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Branded label stores have a tough time sustaining customers in the US

"In the wake of e-commerce boom and fast fashion retail, traditional brands are finding it challenging to survive and sustain their market. The premium-denim category is probably the highest hit market where private-equity firms and investment groups in recent years bought out the founders of well-regarded labels as True Religion, J Brand, 7 For All Mankind, Joe’s Jeans and Hudson Jeans."

 

Branded label stores have a tough time sustaining customers in the US

In the wake of e-commerce boom and fast fashion retail, traditional brands are finding it challenging to survive and sustain their market. The premium-denim category is probably the highest hit market where private-equity firms and investment groups in recent years bought out the founders of well-regarded labels as True Religion, J Brand, 7 For All Mankind, Joe’s Jeans and Hudson Jeans.

Branded label stores have a tough time sustaining

If reports are to be believed, True Religion, acquired in 2013 by Tower Brook Capital Partners for $824 million, is in a state of bankruptcy as revenues are down to $408 million after coming in at $420 million five years ago having institutional term loans of $485 million. In such a scenario, founders are scouting for a turnaround expert after having appointed John Ermatinger last year as the company’s chief executive.

Andreas Kurz, former chief executive of 7 For All Mankind and now president of Akari Enterprises, an international business consultant, points out the premium-denim market has contracted. People are working with an old recipe where they import Italian or Japanese fabric to Los Angeles, make it in Los Angeles and try to sell a jean for $200 to $250. That doesn’t work anymore. Consumers are more price-conscious. The consumer is being trained to be more frugal and to expect more for less, and that is tough on brands, believes Lloyd Greif, President and Chief Executive, Greif and Co, a downtown Los Angeles investment banking firm.

layoffs, a cause for concern

Some of the big names such as 7 For All Mankind, Splendid and Ella Moss, were sold to Israeli company Delta Galil earlier this year for $120 million by VF Corp, which bought the contemporary labels for more than $1 billion several years ago and saw revenues from the three drop several years in a row. With the market going down, Delta Galil has laid off more than 100 people at the three labels and has centralised the headquarters of all three stores in Los Angeles.

And as Greif says, there was a perception that these brands were on fire and now they are smoldering, noting that Delta Galil is known for selling down-market goods. This is a clear sign that these brands are in their maturity and are on a downhill slope. Whether Delta Galil turns them around or milks them until there is nothing left is still to be seen. BCBGMaxAzria has fired 123 people in an attempt to reduce some debt burden. J Brand is also witnessing downfall Japanese giant Fast Retailing, parent company of Uniqlo, acquired 80 per cent share of the denim label in late 2012 for $290 million.

Survival strategies

Experts say in the apparel industry, these issues are not unique to California companies but to the apparel industry across the country. The last two years have witnessed major downfall in US speciality stores. This has put pressure on clothing manufacturers to get financing.

The brands that are growing quickly are the hot brands that go direct to the Internet and reach the consumer through social media and online. There have been instances of new brands launching and going from zero to $30 million in sales in two or three years, all online. At the same time, fabric innovation and novelty in design needs to be taken care of in order to win over competitors, say experts. They have to fit with what is happening in the world at the time and maintain a core position.

Companies need to keep reinventing demand, patterns and styles in order to stay ahead of the curve. In line with this, denim companies are offering denim pants with spandex to make them more comfortable—even making jog jeans that have the feel of a knit but the look of denim. The athleisure movement is not about to stop as people want more-functional and -technical garments.

While apparel companies can manage products and price mix, it’s their ability to market and sell clothes online, which will help them reach maximum audience. During the first eight months of this year, department-store sales tanked 5 per cent compared to the same period last year, while online sales jumped a staggering 15.8 per cent, says the US Census Bureau.

 
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