2023 OCTOBER ISSUE
MARKET INTELLIGENCE
SHORT READ | PART 2
Contents:
Introducing San Antonio Sneakers
Estée Lauder’s Woes
Nike’s Encountering with Theft
Tapestry Has Taken New Challenges by Acquiring Capri Group
Post-COVID Situations for Retail Destinations
Shein and Forever 21 Partnership
What is Known as Fake Sales
Stores Are Rethinking About Their Presence in San Francisco
Lululemon Entered into the S&P 500
Written by : Andrew Sia
Share this article !
From the Desk of the Publisher
In this piece we reported about the retail scene in London West End. We noticed the most prestige Oxford Street where there are vacancies and those spaces are taken over by shops selling souvenir items. Their presence can downgrade the prime shopping space which is the most unfortunate. And all these are due to the COVID which has caused the challenge to the retail industry and damaged the retail landscape.
Then we talked about the shopping area in the downtown San Francisco. Likewise, the shopping environment has changed. Changes in the operating cost, the safety and the lack of foot traffic for retail have affected the retail operation as well.
There are other big cities which we believe would have faced the same problem. And again these are all due to the COVID pandemic.
Introducing San Antonio Shoemakers – WSJ, August 2, 2023
Today, there is a dwindling group of shoe companies still producing shoes in the U.S. and Boston-based New Balance is by far the largest. San Antonio Shoemakers in Alamo, Houston is an American relic and it is producing sneakers, loafers and dressy boots. San Antonio Shoemakers is not known as it is more catered to the retirees. It is still using “Made in the U.S.A.” on their tags. Its audiences are not so much for the look of the sneakers, but rather the orthopedic advantage. And perhaps their feet are still tend to hurt then they want to switch to something more comfortable.
It used to release one new style every five years, but after their CEO, Nancy Richardson, joined in 2012, the company is now releasing four to five new styles each year.
SAS is still a private company and doesn’t reveal its revenue, staff size or production numbers. It operated three factories in South Texas and is still owned by the family of Terry Armstrong. It was founded in 1976.
Its shoes are meant for 35 and above and it developed its last and each shoe takes somewhere between 65 and 80 steps to complete. Everything is done in house. Product description is focus on comfort and put the indication if it is approved by Medicare. Its shoes are all meant for foot health.
It is not meant for cheap and take for instance, SAS High Street – Lace Up Sneaker with perforated leather on the upper face is selling at $224.95 with a lot of features.
Estée Lauder’s Woes – WSJ, August 19, 2023
Estée Lauder was founded by Estée Lauder, the person, in 1946 in New York City. It has 62 million followers across the Estée Lauder social platforms globally. It proudly claims that there are 22 bottles of advanced night repair serum sold every minute around the world in 2019.
Estée Lauder’s quarterly result took a hit because of its slower-than-expected pace of improvement in retail sales in the U.S. offset its stronger growth in Latin America. In Europe the company saw a 16% drop in net sales. In Asia Pacific region, includes China and Japan, it accounted a 14% drop for the full year.
As a result, Estée Lauder’s had a loss in the quarter ended June 30, from a profit of $153 million a year ago. Although its revenue rose from $3.56 billion to $3.61 billion but gross margin dropped from 71% to 67.8%.
Its performance is affected by its result in China as the pace of recovery in Asia travel retail was slower than anticipated. There is no rebound in sales in the key duty-free island of Hainan. Recovery from China from their coming out from zero-COVID, and Chinese shoppers have a wider selections of local brands plus the youth’s unemployment has killed the business.
Sales for the full year ended June 30 fell 10% to $15.91 billion as it is driven by a 14% decline in skin-care net sales in its Asian Pacific region.
For the full year ahead, it is expecting an increase in sales to rise between 5% – 7% to $17.02 billion. It is still optimistic for the future as there will be over 900 million people expecting to enter the middle class in 2030 and will drive consumption.
Nike’s Encountering with Theft – WSJ, August 7, 2023
Nike is a company generating $50 billion in annual sales. But Nike goods have been stolen at almost every point of the supply chain. From trains, delivery trucks, warehouses, distribution centers and retail stores. Not to mention the shoplifting or smash-and-grab thefts.
Its most famous sneaker, Air Jordan, is produced in Vietnam and China, and it travels a long way from Asia, through different sea ports, warehouses, and distribution centers before it arrives in the store. Each stop is a risk and there are crime-rings causing problems along the route. The increase of theft increased by 63% during the first half of 2023 compared with a year ago.
Nike products are becoming attractive targets for criminals and in recent years as reselling of those limited-edition sneakers are becoming a business niche. One of the most common way to offload stolen sneakers are through those online marketplaces.
The resale platforms are required now to track and get personal information for all sellers with 200 and more transactions and making at least $5,000 in gross revenue during the 12-month period. For some company like Nike who is suffering a high level of theft especially in Los Angeles county, this measure may help. And due to the high crime rate, businesses are moving out to avoid the danger and the financial loss.
Tapestry Has Taken New Challenges by Acquiring Capri Group – WSJ, August 11, 2023
Tapestry, the U.S. luxury group owns Coach, Kate Spade, Stuart Weitzman. It has agreed to buy Capri Holdings, owner of Versace, Jimmy Choo and Michael Kors for $8.5 billion. It means that it would pay $57 per share for Capri, almost 60% above the average price. As the result, its shares fell 15.5% and Capri went up almost 57%.
Tapestry said that the six brands it would own following the acquisition had combined sales of more than $12 billion. Compared with the other luxury groups, LVMH had sales of $79 billion in 2022, Kering with $20 billion and Richemont had $19 billion of sales.
The U.S. luxury shoppers are more aspirational and also more vulnerable to recessions and other economic challenges. It is unlike their peers in Europe who are more deep-pocketed. As the result, we have heard more American designers ended up selling to the European luxury groups and this include Marc Jacobs, Thomas Browne, Donna Karan, Tom Ford, Tiffany & Co., and Virgil Abloh.
Tapestry said that the acquisition would expand its portfolio in global luxury market for footwear, handbags, accessories and apparel. It also sees opportunities in reducing operating costs and finding supply-chain efficiencies.
Tapestry has better marketing and digital platforms and both can help Capri’s brands. Currently Tapestry’s 88% sales are from its own stores and websites, while only 68% of Capri’s business comes from the direct-to-consumer channel.
Post-COVID Situations for Retail Destinations – WSJ, August 30, 2023
First of all, we read that Oxford Street, the famous shopping destination in London’s West End, has given way in recent years to gift shops and candy stores. Stores are selling tourist gifts, luggage, candies and have occupied a significant storefront alongside the likes of department stores like Selfridges and flagships as Nike, Zara and Disney. This has lowered the reputation of the high street.
These stores come and go like mushrooms and there are around 25 to 30 of them. In addition, there are around 40 empty stores along the 1.2 mile road. The city council raided those stores and found illegal and counterfeit goods, and some are suspected for money laundering.
Now the street, like many retail destinations around the world, is starting to rebound from the darn COVID-era. Visitor numbers are still down 20% compared with the 2019 figures, but the spending is back above pre-pandemic level.
Oxford Street has been around for more than two centuries, and in 1900s the department stores already set up their stores. When the COVID hit, many stores closed and some owners let the tenants stay and offered rent-free period. But some landlords offer to sublet the space and were not selective in choosing the tenants. Those operators open and close to avoid paying taxes to the city council.
Now some of the big brands are moving in and they have been encouraged by a recent reduction in business taxes. There is the opening of a new subway line interacting Oxford Street. IKEA is opening a store in the middle section of the Oxford Street. HMV is coming back after closed its 98-year store in 2019. It is taking up the same location.
Other high-street retail destinations are back as on New York’s Fifth Avenue, visitor traffic was up 20% in April to June quarter from same period last year. In Paris, Champs-Élysées is above 2019 levels and hitting record highs.
These shopping destinations are recovering.
Shein and Forever 21 Partnership – WSJ, August 25, 2023
The two rivals have entered into a partnership that allows Shein to sell Forever 21 dresses, jeans and accessories in its site. Shein would ultimately become shop-in-shop in Forever 21 stores.
Shein has become one of the largest U.S. fast-fashion retailers by market share.
In this deal, Shein is buying roughly one-third of Forever 21 operation from Sparc Group and Sparc Group in return is taking up a minority stake in Shein.
Sparc is a joint venture between brand-management company Authentic Brands Group and mall owner Simon Property Group. Sparc distributes in additional to Forever 21, and those of Aéropostale, Nautica, Lucky Brand, Brooks Brothers, Eddie Bauer and Reebok, collectively known as the seven brands of Authentic Brands.
This fits into the space of Shein, where it shown the interest to bring in more third-party brands. Forever 21 has the access to Shein’s 150 million customers. Forever 21 came out from bankruptcy in 2020 and has 560 stores worldwide, with 414 in the U.S.
Shein is known as the e-commerce retailer founded in China. It was founded in 2012 and its founder Chris Xu moved the company’s headquarters to Singapore from Nanjing more than a year ago, and it is a move to help Shein circumvent China’s tough new rules on overseas listings.
Its teaming with Forever 21 can take the fast fashion in the U.S. to the next level. With Shein and its technology and supply chain allow hundreds of new styles to be launched weekly. This offers to shoppers, especially teenagers more options to spend on cheap clothing. Likewise, Forever 21 launched in malls with a revolving carousel of $5 tops and $10 dresses that hit the racks more quickly than traditional department stores.
Now with Shein’s acquiring for the one-third of Sparc, it allows its access to a large portfolio of stores. Shein has been found to have experimenting with the pop-up stores in the U.S.
Shein has been long being criticized for operating with forced labor and copying independent designers’ work. It has been accused to have used cotton from Xinjiang for the human rights abuses against the Uyghurs. To clear its name, Shein organized a trip for the influencers to visit some of its factories in China and upon their return posted for not finding any mishandle of labor practices.
Shein has also hired designers to make apparel and fashion items for the company.
Forever 21 was founded in 1984 by a married couple from South Korea who migrated to Los Angeles. Because of its success and had brought along a lot of controversies, the company ended up being bankrupted in 2019. It was bought by Sparc Group the following year.
It is interesting to see how they can observe sustainability and pay attention to environment while keeping the all-time low price and still can remain profitable.
What is Known as Fake Sales – WSJ, August 24, 2023
To appeal to those price-conscious customers, retailers have been criticized for allegedly deceiving consumers by “tagging” products as being “on sale” even if those would fall into fake sales.
Those heavily promoted sales prices drive buyers to flock into stores for fear of missing out on a great bargain. These are all phycological behaviors. It shows the treacherous of the merchant and the greediness of the customer.
You can be surprised with names like JCPenney, Foot Locker and Eddie Bauer are currently facing lawsuits over allegations of fictitious or deceptive pricing. BooHoo, Nasty Gal and PrettyLittleThing recently settled a deceptive pricing case in California for $197 million. Dell, the computer company, agreed to pay $6.5 million to settle accusations from the Australian government that it used misleading prices on its website.
Over the years, retailers continue to use this tactic to drive sales and unload excess inventory.
Stores Are Rethinking About their Presence in San Francisco – Yahoo Finance, October 9, 2023
Earlier we read about Nordstrom was closing two stores near downtown San Francisco, including one in a prominent indoor shopping mall. The closures are reflecting the challenges that the merchants are facing in key business districts in large cities across the country. They are dealing with rising operating costs, concerns over crimes, and foot traffic remain well below pre-pandemic levels.
Concerns of the economic slowdown, higher interest rates and working from home have kept the business slow. San Francisco in among the slowest return to work in person in office and that has caused the office and retail tenants away from the city.
In the past three years there are dozens of stores were closed in downtown area. This included H&M, Abercrombie & Fitch, Gap, Crate & Barrel in the Union Square. Whole Foods Market and Walmart are also announcing their closure.
Retailers like Home Depot and Best Buy have stepped up to lock up items inside the stores to prevent theft.
The National Retail Federation has estimated that retail shrink, including theft and inaccuracy record keeping led to loss of $95 billion in 2021.
Nordstrom, the Seattle-based retail chain operated 94 department stores in the U.S. as of the beginning of this year. It is moving towards Nordstrom Rack, a discount format which sells items from their main stores. It has also started to close its operation in Canada.
Starbucks has to close 7 stores in San Francisco and will still have 52 remaining Starbucks operating.
Amazon closed a Whole Foods Market store just 13 months after opening. In March for Amazon Go Stores were closed, an Office Depot store was closed in April and Anthropologie in May after its presence in Union Square after two decades.
Gap closed its Old Navy, Banana Republic and Athleta stores. Even Saks Off 5th also closed.
San Francisco is facing hybrid and fully remote companies that caused less foot traffic from office workers. It is the lowest number of physical presence office workers of any major U.S. cities. In August 2023, office visits were down 52.7% compared to August 2019 before the pandemic disrupted workplaces.
Crime and store theft are also reasons to close stores. Target is announcing to close nine stores at the end of October. Retail theft has led to safety for the office workers and customers.
But under every cloud there is a silver lining. If you look at San Francisco and the Bay Area, it has been a market led by tech industry, and with the artificial intelligence boom acting the bright spot for the activities, it was the first to move to remote working during the pandemic. It may be a leader to bring workers back to work in offices. Tech companies are looking to upgrade the office space and want to create a better working experience to motivate their workers. We have to keep our fingers cross.
Lululemon Entered into the S&P 500 – Yahoo Finance, October 18, 2023
The athleisure retail company officially joined the S&P 500 Index on October 18. replacing game maker Activision Blizzard. Lululemon weathered a series of storms in the mid-2010s and grew its yoga-heavy appeal into a cross-generational, multisport brand. In the past year alone, its stock jumped nearly 40% and beats both estimates on earnings and revenue. In its last quarter its net revenue increased 18% compared to a year ago, and its internet sales growth jumped 15%.
The company started making its signature legging in the late 90s. it went public in 2007 and by 2013 its share price had roughly quadrupled with its revenue from $275 million to over $1.3 billion.
A stings of things happened.
In March 2013. Lululemon recalled 17% of its black yoga pants for being too sheer, and lost $60 million sales.
In November 2013, its founder Chip Wilson went on Bloomberg TV to comment the issues with its legging was because ‘some women’s bodies don’t work for pants” and he stepped down from the board a month later amid uproar from customers. In 2014, its share dropped roughly a quarter.
Lululemon began its turnaround as athleisure started to receive well in 2017. It appeals to high school students along with its core customer base of 35- to 55-year-olds. It became the “perfectly normal” to wear leggings to school work and all sorts of occasions.
“Athleisure wear boom” during COVID lockdowns and its digital sales jumped 27% in fiscal year 2017, and hitting a peak jumping 101% year-over-year in fiscal year 2020.
Last year, Lululemon released its plan to double its 2021 revenue of $6.25 billion to $12.5 billion by 2026. Besides expanding its product lines, the company aims to quadruple its international revenue and make China its No. 2 market.
In 2022 it launched its “Play” category which includes apparel for golf, tennis and hiking. It admitted its expansion into footwear in 2022 was a mistake.
During this macroeconomic environment, business is volatile, but Lululemon has been able to sell its inventory without using any discount strategy. Perhaps it is also the high-income consumer portfolio that enable Lululemon’s success.