MARKET INTELLIGENCE Short Read
PART 2
2022 JANUARY ISSUE
Written by : Andrew Sia
Contents:
Nike is Looking to Sell to Its Customers Directly
Shapewear Industry in Colombia
Opportunities for Luxury Goods in Latin American Market
China’s Spending for the Luxury Items Will Remain Trapped in China for 2022
Fashion World is Looking to Hire More Staff
Luxury Market in China
Nike Looks for Growth on Its Home Turf
Shein, China’s Fast Fashion Giant
Zara’s New Challenge Continues
Impact of Omicron on Apparel Supply Chains
The Day After the Holiday Shopping
Nike Sues Lululemon for Pattern Infringement
Winners and Losers in the Chinese Sportswear Market
Armani is Pulling From the Two Runway Shows in Europ
Nike is Looking to Sell to Its Customers Directly – The Sunday Times, December 19, 2021
Nike has short-supplied its wholesale partners and now it is advising them through their lawyer that they would cut them off completely. To many independent and chain retailers, Nike was a massive part of their business and this move by Nike is going to damage their business, especially the business relationship has been developed for so many years.
Nike’s mission is to keep 40 chains to supply its trainers. It is cutting ties with John Lewis, House of Fraser, Virgil Abloh, Next and Asos. The direct-to-consumer movement is becoming a threat among retailers depend on popular brands.
Over the years Nike has been building its direct relationship with their customers and this can give them the direct control. They have watched the chains trying to sell shoes in their stores and on their websites with big discounts and there is no control for them for their own brand’s equity.
The demand for the trainers has exploded over the past decade and both Nike and Adidas have done a great job. Their collaborations with sports stars and rappers have pushed their business to the new height. The athleisure market has been created and it is forecasted to be worth £350 billion by 2025, up from £250 billion today.
Adidas is the number two player, is targeting to bring in half of its revenue through its own sales channels.
Going direct-to-consumer phenomenon has been made possible with the rise of social media which it has been the key enabler, and through social media it has built the community ready with their customers.
Gymwear brand, Gymshark has built into a £1 billion business in eight years without selling any piece of product through another retailer. Lululemon which is a $52 billion yoga brand extended itself only through a select band of gyms and yoga studios.
With an exception of JD Sports who has still maintain a close relationship with Nike. In these two years, JD Sports expanded its empire to cover 3,300 stores across 19 countries with a pre-tax profit of £421 million on sales of £6.2 billion.
Take Nike for instance, its profit of $6.7 billion from sales of $44.5 billion. And Peter Cowgill, JD’s executive chairman bought troubled retailer like Debenhams, Topshop and fast fashion online Missguided.
The message is very clear now that the brands are trying to be retailers themselves and this is the time to make the move now.
Shapewear Industry in Colombia
Girdle in Spanish is faja and the country in South America who is famous for the meticulously made girdles is in Colombia. It is the country that has leveraged its obsession with beauty is quickly becoming an international hub for plastic surgery. This Latin American country has also earned the reputation of making the best body-molding garments in the world.
Colombian-made shapewear is currently exported to 37 countries and it is second only to China as an exporter of girdles and panty-girdles, The country declined to $41.77 million for its export in 2020, a drop of 36% because of the pandemic. But this category is more resilient as for the apparel’s export of $421 million, a drop of 17.2%, compared between 2020 with 2019.
Big export markets like China and Bangladesh for shapewear and underwear are undeniable, and their mass production has always a leading edge. But their lead time of four to six months, is longer than the two months from the production coming from Colombia.
But its Latin-fit in comparison with the Chinese manufacturers, there is the technique and the know-how that the Colombian has mastered. This technique has now been used to its activewear, swimwear and shapewear and made the products unique. The Colombians are talking about the 360 degrees control which is difficult to produce.
The world has becoming more aware of this Colombian fashion when the Kardashians started to wear the waist trainers by Colombian brand Ann Chery. Brands like Gef, Punto Blanco and Touché are sold all over the Americas and also have reached Europe.
The underwear brand in Colombia, Leonisa, is a world-renowned brand who has its own manufacturing.
The shapewear makes the women feel beautiful and have confidence.
The Colombians have developed advanced textiles with medical protection for the compression garments and girdles with vitamin E, aloe vera and thermal conductive properties with copper thread to aid circulation. The control garment is not only for the aesthetics, it is also about wellbeing.
Opportunities for Luxury Goods in Latin American Market
Euromonitor forecasted before the pandemic that Latin America would be one of the fastest-growing luxury markets in the world, surging 9.1% from 2019 to 2020. This was despite major macroeconomic headwinds in Latin America. The region’s personal luxury goods market was worth $11 billion in 2019 and it was projected to reach $12 billion in 2020. The two leading countries, Mexico and Brazil, were in the lead at $4.7 billion and $3.4 billion respectively.
But then when the pandemic struck, countries like Brazil, Mexico and Argentina contracted by 6%, 4% and 3% respectively. This is still a moderate decline compared to the U.S. which was expected to contract by 25%.
The region’s luxury sectors have been hoping the new and revised free trade agreements (FTAs) between them with the EU and the U.S., which are the sources of those luxury goods importing into the region, could insulate the local luxury sector from some of the damage that the pandemic and global recession would have caused.
For instance the EU-Mercosur agreement offers the possibility for luxury brands to grow in double digits in Latin America. Mercosur which include Latin American countries like Brazil, Argentina, Paraguay and Uruguay where the grow can come from the elimination from duties. This deal can reduce the maximum of 35% for its tariffs down to zero for clothing and textiles.
Mexico has its EU-Mexico FTA that once come into effect can promote imports for Mexico as well. There is also the EU-Mexico FTA which would enable free trade on all non-farming goods which would include fashion products and this was established in 2000.
China’s Spending for the Luxury Items Will Remain Trapped in China for 2022 – BOF, December 7, 2021
Because of the containment of the nation against the covid, the spending of luxury goods will stay within China. It is said that spending will continue in 2022 and will expect to surpass 2019 level by 90 to 110%. Its zero-covid policy approach is unlikely to change and the resumption of international travel is not likely to happen.
Fashion World is Looking to Hire More Staff
Before the covid, retailer stores were fully-staffed, but now the “Great Resignation”, which is a mass psychological phenomenon where workers cross almost all industries left their jobs during the pandemic. The fashion brands are thinking for ways how to lure them back by offering higher pay and better benefits.
But it is not just about the money as the retailers will have to learn. During the period of the pandemic the U.S. government offered financial aid that kept the low-paid workers at home without taking the risk of catching the virus. That lasted into the first week of September. In this period of time, millions of them have the time in their hand to reassess what they want out of their jobs. They have to know what their priorities are, whether it is the professional development, the bring home check, flexibility with their job, the family life that they would like to pursuit, or perhaps a combination of all the four criteria. It ended that the retail jobs come out to be not really attractive.
The average annual income of a salesperson working in the fashion store was $28,680 which was $13.79 per hour in 2020 Unfortunately this fall under the living wage in the U.S. which estimated to be $16.54 per hour.
In most cases in the fashion business that the margins are extremely low. In simple terms that they can’t afford to pay their sales representatives the higher wages. Their job is also very monotonous, as most of them are doing the job of folding the garments and stocking up shelves. During my career, I have once heard that a garment retailer took pride about how they train their salespersons to perform this in the most efficient way.
The retailers would have to study how to put their acts together as at this time sales channel like the e-commerce has been added. They should plan again how to operate and to engage their sales staffs how to use the electronic gadgets and the apps by offering a better service to the customers who walk into their stores. After all, I learned a long time ago that retail is detail. The customer service is an important factor for success.
It is already said that more than 4.5 million people in the U.S. quitted their jobs in November, and it is the most since its tracking for the last two decades.
Luxury Market in China – BOF, December 21, 2021
The market is still bullish and it is said that the domestic luxury sales in China are expected to double in 2022 compared with 2019. But 2021 experienced a year of crisis and disruption as President Xi Jinping called for “common prosperity” and the curbing of “excessive income” in September. The statement immediately wiped an estimate of $120 billion off luxury players’ market capitalizations. The stocks have since rebounded as experts figured that the China’s goal is to grow its middle class.
But threats continue to loom over several sectors. China’s tech giants are suffering from the new guidelines, and their vast consumer base has been curbed, and this casts the shadow over the country’s biggest e-commerce players.
Regulations on celebrities and media have brought up scandals about tax evasion, and alienated with those disgraced figures.
The country’s economic growth for the third quarter slowed to 4.9% compared with 7.9% a quarter earlier. This was due to the housing slump and energy crisis.
The rising cost of the raw material prices, rising cost of the freight and the energy will all add to the cost of doing business, but this has a lesser impact on the luxury sector as their margin can absorb.
I can only see all these will be part of the threat for 2022, there are more impacts that are looming in the back. The treat of stagflation will slow the country’s economic growth and will increase its inflation. With the country’s latest threat with the pandemic, this zero-case will become something that can’t be maintained.
Nike Looks for Growth on Its Home Turf – BOF December 21, 2021
Nike, the world’s largest sports brand inched up to $11.4 billion in the quarter because of its 12% growth in North America, which is still its largest market.
The brand is still facing ongoing turmoil in its supply chain after covid has shuttered factories in Vietnam where 50% of its supply is coming from. The shutdowns caused the loss of 130 million production units being cancelled. The inventory shortage impacted sales in China by 20% compared to the same time last year.
In the U.S., it was able to use its large amount of inventory planned for the previous year and ended up being sold this quarter.
It has also benefited from strong sales online and its business in North America was up 40% over last year. It is using its own e-commerce channel and the apps it developed to boost the sales.
Shein, China’s Fast Fashion Giant – BOF, December 9, 2021
It was practically unknown two years ago, and in two years this giant has transformed into one of the world’s fastest-growing apparel brands. Shein produces thousands of new styles daily, is the latest fashion industry’s throwaway culture. It has been accused of partnering with manufacturers that violate Chinese labor laws and knocking off independent designers, among other alleged offenses.
Consumers don’t know the company, except that it offers fashions at rock bottom prices. No one knows where is its headquarters and who owns it, and the chief executive, Chris XU, who started the company in 2013, has never granted any press interview.
Now it has hired Adam Whinston, who was with Disney and JCPenney, as head of environmental and social and governance at Shein. It has joined the rivals in appointing an ESF officer to portray that it is concerned than just churning cheap clothing.
The other key players have all pledged to use not only recycled but also sustainable materials by 2025. Some would publish its lists of suppliers who are working under poor conditions and low wages.
Shein has 600,000 products on its site at any given time, and adds 6,000 new items every day. It has 6,000 partner factories and $7.90 per item is its average price. Some of its factories are the makeshift factories and workers are reported 75-hour weeks, with only one day off a month. Most of the workers are migrants and they are paid per finished item. These are all violating Chinese labor laws.
In order to observe the compliances, the factories would have to correct in so many areas, but the ESF officer has already said that the company will not slow down as Shein is offering affordable fashion items which is their core business model.
Zara’s New Challenge Continues – BOF, December 3, 2021
Earlier on we released our report with the title as “Zara Has Found Its New Heiress” and with the appointing of Marta Ortega Perez as the executive chairman, who will replace Pablo Isla on April 1, followed by promoting Oscar Garcia Maceiras, as the general council and secretary of the board who replaced Carlos Crespo, who was only appointed as CEO two years ago. Investors responded poorly to the news and it sent the shares plunging by 6%.
Already the advocates and some of the consumers are showing concerns over the labor practices and environment impact. The fast fashion’s throw-away culture has been planting in the heads of the young shoppers. The fast fashion leads to the constant churning out of products, with the cotton being used, the dyeing mills and cheap labor, are causing harm.
Inditex pledged sustainability including to only use organic cotton, recycle or sustainability materials in 2025, is perhaps something taken too lightly which can be accused later for its irresponsibility.
Inditex has been under the severe criticism for using forced Uighur labor and it is under the investigation by French prosecutors. In the past week, the French government blocked the expansion of a Zara store in Bordeaux already for this accusation.
Zara is also facing stiff competition from those online competitors like Asos, Boohoo and Fashion Nova. Zara’s engagement of its vast store network and data-driven supply chain to bring trends to customers faster and more efficient, but these digital players have found ways to operate faster and with lower price-points.
Not to mention the new comer, Shein, who is more aggressive and have found ways to bring products faster to the market at a lower price.
The rise of secondhand marketplaces like Poshmark and Thredup, they are also challenging to fast fashion.
Many Z-Gen consumers consider Zara as a “premium” fast fashion retailer which is not going to help Zara in the long run.
Perhaps if Amancio will know the surge of the new variant, Omicron, he would be more cautious for any change especially it is in the midst of the pandemic which is far from over yet.
Impact of Omicron on Apparel Supply Chains – Just Style, December 24, 2021
The experts pointed out that consumers’ demand for clothing will still very likely to follow a seasonal pattern. This holiday season’s clothing shopping had not shown any weakening. As the tradition, for the coming months of January and February will be a lighter season. The online purchase can make the demand side more resilient than before.
From the supply side, for the Asian countries when it is the time of the Lunar New Year, the production would normally be slowing down until mid-February or beginning of March, and will start to pick up again. Right now in countries like Vietnam, Thailand and Indonesia, where the Omicron is still affecting these countries, and the production would be hindered anyway.
With the situation in China, where there is the zero-tolerance of the covid, and different regions are being lockdown in any case.
The conclusion which at this time is how this impact can be managed.
The Day After the Holiday Shopping – WSJ, January 6, 2022
After the holiday shopping spree, consumers return to their normal life and start to see if their “trophies” can still justify their efforts. What followed normally is to return them to the retailers, or to exchange for something more practical. This time products and gifts valued at $112 billion to $114 billion could be returned to the U.S. retailers after the past holiday season. In 2020, it was $100 billion and in 2019 it was $95 billion.
There is this B-Stock Solutions which is an online liquidation platform that accept returns and excess inventories typically from smaller retailers and resell them through Best Buy and Walmart.
Then we have the courier—United Parcel Post, who will be expected to handle more than 60 million return packages from November 14 through January 22, which is a 10% increase from the previous year.
We have to know also that the percentage of merchandise return for online sales have a return rate of two to three times higher than sales at those bricks-and-mortar stores. In fact, roughly 18% of online sales are returned, and it is like a norm. But last year it was 11%, and the year before it was 8.1% and obviously the business by then for the e-commerce was smaller.
This time the return would bear a higher cost, it is the higher wages to process the returns which is hitting the margin of the retailers, and higher shipping cost. For lower-margin and consumer goods, it will cost less and let the consumers keep them. And for this kind of “return” would cost the retailers as high as $4.4 billion for 2021. The long return-window, some of them offered them for 90 days would mean a steep discount of the item, like the winter sweaters, to resell them later during the season.
Nike Sues Lululemon for Pattern Infringement – WSJ, January 6, 2022
Nike is accusing Lululemon’s Mirror Home Gym and apps using technology that it invented and patented and it is said to allow the users to exercise, monitors their heart rate and collects data of their activities. In fact this kind of mirror is also known as the Smart Mirror and this is mounted on your wall and can act as having a personal trainer at your house 24/7.
But this time Nike is filing a lawsuit alleging Lululemon Athletica for its Mirror home-fitness device and apps infringe Nike’s portfolio of patents.
Response from Lululemon’s lawyer said after reviewing Nike’s letter commented that its Mirror doesn’t seem to be infringed the patents. Lululemon is said to acquire Mirror in June 2020 for $500 million in order to capitalize this workout-from-home market. Mirror was launched in 2018 and was selling at $1,500 for this tech-enabled mirror with camera and speaker to create a gym-like atmosphere.
Meanwhile, Nike started to promote its Infination yoga-wear, focusing on legging, shorts and crop tops using their own-developed fabric – Intination, which is light, high stretchability, This range is already available on Nike’s website.
On the other hand, Lululemon has already occupied a very large market share and have the possession of nine self-developed fabrics with twenty-two different functions. Lululemon is also known for its community fitness development and it is recognized as the top leader of the yoga-wear.
Winners and Losers in the Chinese Sportswear Market – WSJ, January 6, 2022
Western sportswear brands lose sales in China. Already Adidas and Puma each reported third quarter sales declined 15% in their China market. Nike said that its sales in the last quarter dropped 20% and pointed it to the supply-chain disruption. Earlier on they were connected to the allegations about forced labor in Xinjiang region. Since then this has been followed by the Chinese news agencies and social-media users call for a boycott of Western brands.
Anta Sports Products who is already China’s top domestic sportswear brand is benefited from its endorsement of the American basketball star Klay Thompson and sponsorship for the coming Beijing Winter Olympics.
Anta’s revenue increased 56% in the first half of 2021 and is riding the “national tide” unlike the international brands that are caught in between the human-rights allegation or bend to Beijing’s intimidating power of the world’s second biggest economy.
Already Hennes & Mauritz (H&M) had disappeared from Chinese e-commerce sites last year after raising their concerns over Xinjiang-related matters.
Armani is Pulling From the Two Runway Shows in Europe – WSJ, January 5, 2022
This luxury Italian brand is pulling out from two major fashion shows in the coming weeks because of the surge of the covid cases. It is cancelling the planned runway show at the Milan Men’s Fashion Week and also the Paris Haute Couture Week.
Europe is experiencing a wave of the new Omicron variant which is causing havoc situation to global travel, disrupted supply-chains and stopped plans to go for normalizing the business life for the many others.
The show in Milan will take place from January 14 to 18, and the Paris show will start on January 24. All of them have a packed schedule and many of the big brands will be there. This is not going t look good as there is already a new variant is said to have identified in Marseilles and it is known as Ihu – B1.640.2 and we don’t have any knowledge about it yet.
Giorgio Armani SpA posted a statement on LinkedIn stating that the shows are crucial and irreplaceable occasions, but the safety of both employees and the publics must take priority. I hope that more brands will be listening.