How will middle-market labels that survive the pandemic convince shoppers their products are worth their price tag? The answer may be to get out of department stores — and tweak the narrative.
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NEW YORK, United States — As the pandemic hit, LoveShackFancy Founder Rebecca Hessel Cohen was advised by peers and partners to be conservative when it came to producing her latest collection of ruffled mini-dresses and tiered skirts, mostly priced around $300. All around her, brands were shrinking inventory by reducing the number of styles per collection, with some companies skipping a season altogether. But Hessel Cohen did not want to lose out on the season that best reflects the soft, bohemian, ultra-feminine aesthetic for which the brand is known.
“Summer is our thing,” said Hessel Cohen, the former magazine editor who started the label in 2013 with Net-a-Porter and Barneys New York. With five stores and plans to open another five in the next year, LoveShackFancy has found a dedicated audience for its maximalist aesthetic, even in the pandemic. The company says June 2020 was its best performing June ever in terms of sales. Its collaborations released after lockdowns began — a Superga sneaker line in March, and a lower-price Target collection in June — sold out in one week and just a few minutes, respectively.
In industry terms, LoveShackFancy falls into the “contemporary” category, meaning that its products are not as expensive as so-called designer fashion, but also aren’t as cheap as that of High Street or fast-fashion retailers. But LoveShackFancy operates differently than the contemporary brands that defined the market.
It's one of a new wave of mid-price brands communicating directly with their customers from the outset and are not dependent on department stores. It generates half of its revenue from its own e-commerce and shops (each of which has its own Instagram account), and half from stockists such as Revolve and Harrods, President Stacy Lilien said.
However, many of the brands that sit alongside LoveShackFancy at stores are in crisis, and were so long before 2020.
Over the last decade, the space between fast fashion and luxury became smaller and more competitive, especially in the US, where consumers are more driven by price and discounting than in other areas of the world. American department stores — the bread-and-butter sales channel for contemporary brands — declined, undermining the labels that hitched their wagons on the distribution strategy, with its addiction to promotions and a never-ending appetite for more collections and categories. Scale was prioritised over profitability, leaving many brands weakened as consumer shopping habits changed. Meanwhile, online brands like Everlane and Reformation taught consumers to see stores as a middleman that made products more expensive.
And now the pandemic, which is expected to crunch the apparel market this year by as much as 30 percent according to McKinsey and BoF’s State of Fashion Coronavirus Update, is something of a final straw. Some brands that helped establish the space, like Vince and Theory, have already evolved, but the transition can be painful — and hard to pull off.
In May and June, the Diane von Furstenberg brand — which relaunched in 1997 at a contemporary price point, selling its iconic printed dresses for around $500 — laid off most of its American employees and shut down its international entities in the UK and France. Known for its signature wrap dress and famous namesake founder, the brand struggled in recent years under a costly store network and changes in creative direction despite its timely feminist brand identity.
Andrew Rosen, the founder of Theory and prolific investor in American brands, said that before Covid-19, the fashion business was already too crowded with products. "In total, there was more supply than there was demand," he said, predicting a "big reset" across the market. "There will be a cleansing of our whole industry, where those that were struggling before are going to go away... and the ones that make it will have a bigger share of market," he said. "It will also open up room for new players to come in and new opportunities to arise."
The brands best positioned to survive and evolve during this crisis will need to pay close attention to their customers’ shifting mindsets and advertise a compelling story that emphasises quality and value instead of just price. And they will need to focus on profitability and reevaluate retail relationships and investments.
“Liquidity is critical and for those that don’t [have it], this is the day of reckoning,” said analyst Simeon Siegel, managing director of BMO Capital Markets. “Anyone who is well-capitalised enough and has enough liquidity to survive should seriously focus on figuring out how to thrive and refashion their business for the future."
Siegel said the “grow now, figure it out later” model favoured by many in the past is over. Smaller and healthier brands will have a better chance of survival.
“A lot of this will happen not even by choice, but by necessity,” said retail consultant Robert Burke.
The Rise of the Contemporary Brand
Perhaps what the market needs is a good-old fashion rebranding, just like it had in the late 90s, when reasonably priced American sportswear was called “bridge,” as in a bridge between cheap and expensive clothes. The category was often viewed as dowdy or less-than; not a section of the department store where young or youthful people were likely to shop. This all changed with the emergence of labels like Theory, Tibi and Rebecca Taylor, which offered designer trends and wardrobe staples, from versatile workwear to cocktail dresses, at a less-than-designer price.
But the idea of a “contemporary customer” became obsolete as shoppers took to Instagram to discover brands and mixed fast-fashion pieces with those from luxury brands. Luxury brands shut their diffusion lines but extended their entry-price product offerings, like streetwear and T-shirts, and global fast-fashion brands upped their production quality while still following runway trends. Contemporary brands suffered from what retail executive Andrea Wasserman described as a “lack of differentiation” that grew worse over time. “While they’re often still on-trend and flattering, they have rarely achieved the level of storytelling that the brands priced above or below them have,” she said.
While under the pressure of declining sales, contemporary brands needed to invest in online, direct-to-consumer marketing and sales. Many buckled under the increased demands and thinning margins. Others navigated the transition by investing in marketing or rethinking their design approach.
Vince was the perfect example of a contemporary brand gone south when it warned it might file for bankruptcy after a devastating 2016, which it ended with $50 million in debt and a loss of $162.7 million.
The next two years were ones of significant change under Chief Executive Brendan Hoffman, who cut back the brand’s distribution, ending relationships with Bloomingdale’s and Saks Fifth Avenue and exiting stores. Perhaps most importantly, the brand brought on new creative talent, who have their own headquarters in Los Angeles led by womenswear designer Caroline Belhumeur, formerly of Club Monaco, and menswear designer Patrik Ervell.
The changes paid off: Vince’s net sales grew 7.6 percent to $300 million in fiscal 2019, with direct-to-consumer sales growing 11.8 percent and representing 44 percent of sales. Gross margin was 47.6 percent, compared to 43.8 percent in fiscal 2016.
“It takes a lot of courage but it also takes a lot of strategy,” said Burke of Vince.
Vince’s turnaround may help it weather the storm of coronavirus during which many of its peers will likely not survive. Its sales decreased 47.7 percent in the quarter ending May 2.
But even looking beyond the pandemic, many industry observers posit that it’s just going to get more difficult to make it in the middle. “As society continues to get more casual.. the desire for the $345 blouse goes away,” Wasserman said.
Others, however, believe that there is a significant opportunity in the space between high and low: the market just needs to evolve and modernise.
“It’s really [about] creating a total brand through image communication and owning their own distribution,” Burke said, pointing to the success of brands like LoveShackFancy, Ganni and Reformation.
Rethinking the Wholesale Relationship
For those left standing, analysts and experts agree that the contemporary brands with most control over their sales and communications channels with shoppers will fare the best. Many brands, faced with order cancellations, have already realised some retail partners are more trouble to work with than they are worth.
Sandra Campos, a retail executive who led DVF until exiting in June, advised prioritising direct relationships in order to have more leverage in the department store market. “It’s more important to make your product desirable to the consumer and socially relevant because that’s when the department stores will want it,” she said.
A.L.C., the contemporary brand founded by Hollywood stylist Andrea Lieberman 12 years ago and acquired by Interluxe Holdings in 2015, has been investing more in e-commerce during the pandemic, doubling its digital marketing spend compared to last year. But it will continue to be a majority wholesale revenue brand, said President Ellen Kinney.
“Everybody’s like ‘Oh, wholesale is dead,’ It's not, it's just different,” she said. “Wanting to make the brand perform for them the best we can while remaining true to ourselves, that's the ticket.”
Kinney predicts one of the major shifts to come to the contemporary market out of the pandemic is a change in how brands deliver products to stores. While some are planning to release fewer collections per year, she said A.L.C. will still ship products to retailers 12 months a year, but in smaller assortments of its compact knits and pleated midi-dresses designed to sell better at full price.
Selling a Story, Not a Price Point
Contemporary brands haven’t historically needed a strong point of view, selling based on trend and price instead. For instance, when off-the-shoulder tops were ultra-popular in 2016, contemporary brands turned on the spigot, producing hundreds of versions that essentially looked exactly the same.
But using the price as the selling point is no longer a compelling strategy. There are plenty of cheaper products that offer relatively the same thing, and plenty of more expensive products that are frequently discounted. More than ever, a strong point of view and reason for existing is crucial.
Generation Z shoppers who grew up shopping from direct-to-consumer digital brands and have higher expectations about marketing, customer service and transparency will have more influence as they age, said Campos. While price point is important, “a mission and a purpose for a brand, with this generation, is so critical,” she said.
Rosen said brands will need to have a more curated approach to everything they produce: "You have to look for the heroic items and heroic product, [and] be able to message that directly to the consumer through many different channels and sell a lot of a very few products instead of selling a little of a lot of products.”
Theory Chief Brand Officer Siddhartha Shukla said he learned in his first years leading marketing at the company that speaking directly about the value of the product did not work. Instead, it was about offering a “proverbial wink” to the consumer, connoting that the Theory customer was savvier and better educated than the typical shopper. By shopping at Theory, “You figured something out,” he said. (While Theory declined to share sales figures, market sources put the brand’s 2019 revenue at over $1 billion globally.)
As Theory’s direct business grows, the company is collecting more data to understand its consumers and what they want in terms of clothing but also their larger values, and figuring out how Theory can reflect those ideas, like wanting more environmentally responsible fashion.
“We shouldn't forget that we're a manufacturer of apparel. But we're a brand,” Shukla said. "Part of that is about our products, but part of it is also about an ethic.”
The International Opportunity
Another avenue for contemporary brands coming out the pandemic is international markets, where consumers might return to shopping faster than they do in the US.
Campos said contemporary brands have “great opportunities” to expand internationally, especially in Europe where there are more speciality stores and fewer expectations of discounts.
But it requires time and carefully considered investment on a region-by-region basis. The space between luxury and fast-fashion varies greatly country to country, said Shukla, in terms of the dominant local players, the expectations of the consumers and distribution models. European contemporary brands like Sandro and Maje, for example, can be much more trend-driven.
And in China, the world’s largest luxury market, a rising middle class is a growing potential audience for American brands, if they are able to cater their approach to regional needs — especially in regards to marketing.
“If you really dig into the global landscape,” Shukla said, “that white space and that opportunity to generate business exists around the world.”