MARKET INTELLIGENCE
SHORT READ
PART 1
2023 JANUARY ISSUE
Written by : Andrew Sia
Share this article !
Contents:
China’s Fast-Fashion Brand Shein is Opening Warehouses in the US
Gap and Kayne West’s Fallout
Uniqlo is Launching a Clothing Repair Service
Wearing the Bra to be Seen
Patagonia Set for Fighting for the Climate Change
Winner and Losers in the Fashion Retail Business
Controversy of Kayne West at Paris Fashion Week
Ralph Lauren Finds It Growth by Trading-Up
Nike is Trying to Control the Practice by Its Enthusiasts with Special Purpose
LVMH’s Third Quarter Result
Reality TV Star Kim Kardashian Fined for Touting Crypto
Nike’s Inventory Reaches the Alarming Levels
Adidas is Pulling Away from Kayne
Fast Fashion Companies Are Playing Lip Services for Sustainability
Della Valle Family Failed the Planned Tod’s Buyout
China’s Fast-Fashion Brand Shein is Opening Warehouses in the US – WSJ, September 16, 2022
Shein, the online retailer plans to open warehouses in the U.S. to increase its sales penetration and improve its service. It is planning to build three large distribution centers, the first one is in Whitestown, Indiana, which currently has 1 million square feet, this will be expanded to 1.5 million square feet. Second one is planned for spring of 2023 in Southern California. The two centers will hire a combined workforce of 3,000 people by 2025. A third distribution center is being planned for the Northeast.
It is also planning to expand its operation by hiring several hundred employees at its U.S. corporate headquarter in Los Angeles, its Washington D.C. office, and potentially in other American cities.
Shein is a privately held company known for its extremely low-price and trendy fashion and accessories. Although it has not disclosed its sales revenue, Credit Suisse estimated its sales in 2022 in the range of $10 billion. The company was founded ten years ago and was valued at $100 billion last year when it was raising money from global investors.
Global fast fashion giant Zara sells both in store and online for $19.4 billion in the fiscal year ended January 31, 2022. This year for its first 6 months of sales to $10.8 billion, a jump of 29% as ending July 31, 2022.
Currently, Shein sells exclusively online and ships its merchandise directly from China to more than 150 countries. The U.S. is one of its largest markets. Customers have to wait 10 to 15 days for the delivery. Unlike its rivals, Zara and H&M, who have physical stores to fulfil their online orders.
Gap and Kayne West’s Fallout – WSJ, September 16, 2022
Gap is winding down its partnership with Kanye West which Kayne West is known for his Yeezy fashion brand covering sneakers. The reason that Kayne West used is the unalignment between him and Gap and his apparel has not been released as planned. Agreement was signed with Gap that 40% of the Yeezy Gap assortment would be sold in Gap’s stores during the third and fourth quarter of 2021, its first item, a Yeezy Gap hoodie went on sale in the fall of 2021 and it was available online.
A new batch of Yeezy Gap products is scheduled to arrive in the stores for the opening of fall and holiday season and all the items will be priced below $100 in contrast with more expensive Yeezy Gap products engineered by Balenciaga products. And Balenciaga already started the Yeezy Gap hoodie and put it in their stores in July 2022.
Gap was also supposed to open five retail stores and use them for Yeezy Gap products by July 31, 2023.
Kayne West’s 10-year contract with Adidas which runs through 2026 is not running well either. Kayne West has been complaining about his designs have been stolen and Adidas is not fulfilling the conditions in the contract.
Adidas Chief Executive Kasper Rorsted said in August that Kayne West is probably their most important partner they have. Kayne West made his footprint in music and since then he wanted to have his influence in fashion. And in 2009 he interned at Fendi, the Italian fashion house.
In 2019, he attempted to become the artistic director of LVMH but lost to his friend, Virgil Abloh, who unfortunately died of cancer in 2021.
Before his collaboration with Adidas, he joined Nike and released the coveted Nike Air Yeezy II. Later, his high-end line of Yeezy sneakers for Adidas released in limited quantities were sold out very quickly.
To have an idea of what Kayne West’s musical career is all about, we tried to look for one of his songs from the YouTube.
Uniqlo is Launching a Clothing Repair Service – FT, September 17, 2022
To become more in line with Uniqlo’s sustainability plans, the company has launched a repair service at one of its London flagship stores to step up its part of the sustainability plan. This service has been offered in the basement of its flagship store on the Regent Street in April. It is expanding the services as customers are asking for putting the patches and embroidery. Prices range from $2.25 (GBP1.00) for punching a new hole in a belt to $11.40 (GBP10) for invisible repairs of inseam damage in trousers. The same repair services have been rollout in their Berlin and New York flagship stores.
Repair services are available for high-end retailers like Selfridges, Harrods and Browns for providing service that can grow the customer loyalty. To bring the repairing skill inhouse will need to have a full plan to make it viable.
It is unlike the resale which is already complicate enough by itself and young customers are flocking in the resale market place with fashion outlets like Asos, Zalando and H&M, and there are resale apps like Depop and Vinted.
Repair is to prolong the life span of a clothing, but we have to understand that clothes are made very inexpensively in Asia and it contradicts with the cost of hiring staff in the UK to repair them. We have found the repair and the alteration work providing in the laundry shop which are normally operated by the Koreans and Chinese, and this is the situation in the U.S. The repair work would go for those clothes with functions and higher value instead of trend-led fast fashion.
Uniqlo is trying to emphasize its extended producer responsibility (EPR) and its clothing is made for everyday living with particular functions like elasticity, warm and quick drying. It has also included the features like adding the piping, patches and embroidery to enhance the products. This offering of customization added the value of the clothing for the resale purpose.
To change the mindset of the consumers for the fast fashion which is poorly made, cheap and doesn’t last long is not going to be easy. But the extended producer responsibility (EPR) may help the customers to understand the extending the life of clothes should also be important.
Wearing the Bra to be Seen – WSJ, September 19, 2022
This summer we have seen more women wearing the bra as the top in the New York City. At New York Fashion Week earlier this month, designers are bringing out more bras with models using it as a bra top. It was unusual before, but it is now becoming more visual although it is still drawing attention and some even made the headline.
We have heard statement like, “The bra top is like the new T-shirt.” It is becoming part of the wardrobe when we speak. They are worn under blazers but often time by itself when it is hot out there.
We can remember in August 2019 when Katie Holmes wore a taupe cashmere bra top by the New York brand Khaite with a matching cardigan. At that time it was fractionally visible.
Today you can find bra tops selling very well as a matching set with a skirt or a trousers.
The writing continued to tell the beginners to use a $30 Nike bra top or sports bra with a cardigan over it as a trial.
That makes me remember in those days when I was a bra manufacturers we were already talking about bras that can be “wear to be seen.” I can vividly remember that it was referring to the bustier and the waist cincher in those days. Bra alone could be a bit too daring by then.
Patagonia Set for Fighting for the Climate Change – New York Times, September 15, 2022
The founder of the outdoor apparel, Yvon Chouinard, is known for its brand – Patagonia, is giving his company away. Instead of selling the company or taking the company public, Mr. Chouinard, his wife and two adult children, have transferred their ownership of Patagonia, value at around $3 billion, to a special designed trust and a nonprofit organization. They have specifically gone for the independence of the company and ensure that all its profit, about $100 million a year, are spent on the fighting for the climate change and protect the underdeveloped land around the globe.
Mr. Chouinard is known for his lifelong love of environment and disregard for business norms. Mr. Chouinard is now 83 years old and founded Patagonia half a century ago. The company will continue to operate as a private, for-profit corporation based in Ventura, California.
It has the annual revenue of $1 billion in selling of jackets, hats and ski-pants. Mr. Chouinard and his family no longer own the company since last month. The trust will be overseen by family members to ensure that it is a socially responsible business and gives away its profit.
Most billionaires would give away a fraction of their wealth, and expect to get richer every year. But it is not the way as Mr. Chouinard and his family have done.
Winner and Losers in the Fashion Retail Business – WSJ, September 15, 2022
In this report, we begin with the losers.
ASOS, the online-only fashion retailer issued profit warning that its full-year profits will be at the bottom and sales will grow by 2%. Its younger customers have weak demand in August because of high inflation.
Primark, fast-fashion brand in the U.K. warned profits will be lower because of high energy costs and the strong dollar as it is using US dollar as the currency for its sourcing.
Hannes & Mauritz, or better known as H&M, makes around 60% of sales only. It blamed on energy costs that soared in Europe.
The winner is Inditex, owner of Zara and other brands, grew sales by a quarter in the first six months through July. Its half-year gross profit margin was the highest in seven years. Inditex’s share price went up more than 3% in European trading lately.
You may also say that Zara’s short supply chain is an advantage as when it was during the pandemic. The brand only source one-third of its clothing in Asia and the rest close to home in the Iberian Peninsula.
The other fashion companies are sourcing from Vietnam and Bangladesh for the low labor cost. They are reluctant to increase their selling prices being afraid of losing market. Their inflated costs are offsite by internal savings and profit margins are coming down.
We have to see how this tough winter would bring to the fashion brands.
Controversy of Kayne West at Paris Fashion Week – FT, October 5, 2022
Earlier on we reported Kayne West terminated his 10-year design contract with Gap and also planned to terminate his long-standing partnership with Adidas. He has now decided to go on with his own label.
He showed his label at a small show organized at short notice on the Champ-Élysées and attended by Vogue editor, Balenciaga CEO and Tiffany executive. The show was 80 minutes behind schedule and the design caused controversy. He appeared in a “White Lives Matter” T-shirt and a Burberry flip-flops to deliver a six-minute speech all about complains.
The viral moment came when he presented the spray-on fabric supplied by Fabrican, a technology invented two decades ago on a model who appeared in her knickers, and was sprayed in a white liquid that became a dress.
Ralph Lauren Finds It Growth by Trading-Up – WSJ, September 21, 2022
Ralph Lauren is moving its market position closer to the American luxury-brand peers like Capri Holdings, who owns Michael Kors and Jimmy Choo, and Coach owner – Tapestry. Ralph Lauren set out a target to boost revenue on a compound annual growth rate in the mid-to-high single-digit percentage range over the next three years.
It upgraded its 0.15% compound annual growth rate (CAGR) over its past four years.
The same time it adjusted its margin target from 14% to 14.5% in the current year is not such a stretch considering its improvement from 5.6% four years ago.
It present this expansion growth on September 19 at its investor-day presentation and the next day saw the Ralph Lauren’s shares rose 3%.
Its new chief executive, Patrice Louvet, joined in 2017 and started to position the company as a luxury brand and stopped the company from dropping in its market share and margins. It successfully increased it average selling price by 64% in four-year time.
It pulled out its clothes from off-price stores such as T.J. Maxx and cut its exposure to department stores by two-thirds, and off-price stores by 50%.
It plans for the going forward by expanding its customer base by growing sales of women’s products, which is currently at less than 30%. But its current customers are 56% women who are buying for their men, but to convince them to buy women fashion is not only a revenue-expansion opportunity, but also a more profitable business. .
Ralph Lauren started as a tie business 55 years ago before it became known for its polo shirt. It is successful in denim and outerwear, but to be successful now on women’s apparel would be a tough journey. Having said that, it is a higher-margin in business that is worth to spend the effort.
Nike is Trying to Control the Practice by Its Enthusiasts with Special Purpose – WSJ, October 12, 2022
Nike has been benefiting from its brand awareness supported by entrepreneurs and sneaker enthusiasts from their limited-edition products. But lately it has announced that it could cancel orders placed with automated ordering software or technology on its website or apps. In another word that they believed purchases could be done by bot as sneaker enthusiasts have used bots to secure purchases. Already the programmers have developed software that automatically scours digital shops to secure goods they like, and place larger quantities than typical purchases. They avoided security measures applied by retailers.
The use of bots have expanded to scour hard-to-find items in the shutdown period of during the pandemic for Sony PlayStation 5 consoles, and among other goods.
To avoid this, software companies have developed antibot protection tools. But retailers might be able to figure out the similar shipping addresses for multiple purchases to identify this going forward.
Nike is also looking into the resale market. It announced that it could charge restocking fees, stop to issue refunds, and even take the step further to stop the resell of shoes, apparels and other items with the intention to resell.
Note: Picture showing Nike Air Force 1, designed by Bruce Kilgore and introduced in 1982. It was the first ever basketball shoe to feature Nike Air Technology which revolutionizing the game and sneaker culture forever. Over three decades it is still a fashion staple for seasons to come.
LVMH’s Third Quarter Result – WSJ, October 12, 2022
LVMH is a house of 75 distinguished brands in six different sectors, namely, wines and spirits, fashion and leather goods, perfumes and cosmetics, watches and jewelry, selective retailing, and other activities.
LVMH Moët Hennessy Louis Vuitton announced its third quarter reporting revenue rose 27%, its $19.26 billion beats the market’s expectation. Its growth of 19% due to the U.S. tourist spending in Paris and other European cities. The conglomerate’s fashion and leather-goods division accounted for almost half of the revenue.
The group doesn’t report its quarterly earning but mentioned that it is confident for the continuation of sales under the uncertain geopolitical and economical challenges.
Luxury companies, with LVMH in particular, are riding a post-pandemic boom despite various global economic turmoil, namely, inflation, currency fluctuation, high interest rate, supply-chain challenges and war in Ukraine. This is despite of the challenges facing by the mainstream retailers whose customers are feeling the squeeze, but the wealthy consumer base is unaffected.
Overall sales in Europe rose 36% on an organic growth, and the U.S. rose by 11%. The U.S. growth had slowed down but the business had been shifted to Europe because of the strong dollar.
This time the Americans are spending lavishly as the dollar is stronger. Before the Covid-19, luxury goods in the U.S. boutiques were 13% pricier than the same items in Paris or Milan. This time the premium had doubled to 26% in favor of the American tourists. LVMH ruled out to raise prices in European cities to close the gap to avoid hurting demand from weaker local customers.
Asia grew 6%, an improvement from the two previous quarters. The sales were pressured by the strict lockdowns in Shanghai and other cities in China. The business in China was flat for the third quarter. But it is still the world’s largest luxury-goods market.
Reality TV Star Kim Kardashian Fined for Touting Crypto – New York Times, October 4, 2022
Kim Kardashian has to pay the price for being the influencer for a crypto investment company as ordered by the Securities and Exchange Commission for a settlement of $1.26 million. It was said that she had been paid $250,000 to promote crypto token sold by EthereumMax.
Kim Kardashian became famous through her family’s long-running reality TV show and one of the famous part is to promote the products she uses.
The SEC has been warning the celebrities a number of times not to promote any investment products especially if they have been paid. The law also required any promotion for an asset to be disclosed for what the celebrities have been paid. “Not all of the products are right for all investors”, has been warned and mentioned by law.
She had been appeared in her Instagram post from June 2021 and told her followers about the EthereumMax tokens.
Nike’s Inventory Reaches the Alarming Levels – WSJ, October 3, 2022
Nike’s quarterly results showed a weaker quarterly profit and a soaring inventory levels. And this sent its share prices down. Both at home here in the U.S. and in markets like China, the company has been relying on the sales performance but has found that in China alone, its August quarter fell 16% of $1.65 billion. The lockdown policy hurt the store traffic.
Nike has been operating in China for forty years and has found itself discounting merchandise and canceling orders from manufacturers. China accounted 13% of its sales and 29% of its earnings for the August quarter.
The Covid-related disruption is going to affect its future in China, but also the geopolitical tension and other regulatory risks have remained high not only for Nike, but also for the other retailers in sneakers, apparel and cosmetics.
Note: The picture taken for the shoes is known as Nike NFT “Cryptokicks” sneakers sold for $130K. Nike has spent $11 million on its first virtual sneaker set. It is part of a collection of 20,000 NFTs launched by Nike and RTFKT, a virtual sneaker designer Nike bought last December.
In the meantime, Adidas AG mentioned that its sales declined 35% in the June quarter and it is also going to markdown on its products to help to move the inventory. And it is not expecting sales in China to recover in the second half of the year.
About 13% of the German company’s revenue came from China in the latest period.
Adidas is Pulling Away from Kayne – Bloomberg, October 25, 2022
On Tuesday, October 25, Adidas announced that it was ending its almost a decade-long collaboration with the rap musician, officially known as Ye. With immediate effect, it will end production of Yeezy branded products and stop all payments.
It was due to the recent comments of Kanye targeting Jewish people, and Twitter already suspended his account after his antisemitism speech.
This business is a $246.5 million on its full-year net income and the Yeezy partnership is estimated to generate annual sales of between €1 to €1.5 billion, roughly 4% to 8% of Adidas’s group revenue. Kayne West’s controversies have caused a toll on Adidas share and it fell close to 5% on the news.
We read that Kayne West has been diagnosed with bipolar disorder and has had a public struggle with the mental disorder. We hope that he would seek for medical consultation and will get heal eventually. It is such a waste for a person with such talent.
The Adidas Yeezy Foam Runner launched in June 2022, was one of the most-coveted shoe collabs on the market.
Fast Fashion Companies Are Playing Lip Services for Sustainability – Triple Pundit, October 26, 2022
The multibillion-dollar fast fashion giant Shein is partnering with the reseller Treet to provide its customers with a dedicated thrifting platform. This move comes as the mega clothing retailer is facing mounting criticism for its environmental and labor practices. Its culture of wear-it-once and discard afterwards, and its entire system of production which is known for the sweatshop practice with the using of low-quality, heavily polluted synthetic fabrics that may be health hazardous to the wearers.
The platform is known as Shein Exchange, works through the brand’s app which allows customers in the U.S, to buy and sell pre-worn apparel without any extra fees. This platform should be available to users around the world in 2023. But it is here to say that its products don’t last long enough to be recirculated. We can refer to the evidence all over Twitter.
We wrote about the apparel fabrics as used by the fast fashion retailers, especially those microfibers, which are presence in all materials mixed with cotton, wool and synthetics, can shed microplastic into our waterways whenever we wash those clothes. They can influence our marine ecology and we have reported this before.
Not to forget the fast fashion is adding pressure on the carbon footprint along its supply chain.
The sweatshop operation is another area of concern. In the UK-based broadcaster Channel 4, it was reported that Shein workers were receiving an equivalent of 4 US cents for an item. This may not be the truth, but without question that it is not paying its workers in according to the living wages.
Shein has hired Adam Whinston, who was with Walt Disney and JCPenney, as its Global Head of ESG to polish its image and get ready for its IPO in 2024. It seems that they have a lot of things to repair.
Meanwhile, Zara, another fast fashion retailer, have also announced their own resale, repair platforms. They have all started to scramble to do something with the sustainability.
But for fast fashion, it is meant for cheap, “garbage in garbage out” is what I can describe for this business.
Della Valle Family Failed the Planned Tod’s Buyout – BOF, October 26, 2022
Since it failed to reach the 90% ownership threshold, the Italian luxury shoemaker Tod’s announced that it would scrap the plan.
Tod’s, together with many other Italian companies, built their name on craftmanship but have struggled to appeal to the younger luxury shoppers in recent years. To relaunch their Tod’s brand and to manage its diverse brand—Roger Vivier—in a more profitable manner.
Its famous Gommino loafers, together with its two other brands, Fay and Hogan, are part of the plans to take the company private. But now the shareholders may decide not to hold the shares since Tod’s failed the buyout. That can leave the company’s listed position a bit shaky.