MARKET INTELLIGENCE SHORT READ
PART 2
2022 APRIL ISSUE
Written by : Andrew Sia
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Contents:
Gap’s Struggle
Luxury Brands Are Resistance to Price Increase
Organic Cotton Boom, But Its Fraud and False Labels
Foot Locker’s Planning for Going Forward for 2022 and Beyond
Sneaker Culture
Crackdown on Fast Fashion
Shanghai Fashion Week
Top Ten Luxury Brands in China
Gap’s Struggle – FT, March 5, 2022
Yeezy 450 in 450 Resin
Courtesy of: news.adidas.com
Gap announced in 2020 its collaboration with music mogul Kanye West for his famous streetwear brand Yeezy. But Kanye West’s has been caught in controversy for two years and the Gap sales remained dull.
Its full-year net sales of $16.7 billion, up 21% versus 2020 and 2% compared with pre-Covid 2019 level. But the bulk of this was driven by its value-priced brand Old Navy and athleisure brand Athleta.
Yeezy 450 in Cloud White
Courtesy of: papereix.com
But a post-lockdown spending for sales at Old Navy dropped 6% in the fourth quarter. The full-year net income at $256 million remained well below its $1 billion just three years ago.
Gap hopes the Yeezy Gap can be a billion-dollar brand by 2023. Its challenge is still big as it has to lure more customers to Banana Republic, an office-clothing brand.
Its operating margin continues to shrink, and in six years it halved to under 5%.
At its peak on 2020, Gap boasted a market valuation of nearly $45 billion, but today it is only a tenth of it.
Luxury Brands Are Resistance to Price Increase – WSJ, February 18, 2022
Every luxury house is increasing their prices. With affluent customers who can accept hefty price tags, and can raise prices without affecting demand for their products. Unlike those mass-market consumer brands, who have to consider very carefully about whether to pass costs on to price-sensitive customers.
Luxury brands are immune from price increase, even if the prices are over and above the rising costs. It seemed that they have the pricing power to offset any underlying cost inflation.
We are surprised to read from LVMH, Europe’s most valuable company by market capitalization, 2021 was their best year ever. Their total revenue was $72.9 billion, up 20% from pre-pandemic 2019. Profit rose 49% to $19.5 billion from 2019 as well.
Same for Kering SA, who owns Gucci, reported 2021 revenue for 2021 at $20 billion. Its profit was up 38% to $3.6 billion.
Organic Cotton Boom, But Its Fraud and False Labels – New York Times, February 14, 2022
Awareness of environmental and sustainability has become a market tool for those fashion brands, anything labelled with organic cotton and recycled polyester can fetch a higher retail price. It is with every fashion brands—Michael Kors, Urban Outfitters, Tommy Hilfiger and the like. The product description label will read: “This product contains independently certified organic cotton grown without chemical pesticide, chemical fertilizers and genetically modified seeds”.
The fashion industry is trumpeting its sustainability commitment, and yet it may not be organic at all.
Half of the world’s organic cotton supply is coming from India and it is the campaign used by India. According to Textile Exchange, a leading cotton proponent, India alone in 2021 grew 48% of the world’s organic cotton. The problem lies with the certification system which is opaque and that leads to frauds. Organic cotton is relied on official stamp of approval from external organizations. Visit planned for the farms or at random, once a year, can be frauded in the first place.
Already the credibility of these inspection agencies has been smeared and in last November, the European Union voted to reject Indian organic exports certified by Control Union, EcoCert and OneCert. It is estimated that one half and four-fifths of what is sold as organic cotton from India is not genuine.
It is known for at least a decade that at conferences convened by large brands and the network of nongovernmental organizations that the organic cotton industry is in crisis, but this was kept away from the public’s eye.
To expose this, NGO has the worry that it can wreck the cotton industry of India and harm the farmers, especially those who are growing organically.
The crave for organic cotton started in the late 1990s when cotton grown without chemical pesticides and synthetic fertilizers was a rarefied product purchased exclusively by high-priced yoga and wellness brands. Two Swiss companies formed the Bioré Foundation to support organic cotton growing in Madhya Pradesh. They began sourcing and selling organic cotton regulated by India’s Agricultural and Processed Food Products Export Development Authority. If cotton farmers would convert their fields to organic grow organic cotton,
Bioré would provide the training and the seeds, teach them how to produce organic fertilizer and organic insecticide. They would take their crops with a premium over the market price for conventional cotton. The farmers converted the farm from conventional cotton farming to organic farming painstakingly.
But the harvest is skimpier, almost less than 21% less than the conventional cotton. And the farmers didn’t realize that growing without pesticides and fossil-fuel fertilizer produces on average 28% lower yields than conventional cotton farming. The organic cotton seeds produce lower quality cotton—shorter fibers.
The big brands used their marketing power to negotiate the price of the organic cotton down to the conventional cotton, and even less because of the lower quality.
According to the yearly report on the industry by Textile Exchange, an American organization founded in 2002 to promote sustainability, organic cotton production in India has more than doubled in the last four years, to 124,000 metric tons in 2021 from 60,000 metric tons in 2017. The supply is behind the demand and the paper-certification has been used as a scam.
Global Organic Textile Standard (GOTS) is a gold-standard organic cotton label coming from a German company. It was founded in 2006 to harmonize the various other organic labels at the time and Textile Exchange’s Organic Cotton Standard is one of those. They are funded by brands like Adidas, Patagonia and H&M.
Certification from GOTS and Textile Exchange for cotton producers in India and other countries starts at the gin, from the gin to a certified cotton spinner, where the fibers become yarn, then move on to a certified mill where the yarns turn into fabric, followed by the dyeing/bleaching and cut into garment pieces before stitch into garments.
In the process, there is no inspectors from GOTS and Textile Exchange, and the use of local offices of international inspection services are for certification. The lack of a database to track down the organic cotton to move along each procedure is in place.
It was in 2009 already that the government from India came to notice a wide-scale fraud in the country’s cotton belt. The government agreed to look for a digital tracking software but this never happened.
But this problem is not confined to India alone, questions have also been raised about organic cotton from China and Turkey, together they accounted for 25% of the global supply.
The golden question is to know where exactly the seeds of the organic cotton is being sown. Otherwise, it is like a dog chasing its tail.
Foot Locker’s Planning for Going Forward for 2022 and Beyond – WSJ, February 26, 2022
In our January issue’s Market Intelligence, we mentioned about Nike who is going to go after its customers directly. They are still going to retain 40 chains to supply its sneakers and Foot Locker is one of them. This announcement from Nike has already taken an effect on its share price. It can be due to the weaker sales and profits because of the current economic environment but Foot Locker is going to overhaul its business.
Due to the supply chain disruption, there is the lack of products to sell. Comparable sales for Foot Locker is expected to decline between 8% to 10%. And Nike is accounted for 70% of the merchandise being sold. For 2022, Foot Locker would want to do not more than 60% in 2022 fiscal year.
Nike is their strong partner especially in basketball and children sneakers. And Nike is not hiding their intention to focus on sales through its own apps, websites and stores. On the other hand, Foot Locker is strengthening their multi-brand destinations—Adidas, Puma, New Balance and Croc, will provide more options for their customers as their behaviors have changed during the pandemic. But Nike will still remain as the strongest brand.
Foot Locker is also going to expand its apparel business. It has its own brand known as LCKR which they launched in the third quarter of 2021. Also Cozi, a womenswear line that they launched in December 2021. They also acquired sportswear retailers, WSS and Atmos to create a stronger presence.
In their January report, Foot Locker has 2,858 stores, primarily based in malls across 28 countries and 142 franchise stores across Middle East and Asia.
Adidas AG reached a deal last year with Authentic Brands Group to sell Reebok for $2.5 billion. Authentic Brands Group owns a portfolio of lifestyle and entertainment companies.
For Foot Locker’s fourth quarter, sales grew from $2.19 billion to $2.34 billion. For its current year, it expects a range of issues to weight on profits like the stepping up of merchandise promotions, supply-chain costs and store expenses for closing some non-performing stores.
Sneaker Culture – WSJ, February 26, 2022
During this time of the pandemic, people’s view of life has changed, more comfort and yet trendiness has taken over the high fashion we once craved. Celebrities are more ready to trade their stiletto for a pair of the colorful Balenciaga sneakers that can be fetched at $1,150.
Models and fashion influencers are seen in sneakers striding through Los Angeles and New York.
In fact, sneakers have been a la mode before as designer sneaker brands like Common Projects and Golden Goose rose to popularity over a decade ago. And Balenciaga first showed the chunk Triple S five years ago.
Today, women are looking for unflashy but functional shoes and intentionally started to dress down. The two years of the covid, many of us have changed our lifestyles and reset the priorities. There are more time for the family and whenever it is possible, going out to the nature is becoming part of our life. Sneakers play very well into this because of its low ley approach and yet the comfort for the footwear is becoming important.
This sneaker culture is taking over now. We take the opportunities to look at the three sneakers we have picked.
Blue Crush
Asics’s minimal Gel-Kayano 14 performance shoes nod to the brand’s cult-favorite 2008 mesh-nylon style of the same name. Sneaker, $140, Asics.com
Over the Rainbow
With their colorful accents and stacked soles, luxury brand Balenciaga’s Runner sneakers were inspired by designs from the 1990s and ’00s. Sneaker, $1,150, Balenciaga.com
Neutral Party
Designed for ultra-distance races, Salomon’s XT-6 Advanced has become popular among trendy types—even those who only race from the Uber to the office door. Sneaker, $190, Salomon.com
Crackdown on Fast Fashion – BBC News, March 30, 2022
It is all about sustainably made fashion, this time the European Union is serious about the clothing, furniture and smartphones sold in Europe must be long-lasting and easier to repair under the new rules as proposed. It is focusing on design, repair and recycle. Manufacturers have to assure that their products must be eco-friendly and long lasting.
The stop of fast fashion as clothes in Europe has on average the fourth highest impact on environment and climate, and it is only exceeded by food, housing and transportation. It is revealed that every person in EU where the textile consumption requires nine cubic meters of water, 400 square meters of land, 291 kilos of raw materials and causes a carbon footprint of about 270 kilos.
Shanghai Fashion Week, March 25 to April 1, is Now Postponed
The Autumn/Winter edition of China’s most important fashion week event will now be postponed due to the serious outbreak of Covid-19. The new dates are not known yet.
Top Ten Luxury Brands in China
This report was coming from Agility Research & Strategy, which is a top ten globally ranked luxury consulting company, who focused on 2,000 affluent Chinese consumers on luxury and premium brands. It was mentioned that Chanel, Hermès, Dior, Gucci, Armani, Louis Vuitton, Balenciaga, Saint Lauren, Prada and Coach, as the top ten brands.