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Fashion, luxury and lifestyle aggregator - October 2023

Posted: 31/10/2023

Not so smart warehousing?

The introduction of automation is impacting the fashion industry globally – from the use of robots and smart warehouses to pick, pack and ship orders, to chatbots and other AI handling customer service matters. Computer-aided design (CAD) software has also displaced the need for physical prototypes and samples, and facilitates the creation and modification of clothing and accessories with greater speed and accuracy.

But automation is not without its woes. This month, private equity-backed fashion retailer End Clothing was forced to write off £12 million of stock following logistical problems with its automated fulfilment system that was introduced last year, preventing orders from being shipped. Additional costs were then incurred to support order fulfilment and a one-off provision against stock that could not be sold. It is reported that End’s pre-tax profits were down by 76% to £9 million in the year to the end of March despite a rise in sales, but the luxury retailer has since reported that its ‘inventory management processes and system issues’ were ‘now in good order’.

End Clothing was founded in 2005 with the purpose of sharing artistic culture. Although originating as a small shop on Newcastle’s High Bridge, End now operates on a global scale, selling a diverse range of luxury designers – including the likes of Burberry, Gucci, and Loewe, as well as exclusive sports and streetwear.

Investment in automation amongst retailers is on the rise. Luxury department store Harrods is reported to be investing ‘several millions’ in new warehousing technology over the next year. Luxury group LVMH is also said to be investing in automation as part of its preparations for growth across houses including Louis Vuitton, Fendi and Tiffany. Highstreet brands are also catching on – Nike, H&M, IKEA, Amazon and Walmart are examples of other retailers reported to be introducing robotics to power their logistics and supply chain processes.  

It remains to be seen how these brands will navigate the new world of automation – despite an increase in investment in the space, End’s experience with automated warehousing should act as a word of warning for fashion retailers; smart warehousing may not always be so smart.

Frieze London

Frieze London returned to Regent’s Park this month for its twentieth year. The contemporary art fair presents work created predominantly post-2000 and coincides with its sister fair, Frieze Masters, which showcases pre-2000 pieces. Over the years, when Frieze has been in town, galleries and auction houses across London have reported strong sales and new clients. Indeed, last year evening sales at auctioneers Christie’s, Sotheby’s and Phillips totalled nearly £160 million across the week.

This year saw the exhibit of 12 new works by Damien Hirst, all of which sold shortly after opening. Two of the biggest reported sales were sculptures by late female artists Louise Bourgeois and Louis Nevelson, which sold for $3 million and $2 million respectively.

The fair also hosted new sponsorship deals with British menswear label Dunhill and Italian streetwear brand Stone Island. As part of its partnership, Dunhill had a space at the fair to showcase its current collection alongside pieces from the house’s archive. Fellow British fashion house Burberry similarly sponsored an exhibition by artist Sarah Lucas at the Tate Britain. Burberry’s creative director, Daniel Lee, said he hopes to ‘forge greater links with Britain’s art and culture scene’ as a result of the collaboration. Gucci also opened its latest archive exhibition, Gucci Cosmos, during the fair, which will run until the end of the year – an immersive experience which celebrates the luxury brand’s designs throughout its 102 year history.

It is not the first time fashion has infiltrated Frieze London. Last year it was dubbed ‘Frieze Fashion Week’ or the ‘Fifth Fashion Week’ as Alexander McQueen and other fashion brands moved their shows out of London Fashion Week, deciding to coincide them instead with the week of the fair. In 2016, WME-IMG acquired a majority stake in Frieze Art Fair to bring it within its sports and culture umbrella alongside the many fashion weeks it owns, operates or represents around the world, including New York, London and Milan.

Birkenstock disappoints on NYSE listing

Following reports of Birkenstock’s IPO plans, the footwear retailer’s first day of trading on the New York Stock Exchange was slower than expected. Despite being the third-largest US listing of 2023, shares in Birkenstock dropped 12.6% on 11 October 2023 from an initial offering price per share of $46.00 to $40.20. The initial price valued the German brand at $8.6 billion (double its worth in 2021), and the offering raised $1.48 billion. However, despite the numbers, the IPO is reported to represent the worst debut on the NYSE for a company worth over $1 billion in almost two years.

It remains to be seen whether the sandal maker’s recent popularity will entice investor demand. The success rate of footwear brands on the NYSE has been varied over the years, ranging from the triumph of Crocs and Sketchers to the struggles of Allbirds and Dr Martens. Crocs, which listed in 2006, is worth $5.2 billion – over six times its initial valuation. Allbirds, on the other hand, which listed in 2021 and opened at around $21 per share, has since traded down to near $1.

The mixed fortunes have not however dissuaded Golden Goose, which is reportedly exploring a potential stock market listing in Milan in the first half of 2024. The Italian luxury footwear brand was bought by Permira (which also owns Dr Martens) for $1.28 billion in 2020 and recently reached €500 million in annual sales. The reports come after comments made by the company’s chief executive, Silvio Campara, earlier this year that there is scope for further growth by expanding beyond the brand’s core product range.

What’s next for Next?

Next has added to a string of recent high-street acquisitions by announcing it will buy clothing brand Fatface for £115 million. Fatface was taken over by a consortium of lenders in 2020 as it struggled during the Covid pandemic, and Next have sold its clothes online since 2016. It is reported that Fatface will retain its ‘management autonomy’ and ‘creative independence’, and management will retain a 3% stake in the business. The news comes after Fatface recently reported a 15% increase in annual sales.

The acquisition is another addition to Next’s fast-growing portfolio: previous buys include Cath Kidston, Joules and, as well as buying stakes in JoJo Maman Bébé and Reiss as it expands its ‘Total Platform’ business. As many high-street retailers continue to face challenges, the question might be who is next in line to join the Next empire. 

Post-pandemic luxury market: the slump after the surge

During the pandemic years it was reported that the luxury industry boomed. Many shoppers were able to save money whilst stuck at home, allowing them to indulge in luxury purchases. It was reported that LVMH, which owns brands including Dior, Tiffany, Moet Hennessy and Louis Vuitton saw sales increase by 28% in 2022. Helen Brocklebank, of Walpole, described the luxury goods industry as ‘extremely resilient’ to recession.

It would seem we may have come to the end of this boom and the resilience of the luxury industry is being tested. Shoppers have reduced their spending, impacting on the growth of big luxury brands. This month, Bernard Arnault, CEO of LVMH, reported that sales growth is down to 9% from 17% in the previous quarter. However, despite this reduction, it still leaves LVMH’s sales growth in line with its historical average.

LVMH is not alone in seeing slower sales growth. Many luxury groups are bracing for the end of the post-pandemic boom, with many luxury items including, boats, aircraft, and jewellery returning to growth levels they saw prior to the pandemic. The luxury sector’s annual growth for 2023 is expected to be at a lower 5 to 12%, compared to a record 2022.

Kering, which owns brands including Saint Laurent and Gucci, has seen first half sales grow by just 2%. It appears to be attempting to bounce back from the slump by taking a 30% stake in Valentino, and a leadership reshuffle in Gucci, which has seen revenue contract. Despite this, Kering is still lagging behind some of its competitors.

This decline seems to be due to both a return to normal rates of growth, but also a decline in the major luxury markets of China and the US. In the US, the slowdown is against an unprecedented post-pandemic surge; in China, there has been a slower than anticipated return after harsh lockdowns. However, growth rates have not yet shown signs of decreasing below pre-pandemic levels. It remains to be seen how the luxury sector will fare in the near future.

Whilst luxury markets across Europe, the US and China are normalising, it appears that new markets - including South Korea - are emerging to ‘shake up the global luxury chessboard’. It would seem that the South Korean luxury market is one to watch, with anticipated projections of more than $7 billion by 2024.

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