Discussions about the fashion industry thread

[cchen]

A lot of great points made here. I should clarify my previous comment - the leases I'm referring to have only a variable component that moves on a sliding scale depending on sales, so that both the brand/retailer and landlord share in the upside, with a minimum monthly rent. And these are grade A locations in either high-end malls or high traffic streets, with landlords that are large commercial RE firms. There are waiting lists to get into these locations, so it's doubtful they'd sit empty for long.

 

[coolarrow]

Just one buyer's recent experience in a suit purchase:

As someone who needed to buy a quarter lined, summer weight suit recently, I can tell you that sales DO influence a buyers decision. And, they don't have to be an EVERYTHING MUST GO type sale. I had 3 retailers: 2 sole proprietors and 1 mass market one (bloomingdales) that had the model I was seeking. I kept pushing off the decision because I had one such summer suit, but knew I had to pick another one up because of wear and rotation. For me, it is important that I stay local for fit, alterations and other issues that may arise.

Well, I drove by one of the sole proprietors and they had a sign 30% off all suits. I stopped by and ended up picking it up. I was happy to support a local business and establish rapport with them. But I probably would have gotten it at Bloomingdales if they had given me one of those postcards with 30+10%+bloomies cash, etc.

 

[LA Guy]

Maybe you'd take one for the team, but most people would pursue their own best interest given their set of options. Getting everyone to purposely lose money, even at the opportunity of getting variable rent, would take tremendous coordination (and likely some kind of punishment for deviators). Especially, if fewer people are forcing themselves into empty spaces, then the market for variable rent agreements tips to those who are willing to deviate (so they get better terms, maybe even a fixed rate plus variable). Would then just make it more likely that people would deviate.

It's possible that an area turns to blight, but it's unlikely it's because everyone is doing it willingly.

It's not taking one for the team. I'd just be unwilling to set a precedence of letting myself be negotiated that low. Under a certain point, it's better to not take the business than to shoot myself in the foot.

 

[clee1982]

I mean, that clause basically says you mostly shop online then.

Looking at my own habit (not doing conscious decision, just happen to be). Most my online item <1k, most my in store stuff are>1k save for tie. The only time I go to physical store is on sale, so I guess less so than appeared

 

[clee1982]

A lot of great points made here. I should clarify my previous comment - the leases I'm referring to have only a variable component that moves on a sliding scale depending on sales, so that both the brand/retailer and landlord share in the upside, with a minimum monthly rent. And these are grade A locations in either high-end malls or high traffic streets, with landlords that are large commercial RE firms. There are waiting lists to get into these locations, so it's doubtful they'd sit empty for long.

To me it's a mentality shift thing, US RE firms used to click rent.

 

[NGOStudio]

Reading this post makes me wonder, what would be like after Amazon?

 

[jah786]

in other news, big fashion continues to contract. Armani sees decline in sales. I may be stating the obvious but the issue with big fashion to me is that you either have something interesting to say that resonates in the moment (e.g. Gucci) or you have a reputation for consistent and superior quality with a less directional aesthetic. (e.g. Cuccinelli)
via BoF:
https://www.businessoffashion.com/a...mlines-brands-and-store-network-as-sales-drop

 

[jah786]

Why go to the store? Unless the act of going to a locale and buyiing something is made exciting for the customer again, then I think the B&M retail model is just going to keep dying. Who cares if customer can do online comparisons if they're not coming into my shop in the first place?

^I deeply agree with this. get busy living (and be interesting) or get busy dying.

regarding the conversation about commercial rents (which I find fascinating and is why I like reading this thread), I have two comments:
maybe I'm a dullard, but isn't the the underlying problem with commercial rents very simple: they are just too high right now but owners are still not financially hurt enough to lower rents. If half the stores on Bleecker st can stay empty then someone either has a way to defer the costs or can afford to sit tight. If commercial rents were to drop by 30%-40% bond holders would take a bath, REITS would drop, but suddenly we wouldn't be talking about revenue sharing, people would sign leases. especially when the cost of acquiring customers online is only going up...

as more companies forgo physical retail and plow into online only, they turn to FB, Instagram, retargeting, other display ads, driving up the bid prices. this is big players and new small brands. the barrier of entry is low so anyone can dream up their brand and throw an ad out there. It's become a very real and non-trivial expense for us now. also, gaining new followers on instagram used to be effortless. with good posts and a reasonable contained amount of effort, we could get 10-20 new followers a day. Instagram has shut off the well. We now get 1-2 a day if that. Online business is not "cheap" and getting new customers is going to only get more and more expensive.

 

[JohnAAG]

For higher end luxury brands, I wonder how much online second hand markets (ebay, grailed, posmark, etc.) have damaged their perceived value.

 

[OccultaVexillum]

I don't think it's diminished their perceived value, it's just provided an alternative route to purchase.
Things used to get handed off to friends, relatives and donation bins and now it's really simple to sell it and make some cash.

 

[bry2000]

I don't think the second hand markets have diminished brand value either. There have always been outlets for second hand goods or unsold aged inventory well before the internet: offsite overstock or "sample" sales, consignment stores, goodwill stores, etc. In many cases, I think the second hand market can breathe life or add to the cachet of brands. In the latter case, I am thinking of those brands that rely on scarcity of product like Hermes Birkin bags or Nike releases.

 

[double00]

For higher end luxury brands, I wonder how much online second hand markets (ebay, grailed, posmark, etc.) have damaged their perceived value.

i think one of the things that luxe brands have started doing right is relabelling with new creative directors. it's pretty easy to perceive the 'good' dior or ysl and so most of the stuff you see second hand is obv not desirable. since say the 00s you're not so much buying a label as an association with tom ford, or hedi, or pilati, or browne, or whoever.

 

[Epaulet]

^I deeply agree with this. get busy living (and be interesting) or get busy dying.

regarding the conversation about commercial rents (which I find fascinating and is why I like reading this thread), I have two comments:
maybe I'm a dullard, but isn't the the underlying problem with commercial rents very simple: they are just too high right now but owners are still not financially hurt enough to lower rents. If half the stores on Bleecker st can stay empty then someone either has a way to defer the costs or can afford to sit tight. If commercial rents were to drop by 30%-40% bond holders would take a bath, REITS would drop, but suddenly we wouldn't be talking about revenue sharing, people would sign leases. especially when the cost of acquiring customers online is only going up...

as more companies forgo physical retail and plow into online only, they turn to FB, Instagram, retargeting, other display ads, driving up the bid prices. this is big players and new small brands. the barrier of entry is low so anyone can dream up their brand and throw an ad out there. It's become a very real and non-trivial expense for us now. also, gaining new followers on instagram used to be effortless. with good posts and a reasonable contained amount of effort, we could get 10-20 new followers a day. Instagram has shut off the well. We now get 1-2 a day if that. Online business is not "cheap" and getting new customers is going to only get more and more expensive.

@jah786

Well, at least with certain areas of NYC, the hugely increased commercial property taxes from the city have contributed a lot to both rising rents and the "stickiness" of those elevated levels. It must be a case of tax benefits. Writing off a vacant space as a loss must be somehow more advantageous than renting it out below a certain threshold. I know that there's talk of somehow changing this dynamic, as a lot of vacancies tend to depress the overall value of a neighborhood, but that's probably not changing. Anyone who thinks that they can take on the self-interested NY real estate industry is living in a fantasy.

Online is becoming more competitive and saturated, that's for sure. Things like advertising and two-way returns aren't free, so that will ultimately get reflected in the end products via higher retails or lower quality materials. In the world of womenswear, there's huge growth in so called "Instagram" items which are promoted by influencers and hysterically cheap. The fast fashion people have some kind of minimums with their quality control, but a small factory in China can sell a dress directly through Amazon for like $15 and it's made in the absolute worst way possible. Returns are way too costly and difficult, so they're effectively a final sale. I'm sure that a lot of money will be made in this kind of biz in the future.

 

[gdl203]

I would note that the hikes in property taxes and corresponding escalations affect online operators as well. Our rent also went up dramatically when adding the property tax escalation.

I often hear this idea that online retail is some sort of asset-light business model. Rent may be lower for an office/stockroom space than for a street level store but it is not inexistant, nor is it insignificant. While a B&M store basically needs to open boxes and put stuff on racks with a tag on them, (good) online operators will open the boxes, take a lot of photos (costs), take measurements (time/costs), write copy (time/cost), pack each order (costs), ship each order, usually for free (costs), pay return shipping (costs)....

Online retail (real retail, not drop ship businesses) is not an asset-light or a low-cost business model.

 

[Epaulet]

I would note that the hikes in property taxes and corresponding escalations affect online operators as well. Our rent also went up dramatically when adding the property tax escalation.

I often hear this idea that online retail is some sort of asset-light business model. Rent may be lower for an office/stockroom space than for a street level store but it is not inexistant, nor is it insignificant. While a B&M store basically needs to open boxes and put stuff on racks with a tag on them, (good) online operators will open the boxes, take a lot of photos (costs), take measurements (time/costs), write copy (time/cost), pack each order (costs), ship each order, usually for free (costs), pay return shipping (costs)....

Online retail (real retail, not drop ship businesses) is not an asset-light or a low-cost business model.

@gdl203 oh wow, I've never done an office in NYC.. I didn't realize that property tax factored into your lease as well. I had it on my Manhattan store and I got hammered on it by the 7th year. My Brooklyn store was a fixed monthly rent, so it wasn't an issue there.

Online definitely has significant costs, but I'm so grateful not dealing with the grind of a declining brick & mortar setup. It's one thing when stores are predictably busy, but when traffic falls off, you've got this enormous cost of lost attention and business. It's difficult for staffing as well. Most of my employees were good at in-store service or online work, but not really both of them. If you have guys who are good with handling the public, they're most likely not going to be amazing social media directors for when the store is slow. Online employees can be more fully engaged, and they don't necessarily have to work on weekends, which is huge.