MARKET INTELLIGENCE
SHORT READ
PART 2
2022 OCTOBER ISSUE
Written by : Andrew Sia
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Contents:
Toy “R” Us is Back
Apparel Prices Are Up While Inventory Remains High
Eileen Fisher Steps Down from the Helm
LVMH Sales Report
Glossier Cosmetics Will Be Distributed in Sephora
Fashion News Potpourri
H&M Restarts the Online Business in China
J.Crew is Changing Its Look
Introducing Those Lululemon Pants to Men
Victoria’s Secret Wants to Change Its Image
H&M New Business Model to Cut Carbon Emissions
Old Navy’s Woes
Toys “R” Us is Back – Fast Company, August 8, 2022
Toys “R” Us stores are back for the first time, and this time is through Macy’s announcement of the opening of its retail locations in nine states, and soon to open in 19 more states before holiday 2022 shopping season. The iconic toy retailer filed for Chapter 11 bankruptcy back in 2017 and its last brick-and-mortar shop closed in January 2021 due to the pandemic.
Its store size ranges from 1,000 square feet to 10,000 square feet inside the Macy’s stores. The larger flagship stores are planned in Atlanta, Chicago, Honolulu, Houston, Los Angeles, Miami, New York and San Francisco.
Apparel Prices Are Up While Inventory Remains High – CNBC, July 13, 2022
Although it has been reported that excess inventory has been overflowing from many retailers’ warehouses and stores, for instance we read reports from Walmart, Target and Gap, and we found that shoppers are paying more to refresh their wardrobe.
Apparel prices rose 0.8% in comparison to May, and 5.2% year-over-year. We have also noticed that everyday items for food and gas, rose more than 9.1% from a year earlier.
The sentiment of the market is mixed. We can say that the markdown of those clothing is due to the abundance of the wrong merchandise, either they are out of season, or poor planning, that led to the overstock situation. But consumers are looking for a change and would want to have a new experience as more social events are coming back and everyone would want to look in their best.
According to NPD that apparel sales in the U.S. grew 5% year-over-year for the period from January through May. And it grew 13% versus the same time in pre-pandemic 2019.
Eileen Fisher Steps Down from the Helm – New York Times, August 15, 2022
Known as an American fashion designer and entrepreneur, Eileen fisher is the founder of the women’s clothing brand, Eileen Fisher. It carries shoes, sandals, dresses, pants, clothes, cardigan, and sell through 56 locations with 800+ employees.
The company’s name, Eileen Fisher, was founded in 1984 with $350 as startup money, and it has been an icon in this industry.
Eileen was at least ten years ahead of her competitors that she started her Renew line in 2009, which sells secondhand clothes, and the Waste No More, which is an initiative that takes damaged garments and turn them into fabric.
The philosophy pf Eileen Fisher according to what she said, “Just do less: Buy less, consume less, produce less.”
The brand’s sales for last year was $241 million. This time she is 72 years old and decided to handover the rein to her successor to run the daily operation of the company. The company’s new CEO is Lisa Williams, who is the current chief production officer at Patagonia. This “responsible transition” will soon take place and she would move on to become more of a product person and let the new CEO takeover.
It was in 2006 when she was to decide if to take the company public, or even get acquired, she decided to continue as a privately-owned company and transferred ownership to her employees instead. Today, her employees, all 744 part-owners of her brand.
She is also known as the queen of slow fashion, and she would be formalizing her design philosophy so that the brand might eventually exist without her. That is why you don’t find Eileen Fisher doing any runway show for instance.
Eileen is not finished with work but she will enjoy more when she will step down as the CEO. Through her Eileen Fisher Foundation, she wants to spend time on education through her philanthropic organization. She is also thinking about starting a design school.
LVMH Sales Report – WSJ, July 27, 2022
Luxury company LVMH Moët Hennessy Louis Vuitton reported high sales and profit for the first half of 2022 that showed the free-spending in Europe and the U.S. more than offset the net-zero Covid policy of China.
The overall sales increased by 28% year-on-year to €36.7 billion and profit rose 34% to €10.2 billion.
Disregard various challenges to the global economy, rising inflation, logistic disruption and war in Ukraine, which caused problems to mainstream retailers, the wealthy consumers are riding the post-pandemic boom that continue to spend freely.
It reported a rise in all its divisions, but strongest in the company’s fashion and leather goods unit. Only this reported 31% year-on-year increase to €18.1 billion.
Overall increase in Europe was 47% and the U.S. was 24%. Asia only managed to grow 1%.
Glossier Cosmetics Will Be Distributed in Sephora – WSJ, July 27, 2022
Glossier first launched in 2014, became the beauty products sought after by the minimalist and its valuation reached $1.8 billion in 2021. The company laid off more than a third pf its employees in January during the pandemic.
This time Glossier Cosmetics reached an agreement with Sephora to carry its products in stores and online. In Sephora locations in the U.S. and Canada will begin to carry Glossier products in early 2023.
Sephora, owned by LVMH, has thousands of shops across the North America, including POS in J.C. Penney and Kohl’s.
Fashion News Potpourri
In this part 2, we came across some of the sports brands and fast fashion brands and have prepared some short writeups about them. We thought that this information may be useful for those who are doing business with them.
Nike – Nike footwear products are supplied by 191 footwear factories located in 14 countries, and all are located outside the U.S. by independent contract manufacturers.
Its apparel is sourced from 344 independent factories located in 33 countries. Again, it is outside the U.S.
Adidas – It has two production facilities in Germany and the U.S. But it outsourced its production to independent contract manufacturers.
Inditex – Its business model is direct-to-consumers (DTC). Through its nine brands—Zara, Pull&Bear, Bershka, Massimo Dutti, Stradivarius, Oysho, Zara Home, Uterqüe and Lefties, with products that are available in-store and online.
As of January, Inditex operated 7,292 stores in 96 countries and managed online retail activities in about 202 markets.
Most of the Zara products are produced in its own factories along the Iberian Peninsula , while the other brands are sourced from independent contract manufacturers.
H&M – Its business model is also direct-to-consumers (DTC) and operates both in-store operation and online sales. Its better-known brands are Monki, Weekday, Cheap Monday, COS, and others.
It has 4,702 stores in 75 markets. It hires 107,375 full-time staff.
It outsources everything from independent contract manufacturers.
Fast Retailing – With 900 Uniqlo stores in China, with 450 GU outlets in Asia. GU generated $1.88 billion in sales, more than 10% of Fast Retail’s group sales.
Gap – Gap has a bigger presence geographically. It is also operating franchise stores and has franchise agreements with unaffiliated franchisees. Its global presence also helps for its image and to maintain a strong position in the apparel market.
Hanesbrands – Its focus on R&D enables it to stay ahead of its competitors and gives it the advantage to launch products ahead of the competition.
It has a broad distribution network, and helps to gain operational synergy and serve its customers efficiently. Its wide operational network also helps the company to reach a diversified customer base.
PVH – It has a strong and diversified operational network that allows its customer’s access of its products and make it less dependent on a single region. It has also its distribution channel, demographic group and product categories to operate seamlessly.
It is also licensing the group’s brands to third parties around the world. This strategic more allows it to strengthen its operations and profitability.
H&M Restarts the Online Business in China – WSJ, August 17, 2022
After being absence from the e-commerce platform, H&M is back again on Tmall, which is one of the flagship e-commerce run by Alibaba. Fall and summer fashion lines for men and women are on display and also the children’s, and this time is the Lego building-block-theme.
It was in 2020 when H&M issued a statement expressing concern about reports of forced labor and discrimination against ethnic minorities in Xinjiang. The Chinese social media users started to boycott the brand. In March 2021, H&M was wiped out with the other Western brands. Apparel companies like Nike and Adidas have also been singled out by Chinese social media users.
J.Crew is Changing Its Look – WSJ, July 25, 2022
J.Crew known for its preppy style and enjoyed great success for decades. It was an early retail casualty of the pandemic, the company filed for bankruptcy protection in May 2020. But prior to that the company filed for six straight years of losses. In September 2021, the company cut its debt in a deal that placed it under the ownership of a group of lenders led by New York hedge fund, Anchorage Capital Group LLC.
This time its Chief Executive Libby Wadle, its third CEO in a roll of three years, appointed the menswear designs, Brendon Babenzien, to draw the market’s interest. It has expanded the collection. Roughly 30% of the brand’s customers are men and J Crew is going to increase that figure by adding the brand’s corporate-friendly button-up shirts. It is also evolving the work attire after working from home from those more comfortable clothes. It is emphasizing those sports coats with a T-shirt or a polo shirt.
J Crew is also going to expand its size offerings and look to strengthen their price-integrity from discount-mad past. It promised to look more lively.
Introducing Those Lululemon Pants to Men – WSJ, August 17, 2022
Lululemon, a 24-year-old, Vancouver-based activewear company best known for women’s yoga pants that led to the controversial comments by its founder, Chip Wilson, about some women who wear those leggings. The rest became history for Chip Wilson of course.
This time we are talking about the Lululemon pants for men, and a leggings-everywhere athleisure trend with the two most-popular men’s pant styles—the ABC pant introduced in 2014 and the Commission pant introduced in 2017—both retailed at $128, look convincingly like dress pants, but in the calisthenics material.
In 2021, men made up 25% of Lululemon’s total revenue, and the ABC and Commission pants are still having a large share of its business. ABC is cut like an elemental jean while Commission is cut like a chino, both using quick-drying and wrinkle-resistant fabric.
We related Lululemon to a woman’s brand and Lulu-is-only-for-leggings reputation, but in recent years it began its collaboration with Robert Geller, a New York-based men’s designer, on a slick product that had ended. Last month with NBA player, Jordan Clarkson, the release of a unisex hiking collection with drippy color-streaked shorts and a purple fleece vest.
Its men’s line is a word-of-mouth by friends or through an online search.
Victoria’s Secret Wants to Change Its Image – WSJ, August 13, 2022
We haven’t heard about the company for a while, but we now come to know that VS is trying to shift from a brand associated with the men’s gaze to a brand that gives the female empowerment.
In a recent study in February of this year, most shoppers who took the survey couldn’t identify the brand behind the recent ads of models wearing its lingerie for instance. The ads were showing women in different ethnicities, body-types and ages.
It is agreed that the brand’s positioning can’t be changed in such a short period of time, it could take years.
Victoria’s Secret is still the No. 1 lingerie brand in the U.S. in sales. Its share closed at August 12 at $41, down by 29% from the time it was spun off a year ago. Its market capitalization is roughly $3.4 billion or roughly half of its annual sales. This also included Pink, the apparel chain.
Victoria’s Secret got its start in 1977 when it was founded by the couple, Roy and Gaye Raymond set out its first store in California. Les Wexner bought it in 1982 and was by then in six stores and a catalog business. Les Wexner was a great merchant and added it to his retail empire which already included the Limited and Express.
Later on he added the annual fashion show, featuring models like Tyra Banks, Stephanie Seymour and other super models which VS referred to as “Angels”.
Les Wexler stepped down in 2020 after a failed deal to sell a controlling stake to a private-equity firm, Sycamore Partners, and later spun off to become an independent business trading on the NYSE as VSCO on August 3, 2021. Prior to that Martin Waters became its CEO who joined the L Brands in 2008 as head of the international division.
Last summer, the company created a new executive team and replaced the Angel with VS Collective. Employees took down some of those provocative images of super models from stores and replaced with images of natural-looking women and mannequins with different body types. The adding of maternity and shapewear and a new perfume.
In the last three, four years, the market has witnessed more lingerie brands like Aerie, who is posting as a threat to the brand. And so new comers like Rihanna’s Savage X Fenty and ThirdLove that promote a more realistic body image and show confidence in their inclusivity in their marketing. They are chipping away part of the market from VS.
Victoria’s Secret has closed stores, start to sell their lines on Amazon.com and added third parties’ swimwear and loungewear in their website.
The CEO Martin Waters admitted that it will take years to change a brand’s positioning especially it has always been a brand with a lot of controversy.
H&M New Business Model to Cut Carbon Emissions – WSJ, August 22, 2022
When we talk about fast fashion, we talk about huge-volumes of low-price fashion apparel which has been taking the world in a craze.
Lately, there is the trend to sell second-hand clothing, this also include renting them out, and even offer repairing service.
To our understanding that this is two different kinds of business, but believe it or not, in downtown Stockholm, where H&M’s headquarters is located, in one of the shops it displays used clothing from brands like Prada and Zara. There are ball gowns and wedding dresses for renting up to five days, and a price-list for customization and repair work. This new offering from H&M is available in a handful of H&M in Europe. It is also a plan for the company to roll out a business plan to increase revenue and to reduce carbon footprint by 2030.
Actually H&M tried to sell second-hand clothing in the 1990s but it was dropped. And since 2013 it has been collecting from customers their used clothes and has been planning for to reuse them.
Currently the rental items are available in three of the H&M Group’s 4,700 global stores, repair services in six and resale in seven.
In line with its company’s sustainability policy, it is using data to better understand its consumer’s buying habits so it produces what it can sell.
The company is also expanding in Latin American market aside of its world’s presence. For its products, it is expanding into areas like home, beauty and sportswear. It has plans to grow its other brands, Cos and Monki.
It issued the guide to direct its designers to ensure that products can be easily repaired, choose recycled materials and make the products recyclable.
Resell clothing is very challenging because its source for the merchandise is coming from customers, any washing and curating will come with additional costs. Size range almost doesn’t exist in the selections. Sourcing and selection process are handled differently. In the same stores, the resale and the regular sales are always in confliction.
Quoted by James Reinhart of ThredUp, “A lot of retailers really underestimate the full reinvention require to sell second hand. The logistics and operations part of the resale business is extremely complicated.”
H&M is set for using 30% recycled material across its business, including the packaging materials, by 2025, which is up from 17.9% today is already a tall order. BTW, recycled materials are more expensive than virgin materials in most cases. Perhaps H&M has to do some repricing exercise.
H&M is still facing challenges as it withdrew from Russia, one of its most profitable markets, and its hit in China’s Covid-19 restrictions.
Old Navy’s Woes – New York Times, August 26, 2022
I recalled that it was not so long-ago Old Navy was the crown jewel of Gap Inc. Today, it is struggling to sell its outdated Old Navy items while watching its inventory is still building up. During this time of the high inflation, the consumers are holding back their discretionary spending.
Its parent company, Gap Inc., has beat the quarterly revenue estimates as the sales trends have improved in July and August.
The apparel demand for activewear, fleece and other casualwear have dropped as people are out for social events, offices and travel. This change of choices have affected Old Navy’s second-quarter sales by 13%. Its net loss was $49 million.