MARKET INTELLIGENCE
SHORT READ PART 1
2022 OCTOBER ISSUE
Written by : Andrew Sia
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Contents:
The Latest on Bed Bath & Beyond – WSJ, July 2, 2022
Kohl’s is Stalling Its Deal – WSJ, July 2, 2922
Inditex’s Announcement in China – Fortune Insight, July 8, 2020
H&M Sales Result in Its Second Quarter – WSJ, June 30, 2022
Nike’s Sales Dropped – WSJ, June 28, 2022
Trade Figures of European Union
Excess Inventory Leads to Off-Price Offers
Vegan Leather Brought Out by Higg Index
Lego’s Strategy in the U.S. Market
E-Commerce of Fashion in France
Zalando Sales is Affected by the Non-Essential Fashion Spending
Adidas Q2 Sales Rise on String Growth in Western Markets
Estée Lauder is Buying Tom Ford
Hugo Boss’s New Branding Resulting Growth
Fashion News Potpourri
World Economy Growth for 2022
UK Apparel Price Increase
Zara is Charging Fee for Return from Online Sales
The Latest on Bed Bath & Beyond – WSJ, July 2, 2022
It has ousted its chief executive, Mark Tritton, and engaged Sue Gove, its former retail executive and retail restructuring adviser in its interim.
It ended the month of May with roughly $100 million in cash, after burning through $300 million of its reserve and borrowing $200 million from its credit line. It has already sold off real estate to raise funds. Now it is trying to find buyer for its Buybuy Baby business.
The company’s net sales dropped 25% to $1.46 billion and it lost $258 million in its latest quarter.
Bed Bath & Beyond took Mark Tritton away from Target Corp where he was the chief merchant in 2019. By then Bed Bath & Beyond was already in trouble. He quickly sold roughly half the company’s real estate, including its headquarters in Union N.J. He also closed some non-core businesses. It was followed by transformation of the business included overhaul of the stores to make them less cluttered, scaling back discounts, replacing national brands with private-label goods.
In the same year, the board authorized a three-year share-repurchase plan with $1 billion which the company completed one year ahead of time. Last year it bought back $600 million and another $43 million in the most recent quarter. It was being criticized as unusual.
When Tritton tried to invigorate the company but was derailed by supply chain disruption caused by factory bottlenecks, shipping and port delays. This resulted seasonal items were not available in their stores during prime time like holiday season. When goods finally arrived, consumers already switched to other product categories. Its private-label business has not been receiving well by the customers. All these mismatching have resulted the goods being stock up and have to mark down to clear them out.
In the coming months we will continue to hear from it.
Kohl’s is Stalling Its Deal – WSJ, July 2, 2922
It is calling off its sales to Franchise Group Inc. at this time when the uncertain economic environment is taking its effect on the deal making.
Like other department stores, Kohl’s has 1,000 stores and has been struggling to attract shoppers amid rising competition from discounters, fast fashion chains and online companies. By adding new brands, improving its loyalty program and offering the ability to return items bought from Amazon.com to its store, its performance is still lagged behind its peers.
Lately, in an interview of its Chief Executive, Michelle Gass, who announced the rolling out of 850 Sephora shops by the end of 2023 and open 100 smaller format stores over the next four years.
Its board began to engage advisers in late January after receiving informal inquiries about buying their department-store chain. Later it launched a sale process and said to have attracted interest from 25 parties. Bidders included Sycamore Partners and Canada’s Hudson’s Bay.
It was in June it entered into exclusive deal talks with Franchise Group, who owns brands like Vitamin Shoppe and Pet Supplies Plus. Initially Franchise Group was offering $60 per share for Kohl’s for a deal valued at $8 billion. But later it was reduced to $53 per share. Franchise Group has a smaller market capitalization than Kohl’s and will have to sell real estate and add on debts. Eventually Franchise Group issued a statement confirming the deal was off. Kohl’s share fell to $28.68 and cut its sales forecast in the current quarter.
The challenge now is for Kohl’s to create new value going forward at the time when retail sales are slowing and fears for a recession looms.
Inditex’s Announcement in China – Fortune Insight, July 8, 2020
Earlier on, its three brands, Berska, Pull&Bear and Stradivarius, closed their street stores in China last year. This time they have announced that their online stores will also be closed by the end of August. These three brands are popular with many young people in China. They have also 2,500 branches around the world, and representing a quarter of Inditex’s total revenue.
They are also available on Tmall and has more than 4 million fans in the online store. It has also been announced on the home page of the Tmall flagship stores of these three brands that from July 31 they will stop selling products under the three brands.
Performance of Inditex’s first-quarter results showing that the sales were down by 44% and as a result it created a loss of €409 million that led to the closing of 1,200 stores worldwide.
With the closing of the three brands, the remaining brands will still include Zara, Massimo Dutti and Oysho.
The financial report of H&M is not better as it has fall short of expectations as of February of this year. Its global stores have decreased by 228, and more than 40 stores were closed in China for the first quarter.
Gap, who used to be successful in China, but all its stores under Old Navy have been closed.
Uniqlo, whose sales revenue and operating profit have also been performing poorly, and many branches have been closed as the result.
The rapid rise of Chinese local brands have taken over the market as the overseas brands are becoming more vulnerable to the supply chain, their prices and quality, that they soon found that their advantages are gradually diminished.
H&M Sales Result in Its Second Quarter – WSJ, June 30, 2022
In its second quarter it reported a jump in sales and profit for the second quarter because of a well-received collections that allowed it to scale back on discounts.
Sales in its physical stores and online sales increased substantially and by speeding up its supplying chain and collecting more data from customers have helped the company to reduce the need to mark down the clothes. It continues to offer customers low prices despite high inflation and stay focused on its fashionable designs.
Overall sales for the second quarter rose 17% to $5.35 billion. Gross margin climbed to 54.8% from 53.9% beat analyst estimates.
On the other hand, H&M’s rival Gap reported in May a steep decline in sales and a loss in its operation due to the macroeconomic conditions. Same for Walmart and Target, who reported steep decline in profit because of the rising cost in the supply-chain, wage and inflation-related costs.
For Macy’s, it reported strong sales as shoppers are emerging from pandemic and spent more on clothing for work and special occasions. But shoppers are turning to discount chains for necessities to offset rising costs for food and fuel.
Nike’s Sales Dropped – WSJ, June 28, 2022
For the quarter ended May 31, Nike’s total sales decreased by 1% to $12.2 billion. Net income fell 5% to $1.44 billion. The fiscal fourth-quarter results were better than Wall Street analyze predicted.
Sales in the North American market accounted for the majority of total sales, declined 5% to $5.1 billion. But sales in China dropped 19% to $1.56 billion mostly due to the Covid-19 restrictions in the country. Sales in Europe, the Middle East and parts of Asia increased as compared with a year ago.
Its supply chain is still being disrupted and has an impact on the flow of the goods. It is paying about five times the pre-pandemic rate in the container shipment from Asia to the North America. The transit time is also taking longer. But all these would improve during the coming year.
It has reported a 23% increase in its inventory in May compared with a year ago.
Trade Figures of European Union
June’s inflation for the EU’s 27-nations was 9.6%. For the Euro-zone, in total there are 19-nations, and their inflation was 8.6%. For 2022, EU’s GDP growth will be at 2.7%, for 2023, it will be only 1.5%. And for the Euro-zone, its GDP will be at 2.6% in 2022 and 1.4% in 2023.
For retail, in May, EU managed to grow 0.8%.
Its import for the first five months reached $42.94 billion, growth of 15.1% compared with the same as in 2021. Import from China was $11.59 billion, growth of 11.9% and it was 27% of the total import for European importers. It dropped slightly for 0.8%.
But on the other hand, Bangladesh, Turkey, India and Vietnam enjoyed a significant growth as Europe has turned their import more from these countries.
Excess Inventory Leads to Off-Price Offers – WSJ, July 5, 2022
We read about the excess inventory piling up at the mega retailers, Target and Walmart, and they have to go for liquidators to help them to dispose of the oversupply. Liquidators like Liquidity Services Inc., Xcess Limited, B-Stock LLC and other companies are saying that kitchen appliances, televisions, outdoor furniture and apparel are overwhelming in excess and major chains are trying to clear out. They are picking up pallets at the ports or from the warehouse as in many cases they have never been delivered to the stores.
This unusual amount of excess inventory is the result of the temporary shutdown of stores at the beginning of the pandemic. But when the stores were started to open, the factory backlogs and congesting at ports delayed the retailers with the shortage of goods to sell.
In order to compensate with the situation, retailers ordered extra goods and placed them in advance to ensure that products can arrive on time. They want to make sure that they have merchandise on the shelves.
Earlier on at the pandemic, consumers were buying comfortable clothes and home items. This shifted later to dressier items and traveling and entertainment started to become feasible. At the same time inflation is pushing up the costs of necessities, such as food and gas, leaving less money for discretionary items.
This mismatch, due to the different aspects, has left large chains, such as Target, Walmart, Gap and Macy’s with excess goods they need to clear out. Not to mention that for those out-of-season items, like Christmas goods still got stuck from last season, and winter clothing, swimwear, lawn furniture,
When things are in excess because of the mismatch with items and seasons, and the engage of the liquidators, would mean the retail industry won’t be doing great. The inflation at this time has dampened the desire of spending. We will continue to hear more about the poor performance at this time.
Vegan Leather Brought Out by Higg Index – New York Times, June 12, 2022
Vegan leather newly joined as a material which is replacing leather. It is using fossil fuels, an inexpensive, petroleum-based materials than has transformed the fashion industry, and rebranded the “plastic-leather” into “vegan-leather”.
Underlying the effort, is an influential rating system—Higg Index—that access the environmental impact of all sorts of fabrics and materials. The Higg Index was introduced in 2011 by some of the world’s largest fashion brands and retailers, led at the time by Walmart and Patagonia, to measure the brands’ environmental footprints by cutting down the water used to produce the clothes and shoes, and reining in their use of harmful chemicals.
The Higg Index also favored materials using fossil fuels over natural fibers like cotton, wool or leather.
The Sustainable Apparel Coalition underwrites the index and recruited almost 150 members from the brands including H&M, Nike, Amazon and Target and claimed that the index uses data obtained scientifically and receiving reviews externally.
The index rates polyester as one of the world’s most sustainable fiber. The Higg Index also rated the elastane, also known as Lycra or spandex.
The Higg Index is on its way to become a de facto global standard. In Europe, policymakers are set to lay down rules on how brands should back up on their environmental claims. In New York, a bill is to hold fashion brands accountable for their roles in climate change. Higg Index indicated that they could be used to benchmark in both.
It is known that the fashion industry is responsible for 8-10% of the world’s emissions of carbon dioxide that caused the global warming. And the United Nations estimates that it is more than all international flights and maritime shipping combined.
Natural materials, such as cotton and silk, which their cultivation is water-intensive and involve heavy pesticide use, are not in favored by Higg Index. Leather is coming from ranches and can be tied to activities that are extremely damaging to the environment. It is linked to the Amazon rain forest for its deforestation. It is also unfavored. Production of polyester and other materials has tripled since 2000, to nearly 60 million tons a year. Silk and wool have declined, but cotton has increased moderately.
The International Sericulture Commission, who represents 21 silk-production countries, filed a complain last year with the Federal Trade Commission accusing the Higg ratings as incorrect and creating damage to the natural fiber industry.
In 2020, leather-industry gathered from around the world and called on the Sustainable Apparel Coalition to suspend its poor scoring for leather. The vegan leather is using polyurethane, which is coming from fossil fuels. Beef remaining part of the food chain and in 2020, a record of 5 million hides, or about 15% of all available hides, went into landfills. This information is coming from the U.S. Hide, Skin and Leather Association.
Now those credit ratings are coming under fire as there are questions about their environmental toll as well. There are critics that some of the data underpinning the index comes from research that was funded by the synthetic industry that hasn’t been fully opened up to independent examination. The Sustainable Apparel Coalition makes the Higg scores available to the public, but full access to the underlying data is limited to companies that pay a fee. And companies can also pay a fee to submit new data to the coalition and obtain company-specific scores.
Lego’s Strategy in the U.S. Market – WSJ, June 16, 2022
Lego, the Danish company, decided to spend $1 billion to build a new factory in the U.S. as the world’s largest toy maker looks to serve the growing demand for its bricks in the region. It is the company’s decision to focus on its supply chain strategy of making most of its bricks locate to its key markets. It is to reduce the lead time and to deal with the supply chain constrain during the pandemic.
Currently it is supplied from its Monterrey factory in Mexico. In the future it will be from Chesterfield County, Virginia. This will also be the supply hub for markets like Mexico, Brazil and other markets in South America.
Lego is known for its global existence for the manufacturing and the one in the U.S. will be its seventh location. Already the plan to open a Vietnam factory to serve big markets in Asia, such as India, Indonesia and the Philippines. It also has factories in Denmark, Hungary, the Czech Republic, China and Mexico.
The U.S. is one of Lego’s biggest markets, with about 100 Lego stores and around 2,600 workers. Lego tried to secure its distribution network, including counters in the department stores, arts-and-crafts retailers and discount stores. This was the measure taken after the bankruptcy of Toys “R” Us.
In recent years, Lego has been using recycled PET plastic, regenerated from soda bottle to reduce its carbon footprint.
E-Commerce of Fashion in France – ecommerceDB | Insight, August 4, 2022
We learned that the French are very active online shoppers from a study that we have just came across from the French commerce association—Fédération du E-Commerce et de la Vente (FEVAD). Every French internet user made 4.2 online transactions per month on average in 2021 and spent an average of €3,100 in e-commerce over the whole year, compared with €2,700 in 2020.
What exactly do the French online shoppers spent on and the following chart shows us the behavior of the shoppers in the different categories:
France’s leading online store in fashion category in 2021 was led by veepee.fr which generated sales of €1.6 billion. It slide slightly -5% compared with 2020. The second position was led by shein.com with €841 million
Zalando Sales is Affected by the Non-Essential Fashion Spending – Just Style, August 4, 2022
Zalando, Berlin-bases fashion e-retailer has published its second-quarter results:
- Q2 Gross Merchandise Volume (GMV) was flat compared to Q2 2021 at €3.8 billion
- Revenue down 4% year-on-year to €2.6 billion
- Adjusted EBIT of €77.4 million, resulting in a margin of 3%
Zalando expects improved profitability and a result to growth in the second half of the year, and the company expects GMV to grow 3-7% or €14.8 to €15.3 billion, and revenue to grow 0-3% or €10.4 to €10.7 billion and an adjusted EBIT of €180 to €260 million in the same period.
But Zalando’s sales continue to falter, falling by €110.1 million to €2.62 billion in Q2 of 2022 after issuing profit warning in June, revising its revenue growth guidance for 2022 from 12-19% to just 0-3%.
This is the result of the reversal of consumers’ shopping habits, and many have returned to physical stores after primarily shopping online during the pandemic. Also due to the turbulent economic environment that is hurting the consumers’ willingness to spend.
With the competition of About You and Asos, Zalando has to assure the competitiveness for going forward.
Adidas Q2 Sales Rise on Strong Growth in Western Markets – Just Style, August 4, 2022
Adidas sees its growth in Western market despite the disruption of its supply chain from Vietnam and the loss of revenue from Russia.
Revenues in North America increased 21% for the quarter in both direct-to-market and wholesale. Revenues in Latin America increased 37% and Asia-Pacific by 20%.
From a category perspective, revenue developed in Adidas strategic growth categories—Football, Running and Outdoor—are all growing in double-digits.
Its revenues grew 10% to €5.6 billion in its second quarter, up from last year’s €5.08 billion.
Estée Lauder is Buying Tom Ford – BOF, August 5, 2022
Estée Lauder Companies already has a licensing agreement to make, market and distribute Tom Ford beauty products, including both fragrance and cosmetics, which is giving them hundreds of millions in sales revenue a year.
It is reported that Estée Lauder Company, a company currently with a market capitalization of over $96 billion, is in talks to buy Tom Ford, the Los Angeles-based fashion label at $3 billion valuation.
Hugo Boss’s New Branding Resulting Growth – BOF, August 3, 2022
The German retailer anticipates sales in 2022 to increase between 20% to 25% to hit a new record level between €3.3 billion and 3.5 billion. Previously it was mentioning sales between €3.1 billion and €3.2 billion.
The brand credited its growth for the launch of its individual “Boss” and “Hugo” lines, to distinguish its higher-end and more junior product offerings. It achieved an increase of 34% in its second quarter sales compared with the same period in 2021.
Fashion News Potpourri – Just Style, August 4, 2022
Levi Strauss & Co unveiled plans to hit $9-20 billion in revenues by 2027 by strengthening its brands to its investment in stores, online platforms and other digital capabilities. This would reflect 6-8% organic annual growth and targeting 15% adjusted EBIT margin by the same year.
UK online fashion retailer Asos has started its trial partnership with clothing resale Thrift+ to accept customers to sell pre-owned clothes for credit which can be spent on Thrift+, donated to charity, or redeemed as Asos vouchers.
It is Asos’ 2030 Fashion with Integrity strategy. According to Asos’ statement, In order to have a successful commercial future, the fashion industry needs to be both sustainable and circular.
Lead funders for the Apparel Impact Institute (Aii) for $250 million to be used for the Fashion Climate Fund by H&M Group, H&M Foundation, Lululemon and The Schmidt Family Foundation as a collective funding model for fashion between philanthropy and corporate entities. The fund can be estimated at $2 billion across various assets, to help to meet industry’s goal to halve carbon emissions by 2030.
Nike’s footwear is using recycled polyester which is made up of 38% in fiscal year 2021. This was double the amount used in its 2020 fiscal year.
The annual climate footprint of fashion industry close to 3.3 billion tons of CO2 equivalent is similar that of the EU.
Japan, world’s third largest apparel consumption market with retail sales totaling $100 billion in 2021.
U.K. clothing and homeware retailer Next Plc reports a 2.5.% in full-price sales compared to pre-pandemic levels in the second quarter. The analyst attributes to a hot summer, a return to normalcy and competitor store closures.
UK Apparel Price Increase – Just Style, August 4, 2022
According to an analysis from the UK’s Office for National Statistic (ONS) suggested that womenswear clothing prices in the UK have increased by 37% over the last five years, and menswear by 25%. This has outpaced UK wages which is only 20% higher than they were in early 2017.
Other garments have gone up as the following:
Brassieres – 20% more expensive
Panties – 37%
White T-shirt – 46%
Non-branded jeans – 79%
Women’s jackets – 34%
Blouses – 43%
Skirts – 54%
Boots – 12%
Tights – 34%
Cardigan – 55%
Scarf – 40%
Trainers – 44%
World Economy Growth for 2022
Global Data forecasts the world economy will grow at just 3.5% in 2022, following 5.9% growth in 2021. At the same time, global inflation rate is projected to rise 6.5% in 2022 from 3.5% the previous year due to supply chain disruption and the Ukraine-Russia war.
Apparel business will be constrained by rising commodity prices as result of the Ukraine/Russia war. It created the consequences on the supply chain, price of textiles, and further inflation on consumers will result in spending being diverted from apparel purchases to more essential items across Europe.
Zara is Charging Fee for Returns from Online Sales – Just Styles, August 4, 2022
Zara is going to charge a fee for returns to drop-off points which is affecting everything clothing and footwear retailers to have done to make shopping online more convenient, including the cost of delivery and returns.
As of May, Zara charge returns to a drop-off point in the UK at £1.95 while returns to stores remain free. This may help the profitability of the online operation as the return charge may help to recoup some of the expenses.
The return of the retail operations may also be challenging as consumers have been shifted to purchase online for almost two full years. During that time, the community was being lock down and the items being purchased were all restricted to loungewear. Now the item purchased have returned to pre-Covid trends, and the return rates are back to the old days. The cost has also increased by the higher fuel price.
Zara is very brave to make this first move and take up this change. But the store presence of Zara are restricted to bigger cities which is not really very accessible for those remote areas where there are this group of consumers who are using online purchase as their means of purchasing Zara items. But for retailers who have a wider choice of locations, this won’t be a problem. For those customers who have formed the habit of ordering a vast number of items and return the majority, this can be a challenge to them as their habit would have to change.
Retailers may use the shop for generating more business when the customers are returning their purchases physically. With the return of the online purchase where the return will remain as the return and no sales can be generated at the instance.
The retailers have the delivery saver schemes, such as Asos Premier, Boohoo Premier, Next Unlimited, which retailers can keep free returns exclusively for their royal shoppers to encourage sign-ups. With additional benefits, they can use to lure shoppers to consider more purchases.