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“Time is not on your side.”
Such was the subject line of American Apparel’s March 23, 2017 marketing email, giving readers one last chance to shop its online liquidation sale. Last November, the company filed for Chapter 11 bankruptcy protection for the second time in just over a year, selling its assets at auction to Canadian activewear company Gildan and closing its remaining 100-plus stores.
But time has not been on the side of many American retailers. In November 2016, much-hyped online venture Nasty Gal filed for Chapter 11 bankruptcy protection. Earlier this year, Los Angeles-based brand BCBG did the same. Wear-to-work brand The Limited announced in January that it would close all 250 of its stores. Teen retailer Wet Seal closed the last of its 171 locations earlier this year. Most recently, clubbing-clothes chain Bebe announced that it was “exploring strategic alternatives” after four years of losses.
It goes on: J.C. Penney is closing 138 doors. Abercrombie & Fitch is set to close 60 doors. Macy’s is closing 68 locations. Earlier this week, Sears expressed “substantial doubt” that it can remain open at all.
After years of foreshadowing, American retail has finally hit a tipping point; the moment when “adapt or die” becomes a reality. Indeed, Credit International, which advises fashion manufacturers and factors on the viability of retailers, predicts that there could be eight to 10 more large retail bankruptcies in North America this year, many of which will result in liquidation. Sears and Payless Shoesource — which sells cheap, trendy shoes at small-footprint stores primarily located in strip malls — are two of the most vulnerable retailers, with several apparel companies in danger as well.
Why is this happening, and why now?
Overstoring is a major factor. Many retailers are stuck in 15 to 20 year leases in undesirable locations, such as low-foot traffic malls. Even after J.C. Penney closes those 138 doors, 900 others will remain open. Abercrombie & Fitch still operates around 800 stores. Macy’s, 700. While e-commerce only accounted for 8.3 percent of overall retail sales in the US in the fourth quarter of 2016, according to the US Census Bureau, it has broken open the market, allowing consumers to shop in a way that doesn’t require major hauls at one or two stores. Amazon, after all, is the new general store, predicted to become America’s largest apparel retailer in 2017 by Cowen & Company.
Leveraged buyouts, or the act of purchasing a controlling share in a company by using outside capital, have also become a huge issue in the retail sector. Many retailers — including J.Crew and Neiman Marcus — are weighed down with debt and are therefore less attractive to other buyers who could inject more capital to modernise.
What’s more, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which brought several changes to the US Bankruptcy Code, has made it more difficult for retailers to file for bankruptcy protection, and forces them into liquidation instead. (In the past, companies would often “sit” in bankruptcy protection for two or three years, waiting for the market to pick up again and an attractive buyer to come along.)
All of this has resulted in a purging of the suburban American mall, which not only poses trouble for retailers in difficult-to-wiggle-out-of long-term leases, but also for real estate owners scrambling to transform these largescale developments into something else, whether a call centre or a mixed-use park that includes recreation, housing and offices. There will be a lot of unused retail spaces that need to be repurposed.
But this is a necessary death. The current footprint for many of these retailers is still too large. The market must “right-size” in order for things to turn around — and shift their focus to digital channels. The consumer already shifted theirs some time ago.
THE NEWS IN BRIEF
BUSINESS AND THE ECONOMY
LVMH acquires Maison Francis Kurkdjian. LVMH has bought a majority stake in the independent Parisian perfumer Maison Francis Kurkdjian. The announcement marks a rare acquisition for the French luxury conglomerate, which hasn’t acquired a beauty brand since Aqua di Parma in 2001. It follows a string of investments by Estée Lauder and L’Oréal in smaller, niche beauty and cosmetics brands and reflects consumers’ increasing interest in cult, fragrance-only brands, a market that is growing by 50 percent annually according to NPD.
Hermès profits rise by 10 percent. The French luxury goods maker saw profit rise 10 percent in 2016, supported by sales in Asia and an uptick in visitors to its European stores. The results come as several key players, including Kering and LVMH, have reported signs of improvement in the luxury market, after a period of weakening demand in China and a decline in European tourism.
Kering signs eyewear deal with Cartier. Kering Eyewear will develop, manufacture and distribute eyewear for Richemont-owned Cartier, its first external deal since it was set up in 2014 to take control over Kering brands’ eyewear. The announcement is the latest shift in the rapidly changing eyewear market, following LVMH’s joint venture with Italian eyewear manufacturer Marcolin, and Luxottica’s €50 billion merger with Essilor earlier this year.
De Beers ends retail venture with LVMH. The luxury jeweller has ended its partnership to run retail stores with LVMH by buying back the 50 percent stake acquired by the luxury conglomerate in 2001. The venture was part of De Beers’ effort to transform from a mining company into a consumer jewellery brand by opening free standing stores and introducing high-end jewellery collections. It struggled to establish a successful strategy, however, moving through several designers and CEOs. The news comes as diamond suppliers face difficulties from falling gem prices.
PVH beats profit forecasts. The owner of Calvin Klein and Tommy Hilfiger reported revenue of $2.11 billion for the fourth fiscal quarter, beating Wall Street estimates. The company was buoyed by momentum at both Calvin Klein, which is undergoing a creative overhaul following the appointment of Raf Simons, and Tommy Hilfiger, which recently implemented a high-profile “see now, buy now” strategy and saw revenue grow 3 percent for the period.
Nike misses sales estimates. The US sportswear maker saw revenue rise 5 percent to $8.43 billion for the third quarter of 2017, missing analysts’ estimates of $8.47 million. The results fuel concerns that the company is losing market share to competitors Adidas and Under Armour. Last year, Nike’s shares declined annually for the first time in eight years.
Li & Fung and PVH ink supply chain deal. The Chinese manufacturing giant, which is the world’s largest supplier of clothes to retailers, has formed a new strategic supply chain partnership with PVH, the owner of Tommy Hilfiger and Calvin Klein, to create “the supply chain of the future.” The deal, which replaces a previous agreement between the two companies, will focus on applying Li & Fung’s latest technology and knowledge to the PVH supply chain.
Burberry hires from Dior for design director. Burberry has appointed Sabrina Bonesi, previously an accessories specialist at Dior, for the newly created role of design director of leather goods and shoes. Bonesi joins during a period of change for the British luxury brand, as Marco Gobbetti prepares to take the reins as CEO from chief creative officer Christopher Bailey. The appointment follows the addition last month of Net-a-Porter co-founder Claudia Plant, who was named senior vice president of brand experience.
Anya Hindmarch appoints new CEO. The British accessories brand has named Francesco Giannaccari as CEO, succeeding Helen Wright. He will focus on the brand’s growth and international expansion. Previously, Giannaccari was general manager of Etro, and also held roles at Tom Ford, Abercrombie & Fitch, Gucci and Bottega Veneta.
Rent the Runway co-founder steps down. Jennifer Fleiss is departing the online rental company, as it makes preparations to go public. Fleiss, who launched Rent the Runway with Jennifer Hyman in 2009, had said she would step down when the company became profitable, something it achieved in 2016. CEO Hyman will continue to grow the company in anticipation of an eventual IPO, but said its profitability and regular cash flow from its subscription service meant “there’s no time pressure.”
More brands unveil smartwatches at Baselworld. Michael Kors, Montblanc and Tag Heuer are among the brands to have unveiled new smartwatches at the Swiss watch fair, as brands look to attract younger consumers during the Swiss watch industry’s longest-ever downturn. While smartwatches are a fast-growing category, they have consistently disappointed the industry’s expectations. An estimated 19.8 million smart timepieces were shipped in 2016, significantly less than the predicted 28.3 million.
Nordstrom partners with The Black Tux. The online tuxedo rental service is opening shop-in-shops at six Nordstrom stores across the US. The department store — which saw sales at physical stores decline by 6.4 percent in 2016 — will likely benefit from The Black Tux’s younger consumer and concierge-like experience, which promises to entice customers at a time when brick-and-mortar retailers are suffering from declining foot traffic.
Stitch Fix reportedly considers IPO. Executives at the online personal styling service have held talks with banks and will decide in the coming month whether to go public, according to reports. A spokesperson denied the company was meeting next month to plan an IPO. If Stitchfix were to go public, it would come during an increase in tech listings in the US in the past six months, most significantly Snapchat, which has a market value of more than $25 billion after going public at the beginning of March.
Instagram launches “tap to view” shopping tags. The Facebook-owned image platform has opened up its pilot programme of shoppable tags, which debuted in November, to thousands of US apparel, jewellery and beauty retailers. The feature will enable Instagram’s nearly 600 million monthly active users to click through from posts to e-commerce stores, something that brands have found notoriously difficult to encourage.
Flipkart reportedly raises $1 billion. India’s largest e-commerce company has raised $1 billion and plans to raise up to $1 billion more in the coming months, according to reports. The funding will help the company keep with rivals including Amazon as competition in the Indian online market heats up.
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