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The global fashion business journal

25 May 201906:09

The evolution of fashion’s retail giants in 2017

Mass market fashion players leave behind a turbulent fiscal year with several moves in the ranking of the major groups worldwide.

24 May 2018 — 10:00
Iria P. Gestal/ L. Molina
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The Fashion Map 2018: the mass market giants

 

 

Fashion’s mass market distribution leaves behind a difficult year with several movements in the chart. Giants continued to adjust their structures, brand portfolios and distribution networks, as well as fine-tuning their strategies to face a new scenario. While some players have fallen by the wayside, others have successfully managed to defend their position in the fashion business on a global scale.

 

Big fashion retailers’ top five remains unchanged, although Fast Retailing has moved further away from Gap and H&M. The Swedish group, for which fiscal 2017 was “disappointing”, kept the silver medal this year, although it lost strength. Primark was the leading character in 2017, climbing to the seventh position and beating PVH and C&A in spite of the negative impact of exchange rates. The Dutch group, however, lost positions as it faced global restructuring and reached the chart’s bottom, only above Bestseller.

 

 

Inditex, gold medal without any competitor in sight

“Five years later, we can say that Inditex is ready to face the future.” This was said by Pablo Isla, Inditex’s chairman, during the press conference to present results for fiscal 2017. The company has completed a transformation plan to adapt to the new retail scenario of the fashion industry and has revalidated its position as the largest fashion retailer in the world.

 

In 2012, the owner of Zara began a progressive strategy redefinition. In addition to restructuring its store network, the company rolled out Rfid technology in all its retail chains to support its integrated approach of physical and online stores. In total, Inditex has carried out 1,046 closures since 2012, some of which have involved new store openings.

 

In 2017, Inditex closed down 341 stores, the highest in the last five years, and opened another 524 locations. At the end of the year, the company operated with 7,475 stores in 93 countries around the world. In parallel, the online business continued to gain momentum and, for the first time in its history, the company unveiled in 2017 the share of ecommerce, a distribution channel that generated 2,534 million euros last year, around 10% of total revenues.

 

 

 

 

The margin decline is another of the year highlights at Inditex. Since 2011, the group has reduced its gross margin year-on-year and in 2017 it stood at 56.3%, compared to 87% in 2016. Inditex blamed currency headwinds for the fall, although analysts insist on the impact of the online business increase.

 

Sustainability remains as a priority of the group’s strategy, with initiatives to close the loop in fashion and new materials’ research. Last year, Inditex appointed Carlos Crespo new managing director for operations.

 

 

H&M, a year to forget in full as transformation is in full-swing

H&M is one of the victims of the major shift in the fashion industry. Although it remains the second largest fashion group in the world by turnover, the company admitted in 2018 that it’s going through a bad period as “the fashion industry is changing fast as digitalisation is driving the need to transform and rethink faster and faster,” as Karl-Johan Persson, the group's CEO, said after the presentation of fiscal 2017 results.

 

The company suffered in 2017 the consequences of its business model transformation. The group ended the year with a sales growth of only 4% and a decrease of 13% in its net income. Product, technology and distribution channels are the key areas that the group is prioritizing, betting on the launch of new retail chains such as Arket, the introduction of analytical technology and the redefinition of its store network.

 

H&M has launched an “optimization” plan for its store network to adapt to the impact of digitalisation. In 2017, the company opened 479 new stores and closed 91. In parallel, the group is boosting its online presence, both through own platforms and third-party websites, such as Tmall.

 

 

 

 

As Inditex did, the Swedish juggernaut has revealed how much revenues come from the online channel. Ecommerce sales amounted to SEK 29 billion in 2017 (€ 3.89 billion), representing 13% of total turnover and a 22% profit share. H&M expects that online revenues reach at least 25% of overall sales in 2018.

 

Last fiscal year results have unleashed critics from some investors on the adequacy of Karl-Johan Persson as CEO. The group’s chairman, Stefan Persson, came out to defend his son and the entire management. “It’s not serious” to ask for resignations when the company continues to grow around the world, said Stefan Persson, who has reaffirmed his commitment to H&M in 2018 and has once again raised its ownership in the company’s capital.

 

 

Fast Retailing, fashion’s bronze medal (still far from Inditex)

Fast Retailing has stopped mentioning its goal of becoming the world’s largest fashion retailer in 2020, but it is clinging to the bronze medal. Uniqlo’s owner has enlarged its distance with Gap, after exceeding the US retailer revenues two years ago thanks to exchange rates, and has consolidates itself in the third ranking place.

 

Last year, the company intensified once again its efforts in international expansion, especially with Uniqlo, which accounts for 81% of total turnover. Overseas sales of this chain almost doubled in 2017, while losses in the United States were reduced and Europe remained profitable. The company expects that Uniqlo’s international turnover will surpass that of Japan for the first time in history in fiscal 2018.

 

 

 

 

Like its international rivals, Fast Retailing has also digitization at the core of its strategy. Last year, the company launched the Ariake Project, with the aim of becoming a “retail company for the digital consumer,” according to chief executive officer Tadashi Yanai. The project mainly impacts indoors, with initiatives ranging from changes in corporate processes to the creation of a new framework to improve transparency between headquarters, regional offices and stores.

 

Throughout the process, Fast Retailing faces too what is expected to be the last fiscal year without Tadashi Yanai. Although the executive said initially that he would leave his post as chairman in 2019, shortly after stressed that “has no plans to retire”, avoiding specifying the date of his departure.

 

 

Gap, in eternal restructuring with Old Navy at the helm

Gap, Inc. continues going through a never-ending restructuring process. During last fiscal year, the group kept shrinking its store network and simplifying its corporate structure to reduce costs. Financial performance in 2017 was relatively good, as the company increased its profit for the first time since 2014, but there is a trick: net income was benefited by the extraordinary reimbursement for the fire in one of its warehouses the previous year. Group sales grew only by 2.2%.

 

The company has also shifted its strategy and has decided to focus its efforts on what is already its top chain by revenues: Old Navy. In this context, the group announced at the end of 2017 the closing of 200 stores of Gap and Banana Republic within the next three years, as well as the opening of 270 new shops with Old Navy and Athleta.

 

The goal is that Old Navy exceeds 10,000 million dollars in three years and Athleta, specialized in sportswear, capitalizes on the athleisure boom and beat the barrier of one billion dollars in the same period.

 

 

 

 

A proof of this priorities’ shift is that, while the Gap chain used to appear first in the group’s fiscal results, the US company began Old Navy the release of 2017.

 

“We are positioning the company for long term growth,” said Terri List-Stoll, executive vice president and chief financial officer at Gap. In the context of this reorganization, the company also decided last March to put an end to Weddington Way, the start-up dedicated to online retailing of wedding and party dresses, which was purchased in 2016.

 

 

L Brands, the fifth, but penalized by the ‘angel wings’

The owner of Victoria’s Secret clings to the top 5 despite failing to raise its net income. The group ended fiscal 2017 with a 15% drop in profits, to 983 million dollars (804.7 million euros). However, earnings per share were above analysts’ estimates, which allowed the stock to gain momentum again after falling to six-year lows in August, coinciding with the half-year results’ presentation.

 

Victoria's Secret hurt again L Brand’s evolution. The lingerie brand, which still accounts for slightly less than half of sales, shrunk its turnover by 8%. During the year, the chain continued to reorganize its store network with 22 closures and fifteen openings in North America. Besides, the company decided to discontinue its swimwear and clothing line, which had an impact of five percentage points on the evolution of like-for-like sales.

 

 

 

 

Most US analysts stressed that, even though the evolution had been better than expected, the company is losing ground against pure players and other very strong speciality retailers in the United States, such as Aerie, owned by American Eagle Outfitters.

In contrast, L Brands continues to reap positive results with Bath&Body Works, its cosmetics line, which increased its like-for-like sales by 5% in the last year.

 

 

VF Corporation, a discrete year to grown again

VF Corporation wrapped a year of discreet sales. After insisting, during the presentation of 2016 results, that M&A continued to be its top priority, the group has ended fiscal 2017 without any of the purchases demanded by analysts.

 

The group has focused on adjusting its portfolio, with the sale of Nautica’s business to Authentic Brands (an operation that was closed after the end of last fiscal year), while also boosting its most important brands such as Vans, Wrangler and Timberland.

 

The company did complete a purchase, albeit a very discreet one: VF acquired the Williamson-Dickie workwear company, which represented its largest acquisition since Timberland’s purchase in 2011. Some analysts pointed out during the year that Puma, Lululemon or even Abercrombie&Fitch could be good candidates for VF, although none of those operations was carried out.

 

 

 

 

Last year, the group put an end to three years of falling sales and ended fiscal 2017 with a revenue growth of 7%. Excluding the acquisition of Williamson-Dickie, the company’s turnover increased by 5%.

 

VF also communicated a new growth strategy based on boosting its direct-to-consumer business, online sales and increasing direct investments in Asia, particularly in China.

 

 

Primark, climbing in the ranking without ecommerce at sight

Primark continues to advance to higher positions in the ranking supported by its low-cost offering, although along the way the margin suffers. The company, which still doesn’t have plans to launch an ecommerce platform, challenged the bad evolution of its British compatriots last year and once again raised both turnover and profit.

 

The company continued supporting its growth in store openings, with thirty new shops in 2017 that added 1.5 million square meters to the company’s overall retail space.

 

The fashion chain, owned by AB Foods, opted once again to avoid passing on to the consumer the impact of the costs’ increase due to the weakness of the British pound against the dollar, which undermined the company’s gross margin to 10.4%, compared to 11.6% the previous year.

 

 

 

 

Besides, Primark continued its strategy shift in the United States, betting on smaller stores, while in Europe it kept the focus on large points of sale. During last year, the company expanded its flagship store in Boston but reduced that of three of its existing stores in the country to “improve efficiency and adapt to the different needs of the American consumer.” The group also closed its first fiscal year operating in the Italian market, which evolved “better than expected”.

 

 

PVH Corporation, another year to rejuvenate Calvin Klein

Putting Calvin Klein and Tommy Hilfiger back in young consumers’ top of mind. That’s the goal of PVH, which wants to avoid that its two star brands follow the same path as other American icons such as Ralph Lauren, with brand awareness and financial performance going downwards.

 

After hiring Raf Simons as creative director of Calvin Klein, the brand renewed its identity and launched new campaigns featuring young icons such as Justin Bieber or the Kardashian family. On a global scale, sales seem to accompany the brand in its new stage, with revenues up 10% in 2017, although in North America like-for-like sales continued to decline.

 

Tommy Hilfiger ended its first full year after taking over its Chinese business with a turnover increase of 11% and a raise in like-for-like sales of 8% outside North America and 3% in its domestic market. Besides, the company changed the name of its denim line to Tommy Jeans with the aim of boosting sales of this double-digit division until 2020.

 

 

 

 

The company, as highlighted by its CEO in the presentation of results, continues investing in the “areas that suffer the greatest impact of changing dynamics in the industry: the growth of digital, the importance of having a responsible value chain and commitment to seduce the consumer.”

 

PVH also continued to sign agreements with strategic partners: it granted Pearless the Tommy Hilfiger men’s fashion license and entrusted Delta Galil with the manufacture and distribution for its intimate children's fashion line in the United States.

 

 

C&A, closures and dismissals for a possible sale

A year of changes for one of the most opaque juggernauts in the mass market ranking. European group C&A, which is stilled owned by founding family, ended a difficult year marked by the restructuring of its store network and the shake-up of its managing team in Europe, culminating, at the beginning of 2018, with a possible sale to a group of Chinese investors.

 

The company began 2017 with the announcement of 23 closures and 300 layoffs in Spain, one of its key European markets. The adjustment supposed the closing of one of every five points of sale in the country, in which it’s been operating for 35 years.

 

Almost simultaneously, the restructuring initiatives also bloomed in Germany and Belgium, where it cut 160 and sixty jobs, respectively. C&A explained that the decision was made in order to gain efficiency and reduce the cost structure. In other markets, such as France, C&A also adjusted its commercial network, with the closure of thirteen stores.

 

 

 

 

Besides the mentioned restructuring, which involved as well the rollout of a new store concept and an augmented investment in the online business, C&A reorganized its top management in Europe following the departure of its managing director, chief financial officer and operations director for the region.

 

For the first time in its history, the group turned to an external executive, Alain Caparros, to pilot the European market, which had always been run by a Brenninkmeijer.

 

Once the store network is cleaned up and costs are reduced with an adjustment plan and layoffs, the company is now in negotiations with a group of investors from China, either to get rid of 100% of its business or to reach an agreement to promote the company’s retail expansion in the Asian country.

 

 

Bestseller, new structure to keep growing

Bestseller wraps a convulsed year. While its owner, Anders Holch Povlsen, continued a growth strategy based on acquisitions such as the ones of broker Numis or the Jenners department store chain, the Danish group followed in the footsteps of its international rivals with relays, portfolio reorganization and structure changes.

 

The company has been part of Heartland since last year, a new holding created by Povlsen to separate its investments so that “Bestseller can maintain its focus on its core business”. This way, the group became part of Bestseller United, a division of the holding that brings together all the investments in fashion of the Nordic tycoon.

 

In addition, the group also experienced several internal changes. The company decided to simplify the structure of Jack&Jones, one of its biggest brands, and to unify all its management in a single team, which meant seventy layoffs.

 

In parallel, Bestseller continued betting on in-house development to address new segments: it broadened its offer with childrenswear for the Only brand, launched a new premium label, Postyr, and made Noisy May independent to capture the millennial consumer.

 

The company also carried out changes in its management team, with the addition of a new financial director and a new managing director for Vero Moda, as well as the rise of Andrés Contreras as new responsible for the entire North American market.

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