International, Trends

International Invaders Create New Retail Opportunities

There are so many reasons for the demise of the traditional mall, including (and first on the list) a lack of newness and excitement that creates moments of discovery and delight. Retail success is actually based on just a few things done really well: changing the assortment, being out ahead of your customers and taking shoppers places they didn’t even know they wanted to go. Think pleasure and surprise, not nickel and diming.

The US continues to be an attractive market offering retailers a large and homogenous middle class and well-developed retail/distribution/marketing infrastructure. Yes, it is over-stored and mature. But let’s face it, retail is a Darwinian tale and its evolution continues to provide opportunities for a steady flow of new brands—domestic, digitally native and international — vying for consumer attention and wallet share.

Sadly, many of the women’s top apparel brands that used to draw department store traffic have slumped into irrelevancy. Why? Tastes change, the Great Recession occurred, fast fashion arrived and lifestyles have become more simplified with fewer dress-up occasions. This perfect storm led to brand irrelevancy and a changing of the guard from the old world to the new world.

Past as Prelude

Here’s a quick brand history lesson. The bulk of apparel brands housed under the Jones NY and Liz Claiborne corporate roofs have collapsed and a few have resurfaced as licensing opportunities for brand management companies and moderate priced department stores. Specialty apparel retailers have fared better but this group has felt the impact as well, with retailers as varied as Abercrombie & Fitch, BCBG, Bebe, Guess, J.Jill, Ralph Lauren’s Club Monaco, J.Crew, Gap, Banana Republic and Ascena’s Ann Taylor experiencing market share erosion and lackluster domestic sales growth. In sum, these changes have left a hole in the apparel ecosystem that Amazon, private label and many of the remaining players still haven’t satiated.

One easy fix is to create a sense of freshness by bringing a new international retailer or brand to your platform. We have made a pick of some of the more promising brands below. We aren’t saying that these are stocks you should buy or brands with business flawless plans that won’t fail; we aren’t picking winners and losers in that sense. What we are saying is these brands are new, in limited distribution, can create in-store excitement and drive traffic. We aren’t opining on whether they will still be here in five years. Many, but not all, have strong records of success in their home countries. However, that doesn’t extrapolate into success in foreign markets, regardless of the benefits of globalization. Retail essentially remains a local business, from knowing your customers to knowing your neighborhoods, zoning, labor practices, etc. It’s worth mentioning the recent (January 11, 2018) chapter 11 filing for bankruptcy protection by cosmetics retailer, KIKO USA, a subsidiary of Italy’s Kiko, SpA with 950 mono-branded stores around the world. Kiko Milano came to the US in 2013 with a differentiated value proposition, Italian style and color for value pricing in a high-end retail location. However, the rents were too burdensome and they faltered. Plans are to emerge from chapter 11 after closing 23 of its 28 US stores. The remaining five locations will be supported by e-commerce on its own website as well as third-party vendor on Amazon.com. US retailing isn’t for sissies!

Zara and H&M Aren’t the Only Game in Town!

International invaders are creating new retail opportunities, and US brands can take a page out of their playbooks. We’ve chosen 16 international apparel companies that have enjoyed some degree of success in their home bases and are now targeting the US as well as other international markets for their next leg of growth. They include public and private companies, old and new companies and mass and luxury. In other words, they are coming from most retail segments. Most are European- and UK-based, and Canada is providing a couple of new names, too. If you’ve traveled to Europe in the past 20 years, you’ve run into many these brands at the best department and specialty stores including Harrods, Harvey Nichols and Selfridges in the UK; Bon Marche and Galeries Lafayette in Paris; and the high street/shopping districts of both cities.

The first wave of international invaders were Inditex’s Zara (327 U.S. stores) and Hennes Mauritz’s H&M (278 stores in US), whose impact has basically changed the way Americans shop. “Accessible Luxury” is the mid-price point between luxury brands such as Chanel, Gucci, and Louis Vuitton and mass, where H&M, Old Navy, TopShop, and Zara compete. It is also the target market for the majority of these nextgen international invaders. It’s white space vacated by the bridge collections of yesteryear. Accessible luxury brands are targeting a contemporary shopper, not bound by age, but defined by lifestyle. His/her shopping spans multiple price points: Target for shower curtains and Champion workout gear; Louis Vuitton for wallets; Chanel for ballet flats and Coach for totes. Price points for accessible luxury span $100 to $1000.

Common to many of these nextgen international invaders is a multichannel approach to expansion, using wholesale distribution in iconic trendsetting department stores to heighten visibility, create favorable adjacencies and to generate buzz. Some started in wholesale — Canadian Goose still is 71 percent wholesale/29 percent DTC. Similar to Coach, Michael Kors and Ralph Lauren, these invaders saw the benefits early on of DTC brand building and control, and ventured into owned retail (and e-commerce) as they established their businesses. They added franchising as they expanded, with limited wholesale (both online and offline). In the US, the department store of choice for invader brands using a wholesale strategy distribution is Bloomingdale’s. Only Canadian Goose (called the Range Rover of clothing by its president and CEO, Dani Reiss) goes more upscale with its Made in Canada outerwear sold at Bergdorf Goodman and Neiman Marcus. AllSaints and Karen Millen are available at Macy’s.

Whether these businesses will be successful in their US expansion endeavors, it’s hard to say. Retail is becoming an industry of diminishing returns. If they can successfully differentiate the shopping experience for many consumers new to the brands in an off-line format, they’ve got a shot at it. In conversations with most of these brands, they speak to their foreign fashion sensibility as a differentiator. We repeatedly heard such phrases as, “we bring a French design aesthetic to the market …we are a British brand…” and many include their foreign heritage in their logo.

Business Models

  • Four invaders are public companies: Canadian Goose and SMCP IPO’d in 2017; Aritzia, in 2016; Ted Baker in 1997; and Primark, a division of a public company, Associated British Foods, which is 54.5 percent owned by Wittington Investments and began trading on the London Stock Exchange in 1994.
  • Often a new market entry begins with wholesale, however, Calzedonia Group just brought its intimates brand, Intimissimi, and its hosiery and beachwear line, Calzedonia, to the US with New York flagships, finishing up 2017 with a combined 10 Intimissimi and Calzedonia locations in the US. Plans are for a total of 25 locations by 2019. Britain’s cheeky activewear brand, Sweaty Betty, and Canada’s Aritzia are executing a DTC strategy as well.
  • French portfolio company SMCP (Sandro, Maje, and Claudie Pierlot) is the French answer to fast fashion. With 24 collections a year, there is a steady flow of new merchandise with the ability to test and replenish in four to nine weeks. Sandro is 50 percent of SMCP net sales and Maje, 38 percent, are respectively positioned as Parisian chic/informal nonchalance and bohemian glamour with ethnic details. SMCP went public last October; 51 percent is held by Shandong Ruyi, one of China’s largest textile firms and its CEO Daniel Lalonde is the former international president at Ralph Lauren and CEO LVMH NA. 2017 sales rose 16 percent, 18 percent in the Americas.
  • LK Bennett began in footwear in 1990 in the UK. A polished English fashion icon, it is well-known as the brand worn by Kate Middleton. Footwear remains a strong draw for the brand, accounting for 45 percent of sales; RTW is another 45 percent and accessories the remaining 10 percent. The return of LK Bennett’s founder, Linda Bennett, to the firm last year marked the beginning of a brand reboot. In addition to acquiring the remaining equity in her namesake business, James Hathaway joined the team to drive international expansion with a focus on the US.
  • Elevated tailored fashion brand Karen Millen brought in its current CEO, Beth Butterwick, from Bon Marche (CEO 2011-2016) to turn around the business. Butterwick reduced annual losses 12 percent on a 1 percent sales decline in the year ended February 28, 2017. Founded in 1981, Karen Millen is longer associated with her moniker brand that is owned by failed Icelandic bank, Kaupthing. More than half of Karen Millen sales are international.
  • The Kooples was created by three Elicha brothers (whose parents founded Comptoir de Cotonniers in 1995 and sold to Fast Fashion in 2005). Inspired by happy couples, the brand exudes Parisian cool with its somber color palette and androgynous silhouette. The Kooples is rooted in iconic music of the 60s – 80s, a characteristic shared with British brands All Saints and Reiss. All Saints is also known for its activism and philanthropy. All three have private equity owners: 20 percent of The Kooples is owned by PE firm LBO France; 85 percent of AllSaints is owned by Lion Capital and Reiss was bought by Warburg Pincus in 2016.
  • Sweaty Betty is Britain’s answer to Lululemon. Private equity firm LCatterton invested an undisclosed amount in 2015. Sweaty Betty plans to have 50 U.S. stores by 2020.
    Zadig & Voltaire is a French “easy luxury” brand, with its Parisian rocker chic and androgynous sensibility. In 2017 the company hired a new managing director from Céline and plans to double sales in the next two to four years. TA Associates acquired a 30 percent equity position in Zadig & Voltaire in 2012.

A Look Ahead

Executives charged with U.S. expansion generally have realistic expectations and timeframes for success. They understand that it takes time to get mindshare in a crowded market. But time becomes a luxury when Amazon deepens its apparel penetration daily with new brands as it marches to the beat of share of wallet all the while agnostic to profits.

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