence to drive to reduce the carbon emissions.
Geopolitics is Hurting International Brands in China – WSJ, November 11, 2021
This time it is Adidas, whose dependency on the China market is important. Its third quarter revenue for mainland China and Hong Kong fell 15% after dropping for 16% in its second quarter. It was hit by a consumer boycott that began earlier this year as part of a consortium of Western brands who raised concerns over the force-labor allegation in the Xinjiang province in China.
This has been a general dilemma facing Western companies in China as Beijing has tighten up rules for businesses and geopolitical situation has also intensified. But on the other hand the Western countries are standing firm on human-rights and the situation isn’t comforting.
China remains as the strategic market for growth for apparel brands such as Nike, H&M and Puma, but the foot-traffic for the customers have reduced and the China market is also becoming more competitive with the entry of the Chinese brands.
Aside of the consumer’s boycott, the brands are also suffering from supply-chain disruptions, factory closures, power-shortage, and all these are adding cost to the business.
It will be wise to develop new products and try for new markets.
The Singles Day Shop Fest Was Dampened by Many Factors – WSJ, November 12, 2021
It was squeezed by the supply chain crunch, but as usual China would say that this year reported more sales than before. Knowing that cost, went up with the fact as raw materials and energy cost increased while the global semiconductor shortage continues to affect the electronics production. Some imports were either arriving late or not at all due to the global logistic crunches.
Alibaba said that this year’s sales hit a record of $84.5 billion and JD.com also reported a sales record of $54.6 billion.
The power outages affected the factory production and the increase of the raw material cost for steel and copper went up about 40% year-to-date for home-appliance makers. For the apparel makers, the yarn and wool went up about 30%. In October, the ex-factory price increased by 13.5% compared with a year ago.
This time the overall prices haven’t been increased but the sales discounts were reduced significantly. The promotions were refrained and unlike before. The sentiment for the e-commerce players had been toned down as the government warned against improper sales practice during the Singles Day.
Wool is Used in the New Sustainable Fashions –
Promoted by Jesson + Company, November 22, 2021
As a fashion industrialist, I have never come across wool, except in my earlier days that acrylic was marketed and a lot of the knitted wears were exported from Hong Kong and earning a lot of revenues for Hong Kong.
I come to know from an e-mail I received and it was promoting two Canadian designers for their fashion using the wool yarn.
Wool has been known as a flexible fiber and it has the following properties:
- It is a natural, renewable and sustainable all-natural fiber that is harvested annually during the shearing season at no harm and no inconvenience to the sheep.
- It is one of the most effective forms of all-weather protection known to man.
- It is a natural insulator with a repellent exterior and absorbent interior work together to retain heat.
- It is breathable, making it the perfect fiber for winter and summer clothing. Its breathable characteristic allows it to absorb and release moisture and perspiration before bacteria has a chance to develop.
- It has a natural purifying property and it is resisting to staining and reduce cleaning.
- It is flame retardant and has a naturally high level of UV protection.
It quoted “everything old is new again”, as the fashion statement and I think that this will get a lot of resonances.
For contact please approach the following:
Nicola Blazier
Jesson + Company
nblazier@jessonco.com
1-416-788-3316
She can also be reached at Facebook, Twitter and Instagram.
A Hundred Years of Prêt-à-Porter
I would like to share the following to those designers out there in our fashion industry:
As decades have passed, the French trends changed steadily:
the Thirties defined a new femininity;
the Forties and Fifties saw the rise of modern glamor;
the Sixties, a youthful style;
the Seventies, both hippie and bourgeois vibes;
the Eighties empowered women to enjoy both feminine and masculine dress codes;
the Nineties, fashionable streetstyle, while glorifying minimalism;
the Noughties, from 2000 to 2009, it was all about being fun, fame and rock
the 2010, from 2010 to 2019, athleisure, revival of austerity-era
Climate Change Effect on the Apparel Industry – Just Style, November 17, 2021
For the apparel industry to observe sustainability, traceability and transparency is the practice that has not been implemented. Take transparency for instance, although the study from the apparel industry insiders believe that two-third of its players feel that it is an extremely important issue, and 80% of them aim to implement transparent solutions by 2027, five years from now. And only 20% of the respondents have a comprehensive overview of all their stakeholders in their supply chain but the traceability is still very poor. This is due to the lack of following initiatives from the apparel industry as they have not thought of building them into their corporate culture:
Company reputation – Supply chain transparent can boost their reputation as a responsible corporation.
Business opportunities – More business will be attracted from the brands and retailers and get ready for stricter regulations to face the consumers.
Profitability – With this excellence in operation, which can not only lower the costs but also preserve the margins and even fetch a higher price from the market. When there is no need for repair in operation, this can already maintain the margins.
This is part of the link that the industry will start to learn how to crack and how to make it perform on the sustainable issues. To eliminate the “ghost” factories in the supply chain is becoming something inevitable.
The First Glimpse at the Retailers at Yearend – WSJ, December 9, 2021
Entering into 2022, it might be a challenging year for retailers who are selling clothes to be under pressure continuously by higher cotton prices, together with shipping and labor costs. Already Nike said that it took them 80 days to move products from Asia to North America, it is twice the amount of time before the pandemic. Gap mentioned that it has 16% more inventory in transit in the last quarter compared with a year ago.
But looking back at 2021, it was a year both for increased sales and profitability. Demand was strong due to the stimulus checks from the government, a full year of lockdown with consumers cladded in pajamas and sweatpants, and emboldened with vaccines the US clothing and accessories stores have raked 11% more revenue that in 2019. With the tighter inventory helped to avoid discounts and even the off-price retailers such as TJX, Ross Stores and Burlington have enjoyed their best season.
We don’t know yet the consumers’ sentiment for 2022, but the trend will continue.
Lego’s New Plan in Asia to Meet Market Demand – WSJ, December 9, 2021
Lego A/S, the world largest toy maker by revenue, plans to invest a $1 billion new factory in Asia to serve the growing demand for its toy bricks in the region. The factory will be set up in Vietnam and it will used to serve markets like India, Indonesia and the Philippines. Currently, these countries are served from their China factory, but its China factory will be dedicated only to the China market going forward.
The factory in Vietnam will be its sixth factory, and they already have factories in Denmark, Mexico, Hungary, Czech Republic and China. The factories are duplicating one another in molding, decorating, packaging, and allow the factories to help each other when needed.
The factory in Vietnam will be a carbon-neutral factory, powered by rooftop solar panels.
According to Lego A/s, with its headquarters in Denmark, that the toy market in the Asia-Pacific, also the world’s largest market, is forecasted to grow about 28% by revenue between now and 2025, compared with growth of 24% for the world market.
Lego’s rivals Mattel Inc. and Hasbro Inc. have been challenged by the recent supply-chain disruption around the world. Lego is going to expand its regional productions with new equipment and apply new technology to its factories.