The Unexpected Winners of the Great Pandemic Retail Reshuffle

Two years into the pandemic, some of the early retail success stories of the crisis appear to be losing their shine as unexpected contenders are gaining steam.

On Thursday, British e-tailer Asos reaffirmed its previously downgraded outlook after a challenging few months in which the retailer abruptly lost its chief executive and grappled with supply chain snafus, which dampened sales outside of its home market and contributed to significantly slowed sales growth overall. While shares ticked up Thursday, the company’s overall stock has fallen by more than 50 percent in the last year.

It’s a similar tale over at Boohoo, which, after an initial pandemic surge, has issued two profit warnings and seen its market capitalisation value plunge by almost 70 percent since January 2021. Earlier this week, shares in Canadian athleisure juggernaut Lululemon fell after the company warned revenue and adjusted profit for this quarter is expected to be toward the low end of projections.

To be sure, not all players are struggling to keep up the pacey momentum they enjoyed earlier on in the crisis. Chinese brand Shein has exploded, and last year overtook Inditex and H&M to become the largest fast fashion brand in the US, according to Earnest Research data published in June 2021.

But there have also been some unexpected out-performers. The crisis initially hammered many traditional players, but has actually set some up for longer-term success. Many had to swiftly optimise their operations, with a mix of cost cutting, restructuring and digital innovation in order to survive. Meanwhile, inventory shortages pushed brands to re-examine their positioning and move to boost their pricing power so they could sell less but charge more and raise profit margins.

Take the under-the-radar British high street player Next. Last week the company raised its profit forecast for the fifth time since the start of the pandemic. Next was already in good shape going into the pandemic after refurbishing its store portfolio and building up its online business, said Adam Cochrane, equity research analyst at Deutsche Bank. But it accelerated investment in warehousing over the Covid crisis to be able to deliver on the increased online demand.

Elsewhere, Canadian retailer Aritzia posted soaring revenue and profits this week; the fashion chain’s market capitalisation is up more than 120 percent compared with 12 months ago. In the US, Macy’s raised its outlook three times last year time, after repeatedly beating analyst estimates.

“The pandemic was the opportunity for brands to take a breather, break inertia of growth for growth’s sake, and actually focus on what is the profitable sale, how do you elevate your brand and to solidify what you stand for,” said Simeon Siegel, managing director, equity research at BMO Capital.

Some players are now finding they’re actually healthier now than when the pandemic first hit. Siegel pointed to Victoria’s Secret as an example. Investors rewarded the brand because, even though the it was selling less, profitability climbed meaningfully, he said.

Across the Atlantic, UK high street giant M&S, which has been struggling to reverse years of declines in its clothing division, accelerated store closures and online investment while clamping down on promotions amid the pandemic. This week, the retailer saw apparel sales up in the most recent quarter.

“They have taken this crisis as an opportunity to make changes in the business that may have taken five years but instead took one year,” said Deutsche Bank’s Cochrane.

Meanwhile, capacity coming out of the market during Covid has helped boost the physical retailers who remain, Richard Chamberlain, equity analyst at RBC Capital Markets, said on a recent podcast. In the UK, for example, about 10 percent of the apparel market has exited over the last two years, including large-scale chains Debenhams and Arcadia, he said.

While offline competition in the market has decreased, online competition is at an all time high. Legacy players that were slow to digital were forced to pour investment into the space to maximise trading capabilities throughout lockdowns. As a result, pure-play digital players are having to fight even harder for consumer attention.

“We’re also seeing more evidence of these strong specialist omnichannel retailers gaining… share,” Chamberlain said, pointing to JD Sports in athleisure, Next in mainstream apparel and Hugo Boss in the premium branded space. “They’re the ones with the supplier relationships, the broad range and the healthy inventory positions.”

But there’s no doubt the broader retail sector is still grappling with significant headwinds. Labour shortages, and rising costs of raw materials and logistics services are slimming margins. Rates of returns — a hefty cost for online players — are climbing again after a brief reprieve over lockdowns. Cost of living inflation is set to hit consumer spending power. Plus, the surge of Omicron infections has put consumer demand in flux.

“What’s going to happen now is the brands and the businesses that didn’t effect change, and simply rode the beneficial environment, they’re going to find the selling environment gets a lot more difficult,” BMO Capital’s Siegel said.

And so, the great pandemic retail shuffle continues.

THE NEWS IN BRIEF

FASHION, BUSINESS AND THE ECONOMY

New York Fashion Week will go on in February. The Council of Fashion Designers of America (CFDA) released its preliminary “American Collections” calendar for the Autumn/Winter 2022 shows, which will take place Feb. 11 to Feb. 16. Designers currently planning to stage live events include Proenza Schouler, Altuzarra, Maisie Wilen and Tom Ford.

Bottega Veneta hosts a brand takeover on the Great Wall of China. The display, which showcases Bottega Veneta’s name and logo as well as the characters 新春快乐, or, Happy New Year, is the latest in a string of experimental marketing campaigns by the Kering-owned brand.

Sequoia Capital China acquires majority stake in We11done. The deal will help the Seoul-based contemporary brand to accelerate growth of its direct-to-consumer business across China, Europe and the US, BoF revealed.

Next-gen materials start-up MycoWorks raises $125 million. After grabbing the fashion world’s attention with an Hermès partnership, mushroom-based leather producer is planning to scale up in 2022. The financing round was led by Prime Movers Lab, with other investors including SK Networks and Mirabaud Lifestyle Impact and Innovation Fund.

US Supreme Court blocks Biden vaccine-or-test policy for large businesses. The US Supreme Court on Thursday blocked President Joe Biden’s pandemic-related vaccination-or-testing mandate for large businesses at a time of escalating Covid-19 infections while allowing his administration to enforce its separate vaccine requirement for healthcare facilities.

LVMH brands double down on JD.com partnerships. Givenchy’s JD.com mini programme officially launched Tuesday, making it the latest in a raft of brands from luxury conglomerate LVMH to join forces with the Chinese e-commerce platform.

Sneaker market StockX taps Morgan Stanley, Goldman Sachs for IPO. The online exchange platform for sneakers and streetwear brands is aiming to go public as soon as the first half of the year, according to people with knowledge of the matter, Bloomberg reports.

UK competition Watchdog takes aim at greenwashing in fashion. The Competition and Markets Authority (CMA) said Friday it has launched a review of environmental claims made by fashion companies, making the sector its first priority in efforts to tamp down on misleading sustainability marketing.

Brunello Cucinelli posts 31 percent sales jump in 2021. The Italian luxury group’s net sales totalled €712 million ($806.3 million) last year, a 17 percent increase over sales in 2019 sales, before the pandemic.

Fast Retailing’s profit boosted by overseas surge as Japan and China sales fall. The Uniqlo owner said operating profit rose 5.6 percent to 119.4 billion yen ($1.04 billion) in the three months ended Nov. 30, beating the market’s consensus of 102.6 billion yen, according to the average of analysts’ forecasts from Refinitiv.

Zara chooses Susan Fang for first Chinese designer collaboration. The Spanish fast fashion giant is collaborating with Susan Fang on a Chinese New Year capsule collection, inspired by the designer’s love of her family. The collection will be released in selected stores and online Jan. 17.

Asos hit by supply chain disruption, volatile Christmas demand. The fast fashion retailer posted total sales growth of 5 percent, following a 22 percent rise in the year to end August. For the full year, it reiterated its outlook of revenue growth in the range of 10 to 15 percent.

Lululemon, American Eagle Outfitters fall after warning Omicron will hit earnings. Shares of the activewear company fell as much as 8.9 percent on Monday after announcing sales would be toward the bottom of its estimated range. American Eagle forecast fourth quarter revenue growth in the mid-to-high teens percentage, lower than market estimates of 21.5 percent, according to Refinitiv data.

THE BUSINESS OF BEAUTY

Shaving brand Billie moves into Walmart. The direct-to-consumer razor maker’s first retail partnership makes it the latest non-traditional brand to be added to Walmart’s beauty department.

Beauty mask maker said to pick CICC and Goldman for Hong Kong IPO. Xi’an Giant Biogene Technology Co. has selected banks for an initial public offering in Hong Kong that could take place as soon as this year, according to people familiar with the matter, reported Bloomberg. The proposed share sale that could raise as much as $1 billion, the people said.

Il Makiage owner valued at $1.5 billion. The beauty brand’s parent company Oddity announced the closing of a $130 million private round led by tech investor Thomas Tull, investment firm Franklin Templeton, Fidelity’s investment arm and venture capital firm First Light Capital Group. Prior to the round, L Catterton was the brand’s sole investor.

Walgreens is exploring options for its Boots business, CEO says. The strategic review comes as the company seeks to optimise its portfolio and transform itself to a healthcare-focused company.

PEOPLE

Scandi brand Filippa K taps Liisa Kessler in the midst of a reboot. The former Saint Laurent designer, who also did stints at Lanvin, Y/Project and Chloé will join recently appointed chief executive Rikard Frost as he seeks to take the label more upmarket and expand its international presence. The label will roll out new branding with Kessler’s debut collection in June.

Dunhill appoints former AZ Factory chief executive as CEO. Laurent Malecaze joins the fellow Richemont-owned brand with experience at The Webster and succeeds ex-Burberry executive Andrew Maag.

Nike veteran named global brand president, The North Face. Nicole Otto will succeed Steve Murray in the position and report to Steve Rendle chairman, president and chief executive at parent company VF Corporation. Otto most recently was vice president of Nike Direct North America, where she oversaw the integration of the company’s digital and physical retail channels.

MEDIA AND TECHNOLOGY

Condé Nast to launch Vogue Philippines. The new title will be the 29th edition of Vogue and marks a further move into the Southeast Asia region. To publish the edition, Condé Nast has partnered with Mega Global Licensing Inc.

Amazon files new legal challenges in dispute with Future Group, sources told Reuters. The move comes after the national antitrust agency suspended a 2019 deal between the two sides, leading to a halt in their arbitration.

Instagram to host week-long event for content creators during Paris Men’s Fashion Week. The social media platform will take over Dover Street Market’s new 3537 space for a week of workshops and networking events dubbed “Instagram IRL.”

Compiled by Joan Kennedy.