FINANCIAL TIMES | ANNA NICOLAOU AND LESLIE HOOK
According to the book The Everything Store, Jeff Bezos told Amazon employees in 2007 that “in order to be a two-hundred-billion-dollar company, we’ve got to learn how to sell clothes and food”.
Amazon is expected to report next week that it made about $175bn in sales for 2017, closing in on the $200bn mark thanks in part to its acquisition of grocery chain Whole Foods Market.
But while that acquisition, which firmly establishes the company as a force in food, grabbed the headlines, more quietly Amazon has also been improving its position in clothes.
In the past year the company has rolled out private label clothing brands, such as Lark & Ro, which resembles fast-fashion looks from the likes of Zara. It has placed adverts on the pages of Vogue, struck partnerships for collections with Calvin Klein and actress Drew Barrymore, and unveiled a camera for customers to send selfies of their outfits to an artificial intelligence-powered stylist. It even convinced Nike, a longtime holdout, to begin selling shoes on its site.
The company’s moves pose the same question for fashion executives that hovered over book publishers, movie producers and big box retailers in previous years: is their industry Amazon-able?
By some measures, Mr Bezos has already succeeded. Amazon is set to overtake Macy’s to be the largest seller of clothing to Americans this year. Analysts are bullish. Nomura estimates apparel could be a $45bn-$85bn business for Amazon by 2020.
The global apparel and accessories market is worth more than $1tn, and margins are higher than in other categories like electronics or food, making it an attractive source of profits to fund Amazon’s other ambitious investment plans, Nomura points out.
So far, though, the majority of Amazon’s apparel sales are not designer dresses but rather basic commodities, like socks and T-shirts.
Observers say that the fickleness of clothing purchases makes the sector less susceptible to ecommerce. “Selling underwear is easy, but fashion is a browse, and Amazon is not a browsing experience,” says Simeon Siegel, analyst with Nomura Instinet.
Amazon has already become a go-to destination to restock basic necessities — it is the largest seller of batteries in the US, for example. But finding something less specific on its sprawling website is trickier. Searching for “black dress” on Amazon.com yields more than 20,000 results.
Elaine Kwon, a former executive at Amazon’s fashion business, who helped build its relationships with luxury brands and who now runs the consultancy Kwontified, believes this is changing. “For a long time people thought of Amazon as the place to get toilet paper or cat food,” she says. “In 2014, many brands were very hesitant to even let it be known publicly that they wanted to work with Amazon.”
But as Amazon’s influence has deepened, and the department stores that brands have relied on struggle, the power has shifted. In the UK, for example, a quarter of clothing sales are now made online, and Amazon dominates.
“Brands are now realising that people are buying from Amazon, and if I, as a brand, refuse to participate, someone else can take my product and make that money,” says Ms Kwon.
At least part of the fashion industry remains dismissive of Amazon’s entrance. Andrew Rosen, chief executive of clothing label Theory, told a conference last year that “fashion sort of looks good to [Amazon] . . . but I don’t think they’re really that serious about it”.
Amazon has unveiled a number of new private-label apparel brands in recent months, including seven in the UK in September. It now has “dozens”, spanning women’s, men’s, children’s and baby clothing, a spokesperson said, without providing an exact number. The looks range from Amazon Essentials, which sells $12 men’s polo shirts to Lark & Ro, which is more fashion-forward but still reasonably priced. The most expensive Lark & Ro item listed is a $199 women’s scuba leather jacket.
Amazon Essentials was the biggest seller among its private brands, according to a report from research group L2 in August, and the top-performing garment was the men’s polo shirt.
Private-label clothing brands could be a new profit stream, and they also give Amazon control of transactions from start to finish. As it stands, the company can’t control which brands decide to sell on its website, or stop them from leaving.
“They want to own the brands and own the sourcing. That’s important to them,” says Robert Burke, who consults for designers such as Marc Jacobs, Ralph Lauren and Vera Wang. “The problem is that building a fashion brand takes a long time, even for Amazon.”
Amazon does not disclose revenues from its private-label brands. Mr Siegel says it is difficult to estimate at this stage, and that it will be “an uphill battle”. The company has taken strides to make browsing for clothes on its site easier, hiring fashion editors to make “shopping guides”, and testing a service called Prime Wardrobe, that lets customers try on clothes at home before buying them.
An Amazon spokesperson said the strategy with private-label apparel brands is “to give customers what they’re looking for, and we’re constantly exploring ways to do just that”.
Ms Kwon likens Amazon’s dive into private-label fashion to that of Zara. “Zara was laughed at by the fashion industry initially, but that changed,” she says, calling some of the brand launches part of Amazon’s “awkward phase” of testing customer appetites.
Amazon is well equipped. The company hired Christine Beauchamp, former chief executive of Victoria’s Secret, as president of its fashion business in June. Megan Salt, the former head of public relations for Vogue, is its head of brand communications.
It also has deep pockets. Amazon is scheduled to report financial results for its fourth quarter on Thursday next week, and analysts are expecting record revenues. The average forecast is about $59.8bn in revenue, a 37 per cent increase from the same time last year, and profits of $900m, which if achieved would make it the company’s most profitable quarter ever.
Most importantly, Amazon has the data to know exactly what people are buying, and when.
Chip Bergh, chief executive of the jeans maker Levi Strauss, recently said his “big challenge” is Amazon’s private label apparel business. “They’re going to be massive in apparel over time,” he told Business of Fashion, the trade publication, this month. “Their real power, over time, is going to be the data they’re able to collect on their consumer. It’s just a question of time.”
It’s unclear just how far Amazon wants to go with clothing. The company sparked rumours last year with a patent for an automated clothing factory, potentially allowing it to make its own custom ranges.
James Thomson, a consultant and former Amazon manager, views this as a logical next move.
“Imagine if Amazon had the body dimensions of 100m customers . . . if Amazon will deliver a custom suit quickly to me for $400, I don’t care what the brand is,” he says. “Amazon doesn’t replicate other people’s businesses. They find a cheaper way to do it at a mass scale, and catch everyone going, ‘what just happened?’”
Is Amazon friend or foe to fashion brands?
Fashion’s biggest brands are struggling to work out how to deal with Amazon’s quiet transformation into an apparel powerhouse. Is it friend or is it foe?
“Amazon is like Voldemort,” says one fashion executive. “You hear people talk about it in hushed tones.”
For more than a decade, Nike resisted adding its popular sneakers and athleisure clothing to Amazon, even as competitors Adidas and Under Armour gave in and decided to offer themselves to the ecommerce site’s growing customer base.
Yet Nike was already among the most common brands found on Amazon — because third party sellers were snapping up shoes and re-selling them. As online shopping has become a bigger part of all shopping, brands have struggled to keep tight control over where their products end up. Brands scored a victory last month with an EU ruling that luxury goods companies can ban sales of their products on Amazon to protect their “aura of luxury”. The European Court of Justice determined that US cosmetics group Coty did not break competition laws when it blocked distributors from selling its products on Amazon.de.
But Nike in June had already revealed that it was testing out selling a “limited assortment” of products on Amazon. The reversal “showed the want, need or something in between, to sell through Amazon”, analysts at Nomura said.
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Analysts do not expect the most elite luxury brands to start selling on Amazon, but it is already becoming common for more middle-of-the-pack brands. More than 20 brands listed Amazon as a major customer in their disclosures last year, including Hanes, Fossil and Perry Ellis, according to Nomura.
Goldman Sachs expects to see Amazon establish “additional direct relationships with major brands”, which would “only further its momentum in apparel as the category continues to move online”.
BUSINESS OF FASHION | KATI CHITRAKORN
LONDON, United Kingdom — 2017 was the worst year on record for brick-and-mortar retail. By December, more than 6,985 stores closed across the US, according to retail think-tank Fung Global Retail & Technology. That’s up more than 200 percent from a year ago, according to the firm’s findings. It also beats the previous all-time high of 6,163 store closings that took place during the 2008 financial crisis, according to estimates by Credit Suisse.
The reality is that many stores are closing for the same reason they’ve always closed — they simply don’t meet the needs and demands of customers. But at a time when consumers are empowered with choice and market conditions are increasingly volatile, new technologies can help brands and retailers drive valuable business efficiencies, and improve the overall customer experience and value proposition.
“The biggest upside to technology in fashion will be the ability to offer consistency, and being able to personalise the customer’s shopping patterns,” said Robert Burke, chief executive of retail consultancy firm Robert Burke Associates. Indeed, fashion companies that effectively deploy the right technologies will be able to enhance their competitive advantage by personalising products and shopping experiences, and refining logistical processes that nibble away at budgets.
However, fashion has been slow to harness many of these opportunities. “We’re only scratching the surface right now of technologies like virtual reality or artificial intelligence,” said Doug Stephens, a retail industry futurist and author of “Reengineering Retail: The Future of Selling in a Post-Digital World.” “But directionally, we can already envision a point where the margin of error for consumer shopping for clothing — both online and offline — will be almost nil.”
Here, BoF spotlights the five important technology innovations that can help brands and retailers boost their businesses.
Artificial intelligence has become one of the biggest technological developments in business in recent years, with its ability to help turn large and diverse data sets into enriched information that can help improve speed, cost and flexibility across the value chain.
Rapid advances in machine learning processing have already pushed artificial intelligence (AI) into the mainstream, and by 2020, the market for machine-learning applications is estimated to reach £30 billion ($39.5 billion at current exchange), according to the International Data Corporation. “It is, by far, the most important technology that is already here, growing and will change the fashion industry,” Javier Seara, partner and managing director of the Boston Consulting Group, told BoF.
Thread uses algorithms and human stylists to help men buy clothes | Source: Thread
In fashion, AI has the ability to help brands and retailers with predictive forecasting, capacity planning and merchandising. This means that consumers can enjoy the benefits of better product availability and faster, more accurate deliveries. According to 2017 findings by McKinsey & Company, an AI-based approach could reduce forecasting errors by up to 50 percent, while overall inventory reductions of 20 to 50 percent are feasible.
In addition to supply chain benefits, AI can also help create a smoother browsing experience and improve customer retention through personalisation. Online platforms like Amazon, Alibaba, JD.com and Zalando use AI enhancements to help generate precise product search results and display virtual storefronts tailored to individual shoppers, based on their unique characteristics and preferences.
“Retailers can leverage data to provide a more seamless and personal experience for customers, which increases conversion, repeat purchase and loyalty,” said Karen McCormick, chief investment officer at VC firm Beringea, whose portfolio includes personal styling service Thread, which uses AI and machine-learning to help men buy clothes.
Augmented reality’s roots go back to 1992 to a US Air Force-funded project, called Virtual Fixtures. The technology, which offers a real-time view of one's immediate surroundings altered or enhanced by computer generated information, was designed to help surgeons operate remotely, while enhancing their accuracy, by seamlessly blending in real-world information such as the location of major arteries. It improved performance by up to 70 per cent.
Augmented reality (AR) has evolved a lot since then, but often, it is still treated as a novelty rather than to solve real problems in fashion. For example, when Burberry launched an augmented reality feature, the tool was designed to interact with user’s cameras feeds to digitally redecorate their surroundings with Burberry-inspired drawings by artist Danny Sangra. The capabilities of AR are so much more, and could be a significant sales tool for the retail industry.
Unlike virtual reality (VR), AR has lower barriers to adoption. Unlike the latter, it does not require dedicated hardware as it is built to work with smartphones and tablets — devices that are already available to most consumers in the developed world. “AR capabilities are now available on over 300 million phones worldwide and it will be up to 1 billion by the end of 2018, especially as Google’s AR software, ARCore, comes online,” said Ari Bloom, chief executive of San Francisco start-up Avametric.
Unsurprisingly, beauty brands have been early to AR. L'Oréal is among the many cosmetics companies offering AR-focused apps, allowing for convenience and eliminating the mess of testing physical products in stores. It’s a move that is working: More than 20 million users have downloaded L’Oréal’s Makeup Genius app, whose AR function lets people test combinations of beauty products on their phones. Beauty app Meitu helped drive sales for Charlotte Tilbury: 13 percent of users who tried the lipstick through the app in 2017 clicked the "buy" button.
AR allows for convenience and eliminates the mess of testing physical products in stores.
Some fashion brands are starting to explore the opportunities. In January 2017, Gap unveiled a digital dressing room, developed by Avametric in collaboration with Google, which allows consumers to “try on” clothes without having to step into a store. Eyewear brand Warby Parker uses a combination of facial recognition and augmented reality, so customers can see what they look like in different frames. In January 2018, Amazon patented a smart mirror that uses AR to virtually overlay clothes on to users, to help stylise their look.
“It’s the ideal mix of digital technology living in the physical world,” said Bloom. By letting customers try clothes on virtually, the experience places no restrictions on the number of items that can be tried on, which means that customers may easily be persuaded to explore more items of clothing than they normally would in-store. It can also suggest clothing based on known user preferences or whatever is popular at the time, allowing for customers to broaden their horizons. As for online retailers, it could reduce the number of returned items, an industry-wide frustration.
The underlying technology driving cryptocurrencies such as Bitcoin, blockchain is a decentralised and distributed digital record that offers new opportunities for managing product safety, authenticity and ethical standards. Records cannot be altered after they have been added to the blockchain. The global blockchain technology market is predicted by Statista to reach $339.5 million in size, and is forecast to grow to $2.3 billion by 2021.
The most obvious use of this technology in fashion is to verify the originality of a garment. Microchips utilising blockchain can tell a customer with complete certainty whether a piece of clothing is genuine or an imitation; whether it was stolen, where it was made and the product’s general history. All this information could be accessible via a smartphone, and could help prevent counterfeiting and theft.
According to the OECD and EU’s Intellectual Property Office, imports of counterfeit and pirated goods are worth nearly half a trillion dollars a year, or around 2.5 percent of global imports. The organisation put the value of imported fake goods at $461 billion in 2013, compared with total imports in world trade at $17.9 trillion.
Blockchain can help retailers garner greater trust and brand loyalty throughout the product lifecycle, as it can tell consumers not just where an item was made, but also who it was made by, the conditions they worked in and how much they were paid. Shoppers could also learn about the composition of a garment, where the fabric was grown and what chemicals have been used.
De Beers, the world's biggest diamond producer by the value of its gems, aims to launch the first industry-wide blockchainthis year, to track gems each time they change hands from the moment they are dug up from the ground. The technology could be used to verify the authenticity of diamonds and ensure they are not from conflict zones, where gems could be used to finance violence. However, the technology has yet to be more widely explored by the fashion industry. “This is in the early stages and brands are not yet thinking about it,” said BCG's Seara, adding that the biggest challenge for fashion would be finding “the people who are able to work with the technology and implement it.”
High-tech automated convenience stores are infiltrating Beijing and Shanghai. Powered by WeChat, a Chinese mobile messaging service, these unmanned stores require no checkout, no cash and no salespeople. Customers scan QR codes to enter the store and select products, and then pay using their mobile WeChat wallets. Sensors on the shelves detect the removal of items. Once an item has been removed, it is linked to the shopper’s unique ID in the smartphone app to prevent theft.
Outside of China, Zara has introduced self-checkout stations at a new 65,000-square-foot store in Madrid, its largest store in the world, which opened in April last year. Meanwhile, Rebecca Minkoff’s flagship store in New York lets customers buy anything from $200 handbags to $1,500 jackets on their own, without dealing with a sales associate. Amazon is also trialling an Amazon Go store where there are no checkouts, and Walmart plans to launch a contactless shopping store in Long Island by the end of 2018.
Contactless shopping helps to make the checkout process more seamless, efficient and convenient by eliminating hassles like long checkout lines or inconvenient hours. Still, half of all retailers still do not accept contactless payments, even though “touch-and-go” spending is expected to increase by more than 300 percent over the next four years, according to British bank Barclays. Analysts at Technavio, a market research firm, however, predict that the global retail self-checkout market will grow steadily over the next four years, posting a CAGR of almost 18 percent by 2021.
“In the retail industry, the act of paying is often treated as something that is detached from the experience. You have a great shopping experience and when it’s over, it’s ‘time to pay.’ But the act of checking out of a store is part of the experience,” said Stephens. Many retailers already have the capability to eliminate checkouts, but whether they choose to do so or not is “a branding decision,” he said. “How you choose to approach that depends on the brand story you’re telling, the positioning of your brand, and ultimately, the experience that you’re trying to craft and curate.”
“In 2018, there will be two types of stores: one for convenience where shoppers will go there, to get something. The second one has a lot to do with experience. For a retailer like Primark, convenience is always more important. A luxury brand like Burberry might focus on the experience,” agreed Seara. “In the end, brands might even have two models. If you’re a big retailer with multiple locations, you might have a flagship on London’s Bond Street with all the experiences, as well as a click-and-collect place elsewhere that is convenient.”
Diners at KFC in China can now pay for their meals by using a facial recognition system. Walmart previously applied for a patent that would use facial recognition to identify varying levels of customer satisfaction. Union Pay has introduced facial recognition-based payment system. And JD.com has recently announced that it is opening hundreds of unmanned stores, which will use facial recognition technology to register payment for products.
Previously, facial recognition was used mostly to help with criminal investigations or unlocking smartphones. But, “the recent release of the iPhone and its FaceID technology has brought us closer in bringing facial recognition to the masses,” said Beringea’s McCormick. “In 2017, there were huge developments from retailers around the world that would suggest that facial recognition technology is on the brink of mainstream adoption.”
According to Fung Global Retail & Technology, the global market for facial recognition applications brought in revenue of $178 million in 2016, making the second most adopted biometric technology after fingerprint scanning. Technavio predicts that the global facial recognition market will grow at a CAGR of close to 23 percent by 2021.
Not only could facial recognition technology offer convenience, but it can also provide insights on a consumer’s purchasing decision process by identifying individuals and developing personalised experiences for them. “Imagine a major customer at a store. He would walk in and sales associates — if they were well trained — would recognise him and know what he likes,” said Burke. “But if he goes to London or Paris, or maybe he went for a jog and went into a different store, they won’t recognise him at all. He wouldn’t get the right service and therefore won’t buy anything.”
A facial recognition tool linked to cameras in high-end stores could allow the staff to improve their service by gaining insight into customer's online and offline profile. “Facial recognition can give all the background on a customer’s past purchases, his shipping addresses, where he travels; it logs everything,” said Burke, who found in his personal experience as former senior vice president of fashion and public relations for US multi-brand retailer Bergdorf Goodman, the technology also makes companies less reliant on its staff, particularly in retail, which has one of the highest turnover rates in any industry.
“I’ve had relationships with personal shoppers, but when that person leaves, nine times out of 10 I get lost in the shuffle. That’s one of the biggest complaints customers have. Some people may find it potentially intrusive, but it’s absolutely not going to go away,” he added. Looking ahead, “the technology also allows for incredible advances in body scanning and other applications that will be meaningful for fashion,” said Avametric’s Bloom.
NEW YORK, United States — After a tumultuous 2017 with a record-breaking number of store closures and bankruptcies in the US, retail’s great transformationis anything but over. However, end-of-season markdowns — which accelerate the offloading of leftover inventory — offer a boost not only to those that are struggling, but also to those making some headway.
In November 2017, US retail sales were $492.7 billion, up 5.6 percent from a year earlier, according to the Department of Commerce. The jump was spurred by holiday shopping’s brisk start online. On Black Friday alone, e-commerce sales hit $5 billion, a 17 percent increase year-over-year, beating records.
But while the industry has long relied on aggressive markdowns to boost holiday shopping, overdoing discounts may sacrifice long-term margins and dilute brand image.
Research firm Edited, which analyses online sales of over 11,000 fashion brands and retailers, found that the US luxury industry experienced the highest volume of discounts on Black Friday, with 46 percent of products discounted. (Almost a quarter of those goods were discounted by 40-to-50 percent.)
In the mid-priced market, 24 percent of items were discounted, while only 20 percent of mass-market items were marked down. The top five biggest retailers by number of products discounted by 40 percent or more by the first week of December were Bluefly (an off-price outlet), Farfetch, Saks Fifth Avenue, Neiman Marcus and Ssense.
Traditionally, retailers prefer to hold off on markdowns until later in the year, as discounting too early and too deeply can shrink already squeezed profit margins. Sometimes, it can also cheapen the perception around a brand or retailer. However, for the past decade or so since the financial crisis, post-Thanksgiving discounting has become commonplace.
This year, many retailers — including luxury department stores Neiman Marcus and Saks Fifth Avenue, and e-tailers Net-a-Porter and Moda Operandi — began discounting in the days leading up to Thanksgiving. Brands including Balenciaga, Tom Ford and Prada were already reduced on Black Friday via their own websites and e-commerce sites alike, according to Edited. Michael Kors was the brand with the most products discounted by over 50 percent by the first week of December. The company did not immediately respond to a query regarding the differences in markdowns.
Brands including Salvatore Ferragamo, The Row, Fendi and Stella McCartney were not marked down until the first week of December, Edited reported. A few brands, including Gucci, remain full price, with products selling out anyway.
Early discounts are “generally not a positive sign,” said Robert Burke, founder and chief executive at Robert Burke Associates. “The retailers would want to sell full prices as long as they could, meaning merchandise is moving well at full price.”
Sometimes, early discounts reflect overall malaise at a retailer and have little to do with individual brands. And other times, the store buyer has simply made a bad call about a specific style. “That is the nature of buying. No one has a crystal ball,” Burke said. “You certainly make some mistakes, but those are generally gaged.”
Labels with good sell-through and limited distribution can take a hard stance on markdowns, negotiating up front when their products are permitted to be discounted during the sales season.
While the ultimate goal is to remain full-price for as long as possible, “What we see happen more often now is that brands are being selective about what products they put on sale,” Burke said. If a piece has sold well, it will be kept at full price. Take, for instance, Balenciaga’s Bazar Python Shopper XL, which is reduced by 50 percent on the brand’s site, while Graffiti and leather shoppers remain at full-price. The brand did not immediately respond to a query regarding the differences in markdowns.
“Whether there was a poor performance and excess of stock, or it was a great performance, there’s always a discussion with [department stores and] brands about when to break sale,” Burke said. “A retailer can’t be shortsighted in the sense of a quick markdown in the risk the brand may not sell with them going forward.”
The case certainly holds true for brands like Saint Laurent and The Row, which both went on sale on e-commerce site Net-a-Porter on December 1 and 2 respectively, while Prada and Miu Miu were marked down on Thanksgiving, and Fendi, Marni and Balmain followed the subsequent week, according to Edited.
Of course, positive gross sales generated by holiday season discounts don’t necessarily equal high margins. While retailers saw a 36 percent lift year-over-year in the number of items that sold out at first discount on Thanksgiving Day through Cyber Monday, the effects on retailer margins were negative. The average price of luxury products sold in November 2017 was $661, compared to $780 in November 2016.
Is there a sweet spot between Gucci’s non-markdown stance and desperately deep discounting? “The ultimate goal is to remain full price for as long as possible and to train the customer to not buy on sale,” said Burke. “What Gucci is doing is such a bold move, and they’re in a position to do it. They’re a highly desirable brand, and have differentiated.” But for the rest, a combination of scale and approach — that is, being selective with marked-down items and avoiding early sales — is key.
WOMEN'S WEAR DAILY | KATHRYN HOPKINS
Acclaimed artists and art dealers are gearing up for the world’s wealthy to step off their private jets and yachts this week and decamp to the Sunshine City for Art Basel Miami — but they won’t be the only people looking to capitalize on the five-day art fest.
That’s because since the sister festival of Switzerland’s eponymous event began in Miami in 2002, other industries have been quick to piggyback onto the annual gathering of the wealthy. After all, it is the one time of the year when serious art collectors, investors and high-net-worth individuals all converge at once in Miami, with more than 70,000 people expected to attend this year.
While famous designers will no doubt be spotted hobnobbing with the rest of the New York fashion set and enjoying the endlessly flowing Champagne at the plethora of parties, Miami’s nightlife won’t be the only thing on their minds. They’ll also be networking with some of their biggest clients, who collect fashion as well as art.
“I have an art collector who is the largest purchaser of Brunello Cucinelli in the United States. Cucinelli invites him to his place in Umbria,” Emily Santangelo, a New York-based art consultant, told WWD. “I can tell you that the world’s biggest fashion designers are quietly descending on places like Miami and meeting up with their collectors in both the art world sense and the fashion sense.”
And that’s not all. Many of the big fashion houses have jumped on the art installation bandwagon. Gucci, for example, has teamed with Artsy on a multiartist installation called Artsy Projects Miami, while the Loewe Foundation’s third “Chance Encounters” installation will be featured at its store in Miami’s Design District — and naturally many of these events will be kicked off with packed parties.
According to Robert Burke, the chairman and chief executive officer of retail consultancy Robert Burke Associates, as well as being a clever marketing tool, these installations give brands a chance to feel out the market and the appetite of connecting with an artist without launching into a major collaboration globally.
“I think brands are always looking at how to collaborate with art and artists. We’ve seen many good collaborations lately, such as Gucci, and the art world is a natural connection to the fashion world, so it makes sense,” he said. “There is money to be made, but primarily this is about elevating the brand and distinguishing it from another.”
It’s not just the fashion world at play. Real estate agents and developers also use the decadent art fair as an occasion to showcase their opulent homes for sale in Miami and other cities, with many sponsoring events or partnering with organizations at their dinners or gatherings in order to connect their condominiums and mansions to the art world and catch the eyes of the rich and famous. Often events are held at the listings themselves.
“The person that has spent $100 million on a Da Vinci is certainly a prospect for high-end luxury real estate,” added Santangelo, when explaining the real estate industry’s interest in Art Basel Miami.
“You have to realize that there’s something very important that real estate offers art collectors and that’s walls. It’s what really goes with building the collection, especially for those people who are truly passionate and want to live with the artwork.”
All the stops are pulled out, with some brokers and developers chartering helicopters to show off the city’s new towers emerging out of the ground, while others host dinners on yachts docked outside the mansions they’re trying to flog. Then there’s the celebrity factor, with others hiring famous faces to attend their events at their listings to ensure they draw in a well-heeled crowd.
“Brokers sometimes hire a celebrity DJ or musician to perform at a private setting for a really exclusive small group of people,” according to Kipton Cronkite, an art curator and adviser. “You usually hear about those surprise performances after the fact.”
This year seems to be no exception on the party front. The 1 Hotel and Homes South Beach is hosting the New York Post Page Six Art Basel party on Thursday, which is expected to draw a crowd of celebrities and influencers.
The party will serve as an exclusive preview of the 1 Homes penthouse, which will soon hit the market for an undisclosed multimillion-dollar price, while Douglas Elliman Real Estate will be showing off its luxury projects such as Madison Square Park Tower in Manhattan, Monad Terrace in Miami Beach and London’s Chelsea Barracks when it takes over the Delano South Beach Hotel for its Elliman Magazine party on Friday.
Then there are the occasions when real estate and fashion work together on some of the wave of super-luxury residential buildings that are springing up across the city, the interiors of which will be decked out by major fashion designers.
Setting the trend is the Estates at Acqualina, a pair of 50-story luxury towers with 245 units that are currently being built in Sunny Isles Beach and whose lobbies are being designed by Karl Lagerfeld. It has invited a core group of Brazilian influencers such as Alice Ferraz and Lala Noleto to stay at their neighboring hotel during Art Basel and visit the model apartment in the sales gallery.
“Our developers are art collectors and so are our buyers. Art Basel provides a perfect opportunity to entertain guests at the Estates Sales Gallery and in Penthouse 45 at the Mansions at Acqualina which is a mini gallery in and of itself,” said Alexandra Wensley, vice president of communications at the Estates at Acqualina, whose prices range from between $4 million and $9 million.
“Brazil is an important market for us. Hence, we will be entertaining several Brazilian fashion and lifestyle influencers during Art Basel. It provides an ideal fit especially with our partnership with international designer Karl Lagerfeld.”
Missoni Baia, meanwhile, a 57-story, 249-unit building that is being developed by the namesake Italian fashion family and Oko Group in the up-and-coming Edgewater neighborhood, is offering its VIP guests and brokers exclusive tours of Design Miami (a design fair that always runs parallel to Art Basel Miami) with its interior designer Paris Forino.
This, however, is nowhere near as large-scale as their event to coincide with last year’s Art Basel when Vladislav Doronin, chief executive officer of OKO Group, held a party for 200 guests at his mansion on the exclusive Star Island, where speeches were given my Doronin and Ottavio Missoni Jr. from the Missoni family, while guests were serenaded by pianist Elew.
“Art Basel is one of the few times in the Miami calendar where all of these individuals come together in one place,” said Edgardo Defortuna, president and ceo of Fortune International Group, which is handling the building’s sales (prices range from $500,000 to $3.5 million). “By offering experiences such as the Design Miami tour with Paris, these individuals can experience the building in a new and interesting way that wouldn’t be available to them at other times of year.”
The impending arrival of the world’s wealthy will no doubt come as a relief to much of Miami’s luxury real estate community as the sales market has slowed against a backdrop of political and economic uncertainty, as well as currency fluctuations. Combined, these trends have made competition tougher and Miami developers more determined than ever to make their projects stand out.
“While Art Basel Miami has always been important, it’s constantly growing in popularity so in the last couple of years as the market has softened its relevance and importance is higher than ever before,” Jonathan Miller, ceo of appraisal firm Miller Samuel, told WWD. “It’s a draw for the affluent and the affluent are the consumers that buy luxury properties.”
BUSINESS OF FASHION | CHANTAL FERNANDEZ
LONDON, United Kingdom — When Yoox Net-a-Porter Group reported its latest results last week, executives were excited to discuss the launch of Mr P., Mr Porter’s new private-label brand. Managing director Toby Bateman described the ready-to-wear collection — designed by an in-house team including buyers and merchandisers and manufactured in Italy, Portugal and Japan — as the physical embodiment of the men's retailer. Mr P. includes a collection of essential pieces available year-round as well as five seasonal capsule deliveries per year. Shoes and accessories are expected in Autumn 2018. While offered at a competitive price point (starting at $75 for a T-shirt), Mr P. is positioned alongside the e-retailer’s other contemporary brands.
“It is one of the most significant projects in Mr Porter’s history, and one that sees us delivering on a key strategy from the five-year plan,” said Bateman. In July 2017, Yoox Net-a-Porter Group outlined a plan that included growing private label brands to account for about 10 percent of off-season net revenues by 2020. (At the company’s two off-price channels, The Outnet launched its private label Iris & Ink in 2012 and Yoox’s own private label is forthcoming.)
Private-apparel labels, or exclusive brands typically manufactured by retailers and sold under their own name, have long been a staple of department stores such as Saks Fifth Avenue and Neiman Marcus. The clearest advantages of the business model remain the same: the product has higher margins than the designer brands retailers buy, is predictable and creates cash flow. The collections also often fill in gaps in a store's designer offerings.
Today, when retailers have more data than ever before about what types of pieces their customers want to buy and at exactly what price, the advantages of producing a private-label brand have increased. If done right, these lines can raise retail brand awareness and, by virtue of having a controlled production that can be replenished in-season, respond more quickly to consumer demand. (Retailers are not always able to reorder more inventory from clients in-season.)
In-house collections also offer another reason for a customer to shop at a specific retailer. “These days, with the internet and everyone seeing everything, exclusivity really becomes such a big factor,” says Gabriel Ricioppo, the co-owner and creative director of Virginia-based retailer Need Supply Co., whose private label, Need, launched in Spring 2016 and has since grown to be one of its largest brands. Well-received products include denim for women and T-shirts, shirting and chinos for men.
It's not a coincidence that those are all so-called basics. While a new generation is embracing logos in fashion in a way that the market hasn’t seen since the height of “logomania” in the 1990s, today’s consumers are more willing to turn to private labels for essential pieces. (For an example in the mass market, see Amazon’s growing private-label apparel business.) Globally, the private-label apparel and footwear market grew 10 percent between 2011 and 2016 to $62 billion, according to Euromonitor.
At Barneys New York, for instance, the in-house label is its top performing brand for men, led by staple pieces such as a black cashmere crew-neck sweater and a black suede Chelsea boot. At British multi-brand retailer Joseph, the Joseph brand accounted for 87 percent of total sales as of 2015 and has served as a vehicle for international expansion: its mono-brand stores make up the vast majority of Joseph’s retail network.
What makes a private label successful? For one, the retailer needs to have a positive brand image. “If you don’t have a strong retail brand, then it’s going to be a real struggle to convince the customer to buy private label,” says Robert Burke, chairman and chief executive of consulting firm Robert Burke Associates.
Retailers also need to have a clear strategy of what the private label is going to offer, at what price point and for what specific audience. “These retailers are extremely close to their customer and understand them," says Burke. "That is what is making this work.”
At MatchesFashion, the customer was ready for more than just basics that complement the designer assortment. When Rachael Proud, a designer who had worked for Topshop and Christopher Kane, joined the company in 2014 to relaunch the in-house label, she quickly realised that catering to the MatchesFashion customer was not the right strategy because there is not one single type of customer.
“The original remit was to drive business to Matches,” says Proud. “As soon as we started seeing sales reactions, it became clear that it’s a brand on its own with its own identity."
Womenswear has been a significant success for Raey, particularly in knitwear and denim, and the brand has doubled its sales since its first full year on the market in 2015. “What’s more challenging is menswear,” says Proud, adding that men often seek the approval of a brand name they recognise to reinforce their purchasing decisions. “The Raey man probably knows what he likes and I think we have to get that right."
Proud and the Raey team have data on their side: they have a deep level of information evaluated on a weekly basis, from cost-per-click to real-time sell-through. However, because they consider the brand a complete offering distinct from the rest of MatchesFashion's offerings, they only look at Raey's metrics.
“If we’ve got a jumper and it’s a best seller and we’ve only ever done it in blue, we are immediately thinking: let’s do it in black,” she says, adding that if fabrics and trimmings are in stock, Raey can deliver product in as little as four weeks. In 2016, MatchesFashion — which reported overall revenues of £204 million ($268 million) that year — shifted Raey's deliveries from seasonal to monthly collections that arrive on the site each week. These more frequent deliveries also help drive traffic to the site, says Proud.
Need Supply also benefits from being able to control the cadence of its private-label deliveries. “Different brands deliver at different times,"says Ricioppo. "This just gives us an opportunity to align messages and campaigns.”
The data also informs the price point, which varies from retailer to retailer. Most in-house labels are priced a tier or two lower than the designers the retailer carries. “We are not wholesaling; we just add on the markup to make the profit to keep trading," says Proud. "Category-wise, we always want to have our basics that are a lead-in [in regards to price] to the brand.”
After zeroing in on the right point of view and price point, however, producing a collection and delivering it can be a challenge for retailers not accustomed to the process. The design and strategy can be right, but then retailers need to “back it up with the infrastructure to execute these things,” says Burke. Some retailers outsource design or manufacturing. Like Raey, Need is designed in-house, and Ricioppo says the process was a learning curve: “You have to learn to crawl before you can walk, before you can run — we have a long view of what we are doing.”
Another challenge in private label is that retailers might anger the brands they carry if they are seen to be copying their designs at a lower price point. “You’re the retailer that buys them; that’s a risk that you could run,” says Burke.
At MatchesFashion, the design and buying process is kept separate. “I don’t know what [buying director] Natalie [Kingham] is buying on core," Proud says. "I don’t know how things are performing. I basically went forward with what I thought a working woman would want to wear.” While she isn’t guided by trends, Proud does sometimes align with the major themes of a season. “[Designers] are all seeing the same mills, shopping the same fabrics."
When it is all said and done, the same instinct that guides Need Supply’s edit of brands infuses its approach to private label. “Even when we go to buy, we are not always reacting to what’s out there,” he says. “Often times we are looking for things we know we are excited about, and we go and look for those in the market. That energy and that vision, it’s the same thing that translates to creating product.”
On a quiet strip of Rue de Marignan, just down the block from the Paris power-lunch spot L’Avenue, Alex Bolen, the chief executive of Oscar de la Renta, was standing outside No. 4, where the brand is to open a store next May.
“We think long and hard before we enter into a lease,” Mr. Bolen said. “With all that’s going on in retail, we need to think even harder. For a luxury brand, what’s the point of a store, at least a bricks-and-mortar store?”
It’s a question many in the industry are asking, and trying to answer anew. In a difficult climate for retail, the stakes are very real, as 4, rue de Marignan makes clear. Above the doorway, a sign hung reading “Reed Krakoff.” Mr. Krakoff, now the chief artistic officer of Tiffany & Company, shuttered his namesake brand in 2015 and never opened a shop in the space.
Recent years have seen store closings from small brands and seismic contractions from major retailers, including Hudson’s Bay Company’s saleof the landmark Lord & Taylor building on Fifth Avenue last month to WeWork, the office-sharing start-up. (Lord & Taylor will rent about a quarter of its former space to continue operating.)
But the solution, say several retail innovators, is not the end of bricks and mortar, as some in the industry once anticipated.
“There was a time six or seven years ago when there was only talk of pure play e-commerce,” said Stephanie Phair, the chief strategy officer of Farfetch, the marketplace and retail platform that helps brands do business online. “What we’ve seen from a millennial consumer behavior point of view is customers really want that joined-up online and offline experience.”
What that means is a renovation of the old bricks-and-mortar ideal. Instead of the arms race for the biggest location on the most desirable street, a new model focused on multifunctional, integrated stores is gaining currency: less storehouses of product than event spaces, classrooms, community centers, showrooms or studios.
In the case of Oscar de la Renta, the two-story Marignan space will serve as not only the brand’s retail home in Paris, but also the showroom for its four annual wholesale presentations. Jeang Kim, an interior designer and sister of Laura Kim, the brand’s co-creative director, is designing it as a modular space: Displays can be cleared for customer-entertaining events and dinners, like the brand has begun to hold in New York following its runway shows, and a tailoring studio will allow customers to have fittings and alterations done on site.
But while the physical stores continue to drive business, Oscar de la Renta has been finding new customers outside of its usual channels. Since joining Farfetch earlier this year to expand its e-commerce, often by way of the site’s personal shoppers, the company has seen sales in the range of $200,000 a month, mostly from new customers. “Two hundred thousand dollars, seemingly out of thin air,” Mr. Bolen said.
The brand’s stores now are inviting those personal shoppers to visit, to learn more about the collections. And they, in turn, may take their clients to the physical shops.
The model for success, as Mr. Bolen sees it, is a combination of on- and off-line. “We think bricks and mortar is going to be a critical part of it, but a very different part than it’s been in the past,” Mr. Bolen said. “Bricks-and-mortar stores — those aren’t necessarily advantages any more.” Especially in second-tier markets, he added, “stores might be a real millstone.”
Where brands affiliated with major luxury groups, like LVMH Moët Hennessy Louis Vuitton and Kering, once had a clear competitive advantage in negotiating for real estate, given their ability to leverage entire portfolios of brands, smaller companies like Oscar de la Renta and the upstart London-based evening wear label Galvan are finding the playing field leveled by the rise of the smaller shop.
“I was with these very big brands that sell tens of thousands of units a week and have flagship stores,” said Paul O’Regan, the chief executive of Galvan, who previously was an executive at the Gucci Group (now Kering) and Burberry. “Everyone’s closing stores around us and the fashion model’s changing.”
Galvan just opened its first store, combining its work space and showroom with shopping for walk-in customers and by appointment. And its location in the Notting Hill area of London ensures lower overhead than on a luxury retail strip like Mount Street, a few miles east.
Not only will the store have the current season’s options but customers also may order from the next season’s collection and browse past collections to have pieces revived in custom colors, working with personal shoppers or, in some cases, the founders themselves. Appointments also may be made at a client’s home or office.
“We wanted to throw away all of those preconceptions and say: ‘What would be the dream scenario for a woman buying a dress?’ ” Mr. O’Regan said.
Robert Burke, whose New York-based company has consulted on retail strategies for industry players including Ralph Lauren, Chloé and Bulgari, has seen such thinking emerge in recent years. Even the larger retailers, he said, “are looking at just how many flagships or large stores they really need. That format worked for decades and decades. With the growth of online, it doesn’t seem to be working. Bigger isn’t better, necessarily. More focused is better, I think. And more intimate and more personal.”
The distinction, he added, was between the old idea of department stores and the emerging model of the “apartment store.”
Technically speaking, the store-as-home — or hub — is nothing new. Harry Gordon Selfridge, the founder of Selfridges in London, once decreed that “a store should be a social center,” and put an ice rink and a shooting range in his. But after several years of chilly, gallery-like shop design, a homey feeling is again becoming dominant.
MatchesFashion.com, the London-based retailer, began as a single bricks-and-mortar store in Wimbledon Village (called simply Matches). But while business from its (now three) stores has been dwarfed by its global e-commerce, as its rechristening as MatchesFashion.com suggests, the company is continuing to invest in new stores. After a year of testing smaller, homier stores as part of a pop-up program called “In Residence,” it is scheduled to open a new permanent space (the company prefers not to call it a “store”) at No. 5 Carlos Place in Mayfair in the spring.
The space will have two floors of retail as well as floors for private shopping, but equally important will be the floor that is to house the company’s broadcasting and content hub. Classes, panel discussions and events will be held there, all of which will be streamed on Facebook Live and YouTube, its social channels and its website. And all of it will be digitally shoppable.
“That’s the beauty of what we’re doing,” said Ulric Jerome, the company’s chief executive. “You don’t have to create an enormous department store to have a reach that is 10 or 100 times bigger than that department store. The reach is way bigger than the physical space. But the physical space enables you to produce amazing content.”
The Carlos Place store will have fewer choices than the full MatchesFashion.com range; it will be “the curation of the curation, and we’ll change the product quite often,” Mr. Jerome said. But iPads will allow browsing in-store, and all products will be available within 90 minutes for delivery within metropolitan London.
But at the company’s existing stores, 40 percent of the sales already are done via iPad. It reflects the reality that, for Matches, the online dwarfs the physical in every way: 95 percent of Matches’ business is online, Mr. Jerome said, and 85 percent is done outside of Britain.
Mr. Jerome has confidence in the hybrid online/offline model, with smaller physical and larger digital space.
“We tested it,” Mr. Jerome said. “Now we are investing in it. We think it’s part of the future of the way we see retail.” And he added that Apax Partners, which in September announced an agreement to take a majority stake in the company — one that values it at about $1 billion — is fully supportive.
Even those brands born online are stepping into the physical world. The RealReal, the online luxury consignment giant — it receives 8,000 to 10,000 consignment items per day, according to Julie Wainwright, its founder and chief executive — has spent a year testing pop-ups. And this month it is setting up a permanent retail space on Wooster Street in New York City.
Ms. Wainwright is envisioning the space as community center as much as shop: RealReal’s staff of experts, from watch gurus to fashion historians, will offer clinics and classes and offer appraisals, and the store will include a coffee bar and flower shop.
It will also, lest one forget, have a curated selection of the website’s clothes, shoes, accessories, jewelry and more: a fraction of the online offering, but a selection tailored to New York consumers.
The RealReal’s pop-up experiment last December in New York revealed a particular synergy between on- and off-line shopping, and a customer base ready and willing to combine the two, Ms. Wainwright said. And, she added, the average purchase at the pop-up was larger than the average one online.
“If you walk into the store, everything you see will also be online, and anything you see online you can see in-store,” she said. “What we saw when we ran the pop-up, some people went in, saw the item, thought about it, ordered it online that night and picked it up in the store that next morning.”
Such synergy is what drives Ms. Wainwright, and others like her, toward their new approach. While the death knell for the bricks-and-mortar store has been premature, the online experience is never far away.
“There are going to be iPads everywhere,” Ms. Wainwright said.
In a sign that the turbulence that has significantly altered the luxury creative landscape in recent years has moved to the executive suites, LVMH Moët Hennessy Louis Vuitton, the world’s largest luxury group, has engaged in the fashion equivalent of a cabinet reshuffle.
Sidney Toledano, the man who built Christian Dior into a multibillion-dollar global powerhouse and shepherded it successfully through one of fashion’s biggest scandals, will be stepping down from the helm of the brand after leading it for almost 20 years. He will become chairman and chief executive of the LVMH Fashion Group, the division that encompasses eight of the group’s smaller brands including Céline, Givenchy, Loewe, and Emilio Pucci. He will also join the LVMH executive committee. Pietro Beccari, the chief executive of Fendi, another brand in the LVMH stable, will become chief executive of Dior.
Pierre-Yves Roussel, the former head of LVMH Fashion Group and the architect of its evolution and expansion, is leaving that role after 10 years to become a special adviser to the LVMH chairman, Bernard Arnault.
The pace of designer hirings and firings has increased to an extraordinary extent over the last two years; just last week Christopher Bailey, president and chief creative officer of Burberry, announced he was leaving the brand. Brexit-induced uncertainty and fears of violence have affected consumer shopping habits, and the scale of digital transformation has altered the retail landscape. The C.E.O. musical chairs point to a conviction that new points of view are necessary to identify the opportunities in the turmoil.
“This is the right moment for change,” Mr. Toledano, 66, said in a telephone interview. He added that when Mr. Arnault broached the subject of his moving to the Fashion Group, “I accepted before he had finished asking.”
“I look around and see people retiring, and that is something I hate,” Mr. Toledano added. “I was never bored at Dior, but it was time for a new direction. I believe in the luxury market — I don’t need to see analysis from consulting firms — and think we can catch more market share.”
Dior holds a special significance in both the group and the overall sector as the first luxury brand acquired by Mr. Arnault in 1985, and is the cornerstone of his empire.
Along with Mr. Arnault, Mr. Toledano, who joined Dior in 1994 as director of leather goods and was named chief executive in 1998, was the mastermind behind the transformation of the elite French fashion house into a worldwide phenomenon that became something of a strategic model for other luxury brands on how to bridge haute couture and haute pop culture.
During his tenure, Mr. Toledano oversaw the opening of almost 200 international stores, the growth of celebrity partnerships, the rise of the star designer, and the evolution of the fashion show into a major marketing initiative. His nearly two-decade stint was in contrast with those of most luxury-sector chief executives, who tended to change jobs more often than even their designers did.
Widely respected, Mr. Toledano wielded influence that has reached far beyond LVMH, through the ascension of a group of chief executives who once worked for him at Dior, including Michael Burke, the chief executive of Louis Vuitton; Claus-Dietrich Lahrs, the head of Bottega Veneta; Valérie Hermann, the president of global brands at Ralph Lauren, and Pierre Denis, the chief executive of Jimmy Choo.
Mr. Toledano also steered the Paris-based Dior through the transition to a new creative director after the firing of John Galliano. Mr. Galliano’s flamboyance and dramatic vision had helped to propel Dior out of fustiness and into relevance, but he was forced out in 2011 after a drug- and alcohol-fueled anti-Semitic outburst. He was replaced by Raf Simons, but Mr. Simons stayed only three years and was succeeded by Maria Grazia Chiuri, the brand’s first female designer.
The executive change comes at a crucial point for Dior: LVMH announced the purchase of Dior, which had previously been a sister brand under a shared holding company last April, and after a comprehensive retrospectiveof the fashion house opened at the Musée des Arts Décoratifs in Paris this past summer to mark its 70th birthday. The Dior merger, in particular, created a giant fashion and leather goods group with combined annual sales of more than 5 billion euros, or $5.8 billion, according to the Exane BNP Paribas analyst Luca Solca.
LVMH has consistently posted strong sales in what has proved to be a volatile global luxury goods market in recent years. Last month it reported higher-than-expected revenue growth for the third quarter, with like-for-like revenues, which strip out currency swings and acquisitions or disposals, growing 12 percent from a year earlier to €30.1 billion.
With Mr. Beccari, who helped build Fendi into the third-largest brand in the LVMH fashion and leather goods division, after Louis Vuitton and Dior, LVMH will be keeping its leadership in the family, while ensuring that smaller brands, many of which have been in flux, are given renewed attention.
Mr. Beccari’s appointment “signals a new era,” Mr. Arnault said in a statement.
“Sidney Toledano is the driving force behind the huge success of Christian Dior Couture around the world,” Mr. Arnault said. “I want to offer my profound gratitude and am delighted that we will continue to work together and benefit from his expertise.”
Mr. Toledano will have his hands full in his new role. Though sales at the fashion group have tripled over the last decade under Mr. Roussel, with most brands becoming profitable for the first time, currently, Emilio Pucci is searching for a designer; there are questions about whether Phoebe Philo, the feted creative director of Céline, will stay for much longer; and Marc Jacobs, which in 2013 was thought to be a possible candidate for an initial public offering, has struggled with a brand reorganization and management change.
Robert Burke, founder of an eponymous luxury consultancy, said: “This is a sign LVMH is getting serious about growing their smaller brands. A few of them, such as Céline and Givenchy, have the potential to be big global companies, and there is no one better suited to get them there than Sidney. He understands both the silhouette of a handbag and global strategy.”
“What I have learned from 20 years at Dior is you have to be pragmatic, concrete, listen to people a lot, and give guidance,” Mr. Toledano said of how he will approach his new role. “People want leadership.”
Mr. Beccari and Mr. Toledano are to assume their new posts next year. A replacement for Mr. Beccari has not been announced.
The department store chain, a pillar of the Selfridges Group, which also includes Canada’s Holt Renfrew and de Bijenkorf in The Netherlands, said operating profits for the period were £180 million ($236 million), up 18 percent from £152 million ($200 million) the previous year, while sales reached £1.6 billion ($2.1 billion), a 16 percent increase from £1.4 billion ($1.8 billion).
“Selfridges has delivered excellent results… achieved by the success of our long-term planning and implementation of an ambitious programme of capital expenditures across all channels and stores,” Paul Kelly, managing director of the Selfridges Group, said in a statement.
He was referring to a £300 million ($393.8 million) investment announced in 2014, which has served as a catalyst for the transformation of its flagship London store. The retailer unveiled a new 20,000 square foot Designer Studio, devised to showcase established and emerging fashion designers, in July, three months after it launched a new 37,000 square foot Body Studio, housing lingerie, swimwear, pajamas and high-performance sports gear.
The focus now is on revamping the store's accessories department — the second phase is set to be unveiled next month, just in time for peak Christmas trading. When the changes are completed in 2018, the British retailer says it will be the largest destination for luxury accessories in the world.
Selfridges’ enviable productivity flies in the face of the financial headwinds facing the department store segment, particularly across the Atlantic, where American retailers have struggled to capture consumers as spending habits shift. Shoppers are increasingly ordering on phones, computers and tablets, with e-commerce giants like Amazon siphoning sales from physical stores. Many have also redirected their spending from physical products to experiences.
According to Springboard, a retail intelligence firm, the capture rate of footfall for UK department stores declined 5.8 percent between 2016 and 2017, over the period from January to August, more than any other type of store. “This indicates that the market share of department stores is declining,” says the company’s marketing and insights director, Diane Wehrle.
“[Selfridges'] level of investment, innovation, style authority and brand curation across its stores and online exemplifies how to stand out in a crowded market,” says Honor Strachan, principal retail analyst at GlobalData. “Retailers must identify which in-store services and experience-led departments will draw in customers and increase dwell time to benefit their future financial performance.”
So, what are the specific secrets to Selfridges’ strong performance — and what can other retailers learn from its strategy?
Reconfigure the Physical Footprint
Unlike US department stores, many with multiple outposts — Macy’s has 855 locations, Neiman Marcus has 42 and Bloomingdale’s has 38 — Selfridges is able to focus its energy on four physical stores across three cities: London, Birmingham and Manchester. While the US is a much larger country — with more than 323 million people in 2016, compared to 66 million in the UK — spread over a much larger swath of land, retailers must continue to shrink their square footage, focusing on densely populated urban centres.
Consider the approach of retail-real estate developer Westfield, which has abandoned its underperforming suburban locations. “Ten years ago, Westfield had 69 shopping centres in the United States; today we have 33 and two in the UK. We probably will have quite a bit less over the coming years,” Westfield co-chief executive Steven Lowy told BoF in an October 2017 interview. “We’re not far away from that right now, and the way we do that is by selling non-core assets and reinvesting that capital in assets like London, Milan, New York, Silicon Valley, etcetera.”
Redefine the Landlord-Tenant Relationship
Within its stores, Selfridges has embraced a concession model, which allows brands to run their own shop-in-shops, taking responsibility for customer experience and sales performance. “Often, concessions highly outperform the traditional wholesale model, because the brands help to manage and control stock and personnel, so they have a singular eye on the business,” says Robert Burke, chief executive of retail consultancy firm Robert Burke Associates.
“In Selfridges, particularly the high-end brands, the people working within those concessions are very well trained and knowledgeable about the product they offer,” says Springboard’s Wehrle. “You’re going there for a true quality retail experience — you’re not just going there to buy products.”
While the shop-in-shop approach is commonplace in Europe and Asia — Paris’ Le Bon Marché is another widely admired example — it’s less popular in the US. However, retailers including Saks Fifth Avenue have begun to employ it more regularly.
The key to making it work is in the execution. "The experience should be seamless,” Burke advises. “When a customer walks into the store, it should have everything they want and there should be great customer service. How the business is structured should be unknown to them.”
Recalibrate the Retail Mix
“The customer is always right” and “give the lady what she wants” are terms originally coined in 1909 by Harry Gordon Selfridge, the founder of the department store. So it’s no surprise, then, that Selfridges has long prided itself on offering a diverse curation of products and experiences where there is something for everyone.
For instance, on the third floor of the London flagship, known as the Designer Studios, streetwear-inspired brands — including Yeezy, Vetements, Off-White and Heron Preston — sit alongside emerging labels Grace Wales Bonner, Art School and Marine Serre and high-street favourites Topshop and Whistles. Established luxury brands including Céline, Saint Laurent, Valentino and Oscar de la Rentacan be found in the Designer Galleries, just one floor down.
But while many retailers offer a high-low mix, Selfridges prides itself on getting that mix just right. “Selfridges’ point of view is extremely clear,” Burke says. “The consumer can go to individual stores, but they’re coming to department stores to see a point of view and to find an edit of products in a specific way.”
Harness the Experience Economy
In a market where consumers have more and more tools to purchase goods at the cheapest possible price and the greatest possible convenience, the pressure is on for physical retailers to create a space that’s about more than transaction. “You can do your functional shopping online. It’s not like you need to leave the house for that,” Wehrle says. “If you can buy it on the internet, you need a real reason to go to the store.”
Founder Harry Selfridge was one of the first to approach retail as theatre. When French aviator Louis Blériot became the first person to cross the English Channel in an airplane in 1909, Selfridge decided to put the plane on display in store, with appearances from the pilot himself, drawing crowds of over 150,000.
Selfridges has since been focused on hosting immersive retail experiences, from its Roof Garden — a space that has been transformed into everything from a sweeping ice skating rink to thematic pop-up restaurants — to two permanent exhibition areas that host frequently changing concepts, themes and performances, curated by names like Mario Testino, Marc Jacobs and Yayoi Kusama.
Earlier this year, the store hosted a potato peeling workshop as part of a new programme that aimed to help stressed-out consumers calm down and "reconnect" with themselves. “Department stores need to ask — why would a customer come to their store?” Wehrle says. “That’s where Selfridges scores, because even if you don’t buy anything, you can experience things like the Roof Garden or their extensive food hall.”
Spend Money to Make Money
Another hurdle faced by US department stores is that “the amount of experienced merchants, buyers and back-of-house personnel are not as experienced as before,” Burke notes, referring to the approach several American stores have taken to maintain profit margins, including layoffs. In August, Macy's announced it would cut 100 jobs as part of a restructuring of its merchandising unit. In June, Hudson's Bay Company eliminated 2,000 positions, including letting go senior-level staff at Saks Fifth Avenue.
But cutbacks often feed a vicious cycle. “The US retail scene has been very challenged and as a result, they’ve had to pull back financially. With so many cuts, today’s merchants and buyers have become so numbers-driven that it’s very hard for them to take a lot of risk,” Burke says. “There’s less exciting merchandise because they’re so concerned about sell-through.”
By investing up front, Selfridges has managed to successfully execute an offensive strategy. “The sense I get from Selfridges is that they’re trying to do many new things,” Burke says. “They’re taking risks and really showing off their fashion products.”
To be sure, it’s not just sound business practises, sprinkled with a bit of magic dust, powering Selfridges’ success. The retailer has also benefitted from an increase in tourism following the fall in value of the pound since the Brexit vote in June 2016.
“Luxury retailers in the UK have discreetly increased their price points to help offset weaker traffic in other European stores, taking advantage of spiked demand and helping to build in the impact of rising inflation in 2017,” Strachan says “However, overseas visitors were still able to take advantage of lower prices versus their home market — leading to higher volumes and margins.”
But while tourism has benefitted Selfridges, there is little doubt that its initiatives are also driving domestic footfall and spend.
Grand restructuring plans captured by optimistic tag lines have become commonplace for luxury brands that have struggled to swiftly adapt to a changing consumer and retail landscape. In this series, we’ll break down the promises and analyze the progress of the different brands’ master plans to get back on track.
Facing threats and setbacks from fast-fashion brands, Amazon, an increasingly digital customer and its own unwieldy supply chain and management network, Ralph Lauren hit the reset button in 2016.
Now, the American brand is midway through its Way Forward plan, a $400 million restructuring project laid out under the leadership of then-CEO Stefan Larsson and CFO Jane Nielsen in June of last year. It’s projected to be completed by the end of the brand’s financial 2018. At the time of the 2016 announcement, the brand was facing annual revenue growth that had stagnated at $7.5 billion and annual profit losses of about 4 percent since 2014. Its market value was slashed in half as stock prices fell, from $16 billion in 2013 to $7.9 billion last year.
To right ship, Larsson and Nielsen created a two-year business plan pinned on closing underperforming stores, scaling back inventory, reducing discounts, streamlining its supply chain, shifting distribution focus from wholesale outlets to direct retail channels, and overhauling its internal structure to reduce management layers.
These tactics were meant to address Ralph Lauren’s biggest ongoing issues: There was too much inventory being marked down and sold through off-price outlets, and department store partners, facing their own issues, were contributing to constant markdowns. The company’s outdated supply chain and internal structure meant the production cycle stretched over 15 months, totally out of step with customer behavior.
“In recent years, there have been people working at Ralph Lauren who don’t even know who they report to or what their day-to-day duties are,” said a former designer who left the company last year. “It’s a mess of red tape and dead ends, and nothing is getting done.”
While there’s a new CEO and president at the helm, Patrice Louvet, the Way Forward plan is still in the works following the transition. However, Louvet has said he wants to expand the plan’s focus to Ralph Lauren’s digital capabilities, which includes an upcoming e-commerce relaunch, and its global expansion efforts.
With Ralph Lauren’s Way Forward plan has been underway for more than a year, here’s a look at where there have been hits and misses on its biggest promises.
Promise 1: Close underperforming stores, while reinventing existing ones.
Like many traditional brands transitioning into an Amazon era, Ralph Lauren was overstored.
“The path to expansion for retail brands used to be ‘open as many stores as you can,” said Robert Burke, a retail analyst and owner of the firm Robert Burke Associates. “That was the only way to get customers more access to your brand. Now, brands like Ralph Lauren are looking at these vast networks of physical stores, and they’re in trouble.”
Ralph Lauren has been slowly decreasing its store count; in 2017, it had 467 directly operated Ralph Lauren, Polo and Club Monaco stores, down from 485 the year prior. At the end of 2015, the company operated 493 stores. In the first quarter of 2018, the brand reported that operating costs had dipped 13 percent as a result, in part, of the store closures.
At the same time, the brand has been integrating technology and new experiences into its remaining store network. In a report earlier this year done by Contact Labs and Exane BNP Paribas on digital and physical integrations, Ralph Lauren was ranked as the luxury brand best integrating technology into its stores. The best example of in-store tech: its smart fitting rooms, powered by Oak Labs, which have been added to three additional stores after launching in its New York flagship.
Beyond flash, the fitting rooms are mining data for Ralph Lauren as it tries to align its inventory closer to customer taste.
“We know which items are being tried on but not purchased,” said Oak Labs CEO Healey Cypher. “I can tell Ralph Lauren, ‘Here’s a jacket that goes into the fitting room frequently but has less conversion than other jackets. The merch team should look at this — maybe the fit isn’t right, but the aesthetic is.’ Data like that can fundamentally change how retailers run their business.”
Promise 2: Shift distribution focus from wholesale to retail, while cutting back on promotions.
The Way Forward plan looked to change the way Ralph Lauren is distributed by lessening the brand’s presence at department stores, which have become over-promotional, and turn attention back to the brand’s owned retail channels, including stores and e-commerce. According to Louvet, the brand is on track to close 25 percent of its wholesale distribution points by the end of this year.
At the same time, direct retail is growing. In the first quarter of 2018, retail sales jumped 22 percent, while wholesale slipped by 27 percent.
To get the brand back on track, Louvet said the main priority is to distribute through digital retail partners and its own e-commerce site, while controlling promotions. This year, the brand is relaunching its e-commerce site, collaborating with Salesforce to power its back-end logistics, to lessen focus on sales and drive more sales of full-price merchandise.
Promise 3: Align inventory with customer behavior.
This September, Ralph Lauren held its third see-now-buy-now fashion show, following its new motive to get product launches in line with customer behavior.
The shift starts with the supply chain. The brand has overhauled how it gets product to market, in order to shorten the production cycle as well as follow a consumer-facing calendar. What used to take 15 months in production now takes between six and nine, with about 35 percent of inventory on a six-month schedule.
As other brands and retailers, from Gap to Burberry, shorten their production schedules down to about six weeks, Ralph Lauren still has work to do. Louvet said it’s a continued effort to improve speed to market.
“Ralph Lauren is still a work in progress, and there’s a lot of work to do,” said Luca Solca, the head of luxury goods at Exane BNP Paribas. “But I would be optimistic about their chances ahead, based on how they’ve enacted this plan so far.”
BUSINESS OF FASHION | LAUREN SHERMAN
NEW YORK, United States — 9am. That’s when Jonathan Saunders, chief creative officer of the American fashion brand Diane von Furstenberg, is keen to meet at the company’s offices in Manhattan’s Meatpacking District. It’s a fairly early start time for a design studio, but on this particular mid-August morning, the open-floor seating is heavily populated, with teams already deep in discussion.
The Scottish-born Saunders — clad in a softly puckered black gingham shirt, hair greying perfectly at his 39-year-old temples — is poring over printed copies of his marketing budget. These days, he is as interested in speaking about customer engagement as bias-cut silk.
“In many ways, [DVF] has been more creative than I was able to be with my own brand,” says Saunders, who joined the company just a little over a year ago. His first collection — for Spring/Summer 2017 — was designed in just six weeks. Saunders relocated from London for the job after a brief sabbatical from fashion. (His namesake designer ready-to-wear line ceased operations in December 2015 after facing financial difficulty, although he still designs furniture under his own name and retains the intellectual property.)
On Sunday at New York Fashion Week, Saunders will present Spring designs once again, this time with a year of experience from which to draw. It’s been a difficult year to be in New York, in Trump’s America, and yet Saunders dismisses this. “I’m from Scotland, I’m from a working class background. I have fought tooth and nail to get an education and have a career. Hardness doesn’t ever frighten me or intimidate me — it excites me,” he says. “When I got to New York and started working here, I loved the directness of the city, the normalcy. I love being busy, I love working, I love design, I love creativity, but I also love making it happen.”
“It”, in this case, means designing clothes that sell. While Saunders has long been a fashion-world darling — he was rumoured to have interviewed to replace Raf Simons at Dior — he has struggled like many of his peers to make a designer ready-to-wear business work. At DVF, the clothes are more affordable. His task, instead, is to usher a brand that was built on a dying model into a new era.
DVF has played disruptor several times over the course of its 40-plus year history. First, in the 1970s, by liberating working women from an old way of dressing, landing the brand’s founder, Diane Von Furstenberg, then a young entrepreneur, on the cover of Newsweek wearing her signature wrap dress. (The cover line? “Rags & Riches”.) In the 1980s, waning demand and bad business decisions drove the brand to the verge of bankruptcy, but a successful stint in the world of home shopping gave Von Furstenberg the boost she needed to persevere. By the late 1990s, DVF was well positioned to stake a claim in the then- emerging contemporary market. With the help of then-president Paula Sutter, the wrap dress became a must-have once again.
Now, it is Saunders’ turn to bring relevance to the classic style. Much has been made of the relationship between Von Furstenberg and her chosen successor — and how he has worked hard over the past year to stand on his own. She, in turn, has been quite open about how important, if difficult, it has been for her to get out of the way.
But this morning, like every morning, her presence is felt. A basket of apples from her Connecticut farm sits at the bottom of the studio stairs for the taking, with famous-artist portraits of her likeness — including Andy Warhol screenprints — hanging on the walls of the waiting room.
These are small, but definitive, reminders that she is not going anywhere. Saunders’ biggest challenge is to be able to use this fact to his advantage instead of trying to work against it, all the while making DVF reflective of his own undiluted creative vision. “Diane has created a fantastic business over the last 40 years,” Saunders says. “She has an iconic product that still resonates, and without this I wouldn't have anything to work with.”
However, before Saunders’ arrival, DVF had fallen into the same pattern as many of its contemporary peers, serving up heavily merchandised product that succumbed to the demands of wholesale partners. They’d ask for fit-and-flare dresses one season, bandage skirts the next. Who cares if these styles and silhouettes were in line with a brand’s ethos as long as the sell-through was good? Or so the logic went.
However, as consumers have shifted their spend away from department stores, those temporary, season-by-season merchandising fixes have proven increasingly ineffective.
“Brands became so big and so overdistributed and higly merchandised that they oftentimes lost their personality and point of view,” says retail and fashion consultant Robert Burke. “At the exact same time, the consumer became more educated because of e-commerce. They have an incredibly high desire to wear unknown brands or emerging brands — things that you’re not going to see a million-times over on Instagram.”
As a private company, DVF declined to disclose revenue figures, but a 2015 report estimated annual sales of about $500 million, though market sources suggest it could be less than half of that. Still, it’s a respectable figure for a brand whose main source of revenue is not handbags, fragrance or t-shirts. DVF makes its bread by selling clothes — lots of them — that can cost $500 or $600 a piece. (A whopping 80 percent of the business is apparel, with only 20 percent of sales coming from other categories.)
But as the industry evolves, Saunders must prove that a market still remains for DVF’s product. “My past experience in America and New York was very merchandise-led in a different way than what I was used to,” he says. “I feel like that’s changing. Not everybody is going to love what you do, and not everybody has to love what you do. It doesn’t have to suit every single person, for every single social or functional need in their wardrobe.”
Instead, for DVF to be successful today, it has to stand for something. Luckily, Saunders has source material. There, of course, is Von Furstenberg herself and her larger-than-life persona. “The brand’s ethos stems from Diane,” Saunders says. “In many ways, it was about ease of lifestyle... it was about women being able to dress in something that felt like fashion, but also didn’t feel so precious that it was unattainable.”
I love being busy, I love working, I love design, I love creativity, but I also love making it happen.
But most importantly, there is the wrap dress, perennially known as a universally flattering style. (The “flattering” bit is debatable, but wrap dresses are indeed adjustable, which means they are more forgiving to fluctuations in body size.) Perhaps it’s because of his background in product design, but Saunders has managed to see the dress for what it is — an idea — and cast it in a different light. “For me, it was important to be able to articulate the fluidity, the movement, the ease of the product without just replicating the product,” he says. “How does it resonate now? I’m trying to articulate it in a new way without ignoring the past.”
The result? People seem to genuinely like what he’s doing, including Von Furstenberg herself. At first, his changes to the brand identity — in particular, the sans-serif logo — felt premature to her. Saunders’ Autumn 2017 advertising campaign, shot by the young British photographer Oliver Hadlee Pearch in Tompkins Square Park and styled by Camille Bidault-Waddington, was also a major departure from the glossy studio portraits of the past. “When Jonathan started a year ago, it was tough for everybody, but it was tough for me because I let him be completely free,” Von Furstenberg says. “It was difficult to let go, but I wanted to, and I’m so glad I did because he gave it a huge fresh-up.”
Autumn’s leopard-print wrap dress, for instance, has all the components of a traditional DVF design — a classic pattern, that “easy” silhouette — but he cut it in silk instead of a pill-prone cotton blend, and dropped the hem to mid-calf. Over the course of multiple deliveries, he has also turned out several dresses and blouses in panelled florals cut on the bias: They are punchy and joyful, and rely heavily on his very specific sense of colour.
“In the traditional contemporary world, one doesn’t usually see this kind of design and individuality,” says Elizabeth von der Goltz, a luxury retail veteran who joined Net-a- Porter as global buying director in July 2017. “We’ve seen his fresh direction attract a new client, so we’ve been able to grow this business.”
That’s all to say that the collection looks special, not some generic department store play. “Jonathan has managed to retain the accessible price positioning of DVF while vastly improving quality to high designer levels,” says Marc Menesguen, a L’Oréal veteran who joined the company earlier this year as co-chairman of the board. “This allows us to develop a very competitive brand positioning and gives us global opportunity for growth.” Oftentimes, companies that experience an overhaul must shrink before they grow, and Von Furstenberg acknowdges that DVF had to “shrink a little” in order to move ahead. However, the company is tight-lipped on sales figures and will only acknowledge that e-commerce is driving a “substantial” amount of growth and that there are “pockets of growth” in the US, specifically on the West Coast, as well as in the Middle East, Brazil and the United Kingdom.
According to DVF, growth categories include knitwear (a Saunders’ specialty), outerwear (particularly leather, suede and faux-fur), dresses and “modern” evening wear. Saunders is also particularly bullish on accessories, which he sees as a significant opportunity, enlisting his friend (and longtime Marc Jacobs handbag consultant) Katie Hillier to collaborate on designs. “It was important to me not to try and provide somebody with solutions for day bags. Yes, obviously functionality is so important within a product, but for me it’s just about having fun, and really enjoying the process,” he says. “It is about a joyous decoration.... Because otherwise, what’s the point?”
So far, wholesale partners insist that shoppers are indeed falling in love with Saunders’ designs. Multi-brand sites with an international reach — such as Net-a-Porter — are faring well in particular.
Currently, the business is split 50-50 between US and international sales. Overall, 60 percent of revenue comes from DVF stores (this includes international franchise doors) and 40 percent comes from true wholesale doors. (The collection is available in 35 directly owned stores — as well as DVF.com — and 973 wholesale-partner doors worldwide.) For a brand so associated with its presence on the American department store floor, both figures must be reassuring to those plotting out DVF’s financial roadmap. (Direct sales and increased international distribution are both key paths to growth.)
Right now, however, Saunders doesn’t seem to have clear counterpart on the business side since the resignation of former chief executive Paolo Riva, who left the company in 2016. Von Furstenberg is still very much involved, as is her board of directors, which includes Menesguen but is mostly made up of family members (including her husband, IAC chairman Barry Diller) and close confidants (including Hamilton South, founding partner of public relations firm HL Group).
For now, however, Saunders — who works closely with Melissa Sussberg, the company’s EVP of global merchandising and US sales and Philip Atkins, its VP of global merchandising — is okay with a CEO seat left vacant. “Every brand, and every company at every stage of its development, needs to take their own situation, their own experience, and deal with it in the right way for that moment, and right now, it’s not the right moment for this brand,” he says of the company’s vacant chief executive role. “What’s so exciting right now is that we have a direct line to the consumer in a way that we’ve never had before. It means that designers, creative directors, creative people can no longer live in this elitist bubble of ‘we’re making clothes for ourselves’ self-indulgence. Yes, it’s wonderfully fun, but it’s also detaching yourself from what you’re trying to do.”
Von Furstenberg seems to agree, especially as she weights her options for the future. “It may seem odd the way I put the pieces together,” she says, referring to the current set up. “But there’s more that’s going to come and I am pleased with what we have have accomplished.”
While speculation regarding a potential initial public offering bubbled up a few years back, and there is always talk of DVF’s prospects as an acquisition target, the only certain thing is that Von Furstenberg wants to do the right thing. “At this stage of my life, I want to make sure that my brand gets in the very best hands so that it will last forever,” she says. “That means putting the right talent in place and also the hiring those with expertise in the new way of running a business. Jonathan was the first step. Now that we have lots of great assets, I may be looking to the next step.”
For now, Saunders is allowing himself to take pride in approving those marketing budgets — and thinking about new ways in which he can communicate with the customer, whether that means via an Instagram post or an in-store event. “It’s an interesting kind of dialogue,” he says. “It’s not about saying, ‘What do you want? I’ll design it for you.’ It’s about saying, ‘This is what I believe in. What do you think about it?’”
BUSINESS OF FASHION | MAX BERLINGER
NEW YORK, United States — You may have noticed them. On city streets, on high school campuses, and, more often than not, on Instagram: young people wearing t-shirts emblazoned with oversize block lettering on the chest, the back or running up the sleeves. “I Feel Like Pablo” or “Bigger Than Satan” or “Summer Sixteen”, the shirts read. Or, rather, announce. It’s a fashion statement and also a coded advertisement for their pop-cultural allegiances. It’s “merch”, and it’s everywhere.
The once lowly art of selling branded merchandise inside concert venues has become its own fashion-adjacent industry with numerous sub-categories. Musicians including Justin Bieber, Drake, Zayn Malik and Kanye West each offer promotional clothing lines that mimic the swaggering energy of streetwear and skate brands, while high-end labels including Vetements and Gucci playfully adopt the aesthetic to ironic effect. You can now find merch at fast fashion favourites including H&M and Zara. Media brands are even creating their own merchandise, from The New York Times to the indie magazine 032c and fashion-news website Fashionista. And so are religious organisations, most notably the Los Angeles-based Zoe Church, where influencers including Justin Bieber and model Hailey Baldwin attend events and services.
The significance of this moment in fashion can be felt in the way such influencers have embraced, and evolved, the merch movement. See: Miroslava Duma sporting a Google baseball cap, or Rihanna’s meta take on the trend, when she wore a shirt featuring herself wearing an “I’m with Her” Hillary Clinton T-shirt during last year’s election.
Of course, commercial merchandise is nothing new. Concert tees have long served a starring role in the wardrobes of certain style tribes, with fans of Metallica, the Rolling Stones and the Grateful Dead wearing those items as regularly as a fashion fan dons a pair of Gucci loafers. And it has also always been a big business. In 1998, popular American group the Dave Matthews Band reportedly brought in $200,000 a day through merchandise sales alone. Pulling back, the numbers on the broader merch category are impressive. The global market for promotional products reached more than $21 billion in sales in 2016, up more than 2 percent from the year previous, according to trade organisation Promotional Products Association International. More than a third of those sales came from "wearables" — i.e., t-shirts, caps, jackets, etc.
For today’s consumer especially, merch is not just about associating oneself with a certain artist or tribe; it’s about associating oneself with the height of fashion. Consider Justin Bieber’s merchandising strategy during his 2016 tour. First, he offered the merch at his own concerts. Next, it was available at Barneys New Yorkand then, finally, for the masses at Forever 21. (It should be noted that Bieber’s line was made in collaboration with designer Jerry Lorenzo of the well-regarded label Fear of God, giving it an extra whiff of street cred.)
The result? Influencers and editors who got hold of the street-style bait early on wore the hoodies and t-shirts all over Instagram. Those posts essentially served as free advertising for when the products finally hit the floor at Forever 21.
Merch represents the way in which fashion has become inexorably tied with pop culture, yes, but it also underscores the use of social media platforms like Instagram to visually express one’s values.
The movement has been financially fruitful as well. Bravado, the licensing division of Universal Music Group that handles Justin Bieber’s branded apparel amongst others, has seen significant growth. According to Variety, Bravado reported growth of 13 percent during its first-quarter earnings this year.
Last year, Vetements chief executive Guram Gvasalia told the New York Times that sales of its merch-driven line reached eight figures in just three years. Luxury conglomerate Kering called out Balenciaga's “excellent” performance — in part thanks to creative director Demna Gvasalia’s elevated take on merch for the house — as a reason for an 11.1 percent rise in revenue for its portfolio during the first quarter of its 2017 fiscal year. Dior creative director Maria Grazia Chiuri garnered much press for the graphic t-shirts she showed during her spring 2017 show, which read “We Should All Be Feminists”. The bold statement was a risk that paid off. The shirts, which cost $710, sold out quickly — the proceeds of which went to charity — all of which helped fuel a 17 percent rise in sales at the house in the first quarter of this year.
You don’t want to saturate the market, experience a backlash and kill the brand. People get bored very easily nowadays.
For the fashion industry, the merch movement is a welcome antidote to a general consumer shift away from collecting things to collecting experiences. However, as with any trend, the block-letter look will eventually tire as consumers grow exhausted spending hundreds of dollars on screen-printed t-shirts. Therein lies the question: When will we reach peak merch?
“Merch fashion lines for artists will certainly carry and evolve,” says Sara Maggioni, director of retail and buying at the trend forecasting firm WGSN. “There’s too much money in it for them not to do it — for a little while, at least.” If anything, she says, the rise of merch has proven just how much the general public will buy into this type of branding, and clothing is just the beginning. “Supreme has already started to brand everything, from bricks to NYC metro cards, so anything can happen.”
“However, I do think that moderation is key,” Maggioni adds. “You don’t want to saturate the market, experience a sudden backlash and essentially kill the brand,” noting that even the beloved Supreme has gained detractors of late. “People get bored very easily nowadays.”
New approaches indicate that merch 2.0 could include deeper, more symbiotic partnerships between brands and celebrities. For example, Helmut Lang has tapped hip-hop artist Travis Scott for a collaborative capsule collection that, in theory, represents the ethos of both musician and fashion label. Bravado recently unveiled a collection created with the Los Angeles boutique Maxfield and the rock band Guns n’ Roses, featuring a “curated collection” using the band’s iconography but reinterpreted by Off-White’s Virgil Abloh and Palm Angels’ Francesco Ragazzi, and others. Forever 21 announced a collaboration with musician Future and streetwear label Cease & Desist.
Consumers are also developing their own merch, feeding into the remix culture so prevalent today in younger generations. Because there are no minimums for customisation today thanks to advancements in software and digital printing technology, small runs of personalised product can easily be made and distributed. Anything could be considered merch, from a t-shirt printed with one’s declarations on the President to beer cozies customised for a bachelorette party.
Consumers express status not just through purchases, but also through their statements and values.
A new wave of indie brands are also capitalising on the trend. Consider the retro graphic T-shirts from Monogram, the popular skate line Bianca Chandon and the flirty embroidered messages at Sporty and Rich, from the social influencer Emily Oberg who now serves as women’s creative lead at the streetwear brand Kith, as prime examples.
The rise of personal merch has equalled financial success for companies like Zazzle, the $300 million Silicon Valley-based customisation platform. Chicago-based custom apparel website Ript Apparel brings in $4 million in revenue annually. Teespring, which has raised $55 million since its founding in 2011, is fuelling small businesses like that of merch maker Benny Hsu, who claimed in 2016 that he was able to make $100,000 in just five months by selling product he manufactures via the customisation website.
Adriana Krasniansky, senior strategist at consultancy PSFK, sees two places the merch trend could go. First, after expressing their personal tastes, consumers may accelerate the ways in which they use clothing as a means of expressing more value-oriented messaging — think of the rise in shirts used as political dispatches in the post-Trump era. “A big thing we’re seeing is consumers express status not just through purchases, but also through their statements and values,” she says.
Krasniansky points to the fact that part of the popularity around merch is its tribal qualities. While merch is currently fashionable, it’s the community connected to it that makes it resonate emotionally. The next step is figuring out how to make those in-real-life experiences translate online. “We’re looking at the activation around merch. The built-in hype, getting people into queues or stores — that’s becoming more digital,” she says. “So we’re thinking about augmented reality: how do you create a pop-up that isn’t a physical pop-up? How do you create that community, like the sneaker line, in a digital space?”
As for longevity, it appears that we’ve not yet hit the trend’s apex. “I think we’re just ramping up,” says Robert Burke, chairman and CEO of Robert Burke Associates. “It hasn’t peaked yet but it’s certainly been prolific.” However, he also notes that the pendulum does swing, and it does so swiftly. “With anything that comes on strong, it also falls off quickly,” he says. “No one has a crystal ball, but I think when it becomes too much, people will start gravitating towards things that are easier on the eye.”
Industry executives point out contemporary collections have gotten too big, they’re over-assorted and not focused enough.
WOMEN'S WEAR DAILY | LISA LOCKWOOD
The contemporary category is struggling to become, well, more contemporary.
Faced with a highly promotional retail environment, a slowdown in store traffic, intense competition from the web and fast-fashion chains, contemporary’s large legacy players are trying to reinvent themselves while newer, more agile companies are gaining market share.
“I think contemporary has been especially challenging,” said Robert Burke, chief executive officer of Robert Burke Associates, the luxury consultancy. “It had been so predictable in the way the customer wanted it to be predictable.”
For years, if a customer liked a particular pant, she’d buy four or five every single season, or if she liked a particular dress or wanted a career suit, she’d have a certain brand she’d go to, he said. “It was much more defined. A lot of that is just not what’s happening today. The customer is moving so fast on so many levels and she’s incredibly educated and not as predictable as she once was. It’s caused the brands to reevaluate where they are today.”
Several industry sources blamed the category’s woes on too much sameness in the market, the high prices attached to legacy contemporary brands, less expensive options coming from some of the South Korean and Australian labels that are more trend-driven, and many less expensive options from Zara, H&M and direct-to-consumer firms such as Everlane, Revolve, Asos, Boohoo, Modcloth and Ayr.
“The customer is still buying clothes, but they’re looking at brands like Reformation out of Los Angeles, which is strong in its online marketing and connecting to the consumer,” Burke said.
One retail source noted that especially in spring and summer, the consumer is looking for fun, colorful, festive and romantic looks, and some of the legacy contemporary brands, such as Vince and Theory, are much more serious. “When we move into fall, we’ll see a little more action in those brands because they have investment pieces,” the source said.
Susan Sokol, president of Susan Sokol Consultancy, pointed out that the larger contemporary brands that are overly distributed and more saturated are having the most challenges. “That customer is much more aware of prices and she’s not as devoted to one particular brand. She’ll change it up,” she said.
Soko believes that customer is more exploratory and likes to shop online and at specialty stores such as Forty Five Ten, Hirshleifers and The Webster, where “she’s finding a mix and it’s more exciting for her.” She cited some contemporary brands that are doing well such as Alexis, Jonathan Simkhai, Caroline Constas, Ulla Johnson and Nili Lotan. “She [Lotan] does an amazing job. She really found those core business drivers. She borders between entry-level designer and advanced contemporary,” Sokol said.
Kim Vernon, president of Vernon Co., agreed that the contemporary customer now shops many brands, big and small, for exciting, fun fashion pieces, in smaller multibrand stores, single brand shops and online. “The 20-year-old contemporary brands are not keeping up with fashion, trend and newness that some of the smaller independent brands offer, causing an erosion of their former market share,” she said.
Frank Doroff, vice chairman of Bloomingdale’s, said the contemporary business is “comping up, in the low-single digits.” He said the legacy brands have been a little softer. Where he’s seeing good results are in the denim business, Aqua, and elevated T-shirt brands such as ATM Anthony Thomas Melillo.
“Things that appeal to a younger customer and more fashion-forward customer have been very good,” Doroff said. “So have our high-end, more advanced denim brands such as Mother and Frame,” he said. He noted that some elevated T-shirt brands, the active business, and some new boho brands such as LoveShackFancy have sold well. “We’re selling a lot of shirting. The shirting trend was great for business from everybody,” he added.
Leah Kim, executive vice president, general merchandising manager, women’s at Barneys New York, said, “Overall, the business in this [contemporary] space has been soft.” She said Barneys doesn’t carry such legacy brands as Theory, Vince, Diane von Furstenberg or Joie, but carries T by Alexander Wang, which is doing very well. Among the brands in this area that are also doing well are Off-White, Monographie, its Saloni exclusive capsule collection and Warm.
“We have been seeing a shift from casual or oversize looks to elevated feminine looks. At least that’s what the Barneys customer is looking for right now. The streetwear trend is also still very strong into fall,” she said. The retailer continues to focus on securing exclusive brands as well as exclusive packages to draw customers’ interest and to bring them into Barneys over the competition. “We also have many exciting in-store activations and customization events planned for fall that will create a lot of buzz and bring people into the store,” Kim said.
Saks Fifth Avenue re-branded that zone of the business as The Collective. “We believe contemporary is a tremendous opportunity for us,” said chief merchant Tracy Margolies. “It’s curated. We’re focused on mixing brands and mixing pieces. It’s not a monobrand store. We show you how to do it. We’re really going after trends.” For fall, the store is highlighting velvet and the jacket.
“We really get behind these trends in a big way from all vendors, all categories. Lastly, it’s current and featuring new of-the-moment designers,” she said. Saks has added a handful of new vendors this fall such as Maggie Marilyn, Ganniand Amo Denim.
Margolies said the legacy brands are still important, and there are designated spaces for them. “Our clients know Saks and they come to Saks for some of those legacy brands. They’re definitely a core resource, and what makes it fun is mixing and matching those brands together with some of these smaller brands, or even back to denim,” she said.
What’s changed over the years in contemporary is the influence of social media. “What happens is social media and influencers drive trends, and people come to the store and they want that now. We’re working fast and furiously to make sure we service the trends that are on social now and how quickly can we get them. Our vendor partners are looking to work quicker on lead times. The whole ‘buy-now-wear-now,’ they want to wear it that night,” Margolies said.
“I think this zone of business is changing. It’s not just the legacy brands. The business is changing in general because of social media, things are moving faster,” she said. “Thezone is being much more trend driven and we’re adding new and emerging designers as well.”
She noted that brands such as Zimmermann, Jonathan Simkhai and Cinq à Sept are “doing great.”
Lori Friedman, owner of Great Stuff, a contemporary women’s specialty retailer with five stores throughout Connecticut and New York, said she continues to do well in the category. “It’s all in the buy. I try to aim for brands that are not in department stores, but I don’t always get that,” she said.
Friedman has done well with brands such as Sea and Nili Lotan. “She’s fabulous,” she said of Lotan. Price, she said, isn’t a major factor in the sector. “It’s good when it’s expensive. They seem to want a better product,” she said. She finds what resonates with her clientele is different from what they can buy in the city. “It’s still casual. In the city, it’s more urban. My customer wants lifestyle clothing. She wants clothing to wear on the weekends and Saturday nights when she goes out to restaurants,” she said.
According to Julie Gilhart, a fashion consultant who spent 18 years as fashion director of Barneys New York, the contemporary category truly came into its own when a few key people were delivering style at a price such as Phillip Lim, Alexander Wang, Rag & Bone, Vince and Diane von Furstenberg. Since, the consumer’s attention has splintered.
“They were all of a sudden able to give this designer look for a price and that’s where the traction was, and they started to build a business. What’s happened is the emergence of online, you can shop the web, you’re not limited to have to go into the store, and you have a lot of options. Then you have the fast-fashion brands that have come up. They can deliver a good style at a good price. All of a sudden, you have two categories, you have street brands that really feel in style and are appealing to more than just street kids. Off-White is the quintessential example, and look at Supreme which is collaborating with Louis Vuitton. You have people like Kanye [West], Heron Preston, and they’re getting a lot of attention. Then you have the whole sport thing,” Gilhart said.
Like others, Gilhart pointed out that the contemporary collections have gotten too big, they’re over-assorted and not focused enough. “That’s what the online part of the business has done. It’s made things become very focused. Then you have the growth of The Real Real, and the customer can buy an expensive piece and then sell it. There are many, many choices for the customer now,” said Gilhart, noting that customers frequently gravitate toward the brand’s story, content and Instagram. “If you’re a start-up brand, you’re into that world, but if you’re already a pre-existing business with your structure based around the department store, it’s hard to shift it. A lot of [legacy contemporary] brands grew through the department stores and are one step away from their customer, instead of direct to consumer.”
She encourages young brands to sell online, and then a small specialty store before tackling the department stores. She suggests selling on Instagram, too. “You can do as much business doing that as a young brand, than if you had one store buying your collection,” she said.
Gilhart recalled when she was at Barneys, it was easy for a new brand to start there because the retailer did everything for them. “We did their marketing, we did their sales, we were engaged, and it’s very different now. It’s only been the last five years, that buying online and on your phone, and social media has really influenced things,” she said. Interestingly, it used to be that selling into Barneys was a badge of honor. “Barneys gives an indication to the market in terms of where you are and what you do. But as far as the customer, it doesn’t really matter. They can go online and it doesn’t matter where they get it.”
“Probably one of the most difficult places to be right now is to be a contemporary brand in a department store,” Gilhart said.
Among the biggest problems facing the contemporary sector are the incessant sales going on that have influenced the way the consumer shops. She doesn’t need to buy it at full price, because if she waits, it will be marked down 20, 30, 40 and eventually 70 percent.
That constant sale mentality influenced one contemporary collection, ATM Anthony Thomas Melillo to develop a new business model outside frequent markdowns.
“The [current] model is based on markdown and not design. You have all these brands, they have an enormous amount of product, and in the end, what is the design, where is the lifestyle? Contemporary is an odd word,” Melillo said.
“I was not launching ATM to do what the legacy brands were doing, rather I was launching to fill a white space. To me the white space then and now was a brand that had the brand aesthetic of something dedicated to a new type of lifestyle I was seeing — the chic customer who wanted to look and feel relaxed, but chic and special, not mass. Legacy brands were pumping out a lot of clothing, but without a personal touch. Nothing about a piece of clothing that you can find in all avenues of distribution feels special,” he said. “We have always felt we do not need to be on every markdown and ‘friends and family’ promotion. This to us is the death of a brand,” Melillo said.
He said he does business with Bloomingdale’s and insists that they don’t mark it down, put it on sale or “friends and family” promotions. “If I can get that customer to still go in that store and buy me at full price, it’s a pretty good accomplishment on my end,” he said.
Andrew Oshrin, ceo of Milly, is showing gains by raising the company’s profile via social media and advertising.
“I think Milly is a bit of an outlier. We’re seeing some significant growth at our three biggest accounts — Saks, Neiman Marcus and Nordstrom,” he said. In addition to seeing some international growth in core product classifications, he’s also seeing 4 to 5 percent growth in its own omni-retail channels, where it operates two stores. E-commerce is trending up 15 to 20 percent.
Stacey Bendet, ceo and creative director of Alice + Olivia, said her business in department stores is strong. “We’re up at Neiman’s and Saks. And we are fighting a lot of the markdowns. It hurts our own stores. It’s hard for us to sell things at full price when everyone else is selling at markdown,” she said about the brand that operates 36 stores. “We’re in the world of Amazon. Everything is available at the touch of a button. You have to make your shopping experience and your brand experience easy for the busy woman.”
Bendet believes the department store retailer “needs to act as curators and stores with a fashion point of view, instead of becoming a market of everything. If they become OK with downsizing a little bit and becoming like a European department store model, I think they will go back to being successful. There needs to be a bit of a correction of the size that they are. I think we will enter this era of a boutique department store, instead of a mass department store. I think Amazon in its own way has crushed the concept of the mass department store.”
Alice + Olivia changed its business at Bloomingdale’s to a concession. “We manage it, we operate it and we control those markdowns,” she said. “We’ve had double-digit growth through that, in fewer doors. It’s been excellent. We’re managing that business and operating it, and it’s been really profitable and great.”
Jane Siskin, ceo of Cinq à Sept, is finding success in its first year of business. She had earlier been the licensing partner of Elizabeth & James.
“I think that we came into the market at the best time and maybe the worst time. It was the best time because the customer was hungry for new brands and that has been incredibly important to all the retailers, both majors and specialty stores. Everyone is always searching for something new. Obviously we came to market with a new brand with none of the new brand problems. They knew we were going to ship, they knew we could do reorders and would chase hot items; that was a big advantage. As for the worst of times, it’s no secret the retail environment is very challenged right now. We’ve been in a very interesting place, sort of nestled in the middle, between having something great and new with a tough environment,” she said. “I think that to grow a brand right now you really have to be in tune with what’s going on out there. You have to listen and watch every single day, what’s working, what isn’t working, where are you getting traction and where are you not getting traction? Categories you could always rely on are more challenging than others.”
For example, Cinq à Sept had a particular dress that sold everywhere. When she recut it in new colors, the customer was no longer interested in that dress. “In the past, you could sell that dress over and over again. The customer is more discerning. The higher-end customer, when she sees people wearing the dress, she isn’t that interested in buying the dress. When we added embroidery, it was excellent. You have to look and listen every single day. Your ear has to be to the ground,” she said.
Cinq à Sept is housed near more advanced contemporary brands such as Rag & Bone, ALC, Alexis, Jonathan Simkhai, Zimmermann, and Tanya Taylor.
Siskin said her business is split evenly between specialty and department stores, and frequent promotions at the latter are a fact of life.
“Listen, in order to grow a business with department stores today, you have to be a partner on all sides. Obviously, we’re not immune to partnering on the profitability side. But we’re much more focused on partnering on how to bring more people into the stores to shop, to bring more brand awareness, to create an experience. It’s a 360 strategy,” Siskin said
“The idea of putting goods in, hoping they sell, and paying at the end, as far as I’m concerned is antiquated and not sustainable anymore. Our challenge with the retailers is how can we make it better. We are hyper focused, laser focused on being part of the solution,” she said.
NEW YORK TIMES | ELIZABETH PATON AND VANESSA FRIEDMAN
Colette, the fashion and lifestyle emporium in the First Arrondissement of Paris that proved to be a launchpad for young designers and a shopping destination for industry insiders and tourists alike, will close its doors on the Rue St.-Honoré in December after 20 years.
A statement confirming the decision was posted on the boutique’s website on Wednesday.
“As all good things must come to an end,” the statement said, “after 20 wonderful years, Colette should be closing its doors on December 20th.” The company cited retirement plans for the founder, Colette Roussaux, who ran the store with her daughter, Sarah Andelman, and made it one of fashion’s favorite new-style family businesses.
“Colette Roussaux has reached the time when she would like to take her time; and Colette cannot exist without Colette,” the statement read, referring to the store requiring its founder.
The closing of the store, long considered an apex of Parisian fashion trends and a vital champion of emerging labels, comes amid rising rents for retailers in Paris and increasingly unpredictable consumer habits, including a move toward more fashion-spending online. The city of Paris has also been hit by volatility in the tourism sector in the last two years, after a series of terrorist attacks.
Colette had sales of 28 million euros ($32 million) in 2016, with e-commerce accounting for 25 percent of that and the rest coming from its single store.
An eclectic three-story trove of elaborate cocktail gowns, tuxedos, sneakers, postcards, pens and gadgets, all across 8,000 square feet, Colette was founded by Ms. Roussaux in 1997. It was one of the first stores to cater to an aesthetic lifestyle, as opposed to a specific product category, becoming a model for a new kind of retail. Ms. Andelman functioned as the store’s buyer and public persona.
“The first stop the fashion crowd would make was to Colette,” Robert Burke, founder of the luxury consultancy that bears his name, said in an email. “The selection of brands, the way the forms displayed, the cloths and the mix designers was inspiring. If you were carried at Colette, you were cool. If you had a launch of product or a book signing at Colette you were recognized by not only the fashion world but the international fashion consumer.”
The end of the Colette era is bound to raise question about the continued viability of such “concept stores,” which place an emphasis on attitude and discovery over the bottom line. (Colette famously never had a marketing plan.)
However, other concept stores, such as 10 Corso Como in Milan, which was founded in 1990 and has been on an expansion spree with stores in Seoul, South Korea; Shanghai and Beijing, and one to open in South Street Seaport in New York next year, have successfully navigated the new retail environment. The British store matchesfashion.com has transformed itself by focusing its business online.
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It is possible that the decision to close Colette is that rare thing in fashion, which is notoriously bad at succession planning and finds it almost impossible to let sleeping brands lie: an active attempt on the part of a globally recognized name to determine the end of its life span. If that is true, instead of being a cautionary tale for the industry, it may be yet another example of the store’s pioneering nature.
The industry accolades for Colette began almost immediately.
Bryanboy, the fashion influencer, wrote on Instagram, “Colette to me is the ultimate shopping (and research) destination in Paris, with their well-edited buys and support for many people whether it’s a big brand or a small entrepreneur or artist. When I didn’t have a lot of money to buy designer clothes, I used to buy my music compilation CDs from you! For a generation, Colette was the gold standard of cool.”
According to the company statement, also posted on Instagram, negotiations are in progress with Saint Laurent, the French luxury house owned by Kering, to take over the store location.
“We would be proud to have a brand with such a history, with whom we have frequently collaborated, taking over our address,” the statement said, adding that such a move could “also represent a very good opportunity for our employees.”
Francesca Bellettini, chief executive of Saint Laurent, acknowledged the history of the space, saying, “For the last 20 years, Colette has been such an iconic and prestigious project and destination in Paris. It feels natural to us to discuss the opportunity to take those amazing premises over in order to give them a second life.”
For the time being, however, the Colette team are taking pains to emphasize that until December, it will be business as usual. “Until our last day, nothing will change. Colette will continue to renew itself each week with exclusive collaborations and offerings, also available on our website, colette.fr.”
BUSINESS OF FASHION | LIMEI HOANG
LONDON, United Kingdom — On Wednesday, British luxury handbag maker Mulberry reported a 21 percent rise in annual pre-tax profit, helped by demand for the new designs of its creative director Johnny Coca and a rise in online sales.
The company reported pre-tax profit of £7.5 million ($9.6 million) for the year ended March 31, up from £6.2 million last year, and revenue of £168.1 million. Sales from its online channels also increased by 19 percent, now representing 15 percent of its group revenue.
However, the results also showed that Mulberry’s overseas like-for-like sales fell by 3 percent for the 10 weeks ended June 3, and its domestic sales only grew 1 percent, less than in previous reporting periods, causing its shares to fall around 2.6 percent in early trading.
“It’s really a set of results in two halves,” said Neil Saunders, managing director of research firm GlobalData Retail. “There’s a reasonably encouraging set of numbers coming from the domestic business and I think there has been a bit of a pick up there in growth. Although it’s not what you would call stellar, it’s reasonable and it shows that some of the new lines have gained traction and interest.
“The international side of the business is a little bit less encouraging; that’s where Mulberry continues to struggle to carve out a presence in markets that are very crowded and very saturated. Especially as you’ve seen brands like Coach come back and revive sales, I think it’s becoming a little bit more difficult for Mulberry perhaps to cut through.”
They’re definitely going in the right direction, there’s just a little bit more that needs to be done.
The improvement in Mulberry’s profit and revenue comes as the company is in the midst of orchestrating a turnaround strategy to bolster the brand after an ill-considered attempt to radically elevate its offering backfired, alienating former customers without attracting new fans.
Since then, the company has worked hard to move away from turbulence of 2013 and 2014, a period marked by three profit warnings, hiring a new creative director Johnny Coca from French luxury brand Céline, and chief executive Thierry Andretta.
Andretta, who has worked at LVMH, Lanvin and Gucci, has helped to oversee Mulberry’s turnaround strategy which is focused on driving four pillars of the brand: product, brand, omnichannel and operations. The company also recently announced plans in May to adopt a "see now, buy now" model, a decision it says it hopes will drive further engagement with the brand and increase its relevance to customers.
Mulberry’s results suggest its turnaround efforts are gathering pace. But are they enough to win back its legions of former fans, particularly at a time when the market for affordable luxury handbag brands is saturated?
“Mulberry’s turnaround remains on track with 2017 organic growth up 8 percent,” wrote analysts at Barclays in an early morning note. “Real progress has been made on product and factory efficiency, which led to a much higher gross margin than we had expected with these proceeds being reinvested into marketing,” they added, noting the progress the brand had made in the Asian market.
Its a view shared by Robert Burke, chief executive of advisory firm Robert Burke Associates, who believes the company is making some headway in tackling the challenges it faces in the fast-growing handbag market.
"I think it shows signs that its working but the consumer is moving extremely fast and the brands have to move just as fast today," said Burke. "The consumer is also much more well researched than ever before and they want to know and see and read, and it has to be in the forefront of their minds.
"The handbag market takes a long time when it comes to positioning, to establish a brand image," he continued. "It moves slower when it comes to consumer awareness and desirability. And people tend to be more brand loyal with handbags than when it comes to ready-to-wear. What’s happened in the last few years, is it seems that customers have focused on fewer and fewer brands, where there used to be a lot more variety in the market. It seems to be gravitating towards much bigger brand names. And that’s just a trend of the market."
But Saunders believes the company still faces a number of challenges, particularly as its international business has slowed and affordable luxury competitors like Coach and Michael Kors have struggled to regain market share lost to new brands like Mansur Gavriel.
Going forward, Mulberry needs to carve out more of an international presence, something chief executive Thierry Andretta has marked as a focus for the company as its UK retail stores account for 60 percent of sales. “International remains the focus,” Andretta said in a call with reporters. “We are still fine-tuning our network.”
“The brand still struggles a bit with its identity,” added Saunders. “I think there’s a case for it really trying to firm up in the international mindset, what Mulberry stands for, what position in the market it has.
“If people aren’t clear, it’s very difficult to sell through those products at the premium that Mulberry charges. They do need to really think about the brand image — and the marketing that goes with that internationally — to really get those sales up across some of those key markets that they’ve tried to expand into.
“They also need to look very carefully at what lifestyle image they’re projecting. It does give a brand more of a chance of succeeding, especially when the bag market is very crowded and very competitive. They’re definitely going in the right direction, there’s just a little bit more that needs to be done just refining and honing that brand.”
Mulberry need to look at signature bags and creating newness, adds Burke. "That is a critical point, creating that desire. Today creating that desire oftentimes is not just marketing, but connecting with the consumer and social media and marketing themselves in a different way. They can certainly play up on their heritage but they have to appeal to the new and be desirable."