MARKET INTELLIGENCE SHORT READ
PART 3
2022 OCTOBER ISSUE
Written by : Andrew Sia
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From the Desk of the Publisher
We continue to make reports about the news relating to the fashion industry. Stores are continuing to face the uncertainties in the coming holiday seasons. It is really a tough time to stay in the business and until all these problems: overstock situation, supply chain congestion, pandemic, war, natural calamities, inequality, can be solved, for us to return to where we were would be quite remote.
We brought up the topic about the managing of the wardrobe, our suggestion has always been to own less pieces but better pieces. In this way you can treasure for what you own and never feel that they are out of fashion.
Courtesy of : YouTube | Rent the Runway: The World is Your Runway (Full) | Sept 13, 2021 | 1:00
Contents:
Kohl’s Stores Will Host Sephora
Farfetch is Acquiring Yoox Net-a-Porter Group SPA
Adidas’s CEO is Exiting Next Year
Apparel Chains Suffer in Q2
Fashion Wardrobe During the Climate Change
US Stores Are Under the Challenge During this Holiday Season
What Do We Know About Tank Top
Luxury Retailing
The RealReal Saga
Tod’s Went Private
Adidas Looks for New Market Strategy
C&A Europe
Evolution of the Retailing
EU Government is Pending Legislation on Design and Labeling of Clothes
The Other Face of Russia During the War in Ukraine
Fast Fashion is as Additive as Tobacco
Kohl’s Stores Will Host Sephora – New York Times, August 19, 2022
Kohl’s announced that it will plan to open Sephora, its beauty unit, in all of its 1,165 stores. The Sephora spaces are usually 2,500-square-feet shop-in-shop. Kohl’s is expecting the partnership to generate $2 billion in annual sales by 2025.
In 2020, Kohl’s announced its link with Sephora, who is a French multi-national beauty retailer who started with JC Penney in the U.S. earlier on.
Kohl’s has been struggling with its financial performance but have stopped its negotiations with some active investors.
End of this year there will be 600 Kohl’s locations for Sephora. In 2023, there will be another 250 more.
Sephora is owned by LVMH.
Farfetch is Acquiring Yoox Net-a-Porter Group SPA – WSJ, August 25, 2022
Farfetch is an online luxury business has agreed to take a significant stake in rival e-commerce Yoox Net-a-Porter Group SPA to expand its digital luxury sales.
Farfetch agreed to buy 47.5% of YNAP from Richemont SA, the French luxury jewelry lines such as Cartier and Van Cleef & Arpels.
The online market for luxury goods is a relatively underdeveloped business comparing with e-commerce in general. The share of luxury online sales increased from around 12% in 2019 to 22% in 2021.
Farfetch is New York-listed operations on online business where hundreds of luxury brands sell their products to consumers. Farfetch takes a commission on each sale. Its revenue grew by a third last year to $2.3 billion. Due to the reason that its business hasn’t grown to the investors’ expectation, its shares shed almost 90% of its value. It moved into physical retail through a $200 million investment in Neiman Marcus but the investors don’t react positively either. Having said that, Farfetch is still profitable.
Richemont acquired YNAP in 2018 and at the time it was valued at €5 billion. But the recent deal with Farfetch valued it only at €1 billion. This resulted Richemont to take a €2.7 billion non-cash write-down after selling a majority stake to Farfetch and also to an Emirati investor. Richemont will still retain 49.3% shares.
The payout for those shares to Richemont will take five years to complete and Richemont will end up with 12 to 15% shares of Farfetch. Farfetch has been given an option to acquire the rest of YNAP’s remaining shares in the next five years.
Some of those Richemont luxury brands are given the e-commerce platform of Farfetch.
Adidas’s CEO is Exiting Next Year – WSJ, August 23, 2022
After three challenging years marked by the economic consequences brought by the Covid-19 pandemic and the geopolitical tensions, Adidas announced the exit of its chief executive, Kasper Rorsted. After the announcement, its share was down by 5%, but all-in-all, it was down 38% since the beginning of the year.
Kasper Rorsted has led the company since 2016 and his contract was due to run out by 2026. During his tenure, he advanced its digital transformation and grew its online business by 500%. But the company’s growth is still lagging behind Nike and Puma.
Sales of Adidas has been held back by their taking side with the Western brands to raise concerns about forced-labor allegations in China’s Xinjiang region. More recently, China’s Covid-19 restrictions have hit the brand’s sales that led to Adidas to cut back its earnings target for the year.
China is the world’s largest market for apparel and footwear, it was valued at $376 billion in 2021. The U.S., the second largest, reached $330 billion.
In the second quarter of this year, Adidas sales rose 4% at constant currency driven by Europe and the U.S. regions, while the sales in China and Hong Kong dropped by 35%.
Apparel Chains Suffer in Q2 – WSJ, August 26, 2022
We are featuring three American apparel chains—Gap, Victoria’s Secret and Abercrombie & Fitch at this time when their quarterly sales have all declined and consumers have shifted their spending away from clothing and other discretionary items. The earnings reports from many department stores and big-box chains were also weaker than the investors had expected.
Retail spending has softened this time and higher fuel prices and food prices have gone up. This have resulted the people to set aside more money for dining out and entertainment for a change. The retailers are looking to deal with their excess inventories and move to markdown their price tickets.
Gap oversees Old Navy, Banana Republic and Athleta brands, had its second-quarter sales fell 8% and suffered a loss of $49 million, compared with a profit of $258 million a year ago. Old Navy’s net sales dropped 13% year-on-year, but Banana Republic was up 9% because of its clientele of higher income.
Victoria’s Secret who owns Pink also, said its quarterly revenue fell 6% and net income dropped more than 50% to $69.9 million. It is working on a new branding campaign and hope to boost its sales.
Abercrombie & Fitch owns Hollister, and in its second-quarter sales fell 7% to $805.1 million and entered into a loss.
Fashion Wardrobe During the Climate Change – New York Times, August 22, 2022
The young professionals at this time are looking for an upgrade of their wardrobe as many of them have been renting most of their work suits and dresses while keeping the climate change in mind. The experts are sharing their opinions by saying the following.
Organic cotton is grown with pesticides but it is very water intensive. Even when talk about recycle polyester, it is still polyester to begin with.
Every action, whether it is for purchase or rental, has its impact. The purpose is important and decide for the least impact on climate change.
Renting has to deal with the transportation cost, the use of the plastic wrapping that comes with the delivery, the dry cleaning to keep the garment fresh, clean and appealing.
Renting can be good for special occasions such as party and wedding. The need is specific and fits the occasion and purpose.
But for work attires, it is worth considering a longer term of owning the apparel for instance. One can consider the pre-owned garments and start to build up a wardrobe surrounding those needs in the working environment. Owning the blazers going with the trousers and with some new shirts can fit the purpose more effectively.
Take good care of what you own and use them continuously. A wardrobe needs smart planning.
US Stores Are Under the Challenge of this Holiday Season – FT, August 25, 2022
After two years during which families were afraid of catching or spreading the coronavirus had kept families from meeting one another, this time people are keen to return to normal patterns for celebrating the holidays.
Already some of the country’s largest store chains are reporting the robust back-to-school sales in recent days and even expecting consumers to celebrate with families and friends for Halloween, thanksgiving and Christmas.
But promotional environment has become more intense especially in areas of apparel and footwear. Consumers would likely to spend on gifts and retailers are focusing on good deals. But the recent over-stock situation has brought the retailers more cautious in their buying. They haven’t forgotten the pain of the excess inventory.
What Do We Know About Tank Tops – New York Times, August 18, 2022
Tank tops were first popularized in modern Western fashion during the early 20th century as part of bathing suits for both genders. At that time it covered the torso with a sleeveless, low-cut top. The name could have derived from tank suits. And later, it evolved into a separate garment.
The tank top appeared as underwear and became famous when Marlon Brando worn it in the movie “A Streetcar Named Desire” as a blue-collar adult in 1951. It became a certain type of machismo from Robert De Nero’s “Raging Bull”, Bruce Willis’s “Die Hard”, James Gandolfini’s “The Sopranos” and Vin Diesel’s “Fast and Furious”.
Tank top has been liberated in the 1970s and worn as underwear to become the face-piece. Who is better than Hanes, an underwear company, to make such statement that the ribbed tank is across the board with every fashion brands.
We can find Calvin Klein and Ralph Lauren using it over the jeans for photo shooting. On runways, they appeared with brands like Chloé, Prada and Bottega Veneta. Tank top is almost timeless.
Luxury Retailing – FT, August 27, 2022
Chinese tourists, once the biggest buyers of luxury goods, have almost disappeared from Europe’s high streets since the pandemic when China started to close their borders. With its net-zero Covid policy, there is no clear indication when they will return.|
For the last decade before the Covid, Chinese consumers became by far the largest spenders on luxury goods, together they spent €93 billion, a third of the global sales. But only a third of the spending were made within China, and the rest were spent on their trips abroad, particularly in Europe. They felt that buying from European flagship stores was more authentic, also cheaper as they could shop tax-free using European sales rebates.
Analysts expect Chinese tourism spending to return to pre-Covid levels by 2025. Again it is depending very much on how China can recover from this pandemic financially.
The RealReal Saga – FT, August 27, 2022
They call consignment sales are an American phenomenon. The RealReal was created in 2011, sells used luxury fashion items online and in its stores. It catches the young consumers who are interested in luxury fashion and sustainability.
The company went on public in 2019 at $20 a share and its market value today in only at its 10%. Since the Covid, inflation has caused the consumers to think twice before spending. Also the goods stuck in the supply chain finally reappear, and high inventory has led to clearances.
The annual revenue of The RealReal is forecasted to rise 35% to $635 million, down from their 56% growth in 2021. In its last quarter, net loss was $53 million, down from $71 million a year before.
Its founder and chief executive Julie Wainwright stepped down by the end of the year.
Tod’s Went Private – FT, August 4, 2022
Tod’s the Italian loafer went private as announced by the founding family, Della Valle, and it is in the process of using €338 million to buy the 15.5 minority investors to increase its ownership to 90%. It spent 22 years from the Milan-based stock exchange—Borsa Italiana.
It has announced to make a big investment in the Tod’s Group and its other brands, including Hogan and Roger Vivier, and make them more prominent in the luxury market.
LVMH would continue to hold its 10% shares after the company would delist from the Milan stock exchange.
Adidas Looks for New Marketing Strategy – WSJ, August 5, 2022
The slow of sales in China during its Covid-policy and the stop of sales in Russia resulted the brand to meet its 2025 financial target.
Much of the brand’s growth has been more reliant on consumers in China in recent years. Its revenue growth between 2017 and 2019 was around 60%, but Nike was only 30%. Once its business started to slow down, both Adidas’s sales target and operating margin dropped.
Since the second quarter of this year, it has started to grow its business in North America, Europe and Middle East. It is time to look for a healthier market presence.
C&A Europe – FT, September 5, 2022
C&A was founded in 1841 by the Dutch brothers, Clemens and August Brenninkmeijer. At this moment they are operating 1,400 shops in 18 different European countries in different sizes and store layouts. C&A’s headquarters is in Düsseldorf and like many European retailers, they are going through their most disruptive period since the Second World War, and this time it is the Covid-19 pandemic period.
Giny Boer, their chief executive, just joined them two years ago, came from Ikea, where she spent 25 years there. She arrived in C&A and began to talk with staff and encouraged them to speak freely.
C&A has been known as a very masculine, bureaucratic, lots of layers and I can remember that the management was very stiff. They were using a lot of importers for their merchandise, but their buyers, mostly men, were traveling. I was told that you could identify them in the business class section and even in flights they were wearing ties.
With Giny Boer on board, she began to talk with staff and noted their lacking of online sales as their digital approach was under development. Their single logistic hub could not cope with the present-day demand. Very quickly two fulfilment hubs and a “One-C&A” program of store rationalization and refurbishment have been put in place.
Four hundred shops have been revamped. And on Berlin’s Kurfürstendamm, the historic shopping street, C&A’s three-floor store of nearly 5,000 square meters has been transformed into an airier, trendier retail hub. The rest of the store portfolio will be set in its right-size—large, medium and small format and the first part of the transformation will be completed by 2024.
In Bertrange, a 2,100 square meter C&A store, which is a typical medium format C&A, but still waiting for the refurbishment. In the same shopping center are the brighter and more modern H&M and Zara stores. They are in direct competition with C&A’s budget and premium ranges. There the competition will be heading into a cost-of-living criteria where the range and the price are among the most important strategic decisions to take.
C&A is still a business own by its founders, Brenninkmeijers, under its private Cofra Holding.
Evolution of the Retailing – FT, September 5, 2022
In the beginning, retail was largely depending on properties where companies would spend huge efforts to analyze local demographics, economics and infrastructure to estimate potential footfall. In order to do so, they need to cough up with substantial fortune to acquire the most promising sites. We came to know the true meaning of “flagship store” which is representing the façade of the store. “Location, Location, Location” became the doctrine.
Then entered the on-line retail model, which store location has become irrelevant. Without bricks-and-mortar as the business front, those online companies deliver goods directly to your door. The story can be told successfully by Amazon.com for instance. And “Logistic, Logistic, Logistic” is becoming their doctrine.
The new-kid-on-the-block belongs to those consumer brand companies who bypass the traditional retail outlets and ecommerce platforms and go directly to the consumers by themselves. This is known as the direct-to-consumer or DTC. The typical players here are Shopify, Warby Parker, Stitch Fix, Peloton, who only provide the back-office logistics, payments and delivery infrastructure services. They use social media to build brand awareness, attract them to buy directly from them and ship to them directly to complete the transaction.
Like everyone else, DTC are struggling with the surging cost inflation, high interest rates and weaker consumer demand. On top of all these, there are the higher shipping costs, supply chain disruptions, and an increasingly uncertainty of the Chinese manufacturing base.
Lately, the increase of cost for ads from Facebook, and the tightening from Apple’s decision to allow users to opt out of app tracking services, are adding pressure on the DTC operators. And not to add the increasing competition and the cut-throat competition from knock-off merchants.
Today, all the big traditional retailers and consumer goods companies, we are referring to Walmart, Amazon, Nike and the others, have learned all the tricks and they are all turning themselves to become omnichannel operators. Even for instance, Amazon.com has expanded its network of physical stores. They have found that it is easier for consumers to use one platform than to engage in different sites for different brands. Also the Covid-19 pandemic has changed the landscape of retailing after the world has shut down for almost a full year and during the period the business was depending largely on ecommerce.
Lastly, we can study a situation that is taking place in India. There they have an initiative which has just been launched in 100 cities for a publicly backed digital infrastructure for the retail trade. Their “Open Network for Digital Commerce” has created an interoperable collective network for ecommerce rather than a closed private platform. This enables millions of small merchants to connect with suppliers, customers and logistic companies. Its ambition is to bring 30 million sellers and 300 million shoppers on to its network by the end of 2024. As claimed by one of the founders of the IT company, Infosys, “It is the most exciting business transformation happening in the world.”
India, as the country, has been championed for its digital infrastructure. Its digital ID system, Aadhaar, is now used by 1.3 billion people while its UPI payments interface enabled 6.3 billion online transactions in August. This Open Network for Digital Commerce (ONDC) is to empower millions of small neighborhood merchants to take on Amazon.com and Walmart owned Flipkart. If it works, it is the mantra of the next era in retail, and “Localization, Localization, Localization” will become the doctrine.
EU Government is Pending Legislation on Design and Labeling of Clothes – WSJ, September 7, 2022
EU wants to put the legislation to cover all clothes that are selling in the bloc. This is going to become something that will affect not only the European brands, but also the U.S. multinationals like Nike Inc. and Levi Strauss & Co., Uniqlo from Japan and Shein from China.
This is bad news for the players of the fast fashion and already a plan that aimed to change the behavior of people buying clothes and throwing them out in less than a year. In the future clothing should be long-lived and recyclable, and to a great extent made of recycled fibers.
Suggesting the clothing to use only one single material, but we have seen clothes are often containing a mix of fibers, including organic cotton and polyester for instance. It is common to see a T-shirt in 99% organic cotton with 1% spandex to retain the shape when it is worn on the body. But when recycle will have to put into practice, separating of the fibers is tricky.
Currently, we have less than 1% of the world’s textile waste is recycled into new clothes, the rest are ended in trash.
Already some European brands are launching a line of single-fiber clothes, take for Adidas AG for instance, shoes, coats, T-shirts and pants are produced under its “Made to be Remade” label.
But H&M already voiced out that the single-fiber garments many not be durable enough and their current share of fabrics with a 100% composition is around a third of its total range. They argued that the single-garment garments may not meet their customers’ expectations on comfort and quality, which is already unsustainable. Instead their company is offering repair services, rental and secondhand clothing as part of the sustainability program.
This regulation will be tough and to enforce it would perhaps be very difficult.
The Other Face of Russia During the War in Ukraine – New York Times, September 7, 2022
On a recent evening in Red Square, you found a corps of paratroopers in camouflage performed a battle-like dance with pyrotechnics. An Egyptian dressed as a pharaoh rode back and forth in a chariot with the ankh wielded as the ancient Egyptian symbol of life. And in the background a band played the Soviet-era war song. Militaries of Russia and friendly nations including Belarus, India and Venezuela were celebrating the festival.
On the warfront, Russian army is waging a slow-moving war that has left tens of thousands dead. It has also caused a global inflation and a surge in energy prices.
All these are very surreal. Day-to-day life seems to have little change in Moscow. People have the financial resources to deal with the rising prices. This is unlike the rest of the country.
GUM, the luxury mall next to Red Square, is full of shoppers, although many Western stores like Prada, Gucci and Christian Dior are closed. Restaurants and theatres are opened and the roads in Moscow are filled with luxury cars. Most museums and theatres are open, party boats sailing on the nearby Moskva River, people picnic on the grass. Fall seasons in opera and ballet have just begun and this all fall into Putin’s plan, that is to create at home the most successful and normal life as possible in Russia. He has not imposed draft, no mass funerals, no felling of loss and conflict.
In reality, Russia has started the biggest land war in Europe since World War II. Putin is calling it as the “Special Military Operation” but its nationals are not blind to see the movement of tanks and soldiers, the soaring of ruble, the silence of opposition and a new media which is almost taken over under the control of Kremlin. People are in fear and already 16,500 of them were arrested on charges of protesting the aggression in Ukraine since February 24 according to OVD-Info, a Russian human rights organization.
The Russians are trying not to think about the war but carry on to listen to what Putin would want them to believe. How sad!
Fast Fashion is as Addictive as Tobacco – Fast Company, September 14, 2022
Although the Gen Z is considered as the most eco-friendly generation, and yet they buy cheap and fast fashion more than any other age groups. Their addiction is almost like the smokers who are addicted to tobacco.
They overlook the condemning information about fast fashion, and because there are few regulations, thus enable behemoths like Shein, who appeared from nowhere, to take the business like wildfire.
If fast fashion is not being reined in, its addiction is going to destroy the Gen Z, and more the disposable clothing will bring them to the landfills, and because of the insatiable appetite of the consumers, it will create also the unethical labor practices along the supply chain.
Through the social media, fast fashion trends are in presence daily instead of seasonally. Through the social media, take TikTok as an example, it is a never-ending channel passing fashion fads and celebrity culture. Unfortunately, this has captured the Gen Z’s attention, even if we have high regards about them earlier on.
They are no older than 25 years old and the price point is their key concern. But we must realize that cheap price comes at a steep cost to the environment. In the upstream production process, fashion generates greenhouse gas emissions that are accounted for 70%.
Fast Company is comparing this with the tobacco companies in the 1960s and cigarettes were sold at $0.26 per pack, equivalent today’s $1.49 and they were promoted through TV ads and radio broadcast. Those characters used in the advertisements were the role models for the youngsters and they lured young male to become smokers, not knowing the deadly health effect of tobacco.
We take Shein as the example today, that you can find their items as low as $3 for the dresses, $5 for the sweaters and $8 for the jeans. They publicized for the latest trends at the cheapest prices disregarding that it is destroying the environment.
It is suggested to put the warning label on the garments as what we can find on the cigarettes and since this has been in practice for many decades. We have seen the tobacco industry has ebbed as there are less smokers in these days.
If we put the warning label on clothing, this will alert the consumers to pay attention and to think carefully the impact they would make to the Earth, knowing that the fashion industry has vowed to reduce the carbon emissions and want to be responsible for 26% of the world’s carbon budget by 2050.
We have seen the EU government tightening the regulations and try to make the supply chain more transparent in order to have a tighter control for the environment. Individual fashion companies are taking up measures to comply the rules.