Can Fashion Salvage Christmas Sales? | The Week Ahead, BoF Professional

THE CHEAT SHEET

Can Fashion Save Christmas?

Christmas shopping in Milan, Italy | Source: Getty

Christmas shopping in Milan, Italy | Source: Getty

  • Many European countries are cautiously emerging from lockdowns, allowing retailers to reopen as they head into the crucial Christmas shopping season.

  • Covid-19 cases are surging in the US, raising fresh concerns about the economy and the prospect of new restrictions.

  • E-commerce sales jumped over Black Friday weekend, but traffic at stores — where they were allowed to open — was light.

This Christmas is set to be a shopping season like no other. After a year of slumping sales, festive purchases are even more important, and less certain, than ever. On the plus side, forced store closures across much of Europe are set to ease heading into December. Most retailers will be able to reopen, though unlike in the summer there will be no full relaxation of restrictions.

There are signs consumers are in the mood to shop, too. In the US, the National Retail Federation optimistically forecast sales will grow between 3.6 percent and 5.2 percent in November and December compared to 2019. Online sales on Black Friday are set to hit a record this year, according to Adobe Analytics, though whether that will be sufficient to offset a downturn in in-person spending remains to be seen.

The outlook in the country is darkening as coronavirus cases mount at an alarming pace. Even if shops stay open, it’s unclear if consumers will feel confident going to them. Retailers have been grappling with how to persuade shoppers to spend as much online as they would in store for months, with many kicking off Black Friday sales early in the hopes of extending the traditional festive shopping frenzy. Most are doubling down on e-commerce and offering flexible delivery options like curb-side pickups or rewards for consumers who buy early to avoid the Christmas logistics crunch.

The Bottom Line: The next few weeks are make or break for many retailers. Few can afford to enter January with large amounts of unsold inventory, and a weak Christmas shopping season could mean many don’t make it through 2021.

The Fashion Calendar Rolls On

Nadja Swarovski, Dame Natalie Massenet and Caroline Rush at the 2016 Fashion Awards in London. Courtesy.

Nadja Swarovski, Dame Natalie Massenet and Caroline Rush at the 2016 Fashion Awards in London. Courtesy.

  • Chanel’s Métiers d’Art presentation will go ahead on Dec. 1 at a lavish chateau in the Loire Valley, but the brand’s clients will have to settle for watching when it’s broadcast online.

  • The Fashion Awards will also take place on Dec. 3, with a short film announcing this year’s 20 honourees instead of the usual gala dinner.

  • Balenciaga will present its Fall 2021 collection via a video game slated for release on Dec. 6.

Despite the pandemic, the fashion industry is pressing ahead with its December schedule, at a social distance, of course. Chanel’s Métiers d’Art show, designed to showcase the skill of the brand’s specialist ateliers, has in the past been a large-scale marketing event, with attendees jet-setting to locations like New York and Tokyo. This year, Chanel will

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Black Friday and Fashion’s Cloudy Holiday Outlook | BoF Professional, The Week Ahead

THE CHEAT SHEET

What’s the Deal With Black Friday This Year?

Holding the right kind of sales can also boost profits and get shoppers excited. Shutterstock

Holding the right kind of sales can also boost profits and get shoppers excited. Shutterstock

  • Nearly 190 million Americans shopped over the five days spanning Thanksgiving through Cyber Monday in 2019, according to the National Retail Federation

  • This year the NRF and others are predicting lower spending, with the pandemic complicating forecasts

  • Some brands are hoping to break the cycle of discounting by avoiding steep markdowns this year

Will the pandemic spoil retailers’ holidays? With the all-important Black Friday sales event less than a week away, industry experts still aren’t sure. Normally, predicting retail sales is a matter of tracking the right economic indicators, and drilling down on consumer trends. But with the shift to online shopping during the pandemic and the uncertain economic outlook in many countries, nobody’s quite certain what consumers are going to do. Quartz notes that sales forecasts range from a small contraction to an increase nearly on par with the last few years.

There are high stakes for retailers to get it right. Demand forecasting, a tricky science even in normal times, is used to determine which products to buy, in what quantities and where to store them. After a dismal 2020, few brands can afford to be left with mountains of unsold inventory in January, or to miss out on sales due to shortages. The worst off need strong holiday sales if they’re to survive into 2021 at all.

The Bottom Line: The wisdom of Black Friday discounting is also coming under fresh scrutiny in a year that’s already seen wave after wave of sales due to the pandemic’s disruptions. When the average markdowns in May 2020 were on par with Thanksgiving week in 2019, consumers may have a higher threshold for doorbusters this week.

Brands Look Beyond the Mall

American Eagle store. Shutterstock.

American Eagle store. Shutterstock.

  • Gap, Abercrombie & Fitch and American Eagle Outfitters are among the retailers reporting results this week

  • Gap recently outlined am ambitious turnaround plan, including closing stores and selling fewer and more on-trend items

  • Abercrombie and American Eagle have fared relatively well, thanks to strong digital sales and, for American Eagle, continued growth in its Aerie intimates brand

Few retailers are more closely associated with the American mall than Gap, Abercrombie and American Eagle. All three brands have spent much of 2020 imagining a future outside it. Abercrombie and American Eagle have reported surprisingly robust online sales, indicating their teen customers like their brands enough to seek them out even when stores were closed (American Eagle can also lean on its still-hot Aerie intimates brand). Gap had no such reservoir of goodwill to draw on when the pandemic hit. The brand is embarking on a shakeup that will close hundreds of Gap and Banana Republic stores, envisioning 80 percent of locations will be outside malls in 2023. Abercrombie and American Eagle are also paring back their store networks, though not as aggressively.

The Bottom Line: Closing underperforming stores may

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Can Fashion Finally Crack the ‘Last Mile’? | Intelligence, BoF Professional

LONDON, United Kingdom — For years, the “last mile” of the delivery process has been a pain point for fashion retailers who often struggle with the final link in the logistics chain needed to transport parcels from warehouses to customers’ front doors.

“You’re taking the part of the value chain that consumers used to absorb, which is getting in their car and driving somewhere and getting it off the shelf, and you’re transferring it to the retailer,” said Sucharita Kodali, principal analyst and e-commerce expert at Forrester. “The retailer has to absorb that expense or ask the customer to pay for it. That’s the reason last mile is something you have to consider very carefully.”

Not only does the last mile account for almost 50 percent of the total cost of delivery in terms of time and labour, it is also disproportionately costly in terms of its environmental impact. Adding to the pressure felt by retailers and their logistics providers to improve this leg of the journey are the growing expectations that consumers now have for next day delivery — or even speedier options — that they are less willing to pay for.

The stakes have only gotten higher as e-commerce became the only available shopping channel in the wake of Covid-19 lockdowns across the world. Global online sales were up 71 percent year-on-year during the second quarter, Salesforce data revealed. Now, with the holiday season right around the corner, logistics providers are feeling the heat.

Demand is not going to let up and this is going to be a very very challenging fourth quarter.

“This has been the year of all years when it comes to fashion and e-commerce,” said Brian Bourke, chief growth officer of Seko Logistics. “[Demand is] not going to let up and this is going to be a very very challenging fourth quarter. Whether it’s the US or Europe, there’s just not enough capacity.”

For retailers who have been investing long term in the streamlining of their last mile process, it has begun to pay off. Others are now having to play catch up or find creative ways of delivering merchandise to their growing consumer base.

As a new wave of lockdowns begin to bite across Europe and other markets, retailers ahead of the last mile curve will not only be well positioned to make the most of the current e-commerce boom, they’ll be primed to retain customers and adapt their operations for the long term as experts anticipate that many of the online shopping habits people picked up in 2020 will stick.

Going In-House

When Global Fashion Group (GFG) began looking for logistics partners for its e-commerce platforms in emerging markets and regions like Russia, Latin America and Southeast Asia years ago, CEO Christoph Barchewitz wasn’t spoilt for choice. In most places, there wasn’t a frontrunner when it came to last mile or returns, Barchewitz said. Instead, he set up operations locally and built those systems in-house.

Inside a Zalora warehouse | Source: Global

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Why Fashion’s Most Vulnerable Companies Have the Most to Gain From a Vaccine | News & Analysis, BoF Professional

NEW YORK, United States — Shares of long-suffering fashion and retail stocks soared on Monday, after Pfizer’s announcement that its coronavirus vaccine had proved 90 percent effective raised the prospect of a quicker-than-expected end to the pandemic.

The S&P 500 index hit near-record highs, jumping nearly 1.2 percent Monday. Among the biggest winners were some of America’s hardest-hit businesses: Nordstrom, Macy’s and other department stores saw gains of 15 percent or more. Shares of Ulta Beauty, which has struggled with sagging demand for makeup in the age of face masks and Zoom calls, were also up 15 percent. Ralph Lauren and other brands specialising in office wear and fashion, saw big swings higher as well.

These retailers and others in the fashion and beauty space saw their sales eviscerated when lockdowns forced them to close their stores this spring. Customers haven’t returned in the same numbers since those restrictions were lifted, and a second wave of Covid-19 cases is likely to weigh on consumer spending. Many were bracing for another year or more of depressed sales and intermittent closures.

Pfizer’s announcement potentially changes that grim timetable. The pharmaceutical giant said it could have 50 million doses, enough for 25 million people by the end of the year, and 1.3 billion doses next year.

Until now, “[fashion] stocks haven’t recovered as much as a lot of other sectors, like tech or at-home retail,” said Susan Anderson, an analyst at B. Riley FBR. “Now we’re seeing the whole sector up because they were just so impacted by the shutdown.”

Retailers that are more fashion-oriented saw the greatest hikes on Monday because a vaccine signals an end to the work-from-home way of dressing, according to Anderson. “This means consumers are going to get back to more fashion apparel for when they go out, or work apparel,” she said.

The industry’s stock recovery should be nonetheless met with a grain of salt, experts warn: Even with a vaccine, shoppers are unlikely to return to their old habits overnight — or perhaps ever. E-commerce will continue to grow its share of total sales, and retailers that haven’t found their customers online could continue to struggle in the post-pandemic world.

Monday’s rally came on the heels of Joe Biden’s victory in the presidential election last week, ending weeks of uncertainty that plagued the stock market. The president-elect has already outlined his plan of action for when he takes office in two months, including a 13-member Coronavirus task force. Analysts predict that Biden is likely to roll back Trump-era tariffs on foreign goods, potentially including clothing made in China.

Election clarity is a positive, vaccine clarity is a game changer.

Still, it’s the promise of a vaccine that’s ultimately driving the recovery in retail stocks Monday. Uncertainty – whether about the pandemic, the economy, the election or all three – makes consumers less confident about their future income, and therefore less willing to buy non-essential items like clothes. The events of the last week should improve

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Biden Just Won a Narrow Victory. Is Washington Gridlock Good for Fashion? | BoF Professional, The Week Ahead

THE CHEAT SHEET

At Last, Some Closure in US Politics

President Donald Trump was defeated in the Nov. 3 election | Source: Tomohiro Ohsumi/Getty Images

  • Joe Biden was declared the victor in the US presidential election on Saturday
  • Two runoff elections in Georgia in January will determine control of the US Senate
  • Fashion and retail stocks have soared this week

It took a few days longer than expected, but come January 20, Joe Biden will be president. Before the election, the fashion industry had mixed feelings about the former vice president, who promised to be a more-stable steward of the world’s largest economy than President Donald Trump, but was also inclined toward tax hikes and costly environmental and labour regulations. On balance, most executives would probably accept much of Biden’s platform in exchange for competent management of the pandemic and an end to the surprise tariffs and TikTok bans that came to define the Trump administration.

Brands will almost certainly welcome an end to the Trump administration’s endless provocations on race, sexuality and other issues; over the last four years, they were often put in the awkward position of speaking out on behalf of their young, diverse customers while risking retaliation by Republicans in Washington. In a deeply divided country, the culture wars are certainly not over, but brands may play a different role with Biden in charge. 

The surge in US stocks as the results trickled in last week point to a different calculus, however. Investors are clearly betting on a divided Washington, with Democrats controlling the presidency and US House, and Republicans the Senate (Democrats can still win a trifecta by taking two Georgia seats in a runoff on January 5). The GOP would almost certainly block any major Biden initiatives, leaving many aspects of the business-friendly status quo in place. Less clear is whether Republicans would also block future stimulus packages that might become necessary if the pandemic carries over deep into 2021. Biden can also use executive orders and other tactics to go around an obstinate legislature. For example, he has already said he will reenter the Paris Climate Agreement soon after taking office.  

The Bottom Line: Many struggling retailers have more immediate concerns, namely the upcoming holiday shopping season. A resolution to the election will help by potentially boosting consumer confidence.

The Resale Market Is Getting Real Crowded

Inside The RealReal store in San Francisco in March | Source: Getty

  • The RealReal reports third-quarter results on Nov. 7
  • The luxury resale platform has struggled to stock enough inventory during the pandemic, but demand is strong
  • Poshmark and ThredUp, two rival resale sites, are planning IPOs

It’s a busy time in the resale category. After some initial logistics and inventory snafus, the pandemic has proved to be a boon for secondhand sales, with consumers eager to rethink their closets and score deals in a tough economy. The RealReal is benefitting from these trends, but so are its many rivals. Indeed, every corner of the fashion world,

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The Fashion Billionaires Who Got Even Richer in the Year of the Pandemic | BoF Professional, China Decoded

SHANGHAI, China — “I am a stupid person,” Ma Jianrong once told state broadcaster CCTV in typically humble style. “All I do is make cotton thread into clothing [but] I believe that if you do one thing, stick to your main business, and remember your original intention, you will be able to do [that one thing] well.”

It was self-effacing but sage advice from one of China’s old-school fashion billionares. As founder of Shenzhou International Group Holdings, Ma hails from a generation who never expected to get rich quick, but he did eventually become very rich indeed. This year, according to the latest Hurun China Rich List, the self-made man saw his family fortune rise 17 percent, to around $10.3 billion thanks to a life spent wheeling and dealing from the factory floor.

Back in 1978, when Deng Xiaoping was opening up China to the global economy, Ma was just a 13-year-old boy who had just been apprenticed to a local textiles factory where his father worked. A decade or so later, amidst a wave of privatisations across the nation, the father and son duo managed to assume control of a struggling and under-funded state-owned plant. As many of their competitors diversified their operations, the pair decided it would be best to stick with what they knew.

There are many ways to make money in the fashion business.

Though many had their doubts at the time, it was a decision that was to reward Ma handsomely as his firm began compiling an impressive roster of international brand clients including Uniqlo, Nike, Adidas, Puma and others that were just starting to offshore production to China. More recently, as the country became less reliant on being the factory of the world for its economic success, Ma Jianrong invested in the next phase of offshoring — from China to lower cost operations around Southeast Asia.

There are many ways to make money in the fashion business. Some, like Ma, make clothing while others produce the raw materials that are later made into clothing. Then there are those who build fashion brands, and those who own the shopping malls or e-commerce platforms through which those brands pay rent, commission or fees of some kind to sell their wares.

But if you were asked to conjure an image of a modern Chinese billionaire, chances are you would soon bring to mind a titan of the country’s tech scene as charismatic entrepreneurs tend to dominate the headlines—and they too have fashion to thank for part of their fortunes.

Tech Moguls Keep Top Spots

Unsurprisingly, it’s good to be a technology entrepreneur in China in the year of the pandemic and, once again, the two Mr. Mas — Jack Ma of Alibaba and Pony Ma of Tencent — are duking it out for the number one and number two spot of the 2020 edition of the Hurun China Rich List, riding a wave of digital acceleration to a significant boost in their respective wealth.

This year has

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With the US Election Still Undecided, What Happens to the Fashion Industry? | News & Analysis, BoF Professional

As the eastern seaboard of the United States enters the early hours of the morning, the 2020 United States presidential race — which many have argued is the most consequential election in generations — remains undecided.

Both President Donald Trump and his challenger, former Vice President Joe Biden, appeared to have secured electoral votes in key states, but neither could claim a clear path to victory. Officials in Pennsylvania, Wisconsin and Michigan, where many experts say the election is to ultimately be decided, warned the vote count would stretch into Wednesday and potentially beyond.

Arizona appeared likely to flip to Biden, a significant win for his campaign. However, without calls from the trio of Midwestern states, there’s no way to know the winner tonight. Also unknown is what party will control the Senate, which will determine what legislation a Biden or Trump administration is able to pass come January.

No matter what happens, the fashion industry has several key issues it must address in the coming weeks, months and years that will in some cases be made easier, or harder, depending on who is inaugurated on January 20, 2021.

Some in the private sector, including the fashion industry, are keen to see Trump exit. His protectionist take on trade, with increased tariffs on everything from wine to handbags, has made it harder and more expensive to sell products in the US. In a series of snap polls conducted in September 2020 by Yale School of Management Professor Jeffrey Sonnenfeld at a virtual conference, 77 percent of business leaders said that they would vote for Joe Biden, with 55 percent of attendees giving Trump an F for his performance over the last four years.

“[Over the past four years], meetings in Europe would start out with, ‘What is going on with the President?’” said retail advisor Robert Burke. “That reflects on the erratic nature of this office.”

However, others view a second Trump term as potentially good for business. Many of his policies, including a hands-off approach to environmental regulation and a round of tax cuts early in his first term, have benefitted the wealthiest and largest corporations. US stock futures soared Tuesday evening as the prospect of a Trump victory appeared to grow.

Still, for many fashion brands, the biggest threat is a further breakdown between the US and China, which sent $451.7 billion worth of goods to the US in 2019. Both Trump and Biden have promised a hard line on China, but “with Trump, it won’t be favourable on the trade side,” said Neil Saunders, managing director of GlobalData Retail.

While Biden would be likely to increase personal and corporate taxes, more favourable global trade relationships are better for corporations, including multinational ones that own many of fashion’s leading brands, because it will keep the cost of goods down.

“Dollar for dollar, investors prefer a lower cost of goods more than a lower tax,” said Simeon Siegel, managing director of BMO Capital Markets.

But the trade war will

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Is This the End of Fashion’s Creative ‘Mafia’? | Intelligence, BoF Professional

LONDON, United Kingdom — Just 18 photographers have shot the cover of American Vogue in the last ten years. It’s a number that’s doubled in the last three years. But for most of the last decade, the cover of fashion’s most prestigious magazine was the exclusive domain of nine: eight lensmen and Annie Leibovitz.

For years, fashion’s highest-paid and highest-profile creative jobs have gone to the same elite group of photographers, stylists and hair and makeup artists. But Covid-19 is accelerating change. According to LVMH board member Antoine Arnault, the coming year is set to bring a restructuring that could spell the end of fashion’s creative “mafia.”

“When you open a magazine you see it’s always the same three photographers, always the same hair and makeup. I think that’s going to end with this pandemic,” Arnault told The New York Times fashion director and chief fashion critic Vanessa Friedman in September. “[It’s] about getting out of this mafia of always hiring the same people.”

To be sure, the old guard has created some of fashion’s most iconic images and remains relevant and influential, but there’s no denying change is in the air.

The impetus is partly financial: global fashion houses have cut their marketing budgets by between 30 percent and 80 percent in response to the pandemic, according to digital-marketing agency Digital Luxury Group, stripping many fashion glossies of their key source of revenue and reducing budget for big-name creatives and far-flung locations.

[It’s] about getting out of this mafia of always hiring the same people.

But media and consumer habits are changing, too, driving demand for more content at a lower cost, and a new generation of talent au fait with ever-evolving social media platforms. On top of this, a reignited social movement for racial justice and inclusivity is also putting pressure on brands and editors to work with a more diverse range of talent.

“I definitely feel positive change is happening,” said photographer Luis Alberto Rodriguez. “If the fashion industry is invested in keeping relevance, the mean girls ‘you can’t sit with us’ attitude [that privileges an elite group of primarily white people] needs to be checked at the door.”

An Insular Industry

Laila Zakaria for Neu Neu magazine | Source: Courtesy

In a fashion world built on selling the perception of exclusivity, where cool is often the product of the “right” people saying so, insularity and nepotism are often the cultural norm. What’s more, time-pressured fashion publishers have long relied on a word-of-mouth commissioning process when planning creative productions, meaning they often looked no further than a handful of creative friends to get the job done.

“It is a system of patronage,” said makeup artist Laila Zakaria. “You reward your friends, your lovers, people from the same background as you — that kind of stuff comes before talent.”

To get a toe-hold, young creatives often have to work for free or, in some cases, invest thousands of dollars into their portfolios in the hope of securing

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What a ‘K-Shaped Recovery’ Means for Luxury Fashion | BoF Professional, The Week Ahead

THE CHEAT SHEET

The Rich Get Richer

A Gucci employee measures the temperature of a customer at a store entrance | Source: Getty Images

  • Kering and Moncler report quarterly results on Oct. 22
  • LVMH reported an unexpected increase in fashion and leather goods sales in the third quarter 
  • For some luxury brands, a strong rebound in China is making up for stalled recoveries in the West

In the first presidential debate, the American republic received a quick economics lesson from Joe Biden, who described the US recovery as “K-shaped,” a pattern where the divide between rich and poor widens to reflect the shape of the letter. He meant it as a pejorative, but for luxury brands, it’s a reason to celebrate. While millions of people the world over are newly unemployed and struggling to cover basic expenses, the wealthy have seen little change to their income, and have plenty of money to burn after avoiding restaurants and travel for months.

All that said, it was likely a surge in luxury spending in China, rather than a smaller uptick in US sales, that paved the way for LVMH’s surprise increase in fashion and leather goods revenue. There too, the recovery has looked different depending on one’s pre-Covid economic status. As life returned to normal in China over the summer, well-off consumers flocked first to big, well-known brands like Louis Vuitton and Dior. 

The Bottom Line: LVMH has the scale and global clout to consolidate their market position during the crisis. Some of the brands reporting next week, including Kering’s Gucci is among a handful of others that can likely do the same. Less clear is whether smaller luxury brands will be as successful at shielding themselves from Covid-19’s economic fallout. 

Brexit Is Back

A Brexit protest | Photo: Justin Tallis/Getty Images

  • An Oct. 15 deadline passed with no trade agreement between the UK and EU
  • The EU has warned a no-deal “hard Brexit” is coming on Jan. 1
  • UK brands and suppliers could face labour and materials shortages, among other consequences

One of last year’s biggest headaches is back. Between the pandemic, the economic downturn and the US presidential election, the fashion industry can be forgiven for forgetting about Brexit. But with the UK set to crash out of the EU on Jan. 1, it’s time to start gaming out scenarios and checking supply chains for potential post-Brexit snarls again. 

As a reminder, Brexit’s impact on fashion is hard to predict, but appears likely to include disruptions to the labour market and the movement of raw materials as well as finished apparel and accessories into and out of the UK. How severe these consequences prove to be depends both on the outcome of negotiations in Brussels and how individual brands have prepared themselves. 

The Bottom Line:  All that said, it’s premature to take the latest round of threats and recriminations at face value. From the outset, progress toward an orderly exit from the EU has come only under intense deadline pressure.

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