This year has seen an unrelenting pace of store closures and bankruptcies, with more US retailers seeking Chapter 11 protection in 2020 than in all of the previous year. Pandemic casualties so far include Barneys New York, Ascena Retail Group, Lord & Taylor, J.Crew and JCPenney, which all had high debt levels prior to Covid-19. Neiman Marcus filed for Chapter 11 bankruptcy protection. Saks Fifth Avenue and Nordstrom have closed stores and laid off employees. Amid an already challenged wholesale environment, the loss of these key players has a significant impact on emerging brands that are reliant on these stores.
When Covid-19 locked down the US in March, Jonathan Simkhai was hit with cancellations from his wholesale partners, before he could ship out merchandise that was already produced. He wasn’t alone. “We saw huge, blanket cancellations in the spring. Retailers not only cancelled goods that were in transit, but they cancelled all future orders. Nobody knew what to do,” says Gary Wassner, chief executive of Hilldun Corp, which helps over 400 brands like Isabel Marant, Nili Lotan and Fear of God finance shipments to stores. Payments for clients were down 80 per cent in March from the previous year, and by April, it was down to 50 per cent, he says. “More emerging fashion brands will go out of business because the reality is that many of them live delivery by delivery,” says luxury advisor Robert Burke.
More brands have recently dabbled in direct-to-consumer with their own websites, but running a DTC business is expensive and requires a community of followers. An esteemed retailer can provide emerging brands with sales and exposure. Now, in addition to cancelling orders, retailers have also started discounting to get rid of old stock. Independent concept stores, many of which rely more on physical retail than e-commerce, are also folding, unable to pay brands. Independent and mid-sized brands, reliant on these sales channels, can be first to feel the loss of cash flow, but there are ways to protect their businesses.
Go casual
The spring cancellations prompted Simkhai to start thinking more seriously about what he could offer his clients. With 40 employees, the brand’s size allowed him to pivot his collection, tabling typical satin blouses and mini dresses in favour of a line of eco-friendly essentials introduced in July. The lower-priced basics are meant to appeal to the same customer with different priorities, says Simkhai, and are sold at Neiman Marcus, Bergdorf Goodman, Saks, Intermix, Fwrd and Revolve.
Simkhai doesn’t share sales figures, but said the range was successful enough to buoy the overall business and absorb the dip in sales for his mainline over the past few months. He now plans to launch JS Standard in Europe.
In the current environment, quick pivots are crucial to survival, says Wassner. “They’re able to immediately turn their ship around, whereas some of the bigger companies just can’t do that. When you don't have over 500 people on your payroll, it’s a lot easier to manage.”
Brands like Tibi and Ulla Johnson have found a sweet spot by having tight control over their distribution and are more profitable when generating a smaller revenue figure, he continues. “Brands that are losing money aren’t necessarily weak in product, but they are weak in profit. They were counting on top-line growth to solve all their problems.”
It’s important that designers feel comfortable to speak with their retail partners about not overextending the number of doors they’re in beyond their comfort zone, says Burke. “Many of them have sell-through agreements. They may do really well in a couple of key doors but then get dragged down by all the rest.”
“What you end up with at the end of the day is what brands should be concerned with. If it means less sales, less costs of product development, less excess inventory, less markdowns in the season, you can do a significant percentage less and top line sales will come out ahead. Don’t think that by doing volume, you’re all of a sudden going to obtain a greater margin on your product. You’re not,” adds Wassner.
Go seasonless
After panicked cancellations of orders in March and April, retailers thought they could return to the market where there would be lots of leftover inventory. “But the right inventory was not there,” says Wassner. “Smart brands went back to their inventories and created collections out of what already existed that were more appropriate for the retailers for the time that the deliveries were being made.”
Experts forecast more brands adopting a more trendless, seasonal approach, with collections driven by the vision of the designer rather than one based on seasonal trends. “No one right now in the retail world wants to plan out their business five or six months in advance,” says Burke. “This idea of actual seasons for clothes is out of touch.”
Gauge81, a women’s brand founded by Monika Silva and known for its eveningwear, pivoted to more casual items, like a black ribbed jersey top. It was no longer about designing for seasons, but what would work for her consumers globally.
Richard Quinn’s voluminous clothing and exuberant, head-to-toe prints similarly didn’t make sense for a home-bound customer. The designer says his biggest learning during lockdown was that he needed to focus on the end user. That meant offering customers more multifunctional pieces, easy-wearing separates and loungewear, including pyjama sets that still feature his prints. “Those are the kind of investment pieces that people want to buy now,” he says from his studio in Peckham.
One of Wassner’s clients, an independent brand in the region of 30 to 40 million at wholesale, delivered its Autumn/Winter 2020 collection two months later than usual. The sell-through at a comparable period to when the product was delivered for the same season last year was exponentially high. “The product is performing better at retail, because it’s finally being shipped at a time when people actually want to wear it,” he says.
Build stronger partnerships
Silva and Quinn say they have relied on long-term partnerships with the right luxury retailers. Matchesfashion.com, for example, took its commitment to emerging designers a step further with the August 2020 launch of its The Innovators Programme, a year-long initiative to “futureproof the businesses” of 12 selected brands, according to Natalie Kingham, fashion and buying director at Matchesfashion.
The bulk of the support will be in the form of marketing exposure — the retailer will invest £1.8 million in amplifying each brand across its platforms — and business mentorship. Designs will also be given preferential treatment, which can provide a lifeline to a brand’s cash flow. “Our customer comes to us for our curation of the best established and emerging designers. These promising new designers from around the globe have accounted towards our success as a business,” says Kingham.
Independent fashion collective Vaquera was recently added to Dover Street Market’s umbrella. Unlike other brands stocked by the retailer, DSM will help to produce and distribute about half of Vaquera’s Spring/Summer 2021 collection and distribute the couture pieces it produces itself. DSM is entirely owned by Comme des Garçons, but it doesn’t own the brands it supports.
Such partnerships are important, especially as big brands like Prada and LVMH-owned Dior are increasingly pulling back on wholesale accounts and focusing on their direct-to-consumer channels. “They realise they have the power to do that, so losing these brands leaves department stores and retailers in a particularly vulnerable position,” says Burke. This opens up space for young labels to nab the budgets previously dedicated to big brands. But after a shaky few months of cancellations, regaining trust will be a challenge.
“It’s the first time that stores and designers are really talking to each other. I don’t think you can do this solo; you need to have partners — and they need to be trusted partners,” says Julie Gilhart, founder of consulting firm Tomorrow Limited and former senior vice president fashion director at Barneys New York for 18 years.
The key to survival is to “work closely on writing the right orders, with the right terms, and the right delivery times”, says Wassner. “Everybody has to share both the negative effects of what has occurred over the past eight months and look forward to establishing better relationships that are more practical and fair. It’s important to find common ground on that.”
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