Online Fashion Retailer Nasty Gal Cuts 10 Percent of Staff

Nasty Gal
Nasty Gal

Online fashion retailer Nasty Gal has laid off 10 percent of its staff, as the purveyor of edgy women’s clothing cuts costs amid an uncertain financing and retail environment.

CEO Sheree Waterson told the company in an email that the cuts were necessary as the “market in which we operate is changing, both in retail broadly and apparel specifically.” Nineteen employees across several departments were let go. Nasty Gal also laid off some staff in 2014.

The layoffs underscore the difficulty mature e-commerce startups can encounter as they transition from being a hot new brand to the long slog of building a more traditional retail business. In short, building a retail brand is really hard and technology can only afford you so many shortcuts along the way. Online beauty brand BirchBox announced layoffs of 15 percent of its staff last week, as startups in e-commerce tighten belts as investors become more wary of unprofitable growth.

Nasty Gal was founded by Sophia Amoruso in 2006 as a vintage shop on eBay. Over the years, she grew the Los Angeles-based company into an online business with more than $100 million in sales, fueled by a passionate customer base among millennial women and a strong social media presence where it boasts more than one million Facebook followers and nearly two million on Instagram. The company sells its own line of clothing as well as those of other brands and designers.

Amoruso turned over the CEO role to Waterson in early 2015, saying at the time that the company needed a more experienced leader. Re/code reported at the time that Amoruso had been telling potential investors that 2014 revenue growth would be flat or up slightly. She declined to give an update on 2015 sales figures when asked on Thursday.

Asked if it’s possible that Nasty Gal has hit its ceiling of growth, Amoruso toldRe/code, “We believe that future growth comes from being where our customer is, and that is not purely online. We have two stores and a lot of room to grow.”

The company has raised more than $60 million in venture capital from investors including Index Ventures and former Apple retail chief Ron Johnson.

Written by Jason Del Rey of Re/Code

(Source: Re/Code)

Buying Jos. A Bank Has Been a Catastrophe for Men’s Wearhouse

A Jos. A. Bank Clothiers Inc. Store Ahead Of Earnings Figures
Photograph by Craig Warga — Bloomberg via Getty Images

When Men’s Wearhouse MW bought rival clothier Jos. A Bank for $1.8 billion early last year after a five-month long saga, the retailer touted the deal as the creation of the fourth-largest men’s apparel chain in the United States, with annual sales of about $3.5 billion. The acquisition, Men’s Wearhouse claimed, would also lead to cost synergies and new customers.

It hasn’t worked out that way.

Earlier this fall, Men’s Wearhouse eliminated Jos. A Bank’s legendary “buy one suit, get three free” deals, trying to bring the brand closer to the overall company’s more modest promotional strategy and wean shoppers off what CEO Doug Ewert called “unsustainable” discounts. Shoppers have stayed away in droves.

For the second quarter in a row, Men’s Wearhouse reported a dramatic decline in comparable sales at Jos. A Bank, a 14.6% drop in the quarter. (In contrast, the flagship Men’s Wearhouse brand has only had one quarter of decline in the last four years.) And the problems are getting worse: so far this quarter, comparable sales are down 35% at Jos. A Bank. The disastrous turn of events prompted Men’s Wearhouse to take a $90.1 million write down on its Jos. A Bank investment.

Men’s Wearhouse shares were down 20% on Thursday afternoon, giving the company a stock market value of $710 million, barely more than a third of what it paid for Jos. A Bank. Talk about shareholder value destruction. And to think, Men’s Wearhouse and Jos. A Bank were so eager to combine that the two had five acrimonious months of bids and counter bids leading up to the ill-fated deal.

As Fortune wrote last month, getting shoppers to give up deals is nearly impossible, as countless retailers keep learning. J.C. Penney saw sales fall 25% in 2012 after former CEO Ron Johnson jettisoned the coupons and constant discounting shoppers had come to expect. The department store is still recovering from that decision. Coach, trying to restore its once upscale aura, saw huge double-digit percentage drop-offs when it eliminated a ton of online sales last year.

Ewert recognized what a bloodbath this has been, and tried to soothe Wall Street fears with a series of new initiatives.

“There is not much that’s off the table,” Ewert told Wall Street analysts on a conference call Thursday, pointing to the need to end 35% sales declines. He didn’t offer specifics, but he said he was considering every way to cut costs, including closing stores and slashing jobs. He has also hired turnaround experts Alix Partners.

But one thing he said he won’t do is cut his losses by dumping the Jos. A Bank brand.

“We’re not anywhere near that,” said Ewert. “This is a core brand for us. It attracts a different customer than we see in any of our brands. This company is in our sweet spot from a strategic standpoint, and we’re going to turn this around.”

He’d better hurry up.

Written by Phil Wahba of Fortune 

(Source: Fortune)

Louis Vuitton and Gucci’s Nightmares Come True: Wealthy Shoppers Don’t Want Flashy Logos Anymore

Akos Stiller/Bloomberg
Akos Stiller/Bloomberg

On a sunny May morning in New York’s upscale Fifth Avenue retail corridor, Carron Ryan stopped to admire a diamond-encrusted Van Cleef & Arpels necklace in the window of the Bergdorf Goodman department store. Louis Vuitton’s sprawling flagship store was right across the street, but she turned her nose up at its lineup of logo-stamped satchels and tote bags.

“It looks a little trashy,” Ryan said. “It’s better to be subtle.”

Ryan’s fondness for low-key, logo-free pieces is shared by a growing number of wealthy shoppers, experts say, who prefer to shell out for unique, hard-to-find pieces instead of highly recognizable handbags from big-name brands such as Louis Vuitton, Gucci and Prada.

The shift is largely about adapting to a moment in high-end fashion when personal taste and individuality — not conformity — are the ultimate badges of cool. But experts say the penchant for more discreet luxury goods is also partly being fueled by the simmering political debate about income inequality, which is leaving some big spenders worried that it is tacky to carry a purse that practically announces its four-figure price tag.

“We clearly can see that this is something where people are not wanting to show their wealth quite so conspicuously,” said Sarah Quinlan, who studies consumer spending patterns as the head of market insights for MasterCard Advisors.

This new attitude has helped create a rough patch for some of the titans of the luxury retail industry. Louis Vuitton, Gucci and Prada ascended as icons of global wealth as their $5,500 handbags and $695 silk scarves became status symbols from New York to Shanghai. But today’s luxury shopper has soured on such obvious signs of affluence, in particular the logo-emblazoned goods that these brands became known for as they aggressively opened stores in emerging markets and in smaller cities in the United States and Europe.

“This is really what keeps me up at night,” Johann Rupert, the chief executive of Richemont, which owns Cartier and other big luxury brands, said at a business conference last week. “Because people with money will not wish to show it. If your child’s best friend’s parents go unemployed, you don’t want to buy a car or anything showy.”

Today’s high-end shoppers will still shell out $1,800 for a pair of heels, but they want them to be bulletproof in an era when Instagram, style blogs and live-streamed runway shows make trends go boom and bust faster than ever.

That has made for a tough lesson for many luxury retailers, which have effectively become too popular for their own good. Gucci’s sales slumped 1.1 percent in 2014, adjusting for currency fluctuations and other factors. Prada also saw its sales slide 1.5 percent last year and has said it will scale back store expansion plans. At LVMH Moet Hennessy Louis Vuitton, the Paris-based luxury giant, sales growth has slowed in the once red-hot fashion and leather goods division anchored by Louis Vuitton.

Their stumbles have come even as the overall market for luxury goods has grown steadily since the end of the recession, according to data from Euromonitor. Accessories — the bread and butter of these handbag-centric brands — was one of the fastest-growing categories of luxury goods last year, according to research from Bain & Co.

“Today, it’s really about understated luxury,” said June Haynes, a luxury retail consultant and a former executive at upscale brand Valentino.

As the U.S. economy has recovered from the recession, upper-income consumers have largely seen their wealth increase, while middle- and lower-income consumers have not.

“I think as customers have begun to notice changes in their own income and the income of others, they begin to feel a little bit of yuppie guilt around purchasing the logos,” said Charles Lawry, an assistant professor at Pace University who studies luxury marketing. “It’s the idea of not wanting to seem as if you’re trying to brag about the products that you own.”

In China, which was for years the key engine for growth for many luxury businesses, a crackdown on corruption and a slowing economy has curbed some appetite for expensive items. But experts say another change is happening, too: Newly affluent Chinese customers are no longer clamoring for flashy Louis Vuitton luggage or Gucci sunglasses. It was a remarkably fast change in tastes.

“What took maybe 20 to 30 years for consumers in the U.S. — for the Chinese consumers, it took only two or three years,” said Olivier Abtan, global leader for luxury at consulting firm BCG.

Meanwhile, a bumper crop of niche brands such as Zadig & Voltaire, Sandro and Rag & Bone are providing fresh competition. These labels, with their $895 jackets or $525 ankle boots, are relatively affordable compared to ultra luxury brands, but they are still pricey enough to appeal to affluent consumers who want something that feels distinctive and has a halo of great craftsmanship.

It also doesn’t help that customers are interacting with luxury brands on Instagram, Pinterest and other online channels, speeding up the time it takes for a shoe or handbag to travel from must-have to boring.

“Social media does play a huge role in desensitizing us to these things that used to feel so special, because we’re seeing it over and over again,” said Aba Kwawu, principal of TAA PR, which works with luxury fashion clients. “By the time things are hitting the stores, customers are over it.”

The troubled luxury brands are scrambling to adapt to their new reality.

Louis Vuitton brought in Nicolas Ghesquiere, a designer widely regarded as one of fashion’s leading innovators, to serve as its creative director. When his first collection for the label debuted last year, Ghesquiere didn’t walk away from the logo but opted for different interpretations: He adorned some bags with an iteration of the logo that he spotted in an archival photo of one of the storied brand’s 19th-century boutiques.

But that creative energy has yet to translate into a major bump in sales.

Gucci has also taken an aggressive approach. In December, it hired a new creative director, Alessandro Michele. It is also limiting the number of new products it introduces, opening fewer stores and making it harder to find its signature staples in non-Prada retail outlets.

Francois-Henri Pinault, the chief executive of Kering, Gucci’s parent company, has said that under Gucci chief executive Marco Bizzarri, “we are making an effort to renew our product offering” to give it a more “modern identity.” Executives say that doesn’t mean giving up entirely on their famous GG logo but finding fresh ways to interpret it — particularly at their highest price points.

Still, in an interview earlier this year with trade publication Women’s Wear Daily, Bizzarri bristled at shoppers’ rejection of iconic logos.

“You invest in a logo for so many years and then you’re going to be ashamed because there is a trend outside, and you say, ‘I’m sophisticated. I don’t use a logo?’ That is not sophistication,” Bizzarri said.

The troubles at these powerhouse luxury brands are not being felt as strongly by their smaller but similarly priced counterparts. Yves Saint Laurent, a sister brand to Gucci in the Kering empire, saw its sales soar 27 percent last year. Miu Miu, a luxury label owned by Prada, saw its sales rise 4 percent last year. That’s likely because these and other smaller luxury brands have done a better job of preserving their exclusivity, experts say.

“These are [brands] that really control the supply, and therefore they manipulate the market and the desire for their products,” said Thomai Serdari, a professor who teaches luxury marketing courses at New York University.

Bottega Veneta, a Kering-owned luxury label that has seen healthy sales growth lately, is one that experts point to as an example of a high-end label that has succeeded by being understated.

Indeed, that is why Petra Callahan said she liked the brand.

“It’s not ostentatious,” said Callahan, a San Francisco-based lawyer who was checking out a $2,470 handbag with her mom during a visit to Bottega’s Fifth Avenue store.

As Louis Vuitton, Gucci and Prada try to boost sales, their challenge isn’t as simple as stealing business away from other retailers. Experts say that high-end consumers are also increasingly diverting their dollars to experiences, such as a lavish island vacation or an extravagant dinner at Michelin-star restaurant, rather than on goods.

Against that backdrop, Louis Vuitton has added to its Rodeo Drive outpost a special oasis just for important clients — a rooftop area where guests can sun themselves and enjoy Champagne. Gucci has a similar space in Los Angeles, and Prada has one in Las Vegas.

An experience, after all, is something you can’t put a label on.

Written by Sarah Halzack of The Washington Post

(Source: The Washington Post)