MARKET INTELLIGENCE
SHORT READ
PART 2
2023 JULY ISSUE
Written by : Andrew Sia
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From the Desk of the Publisher
In this second part of the writeup, we reported three times about the latest of Adidas. We continued to write about the possibilities for the liquidation of the Yeezy inventory. We mentioned that this can be used as a case study for a business that has engaged the celebrity to help to promote the line, and if it entered into a dispute, it can cause very big damage to the business. Take for instance, we are talking about 8% of Adidas’s total business and 40% of its profit. Adidas has an annual business of $24 billion.
We continued to report the retail business which is remaining to be very challenging, although the pandemic has eased off and the people’s life are returning to normal.
Contents:
Introducing a Sneaker Company – OOFOS
Adidas Final Plan for its Stockpile of Yeezy Shoes
New Trend For Secondhand Resale Through Live Shopping Market
Chinese Tech Companies Are Moving for Global Identification
Century 21’s Comeback with its First Store
TikTok’s New App Lemon8
Target’s Challenge and Opportunity Going Forward
What Have We Learned From the Episode of Adidas and Yeezy
Nike Changed its Strategy to Re-engage Their Wholesale Partners
Nordstrom’s Closures in San Francisco
Shein the E-retailer’s Latest Attempt
Tom Ford Entering A New Era
Retailers’ Woe is Far From Ending
Some Hot Sneakers
The New Strategy of Adidas
Introducing a Sneaker Company – OOFOS
Introducing OOFOS, a Massachusetts company, which is a global leader in Active Recovery footwear, and Massachusetts Athletics have entered into a partnership that will create a one-of-a-kind recovery center in the renovated Jim and Ellen Hunt Indoor Performance Center to benefit members of the cross country and track and field programs.
OOFOS is the global leader in recovery footwear founded by a team of experts to help runners and fitness enthusiasts to recover better from workouts. With their proprietary OOfoam™ technology, OOFOS shoes absorb 37% more impact than traditional foam footwear materials for the perfect blend of cushion and stability. The use of proprietary technology in conjunction with their patented footwear allows the shoes to cradle and support the foot’s arches for more even distribution of pressure across the sole of the foot.
The two-level performance center will be managed by the athletics department of the University of Massachusetts that would be frequented by student-athletes and alumni. The lower level will be covered with a track-specific surface and offer space for jumping and throwing events. The second level will feature a practice track along with space for non-impact training, and also the OOFOS Recovery Center.
The recovery center will be equipped with recovery tools, such as massage rollers, massage guns, leg recovery systems, an anti-gravity treadmill, elliptical trainers, a nutritious fueling station and plenty of OOFOS Active Recovery footwear.
This seal has been given to OOFOS for the acceptance as the established brand and a leader and innovator in the footwear industry.
This seal is issued by the American Podiatric Medical Association (APMA) Seal of Acceptance. It is for the acceptance of OOFOS as a pioneer and innovator leader in the recovery footwear category.
Adidas Final Plan for its Stockpile of Yeezy Shoes – WNYC, May 11, 2023
CEO of Adidas, Bjorn Gulden announced its plan to sell its stock of unsold Yeezy shoes and will donate the proceeds to charity. It was announced on its annual shareholder meeting on May 11, Thursday, that this was announced after talks with several non-governmental organizations. It was meant for repairing the company’s image plus the defamation remark made by Kayne West, also known as Ye.
Millions of pairs of unsold Yeezy sneakers, are sitting in warehouses from the U.S. and China. It has the value of $1.3 billion and to liquidate it is a dilemma which has never encountered any brands.
This will go down as a business case study for a company who is dangerously reliant on a single person to meet its financial goals. So that we know that the partnership between Adidas and Ye accounted for 8% of the Adidas’s total revenue and yet its profit was 40%. Adidas is expected to lose more than $700 million this year, its first operating loss since the early 1990s. With its new CEO, Bjorn Gulden, he has to do a complete overhaul after the Yeezy disaster.
At this stage a more workable solution hasn’t been given than to destroy the whole inventory.
Adidas is the world’s No. 2 sneaker company with more than $24 billion in annual sales. It has a history longer than Nike.
New Trend For Secondhand Resale Through Live Shopping Market – New York Times, May 16, 2023
In 2016, the e-commerce giant Taobao Live, popularizing live shopping in China. In the U.S. we are seeing shoppers are returning to stores, but retailers and large tech firms are expecting consumers will continue to search better deals and purchase items on their smartphone.
We have seen players like Poshmark, whose new livestreaming platform is Posh Shows, is the secondhand resale company sold to South Korean Naver for $1.2 billion earlier this year. Poshmark claims to have 80 million registered users across the U.S., Canada, Australia and India.
Live shopping is an emerging market in the U.S. and it is estimated to bring $32 billion this year in sales. By comparison with China, whose market was $647 billion last year.
Alongside with Poshmark, who has launched Posh Shows, QVC started Sune, a live shopping app targeting Gen Z. Last year, Walmart, YouTube and eBay expanding their live shopping features. Amazon recruited celebrities like Kevin Hart to promote its Amazon Live platform.
Shein began its Shein Live in 2016 for its U.S. shoppers is now averaging hundreds of thousands viewers per episode.
This has led the tech giants and major retailers trying to gain their foothold in live shopping. Already investors poured more than $380 million into livestreaming e-commerce companies in the U.S. last year, compared with $38 million in 2020. It is a fast growing market.
Having said that, there are American companies who have already backed out of live shopping. For instance, Meta who at the beginning made a major push into e-commerce when the pandemic started, but shut down Instagram’s live shopping feature in March with Facebook in October.
All companies took different approaches to work with the hosts. For instance, Poshmark is working with anyone who has an account can sell items from their closets.
We have already mentioned that Amazon works through celebrities and influencers to sell a large varieties of products. Podcasters and influencers are hosting series to host their shows on Amazon Live.
The live shopping is already a very competitive shopping platform and learning how to promote your products will need a lot of practicing before you can create followers.
Chinese Tech Companies Are Moving for Global Identification – FT, May 16, 2023
Chinese entrepreneurs are looking for business opportunities abroad in view of the tense competition at home and an uncertainty business environment with Beijing’s tech crackdown and common prosperity. It is also in the midst of geopolitical tensions.
There is the growing success for China’s tech and industrial groups in global market and e-commerce platform like Shein and Temu. With their low-prices dresses they are taking the market like wildfire.
This leads to the tech companies offering a computer-vision system that can turn any small convenience store into an Amazon Go, which is a new kind of corner store with no lines and checkout. A Chinese tech company, founded Cloudpick which allows an automatic checkouts outside the country.
Already the selling of software is half of the cost of those from the U.S. and Israel. It is also highly competitive in U.K. and Germany. Many of the Chinese manufacturers are using the China market to develop their model and to use the advantage to expand their business in the well-developed countries. Although the larger groups would come under the tension of the geopolitical tensions, for the start-ups, normally they are not under the radar.
Many of the larger Chinese groups have learned to cover their roots so to speak, and use a third-country as their corporate identity. Take TikTok and Shein for instance, they have used Singapore as their registered global headquarters.
Chinese e-commerce group Pinduoduo deleted the mentioning of China from its app. Temu only mentioned that the company was founded in Boston, Massachusetts in 2022.
Together with the EV manufacturers like BYD and electric vehicle supply chain leader, ePropulsion, are building s global brand that doesn’t remind the market about its China origin.
Century 21’s Comeback with its First Store – WSJ, May 17, 2023
Century 21, the department store famous for its deep discounted designer clothing shut down its store in 2020. It is coming back in May with its flagship location next to the World Trade Center in lower Manhattan.
This time it won’t feature categories like home decor and full-price makeup counters. Instead it would dedicate floor space to mid-tier and high-end designer apparel. It is dropping budget items that could easily be found at other off-price retailers.
In a way it is going back to its roots that when the family founded the business in 62 years ago it was popular with the tourists and the New Yorkers. It was featured in the TV episode “Sex & the City” with celebrities shopping there. The store sold many of the designer brands as Bergdorf Goodman and Sakes Fifth Avenue but at a fraction of the price. It was known as the discounter for designer clothing in a store that was not well-lit and the dressing room that was without privacy.
But in the reopened store, the lighting is brighter with the larger fitting rooms.
For the time being, it is only opening one store but not ruling out more stores in the future.
Century 21 filed for chapter 11 protection and closed its 13 stores in New York, New Jersey, Pennsylvania and Florida in 2020. In November 2020 it was bought by the Gindi family with the goal of reopening. The location is now in four floors and 100,000 square feet with 500 employees. The Gindis are partnering with Legends, a retail, food and beverage operating company in Yankee Stadium among other venues. It will run operations and other services for Century 21.
It is working on its e-commerce site and will have it up and running in two to three months.
TikTok’s New App Lemon8 – BOF, April 21, 2023
Since its launch in March in the U.S., this app has been downloaded over 1 million times already. It is still at its infant stage and yet its visual and purchase-centric nature has made it especially intriguing to fashion and beauty brands.
ByteDance, the parent company of TikTok has proved again that it is capable of building a social media platform to influence what the users have to buy.
Lemon8 was first launched in Asia in 2020 and landed in the U.S. in February of this year. It is designed as a hub for product and lifestyle recommendations. It is focusing in areas like fashion, beauty, home and wellness. Lemon8 is already a top 10 ranking among life style apps on Apple’s app store in the U.S.
Since it doesn’t support advertising and will take those up-and-coming influencers to promote the products, it has left the marketing part to the brands who would want to come on board.
It is being compared with Xiaohongshu, a social commerce platform in China that is known for is peer-to-peer recommendations.
Lemon8 has been downloaded more than 4 million times worldwide for this year so far. But for Xiaohongshu it has been downloaded over 19 million times.
With parent company of ByteDance and sisterhood with TikTok and Douyin, it is caught under the conflict of TikTok with the U.S. Congress. We don’t know what this will lead Lemon8 in the future.
Target’s Challenge and Opportunity Going Forward – WSJ, May 18, 2023
Target is suffering from the sales of clothes and home products and its comparable sales remain flat in the last 12 months. Its sales of food and beverages, beauty and home essentials been doing better. Its discretionary categories make up around 54% of Target’s annual sales. That has left the shoppers going to Target for trendy items and the essentials to Walmart for instance.
Consumers have become more cautious in recent months amid the higher interest rates and continued high inflation.
Earlier on in 2022, Target enjoyed such a demand that fueled the company’s strong performance when the pandemic slowed down. That led to the retailers to overload to try to catch the demand. Unfortunately, this didn’t last and now it is left with excess inventory.
Another example is the Home Depot whose sales for the most recent quarter fell 4.2% and it is likely to see its sales will decline for the first time since 2009. Earlier on it benefited from homeowners who spent to upgrade their homes during the lockdown in pandemic.
With the demise of Bed Bath & Beyond, it could help Target to regain its market share in home goods. We will find out more when the back-to-school season will start.
What Have We Learned From the Episode of Adidas and Yeezy – New York Times, June 1, 2023
First of all the Yeezy brand can become a case study for the business school to use as a partnership between a celebrity and an international sports brand which was hailed as the most successful sportswear collaboration since Michael Jordan teamed up with Nike. Unfortunately, the erratic behavior of a rapper, Kayne West who is now known as Ye, whose comment targeting at the Blacks and the Jews caused an uproar. Unlike the other brands who severed the relationship with the artist, Adidas came under the pressure as Yeezy represented 8% of its total revenue, and yet 40% of its profit and hesitated to take a prompt action.
It is still waiting to start to sell its inventory which has a value of $1.3 billion.
Now it is posting in its website its Yeezy Boost V2 sneakers in black and two-toned red and grey selling for €200 a pair, and it is generating buzz over social media. It reflects the enduring popularity of the brand.
Adidas announced already that a significant amount of the proceedings would go to the groups and organizations representing people who had been hurt by Ye’s remarks.
Yeezy sneakers have been known for fetching $1,000 a pair and remaining popular despite their association with Ye. Although Adidas’s pledge to donate the proceeds to several organizations who have been defamed, and yet they welcome Adidas’s decision to help to ease the problem.
Ye would still be benefited by the sales as Ye still has the agreement for the royalty contract that Adidas is obliged to honor.
It seemed that to liquidate the whole inventory will drag on for a long period of time.
Nike Changed its Strategy to Re-engage their Wholesale Partners – WSJ, June 12, 2023
It has been Nike’s idea to sell more of its own products directly to their consumers through the company’s brick-and-mortar stores, website and apps instead of selling to the retailers. This has also been the company’s policy to earn more profit by going direct to the market under the banner of Nike. During the COVIS-19 pandemic, it had accelerated the process and by December 2020 the company had dropped 30% from its wholesale partners. It resulted Nike selling less products to retailers like Foot Locker, Zappos, Macy’s and Urban Outfitters.
It also took an effect on Foot Locker’s financial report as well as the market plunged during the pandemic after having less access to Nike’s products. Lately, it has announced about the rebuilding of the business relationship between the two and Foot Locker would focus on Nike’s basketball, sneakers and children’s products.
For Nike, during the beginning of the pandemic, the factories were closed and the shipment suffered from longer transit time made Nike to become more selective in supplying their retail partners. Consumers also went online and purchased directly from Nike’s website.
Last year, the market dynamics changed. The transit time improved and goods started to flow in faster than original plan resulted higher inventory. As a result, Nike cut orders from factory and began to put discounts on wider range of merchandise. Online business started to drop in 2022. This was also due to the weaker demand and the inflation and uncertainty in the economy are taking the effect.
Nike has to turn back to their wholesale partners to expand the sales network.
Nordstrom’s Closures in San Francisco – WSJ, May 4, 2023
Nordstrom is closing two retail stores near downtown San Francisco because of the challenges that the merchants are facing in large cities across the country. There is the rising operating costs, high crimes and foot traffic remaining well below the pre-pandemic level. On top of all these, there is also the concern for the economy slowdown.
Working from home has also affected the office and retail tenants. San Francisco is one of those slowest returns to work physically in the offices. Dozens of stores have closed over the past three years, this include H&M, Abercrombie & Fitch, Gap, Crate & Barrel in the Union Square. Even the large food retailers, Walmart and Whole Foods have announced plans to close stores in urban areas.
Another factor is the unsafe environment and increase in shoplifting This is affecting customers, retailers and employees that make everyone worrying.
In the beginning of the year, Nordstrom had 94 department stores operating in the U.S. It is said to close its large-format stores and replace by Nordstrom Rack which sells items from the main stores at a discount.
Shein the E-retailer’s Latest Attempt – New York Times, May 3, 2023
Shein, a brand founded in China, is one of the most downloaded mobile app, right behind Amazon and Nike, has its dedicated hashtag on TikTok known as #Sheinhaul.
It has been accused for stealing designs, selling cheap merchandise contributes to environmental waste, working in factories that fail the labor requirement and yet the company has never come forward to explain to the market. But this time it is taking a different approach as it has planned to raise capital from the market and seek to address to the criticisms as a way to earn good will.
As part of a $55 million initiative offering, it started to hold an all day summit in Los Angeles with hundreds ot designers to show its willingness to work with them.
Shein started a program known as Shein X to collaborate with designers. Through Shein X, the company provides independent designers with a budget, pay for their production costs, and market their products on Shein’s site. The designers either received the commission or a share of the profit and it has already engaged 3,000 designers.
Investor groups categorized Shein as the fast-fashion player, but Shein denied as fast-fashion has been known for the low-price which create overconsumption and environmental waste.
Its connection to China and the disclose of its business practice of avoiding the US Customs and Border Protection scrutiny by shipping directly to customers under a certain price threshold. In this case, it has avoided to create any record, even though the company has released a statement saying that it conducts lawful business and respect the communities it serves.
The tropic printed jumpsuit is sold at $16.49 which is very competitive
The company was founded in Nanjing but moved its base to Singapore to avoid its connection with China.
Tom Ford Entering A New Era – FT, April 29, 2023
Tom Ford sold his business under the name of “Tom Ford” to Estée Lauder for nearly $3 billion. Tom Ford who is now 61 years old, was the former creative director of Gucci and Yves Saint Laurent, launched his brand 18 years ago with Domenico De Sole, Gucci’s former chief director.
Ermenegildo Zegna is acquiring Tom Ford International with Estée Lauder giving the Italian group a 20-year licensing agreement.
Tom Ford, as the company, has a strong luxury beauty line, a successful fashion business and an eyewear business through licensing agreement with Italian manufacturer Marcolin.
Chanel and Its Mission – FT, April 29, 2023
The following statement was made by Leena Nair, Chanel’s global chief executive.
“We want to preserve craftmanship. So we will continue to acquire métiers and workshops that make sense.” The company had to “encourage buying less but better quality” in order to “decouple” revenue growth from sales volumes, “we have to invest in carbon capture technologies.”
I can’t agree more with her.
Lately she had ruled out an initial public offering and insists to hold on to its privately owned status and remain as the world’s second-biggest luxury brand. Although it is a French company, but in 2018 she moved its headquarters to New Bond Street in London. Its business is still resilient despite the pandemic, war in Ukraine and a surge in inflation that has weakened consumer’s confidence.
Chanel reported sales of $15.6 billion in 2021. Its latest annual results has shown the increase of 22.9% from pre-pandemic levels and making it second only to Louis Vuitton luxury brands by revenue.
Leena Nair joined the 113-year-old brand in January 2022.
Chanel is owned by Alain and Gerard Wertheimer who grandfather Pierre Wertheimer was an early partner of founder Coco Chanel.
Chanel was late in responding to the promise of decarbonization, has pledged to halve absolute carbon emissions from its own operations by 2030 and cut those in its supply chain by 10%.
Its market, Asia-Pacific, led by China accounts for more than half of Chanel’s annual revenue, whereas the U.S. sales has plateaued. This led to the departure of its president for the U.S, business.
Retailers’ Woe is Far From Ending – WSJ, June 2, 2023
We supposed to read that the retailers have finally work through their piles of excess inventory that have been bothering them for the past year. Now they are facing the low demand for apparel and accessories.
Take Macy’s as an example, with more than half of Macy’s customers have a household income of $75,000 or less, continue to feel pressure with high interest rate and inflation. The best performers in its stores are the fragrances, men’s tailored wear, women’s career sportswear and discounted items through its Backstage discounter. Its inventory was down 7% from the previous year, as well as its sales. The company’s other chains, Bloomingdale’s and Bluemercury, which are catering to higher-income shoppers than Macy’s are doing better.
Macy’s net sales reached $5 billion in the quarter ended April 29, down 7% from a year earlier. Its net income fell 46% to $155 million. The stock is down 41% with trading at $13.75 per share.
Other retailers like Walmart and BJ’s Wholesale Club that sell necessities like food and other consumables posted a stronger sale. But for those discretionary items like sweaters and shoes have reported a weaker sales and shoppers continue to look for discount.
Nordstrom expressed the same sentiment from their customers. But Urban Outfitters’ Anthropologies mentioned that their dressed-up categories, pants, dresses and shoes are doing well.
Surprisingly, the leasing activities of the malls are robust and rents are still growing. There is the demand from retailers to sign up leases for space in prime locations. It also showed that people are flocking to bricks-and-mortar stores.
Some Hot Sneakers
Cariuma, one of the world’s most adored brands for comfy, stylish sneakers has been spotted on celebrities in its white premium leather matched with off-white suede sneaker. Its cost, $129 and it is rated 4.83-star on its website. It can also last you season after season.
Another pair is spotted wherever you go in the South of France—Saint Tropez, Provence, and Cannes—a sneaker named the Golden Goose, which is an Italian company founded in 2007 by an Italian couple. This casual looking shoes is handmade with high quality materials like calfskin leather, premium cotton laces and cotton lining. The people in the southern France is obsessed with it. It is in the price-range of $600-700 a pair and it not meant to be cheap.
The New Strategy of Adidas – WSJ, May 1, 2023
Adidas is going to target their business on basketball and soccer for their U.S. business. It mentioned about its new facility in Los Angeles where it will base its basketball product team. It will also upgrade its U.S. hub in Portland, Oregon.
Going forward, there will be more store opening and expressed their intention to forge the new partnership with Major League Soccer. Its new CEO, Bjorn Gulden, who was a former professional soccer player.
Despite of the loss of its partnership with Yeezy and the setbacks in both Russia and China, its sales of sportswear and equipment grew last year. But its business with the other celebrities, such as the pop star Beyoncé, will end their Ivy Park collaboration. And also the collaboration with Pharrell William’s Humanrace tanked as the sales was down by 70% last year. Pharrell Williams’ recent appointment with Louis Vuitton as their creative director for menswear could perhaps reignite the partnership.
Adidas is a sports brand and it is the root of the company. It is definitely the way for Adidas to refocus for its business especially for the U.S. market. Its business is around $7 billion, which is about a third of Nike.
Not to forget that Adidas was the official supplier to the National Basketball Association until 2017 when Nike took over. Now with their basketball product team moving to Los Angeles makes an inroad into that key market. Not only it is the heartland of basketball but also closer to the target customers.
It has also the partnerships with NBA stars, this is including Damian Lillard of Portland Trail Blazers and Donovan Mitchell of Cleveland Cavaliers.
In April, basketball website Slam named Adidas’s Harden No. 7 developed with James Harden of Philadelphia 76ers as the best basket sneaker of 2022-23 season.
In football, Adidas has partnership with Patrick Mahomes, the Kansas City Chiefs quarterback.
In soccer, Adidas extended its partnership with Major League through 2030. It is the officer supplier of jerseys and other equipment to all the league’s clubs. Already the sales of soccer products are up 50% of last year’s. The demand for soccer products will grow further when the U.S. will co-host the next World Cup in three years’ time.
Adidas is not expanding in all sports field. For instance, it is terminating its deal with National Hockey League in 2024 after seven years as its jersey partner.
Adidas has set its mind to support the world’s biggest sporting-goods market and it is the strategy it has taken.