Christo Wiese takes on China

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BERLIN/HONG KONG, Oct 21 (Reuters) This story was prepared by  Emma Thomasson and Donny Kwok for Reuters

– As Europe’s fashion giants brace for what could be the toughest leg of their expansion in China, a South African retail tycoon has launched a bold assault on the world’s most populous nation.

Christo Wiese is promising to open 500 of his New Look stores in just three years, catapulting the British brand into the same league in China as the world’s top fashion chains – Spain’s Inditex and Sweden’s H&M.

His plan is to make most of the clothes in China to ensure they cater to local tastes and can get to stores quickly – a strategy similar to the one successfully pursued in Europe by Zara-owner Inditex.

The arrival of New Look – and its local sourcing strategy – poses a new risk for the likes of H&M and Inditex, already suffering from slower growth in China, fierce competition for real estate and the cost of investing in ecommerce.

H&M is opening more stores in China this year than anywhere else in the world and the country is already the second biggest market for Inditex outside Spain.

China is a big draw for retailers who hope to tap the aspirations of a fast-growing middle class, with mid-range names benefiting as consumers trade down from luxury brands since Beijing’s clampdown on corruption and conspicuous spending.

But recent history offers plenty of examples of failure. Western brands that have struggled in China include Gap Inc , Abercrombie & Fitch and Marks and Spencer , which decided last year to close five stores in smaller cities to focus on flagship stores in large cities and online.

“Most of the Western fashion labels that are mid-range fail in China. A large part of it is that the styles and the fit are so completely different,” said Shaun Rein, founder of market intelligence firm China Market Research.

LOCAL TASTES, LOCAL SOURCING

New Look, a chain founded in 1969 and bought last year by Wiese’s investment vehicle Brait SE, does not want to make the same mistake. It now runs 94 stores in China, out of a global total of 852, and hopes to have up to 150 by next March.

“I will definitely give it a try if it is a foreign brand and as long as I like it,” said Chen Jie, a 32-year-old businessman from Shenzhen who was carrying an H&M bag in a shopping district in Hong Kong. “Price is not an issue but the design and quality must be good.”

While New Look is cashing in on the popularity in China of British style – it is adding the “London” tag to its logo for its Chinese stores and website – it is also catering for local tastes.

Sven Gaede, managing director of New Look’s international business, says the firm has an advantage over many European rivals as 85 percent of what it sells in China is sourced locally and more than a third is designed exclusively for China.

That has allowed New Look to tap into the current popularity in Asia of culottes – flared, three-quarter length trousers. Gaede said they account for 12 percent of the firm’s sales in China, though they are not popular in its European markets.

“South Korea and Japan drive a lot of the trends that the Chinese customer seeks, so our ability to be able to identify those trends, source them locally and get them into our stores quickly is key,” said Gaede.

That helps explain the success of the Uniqlo chain of Japan’s Fast Retailing in China, which already has almost 500 stores in the country and is aiming for 1,000 stores in about five years – more than in Japan.

“It’s pretty hard for the foreign fast brands to do the localisation that Uniqlo does in China as it was born with the Asian gene,” said Violet Shen, a marketing executive in Shanghai.

The “fast fashion” model was pioneered by Inditex, which can bring new styles from the catwalk to stores in Europe within days from factories mostly in Spain and North Africa. However, Inditex does not have the same advantage in China.

Inditex plans to add 60 stores in the next few years to the 582 it already runs in China, but it serves them from its logistics centres in Spain.

“As their proportion of sales increases in the East, it challenges this model. You can’t hub out of Spain,” said Dominic Jephcott, chief executive of supply chain experts Vendigital.

New Look is not the first Western retailer to try to bring the Inditex model to China.

Denmark’s Bestseller, which runs brands like Vero Moda and Jack & Jones, says over 90 percent of its products sold in China are also produced in China and most of the designs for the Chinese market are adjusted to local tastes.

That has helped the family-owned firm to become the clear leader in China, with more than 6,800 stores in over 300 cities, to give it a 2 percent share of the fragmented market, according to market research firm Euromonitor.

Anders Kristiansen ran the China business of Bestseller before taking over as New Look chief executive in 2013. Gaede said Kristiansen’s experience in Asia is one of the reasons behind the group’s aggressive expansion strategy.

H&M also buys many of its garments in China – the country accounts for about a quarter of its global sourcing.

But the Swedish firm does not make a big point of adjusting its ranges for China, where it has opened 47 stores in the last nine months, taking its total to 400.

“We see that fashion becomes more and more global and that China doesn’t differ much from the rest of the world regarding trends and fashion,” said investor relations head Nils Vinge.

“There are of course local differences but that is true for every market. H&M has a business model that can adapt to this,” Vinge said, declining to elaborate.

Rein of China Market Research says Western brands must strike a delicate balance.

“You have to keep your global brand image and you can’t be that creatively different in China than other markets. The Chinese travel around the world,” he said. “It is good to localise. But it hard to localise an aspiration.”

STORES VS ECOMMERCE

A bigger challenge for New Look may be to secure the right locations, especially as rivals also seek to add hundreds of stores in the coming years.

“To find 500 stores of real estate and roll that out in the right way … I think it is virtually impossible,” said Franklin Yao, managing partner at strategy consultants Smith Street.

But the more established New Look’s brand becomes in China, Gaede said, the better the locations and terms it will be offered, adding that the firm was now pushing into smaller cities.

“We are less wedded to the number each year and we are more wedded to getting quality locations,” he said.

Meeting soaring Chinese demand for buying clothes online is also tough.

Most international brands initially launch on Chinese ecommerce sites like JD.com and Alibaba’s Tmall and Taobao, but are keen to build up their own online operations to protect margins and integrate ecommerce and store services.

New Look is currently available on Tmall and JD.com, but plans its own transactional site in the next 12 to 18 months.

Partnering with Chinese sites and local payment and delivery service providers is essential to reach consumers across such a vast country, said Vendigital’s Jephcott.

“It is a hard physical push and a very hard digital push, all premised on a strong relationship with the logistics partner like Taobao,” Jephcott said, noting that Taobao has established a delivery network of micro-stores even in small towns.

by  Emma Thomasson and Donny Kwok for Reuters

 

Stuttafords: Whither the grande dames?

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Article written by ADELE SHEVEL for Financial Mail

Stuttafords was once where ladies bought homeware and clothing in an ambience of affluence and gentility. Some took tea or a bite of lunch or met friends while they did their shopping. It was a rarefied atmosphere where hours could be whittled away.

It wasn’t the only such establishment: at Garlicks, Greatermans and John Orr’s rows of product sat comfortably spaced over several floors. But these stores mostly closed shop, while the 158-year-old Stuttafords has kept its doors open, though it no longer sells tea and cake.

It’s a sign of the challenges facing department stores globally. Competition from speciality stores, plus the game-changer of online shopping, has knocked the grande dames.

“Fast-fashion” retailers such as Zara and H&M turn around stylish new merchandise far quicker. As one American designer told reporters: “Ten years ago, you needed a major department store to be successful. Now, you need Instagram.”

At its peak, Stuttafords had 23 department stores in SA and elsewhere in Africa. Today there are eight in SA, two in Botswana and one in Namibia. A new 6,200m² store will be opening in Fourways in the first quarter of 2018.

Yet, finally, something is changing. Last week, Stuttafords opened its first “off-price” store in Woodmead, Jo’burg’s discount hub. Called “The Outlet” by Stuttafords, it is following US trends of “off-price ” stores selling branded “last season” product. If it’s successful, more like it can be expected.

It’s what some of the world’s most prolific department stores are doing, including Macy’s, Saks Fifth Avenue, Nordstrom and Neiman Marcus. Forbes magazine says there has been a 12% increase in off-price stores in one year.

Stuttafords also owns and operates 15 mono-brand locations (shops with their own branded entrances), which include Ted Baker, Tommy Hilfiger and Jo Malone. But, like Edgars, it is shifting strategy and reintroducing “house-branded” goods to enhance margins. Stuttafords-owned brands such as Oaktree, Stephen Cole and Joseph Cotton will be resurrected.

Some say Woolworths has become something of a department store, but Stuttafords remains the only “true” one, selling branded product not owned or entirely controlled by it. Globally, not all department stores are suffering. But many are in decline, and some are in a terminal state. In August, Macy’s announced plans to close 100 stores. Sears is losing customers, and Kohl’s has closed stores, as has JC Penney.

In the UK, the trend is less pronounced. Luxury stores such as Selfridges and John Lewis do well, and Harrods had record sales and profits in 2014 after its multimillion-pound refurbishment.

Do department stores have a role in today’s retail environment? Yes, says Stuttafords CEO Rob Amoils, given the dominance of the “mall shopping experience”, and the efficient structure of a “large-box retailer”. He says: “It goes without saying that the introduction of vertically integrated international retailers (like Zara, Cotton On and H&M) in super-regional malls provides a tremendous challenge to SA retailers (including Stuttafords), particularly in a price-sensitive and disposable environment.”

But times are changing.

This week, in what The Wall Street Journal describes as “an unusual move”, mall owners in the US bought teen apparel retailer Aéropostale on auction.

If the retailer had gone into liquidation, landlords would have been stuck with more than 200 vacant stores.

Expect more such left-field deals.

Author: ADELE SHEVEL

SA’s Woolworths to buy fashion retailer Politix

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Written by ROBERT LAING for BDLive
Johannesburg – South Africa’s Woolworths Holdings plans to buy Australian men’s fashion brand Politix through its subsidiary, Country Road Group.

Woolworths, which sells upmarket food and clothing, said the acquisition will be funded using its own resources and is expected to immediately increase the company’s earnings per share.

No financial details were provided.

Woolworths has expanded in Australia, having bought a portfolio of brands that includes David Jones, Witchery, Trenery and Mimco.

The South African company bought department store chain David Jones in 2014 in a $2 billion deal that gave the Australian retailer the financial firepower to ramp up its online offerings and in-store label.

Politix has 75 stores, including 31 concessions, across Australia, and had full-year 2016 sales of A$56 million ($42.70 million).

Retail to runway: what happens when clothes are sold direct from the catwalk?

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In a want-it-have-it world, the six-month lag between the shows and the shops feels outdated. But are fashion houses ready for a See Now, Buy Now revolution in the way they work? Article written by  for The Guardian .

Two years ago, at a Democratic fundraiser in Seattle, President Obama spoke of “the sense that around the world the old order isn’t holding and we’re not quite yet to where we need to be in terms of a new order that’s based on a different set of principles”. To be clear, he was talking about Ukraine and Syria and Israel, not about fashion week. But as Coco Chanel so wisely remarked, fashion reflects the world we live in, and Obama’s words are as true of the current state of the fashion industry as they are of international relations. In fashion as in politics, the system is outmoded, the establishment is at breaking point, the mood is fractious and unrest is in the air.

This sounds a grandiose starting point from which to debate See Now, Buy Now, the trend to ditch fashion’s six-month lead time and synchronise catwalk shows with store deliveries. But See Now, Buy Now is a crucial tipping point, at which the impact of technology, globalisation and democratisation on the fashion industry is felt not just by buyers in the retail industry sense, but by buyers in the me-and-you-on-a-Saturday-afternoon sense.

On Monday evening, when Burberry stage their London fashion week catwalk show, it will break with a format that has held for more than half a century. This will not be a trailer for clothes that will go on sale six months later, but a starting gun for a collection designed to be bought, and worn, immediately. Paul Smith,Tom Ford and Tommy Hilfiger, among others, are adopting the same model.

Christopher Bailey, who as president and chief creative officer at Burberry is at the forefront of the change, calls See Now, Buy Now “an ongoing evolution”. The word evolution is interesting, because when the world is in a period of rapid change, Darwin’s process of natural selection goes into fast forward. Take the case of the peppered moth in the Industrial Revolution. At the beginning of the 19th century, the peppered moth was light with dark spots. When the atmosphere in London became filled with soot, the white trees became darker and the lighter coloured moths were more visible to birds. Within a few decades, the moths had evolved to become darker. In the same way, in our era of technological revolution, instant gratification has become the new normal and slow-moving fashion houses look suddenly vulnerable.

The messy and confusing phase the fashion industry finds itself in while See Now, Buy Now is in this experimental period need not concern us here. In the end, the success or failure of the concept will be determined not by whether it is convenient for those in the industry, but whether it delivers for the consumer. At first glance, this seems a no-brainer. You see a look you want on the catwalk, you can buy it straight away. Yay! Right? Except it’s a bit more complicated than that. The grand, sweeping narrative of fashion – the lyrical view, which says that we crave full skirts in times when we yearn for old-fashioned values, or that hemlines get higher when economic confidence goes up – has traditionally been a folktale woven together in the months after the catwalk season, and presented as a delicious, page-turning big reveal in magazines and shop windows at the moment those collections go on sale. If fashion is reduced to clicking-to-buy on a new pair of boots, will this romantic element be lost?

Not necessarily. The runaway success of the box set proves that storytelling can survive – even thrive – when an audience consume episodes at their own pace. Primetime slots no longer have the significance they once did, but TV is in a golden age nonetheless. The same could prove true of fashion and catwalk shows.

“I feel like the idea of seasonal trends is antiquated already,” says Imran Amed, founder of Business of Fashion. The two-season model, designed around “autumn/winter” and “spring/summer” as two opposite wardrobes is outmoded in an era of air conditioning, of mass-market long-haul travel, and of a global economy. “When we are designing a collection, we are not just creating it for people who live in one climate, one culture, or one way of thinking,” Bailey says. Or as Zach Duane, CEO of Victoria Beckham, puts it, “Whose autumn/winter are we talking about, anyway?”

The twice-yearly trend roundup is dead, and in its place has arrived an ongoing “digital campfire” where stories are shared, embellished, made into myth. Social media has been key to this – “The reader has got used to seeing new trends every single day,” says Lorraine Candy, Elle’s editor-in-chief – but the rising influence of menswear within fashion has had an impact, too. Womenswear and menswear are increasingly shown together on the catwalk, with the result that an industry that was once divided into a girls’ school and a boys’ school, and only met at parties, is now integrated. This has brought elements of menswear culture into mainstream fashion, and in particular a more drip-feed notion of trend. As Fiona Firth, buying director at Mr Porter, says, “Menswear is an evolution from one season to the next, so the trends follow suit, and do not change dramatically seasonally.”

See Now, Buy Now is “absolutely logical” for the huge brands who can afford to make a big noise with their shows, Duane says. “If you are spending millions of pounds promoting a collection, why on earth would you be doing that six months before it hits store, when you could drive desire at the moment it goes on sale?” But if those brands can utilise the new model to amplify their voice, will that be at the expense of smaller labels, whose point of view will get drowned out? And if fashion becomes more commercial at the expense of experimentation – is the consumer not, in the end, the loser? If catwalk collections are a direct showcase of, rather than a teaser for, the clothes that will go in store, then it seems logical that the catwalks will be more wearable. “I am the first to raise my hand and say I don’t want to watch a bunch of trenchcoats and T-shirts on the runway,” Amed says. “What’s the point? But smart brands will figure out a way to make the show interesting to the audience.” Candy sees a positive in catwalk shows becoming truer representations of the clothes on the shopfloor. “We always want to shoot things that will actually be in the shops, and in this system that can be a struggle. So actually, I think it’s quite a good thing.”

The most immediate impact of See Now, Buy Now on fashion will be on what you see rather than on what you buy. The details of timing are, in the big picture, less significant than the fact that the catwalk-as-trade-show is almost defunct; the modern catwalk show is an event for the wider fashion audience. This can be literal – as at Givenchy’s S/S 16 New York show, where 800 seats were reserved for the public – or virtual, as in the Chanel shows’ visual spectaculars which are instantly magnified through Instagram to reach an audience of millions. The model that triumphs will be the one that best pleases the global fashion audience. The industry is in upheaval, but the oldest adage in business still holds. The customer is always right.

 

Author :

 

An unlikely company is crushing America’s biggest clothing stores

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An unlikely company has suddenly catapulted to the top of the fashion world: Amazon.

Amazon is now the biggest seller of clothes online in the US, with its apparel sales totaling $16.3 billion last year, Shelly Banjo for Bloomberg reports.

Amazon is already the biggest clothing seller online. It might soon overtake most of its brick-and-mortar rivals in fashion sales, as well.

There were no runway models on any Amazon catwalk at last week’s New York Fashion Week. But the e-commerce giant still loomed large in the minds of retail executives watching it elbow its way into the fashion industry.

Amazon is expected to triple its share of the U.S. apparel market over the next five years

For the past decade, fashion brands had viewed Amazon as the enemy. Brands swore off selling goods on Amazon, bemoaning its cluttered website and the risk of counterfeit goods. Many reluctantly started their own websites, but continued to rely on department stores for the bulk of their sales.

So Amazon started making its own private-label clothes. Itbought Zappos in 2009, turbo-charging shoe sales. And it focused on selling the basics, such as t-shirts, leggings, and jeans — things people felt comfortable buying online and replenishing regularly.

As shoppers got more confident buying clothes on Amazon, that eroded the steady consumer spending on basic goods department stores once enjoyed.

Amazon increased the number of apparel and accessory products on its website by 87 percent last year from the year before, as its apparel sales hit $16.3 billion, according to“Behind the Online Apparel Boom,” a research report from Internet Retailer. That’s more than the combined online sales of its five largest online clothing competitors — Macy’s, Nordstrom, Kohl’s, Gap, and Victoria’s Secret parent L Brands.

the right fit

Amazon’s apparel sales still pale in comparison to the $24 billion in U.S. clothing sales at Walmart, America’s largest apparel seller. But it’s not too far from Macy’s $21 billion in annual apparel sales and TJX Cos. $17 billion. It’s already surpassed the Gap, Kohl’s, Target, J.C. Penney, and Nordstrom in 2015 apparel sales.

Stocking Up

Amazon — and its marketplace sellers — also figured out a clever way to ding department-store profit margins: Take a popular product — say, a purse or jacket — that’s only available in limited stock (maybe five or ten items) from Amazon sellers. List it a vastly discounted price. Retailers whose websites automatically match Amazon’s prices, or those that have price-match guarantees, end up losing out on profits.

And department stores are feeling the pain. Collective sales at the six largest U.S. department stores fell $660 million in the second quarter from a year before. A lot of those sales went to Amazon, whose clothing sales rose $1.1 billion in the quarter from a year earlier, estimates Morgan Stanley analyst Kimberly Greenberger.

 

Trouble At The Store

A fifth of U.S. consumers now “frequently” buy clothes on Amazon, according to a Morgan Stanley survey in April. That rises to 35 percent for Amazon Prime members.

The most interesting thing the survey found, however, was that the top reason consumers gave for shopping on Amazon was “ease and convenience,” followed by “Prime free 2-day shipping.” In other words, the sexiest part of Amazon’s fashion push was not the clothes on its site but its logistics.

Prime Position

Still, nearly 60 percent of consumers said they would buy more clothing on Amazon if it sold a wider selection of well-known, fashionable clothing brands, according to the Morgan Stanley survey.

To court brands, Amazon is kissing the fashion industry’s ring: It has sponsored Men’s Fashion Week in New York and India Fashion week. Soon, Tokyo Fashion Week will be renamed Amazon Fashion Week Tokyo. It has a live fashion web show and sponsors a web series on the Council of Fashion Designers of America/Vogue Fashion Fund, backed by fashion arbiters Anna Wintour and Diane von Furstenberg. Earlier this month, it stepped up counterfeit controls on marketplace sellers.

The fashion flattery helps prop up brands’ perception of Amazon. Already, brands such as Kate Spade, French Connection,  7 for All Mankind, and Vince prominently display their goods on the e-commerce giant’s website.

But the biggest game-changer for Amazon is still unfolding. With sales waning at department stores — where many brands get the bulk of their revenue — Amazon has more leverage than ever before to accelerate its moves into apparel. Talk about fast fashion.

 

This article was written by Shelly Banjo for Bloomberg

What we can learn from Edcon fortunes

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BY BRIAN KANTOR for BDLIVE

Edgars+XXX

BAIN, a private equity fund, has thrown in the towel on its involvement with Edcon and its leading retail brands including Edgars. When it took over Edcon in 2007, Bain immediately converted the equity stake it had acquired from the Edcon shareholders for about R25bn into additional Edcon debt of some R24bn. It has now reversed this transaction, converting the outstanding debt of Edcon back into equity.

The 2008 balance sheet reported total Edcon assets of R38.1bn, up from only R9.5bn the year before. Much of these extra assets were created by writing up the more expensive intangible assets including goodwill, that Bain had paid for and raised Edcon debt against.

The cash flow statement for 2008 reports “investments to expand operations: R24.4bn”. This was not so. The cash raised was used to reconstruct the balance sheet, not to expand operations.

Moreover, it failed to persuade the South African Revenue Service (SARS) that the extra borrowing was undertaken to produce extra income. Edcon continued to have to use cash from operations to pay significant amounts of tax as well as a large and growing euro interest bill. Despite large accounting losses, it delivered cash to SARS at the rate of more than R100m a year.

Had Bain registered a new company to buy out the Edcon assets from its shareholders and this company had then funded the purchase with debt, the interest expense would presumably have been allowed as incurred in the production of income. And the consequent losses could have been carried forward to offset future income and to raise the current value of the company.

With the agreement of its creditors with all the shares in Edcon, and with new debt raised of about R6bn, Edcon can avoid the expensive horrors of business rescue and continue to operate normally, much to the relief of its managers, workers and landlords. Given that Edcon continues to realise significant trading profit, it makes every sense for it to stay in business in the hope of delivering value for its new shareholders while other stakeholders are protected.

The case for private over public equity is not based on a highly leveraged, risky financial structure that promises high returns as compensation for high default risks. While the conversion from public to private may only be affected with significant dollops of debt, the case for private is that its few shareholders, with much to gain or lose, will be able to contribute meaningfully to the success of the venture. This is unlike inactive public shareholders with highly diversified portfolios, who can easily walk away from an underperforming investment.

It is thus no accident that the number of companies listed on all the US stock exchanges has declined drastically over recent years — by between 40% and 60% in the past 25 years, according to different estimates. The competitive threat to public companies from private equity, funded with public money, should therefore be encouraged and not discouraged (including by SARS) in the interest of better returns on capital and a stronger economy.

For their errors of commission (too much of the wrong kind of debt) and omission (managing its assets poorly) Bain and the Edcon managers were unable to improve its operating performance enough to meet the obligations to debt-holders — despite their well-aligned interests. The debt-holders and Bain, appropriately so, have had to suffer for their mistakes.

How much the Edcon equity is now worth to compensate the debt-holders will be determined when their Edcon shares are relisted on the JSE. The sooner the new shareholders get to know their value and how well the company is performing under new management, the better.

• Kantor is the chief economist and strategist at Investec Wealth & Investment. He writes in his personal capacity