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Fashion brands: Survival of the fittest

CONSUMER PRODUCTS INSIGHTS  | 

With retailer’s generally struggling to close out 2015, companies may need to evaluate their brand strategies to counteract customer fatigue. The atmosphere for fashion brands is evolving quickly, with smaller companies competing with industry giants by building a strong brand and developing the right value proposition. RSM US LLP director, consumer products industry, former industry analyst Jeffrey B. Edelman, discusses how fashion brands can survive and even prosper in a volatile environment by connecting with customers and leveraging creativity and differentiation.

The fourth quarter was more about inventory clearance than brand strength: It reflected a continuation of disappointing sales trends that translated into an unusual amount of promotional activity. It was difficult to identify many standouts as retailers were primarily motivated to clear inventories; friends and family events appeared to be occurring weekly throughout most of December. The strong brands got thrown into the pot with the bad; there were only a handful that were able to resist joining the fray. Holiday 2015 was more about quantity rather than quality of inventory.

A brand's life cycle appears to be getting shorter: However, at the same time, opportunities for new or rejuvenated brands seem to be growing. Retailers place great emphasis on store and exclusive brands as a means of differentiation, in an attempt to control pricing and to capture a larger margin. The key behind longevity is differentiation and maintaining a constant dialogue with the consumer, thereby sustaining fashion newness and consumer allegiance. Megabrands, almost by definition, are prone to faster saturation.

There are brands, and there are brands; and most get tired with time: National brands originally set the standard, quickly followed by monobrand retailers such as Gap. Retailers placed greater emphasis on store and exclusive brands as a means of differentiation, in an attempt to control pricing and to capture a larger margin. Finally, there is a group of resurrected brands being used by retailers such as TJX, Men’s Wearhouse and Dick’s Sporting Goods, which includes an array of sporting equipment, shoes and apparel.

The lineup of fashion brands is changing rapidly as the old guard is giving way to the new. The 1980s and 1990s witnessed a sharp increase in shopping mall expansion and the rise of specialty retailers sporting the “hot” brands or look at the time and sought-after logos. More recently, there was the growth of accessories brands that increased market share through product line extension and expanded channels of distribution.

E-commerce leveled the playing field, allowing the small to compete with the giants through effective use of social media. It altered the value equation at an ever-so-fast rate, increasing fashion obsolesce faster than ever experienced providing the consumer with a broader array of fashion merchandise, and in many cases at attractive prices.

The common threads among the winners include:

  • Strong brand:  Consumers associate brands (national, store label, private or exclusive) with lifestyle, quality, consistency, fashion and value. Brand power extends across multiple product lines and categories, providing growth opportunities and increasing market share. Too often, a brand can be overexposed and saturated, making it more difficult to maintain relevancy. Others have become tired and less differentiated, moving away from their value proposition.

    Nike and Under Armour are two worth mentioning, as they have created demand through the introduction of new technology that has set them aside from competition.

  • Appropriate value proposition for target customers: Each consumer segment places a different relationship on price, fashion, quality, timeliness and uniqueness. Interestingly, those relationships have become more varied among consumer groups by product line. Many brands that were identified by their unique logo are finding their customers are now showing increased interest in “no logo” merchandise.

    Other consumers are more focused on being able to buy a discounted brand, whether in an off-price or factory outlet store. To them, the brand is more important than the latest fashion item, or fabric or fiber content identical to that found in full-price venues. Off-price and outlet centers seem to be taking some share away from the traditional big-box discount store which offers less fashion to go along with its low price. Price alone will not drive a purchase.

    The new wave of ‘fashion disruptors” have introduced a new value proposition for the millennial consumer. Their fast fashion business model brought more newness and differentiated product more often than traditional brands, at very low prices. Those key ingredients are reshaping the lineup of successful and growing brands among a wide variety of consumer categories.

    Brands have been playing catch-up with technology investments over the last few years as they look to increase relevance with consumers. A key factor is how consumers make purchasing decisions, and more importantly, how brands can influence those decisions. Megabrands are being challenged as today’s “new” consumer is seeking fashion they feel reflects their individuality. This carries over to sporting goods, electronics and other gadgets. Trends are temporary, not forever.

It’s all about the consumer: Companies must understand their customer—who they are, what they want, and when and how they want to purchase. This process is rapidly changing; doing the same thing one did yesterday or last year is the best route to market share loss. Rather, one needs to stay ahead of the curve. The key behind longevity is differentiation and maintaining a constant dialogue with the consumer and sustaining the fashion newness and consumer allegiance.

Apple is the best example; by developing products no one knew they needed and now cannot live without, followers are still chasing them. Under Armour similarly brought a new concept to the market, revolutionizing athletic apparel and subsequently expanding its brand strength to additional product categories.

Marketing is another avenue to drive product excitement such as Hanes’ L’eggs promotion many years ago that packaged its women’s hosiery in plastic eggs.

Creativity and differentiation can drive consumer demand profitably.

Apparel price points, however, are likely to remain under pressure: Fast fashion retailers appear to be impacting apparel for some, particularly the teen retailers. The ability to offer timely fashion merchandise at low prices has been a winning formula. This, in turn, could have a ripple effect through discount stores, mass merchants and possibly the department stores.

Most of these retailers have been focusing their efforts on increased use of private and exclusive brands to provide differentiation and margin; however, the longer lead time is a negative offset to some national brands. Importantly, the market for most vendors of apparel and some home-related items will likely tighten further.

The bottom line: Ultimately, it will be the survival of the fittest. Those offering uniqueness and differentiation, the appropriate value proposition for their targeted customer, a streamlined and efficient product development and sourcing structure, with a rapid turnaround are more likely to prosper.

There is no shortage of places to shop, how to shop and duplicity of merchandise—a rising tide will not lift all ships. Producers of commodity private label product will likely continue to be faced with reduced shelf and floor space, while it is imperative for brands to take measures to stay relevant.

The mindset of the “old guard” management must change; there needs to be a significant shift in corporate strategy. It will be interesting to see how Ralph Lauren evolves under the leadership of its new CEO, Stefan Larsson. He had a very successful track record at H&M, spearheading its expansion and revitalization of Old Navy. Yes, these are different businesses, but the world has changed and brands need to adapt to survive.

Jeffrey B. Edelman is director of consumer products industry services for RSM US LLP, and is located in the firm's New York office. He routinely advises senior management of companies operating in the consumer and retail sectors on strategic, sourcing, financial, marketing and distribution issues. He also works closely with internal teams on matters such as new business development, transactional advisory, including due diligence and tax. Jeff can be reached at +1 212 372 1225, or via email at jeff.edelman@rsmus.com.

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