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Memo: In Good Fashion

The merits of fashion retail have never been logical but for the best operators, there is a way to make sense of the chaos.

Likeability, brand equity, and appeal can shift in an instant. But there are predictors of success and failure. Historical benchmarks have long been available to serve as guideposts for the savviest retailers looking to navigate tumultuous times of the present. Manufacturers have thrived during war, recession, protest, and pandemic, and only the poorer performers cited external factors as cause for concern.

A common misconception in the digitally native vertical brand industry is that the previous year of the pandemic is thwarting the growth of fashion retailers, harming sales projections, stifling growth, or shuttering doors. The hard data contends there’s more to the story. Of the current top 100 fastest-growing direct-to-consumer brands tracked by 2PM, 40 are fashion retailers, while four are in the top 10. This has been a breakout year for fashion.

A number of modern brands deepened community and developed foundations for explosive growth over the last 12 months: Parade, Rowing Blazers, Madhappy, Aime Leon Dore, Tracksmith, Buck Mason, Gymshark, and Monica & Andy are but a few. For the retailers who struggled through the last year, this memo can serve as a helpful reset.

The average American buys a piece of clothing every five days. A study of historical crises will show that our behaviors do not slow to halt during moments of distress. Instead, they change; we allocate our spend differently. We limit our purchases to “affordable pleasures” or we shift to differing styles that represent the feel of the moment in question. We are wired to buy things to wear and we do so frequently, even the most frugal of us. What changes is how we express our individuality in evolving times.

Consider Ralph Lauren’s rise in the late 1970s and early 1980s despite a catastrophic American recession. A 1990 article in Utah’s 171-year-old daily paper Deseret News began:

If the 1980s were a movie – and the metaphor is almost unavoidable given actor/president Ronald Reagan’s domination of the decade – the credit lines would have to include costumes by Ralph Lauren. [1]

The designer identified and marched forward on a new approach to an established idea, the article explains: The New Traditionalism or “the baby boom’s kitschification of the middle age.” Lauren wasn’t the first; an even greater example of this strategy is 1947’s launch of then-obscure designer Christian Dior’s first line.

In 1947, my first collection was successful beyond my wildest dreams.

After departing the army in 1942, the 37-year-old Dior joined the Lucien Lelong fashion house alongside a gentleman named Pierre Balmain, the house’s other primary designer. Drio, along with Lelong and Balmain, labored to maintain France’s fashion industry throughout World War II. Five years later, Dior launched his design house’s debut fragrance. The bottled Miss Dior perfume was a tribute to his sister Catherine who was liberated from a concentration camp just two years prior. Inspired by the country’s Belle Époque period of the late 1800s, Dior preceded Ralph Lauren in a period-driven return to tradition. It was his admiration of that period, 50 years on, that influenced a femininity in his design that would eventually take the contemporary fashion world by storm.

Fashion has never been logical. Sometimes, timing is as much a factor as anything else. For Dior, timing couldn’t have been better. Fast Company’s Liz Segran recently covered COVID-19’s effect on fashion trends. She cited Dior’s prescient strategy and brilliant timing:

During World War II, for instance, women wore jeans and overalls as they took over men’s jobs. Then, in 1947, Christian Dior unveiled his debut collection, which featured figure-hugging jackets, fitted waists, and A-line skirts. It was a radically feminine look that repudiated the utilitarian, masculinized garments of the previous years—and that was the point. Around the world, women swooned over this style, dubbed the “New Look,” which became a dominant fashion trend of the late 1940s and early 1950s. [2]

This next part is prescient. In that Fast Company report, Segran went on to explain the dynamic of women wearing men’s workwear, including overalls and denim, during the war. She cited author Kimberly Chrisman-Campbell explaining how, even after the war concluded and the pendulum swung to a radically feminine look, the fashion trends of the war persisted:

After a crisis, there is a backlash, but there is also a lasting effect. Both of these can be true at the same time.

The war years normalized a new era for womenswear, including pants and garments that were never before considered customary. This sheds light on the potential post-pandemic behaviors of today.

The retail industry has suffered from foundational issues. The reliance on debt leverage to fund growth and inventory has contributed to legacy companies filing for bankruptcy. Of these, J.Crew, Brooks Brothers, JCPenney, and Neiman Marcus are three of many.

However, like womenswear post-World War II, the reset is not as clear as once thought. America’s current comfort in casual wear is likely to persist in the home and places of work for years to come. Consumers did buy clothes to wear during the pandemic despite the remote work trend, stay-at-home orders, and distance learning. The clothes or the messages by the retailers were just unique to the time.

Good Fashion, Bad Everything

This year, traditional retailers like VF Corporation’s The North Face grew in prominence through careful merchandising, streetwear adoption, and savvy collaborations (See: Gucci). Lululemon’s stock is trading near all-time highs. And Gucci has become the “preferred” luxury brand of Generation Z.

While many brands are suffering, and some have had to take drastic measures like permanently closing stores, other brands like Dior or Louis Vuitton have been performing well, indicating that the pandemic is hitting brands with pre-existing conditions harder. [3]

Direct brands like Parade climbed from relative obscurity to $10 million in annual revenue. Rowing Blazers, a traditional menswear retailer, showed up on everything from NBA stars to Princess Diana in Netflix’s The Crown. Madhappy used savvy merchandising, a persisting message, and their partnership with LVMH to earn Lebron James’ attention in the NBA bubble. The brand is now one of the most coveted streetwear brands born in the last five years. Gymshark accepted its first funding, landing at a valuation north of $1 billion. And Tracksmith, the amateur running brand, finally caught the attention of the mainstream after years of quiet growth. It is now featured across the airwaves thanks to the success of their succinct and aspirational advertising strategy.

Like Ralph Lauren’s rise to prominence during an economic recession and political and cultural reset, and Christian Dior’s establishing of a new post-war tone for American women that flew in the face of other trends, the brands that succeeded during our most recent global crisis did so because they were properly equipped. In each case, they all share (1) smart marketing, (2) savvy merchandising, (3) a messaging strategy that cuts through the worried noise, and most importantly, (4) appreciation for the history of the industry.

For the brands that struggle to regain their footing, at least one of the above four are missing. The pandemic has served as a mirror for modern and traditional retailers alike. Walk into a J.Crew and you may feel soulless. Walk into a Rimowa store and you will feel the sense of New Traditionalism that catapulted Dior and Ralph Lauren to generational success. An over-reliance on physical distribution, pay-per-click advertising, traditional merchandising cycles, academic marketing strategies, and stale interpretations of customer profiles are the preexisting conditions that culminated with the current state of retail distress.

It doesn’t have to be this way. Study the best practices of the past. There will always be momentum shifts, forth and back, over time. The brands that survive are studied in sociology, customer understanding, brand history, communication, and the experiences that elevate a product into a moment. These brands capture more than eyeballs; they capture imagination. It’s the one constant of an enduring brand over decades of ebbs and flows.

By Web Smith | Editor: Hilary Milnes

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Memo: The Forgotten Middle

The shift to eCommerce has been overstated, according to one common refrain. There’s some evidence to back that up: total eCommerce penetration accounts for an estimated 14.3-16.1% of all retail sales in 2021, a small slice. Anecdotal support of physical retail’s continued prominence is also regularly called to mind. In a well-researched essay by Elena Burger, an investment analyst at Gilder Gagnon Howe & Co, she explains:

The takeaway shouldn’t be “eCommerce is eating the world” it should be “despite lockdown, store closures, mass layoffs, and global logistics networks that rival militaries in terms of sophistication, eCommerce was less than one-sixth of sales in the US.”

Intelligence, for the moment, is outpacing life. [1]

The essay is tremendous. A number of takeaways will leave you wanting to understand more about the fascinating times of digital agglomeration’s clash with traditional retail. My concern, however, is that it glosses over two larger issues: retail infrastructure is not solely resting on New York’s soil (the city is mentioned 12 times throughout the essay), and throughout the country, pockets of front-office employment has evaporated. As retail store managers and associates have faced furloughs or worse, there is opportunity for lateral movement to other retailers, brands, or comparable industries. This is not so with the tens of thousands who’ve lost their jobs in front-office retail.

One brand’s success in an area like Soho, New York is often held up as the anecdotal argument that retail’s demise isn’t so dramatic, with stories that read, “Retail is not dead, look at what Allbirds is accomplishing in physical stores!” Yet if you zoom out, recent reports from CNBC tell a different story: rents have fallen to $367 per square foot, a 62% decline from the area’s peak in the spring of 2015, and are declining 25% year over year [2]. The average gross margin of a major retailer fell from 28.44% to 16.76% between Q2 and Q4 2020, with EBITDA margin falling nearly 100 basis points over the same period [3]. Meanwhile, foot traffic has yet to return to pre-COVID form.

We built a bubble of physical retail that reflected changes in America’s social fabric. We did not account for what an even a single-digit change in foot traffic could do to those creations. Ms. Burger explains:

In that period, engineering solved the rather unwieldy problem of “how do we bring an unfathomably large number of people together so they can shop, and justify the millions of dollars we just spent building out this department store or mall.” While developers had other tools to ensure profits (mall operators used a 1954 tax change to accelerate their depreciation schedules and, in turn, realize higher tax write-offs) this is something really worth highlighting. [1]

It’s important to note that preceding this 1954 tax change was another major shift in society, taking place earlier that same year.

The U.S. Supreme Court abolished segregation in schools after Brown vs. Board of Education was decided. This meant that urban areas around the country were characterized as unlivable by some. Nowhere was this felt greater than in the midwest, where affluent families and government-funded veterans moved to the suburbs to allow their children to avoid certain schools. […] This massive exodus to the American suburbs corresponded with a construction boom in the outskirts of many metropolitan areas. [4]

We built these new malls as a means to modularize new cities removed from urban centers. We built these malls far too fast and far too often. America is simply over-retailed. Between 1950 and 1990, the aggregate population at the center of American cities declined nearly 17% while population grew by 72% in the suburban areas. Before the 1954 tax change was enacted (accelerated depreciation), there was one regional mall in the United States. By 1956, that number rose to 25. There was 6 million square-feet of retail in 1953 and nearly 31 million square-feet by 1956.

We did not account for a future of re-urbanization. We did not account for a future that saw a decline in car ownership. And we did not account for a future that saw digital means of trade as an alternative to the physical.

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When you learn just how little retail’s physical development is tied to population growth, you begin to understand why so many retailers relied on debt and persisting sales promotion to account for waning interest. eCommerce does not have to exceed 30-40% of total sales to negatively impact the retailers who failed to prepare for a future without the consistently high rates of foot traffic that mall developers advertise. In fact, eCommerce as a percentage of retail only needs to remain where it is to continue disrupting America’s 70 year-old model of mall retail. And eCommerce is not responsible for the “contraction of physical retail.” It’s more complicated than that.

Authentic Brands Group’s recent acquisitions are shaping up to be a bright spot in the mall retail sector (Frye, Nautica, Nine West, Volcom, Barneys New York, Forever 21, Lucky Brand, and Brooks Brothers among them). But there are a number of retailers whose positions are increasingly vulnerable. Foot traffic remains unreliable at many malls across America. A number of major retailers are enduring disruption, some worse than others. Your mall is overwhelmingly represented by one American city that is 560 miles away from Manhattan and 2,800 miles away from Los Angeles. It’s the forgotten middle.

As 2019 came to a close, I was sitting around a table with retail of executives from L Brands (Victoria’s Secret, Bed Bath & Beyond), Designer Brands (DSW), Ascena Retail Group (Justice, Lane Bryant, Ann Taylor), Abercrombie & Fitch, and Express. Each headquartered in Columbus, Ohio, the stakes of the conversation were alarming. According WWD, Columbus is the third-ranked city for fashion designer employment behind New York and Los Angeles. This region of Ohio depends on corporate retail like Pittsburgh once depended on steel mills or Detroit boomed on domestic automotive manufacturing. Even a fractional change in the retail ecosystem can cause seismic damage to the city’s tax base. The city’s economic development website boasts:

The Columbus Region is home to some of the world’s most recognizable retail and apparel brands who drive innovation globally – ranking No. 4 along large U.S. metros for concentration of retail headquarters. A concentration of headquarter operations is joined by businesses focused on market research, analytics, design, technology and omni-channel efficiencies – creating a market that uniquely connects retailers with customers.[4]

Well into the day, eCommerce rose to the forefront of the conversation. While some of the leaders were prepared for an eventual digital-first economy, few were eager to depend on it so heavily and so soon. By the second quarter of 2020, digital and logistical infrastructures would be put to the test as mall foot traffic fell precipitously. That foot traffic has yet to return to its pre-COVID form. And neither have the gross margins that sustain the large corporations that depend on them for the maintenance of five-figure workforces.

Retail is resilient but all retailers are not. Since that conversation, the collective of brands in that room has eschewed thousands of front-office jobs, disrupting suburbs and schools and places of worship that depended on the consistency of enterprise retail. The reality is that the No. 4 metro for retail employment and the No. 3 metro for fashion design has been impacted by the shift to digital agglomeration. And it’s a leading indicator for further disruption, if I have ever seen one. We are talking about a class of corporations that are commonly operated with extraordinary amounts of debt and little room to tolerate disruption. In The Credit Report, I explained:

A number of key retailers are carrying debt-to-EBITDA ratios that are not sustainable under COVID-19’s conditions. For example: JCPenney owes $8.30 for every dollar earned, Office Depot owes $4.60 per dollar earned, and Walgreens owes $5.80.

Perhaps the traditional retailers who’ve relied so heavily on foot traffic will find new ways to build omnichannel successes. It is a matter of margin, room for error, and tolerance for disruption. Retail is on shakier ground than many can understand. Here, in the forgotten middle, I see the struggle to pivot towards a digital-first economy. Digital agglomeration [6] and eCommerce are undeniable factors in this newfound vulnerability. It may be difficult to see at the New York or Los Angeles street levels, where luxury brands and popular stores are still thriving despite it all. But, without considerable changes, the mall retail system is incapable of tolerating further disruption. The shift to eCommerce is actually understated because the old guard will have to adopt the technologies of today just to survive the decade. In a wonderful excerpt, Burger explained:

Because technology made the relationship between the consumer and consumerism more convenient, and because its acceptance was relatively uncontested, shopping itself sponsored the complete alteration of urban and suburban sprawl. [1]

In the 1950s, malls were the retail technology of its time. Seventy years later, you wouldn’t possibly rely on olden technology to power retail for the next seventy. Mall owners will require its retailers becoming great eCommerce practitioners. Without that, these developments will struggle with delinquencies and vacancies, perpetuating a ruinous cycle. Physical retail needs eCommerce more than ever.

By Web Smith | Editor: Hilary Milnes | Art: Alex Remy | About 2PM

Editor’s Note: Elena’s essay is one that is sure to take the retail ecosystem by storm, and rightfully so. Within the hour that it was published, seven different people sent it my way. It is well-researched and well-positioned. The author is a hedge fund analyst, which informs her views. She explains that the narrative around eCommerce’s impact on physical retail is overstated. She and I hopped on a traditional old phone call to discuss what we agreed on as well as what I would contend with or elaborate further on. What I most appreciated about the exchange is that we discussed ideas candidly and constructively without as much as a prior introduction. It’s what I hope happens more often in this era of Substack creators, newsletter operators, and operators-turned-writers. If you’re new to 2PM, read the rest of this week’s Monday Letter here.

Memo: The Great War

Robert Vann, publisher and editor of the Pittsburgh Courier, wrote in awe about the newly minted international sports icon Jesse Owens in 1936. Owens had just won four gold medals at that year’s Olympics, held in Berlin.

I looked on with a heart which beat proudly as the lad who was crowned king of the 100 meters event, get an ovation the like of which I have never heard before. I saw him greeted by the Grand Chancellor of this country as a brilliant sun peeped out through the clouds. I saw a vast crowd of some 85,000 or 90,000 people stand up and cheer him to the echo.

A sprinter from the Jim Crow South and student at a then-segregated Ohio State University, Owens experienced racially-integrated life for the first time while sailing to Europe and living abroad for the Olympics. In a span of a week during the Olympic games, he challenged and diminished many of the ethnic and racial myths perpetuated by Adolf Hitler, the “Grand Chancellor” referenced by Vann, by dominating the Berlin Olympics and undermining Hitler’s claims of national and racial supremacy.

Berlin, on the verge of World War II, was bristling with Nazism, red-and-black swastikas flying everywhere. Brown-shirted Storm Troopers goose-stepped while Adolf Hitler postured, harangued, threatened. A montage of evil was played over the chillingly familiar Nazi anthem: “Deutschland Uber Alles.” This was the background for the 1936 Olympics. When Owens finished competing, the African-American son of a sharecropper and the grandson of slaves had single-handedly crushed Hitler’s myth. [1]

Owens returned to America after the Olympics, where President Franklin D. Roosevelt would not acknowledge his feat and, in failing to do so, spawned an historic missed opportunity to shift a global narrative. What could have been had Owens’ treatment at home matched his achievements abroad? Had America amplified and marketed his four Olympic gold medals as symbols of psychological defeat over Germany’s prevailing ideology, perhaps a tyrannical belief system could have been thwarted before words turned to actions. In reality, Kristallnacht would take place two years following the 1936 Olympics. Owens would go on to say:

Some people say Hitler snubbed me. But I tell you, Hitler did not snub me. I am not knocking the President. Remember, I am not a politician, but remember that the President did not send me a message of congratulations because, people said, he was too busy.

Because he was an African-American man, major corporations would not employ him as a pitch man. His amateur status was revoked by the NCAA, and he was reduced to running against horses for compensation. During Owens’ career, the country was pioneering large-scale advertising and public relations campaigns, but we failed to use his historical wins to our advantage.

We must ask ourselves why.

The Great Invention of the 20th Century

Owens’ story becomes a lesson in foreshadowing and an important parable. Advertising is one of the most powerful forces in shaping opinion and influencing policy, but it’s much harder to advertise when a company, brand, or sovereign nation isn’t itself in support of the cause in question.

Just five years after Owens silenced Hitler with his speed, American advertising agencies and their brand partners mastered cause marketing when they needed it most: World War II. America was at war abroad and grappling with a vulnerable economy at home. The economic engine of war involved a never before seen form of consumer marketing. Advertising was used to promote consumerism as a patriotic duty and brands were intertwined with government initiatives to both supply our military industrial complex and support the domestic economy. WWII-era brands and media agencies were aligned in a forceful showing that ideas could be used no differently than physical weaponry.

Throughout history, brands have grown stronger during periods of societal unrest, but only when the dissonance between their ideas and their actions were at a minimum. Civil rights wasn’t an American corporate or policy priority when Owens stood above a saluting Nazi, laying waste to the host country’s agenda. Contrast this to the collective efforts that won a war after escalation required our participation.

Film depictions of WWII feature the Lucky Strike brand of cigarettes as prominently as if the packages of rolled tobacco were leading characters of the story’s arc. Lucky Strike was omnipresent internationally throughout the war. But before the packs of branded cigarettes were included as C-rations for American soldiers, Edward Bernays, known as “the father of public relations”, helped the American subsidiary of the British tobacco company with its first mindshare coup. History’s first PR campaign was designed to convince American women to take up smoking. With the wind of suffrage at their backs and the 19th Amendment to the Constitution fueling a new wave of enfranchisement, women became a marketer’s new focal point. Lucky Strike cigarettes were their “torches of freedom.” Corporate America co-opted a social movement to further an economy. It would be the first time of many.

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Modern marketing / PR was a byproduct of American war efforts in the Wilson administration (1917). Without Edward Bernays and his uncle (Freud), our consumer economy would not be the same.What he didn’t account for was our distributed media system. From 1928’s “Propaganda”: pic.twitter.com/9C7MIkYTAx

Alongside savvy marketing tactics, new brand innovations gained traction thanks to their contributions to wartime economies. Walt Disney manufactured morale for GIs shipped to different theaters of war. Jeeps were built for the American military. Mars invented M&Ms during the Spanish Civil War. Bausch & Lomb created Ray-Ban aviator anti-glare frames at the request of an Army Air Corps lieutenant general. Kotex began as a WWI-era gauze before being adapted by Army nurses to relieve menstrual bleeding. Super Glue was formulated in 1942 to serve as a manufacturing additive for military weapons. Silly Putty was designed after a war-production experiment to find an alternative for rubber went wrong. And Fanta was invented after a trade embargo prevented Coca-Cola syrup from being imported into Nazi Germany during World War II.

Overwhelmingly, at the dawn of the American advertising age, brands were a part of the war effort, liberation, and many cultural shifts of the times. There were exceptions, of course, just as there are exceptions today.

A Century Later, Lessons Forgotten

When outspoken Coinbase CEO Brian Armstrong suggested in a September 2020 blog post that his company was better served by apathy, it was consistent with the culture within its walls.

Everyone is asking the question about how companies should engage in broader societal issues during these difficult times, while keeping their teams united and focused on the mission. Coinbase has had its own challenges here, including employee walkouts. I decided to share publicly how I’m addressing this in case it helps others navigate a path through these challenging times.

In short, I want Coinbase to be laser focused on achieving its mission, because I believe that this is the way that we can have the biggest impact on the world. [2]

An argument can be made that Armstrong’s assessment of the mood of his own workforce was accurate. Given Coinbase’s internal dynamics, running an advertisement akin to Beats By Dre’s “You Love Me” would not have worked for the same reason Cadillac could not have run an advertisement on behalf of Jesse Owens’ historic days abroad in 1936: The brand’s promotion of freedom would have clashed with Owens’ reality.

But the Coinbase culture eventually spoke for itself when a number of minority employees called out cultural schisms within company walls. In many ways, Armstrong was right: His company had no authority to take a public position on civil rights or equality.

Recent decisions at companies like Shopify, Twitter, Facebook, Snapchat, and Google to deplatform Donald Trump and his campaign can be interpreted as good-faith efforts to address current societal unrest, which has seen online words evolve into real-life actions. But like Coinbase, many of these companies are also laser-focused on their missions. The ideas of freedom, cooperation, and equality that are so critical to democracy are barely communicated or shared by today’s top advertisers.

I began to wonder why cause-based advertising wasn’t more prevalent given the issue’s thread throughout our society: economically, politically, socially, and otherwise.

During WWII-era advertising, nearly every major corporation was directly involved with the issue of its time. During that same era of advertising, Jim Crow bigotry and violence prevailed at home while racial and ethnic atrocities persisted abroad. Today, the corporations that are best positioned to promote the ideas that a threatened democracy requires to heal seem to be extraordinarily quiet right now, when it matters most. Beats by Dre’s ad in November 2020, Dove’s June 2020 ad placement, and the Nike’s September 2018 spot starring Colin Kaepernick are exceptions to the rule.

Overall, few corporations are prepared to champion the American ideals the way their predecessors did during past threats to American democracy. And perhaps it’s because, like Jesse Owens’ wins and the PR blitz that never was, there is a dissonance between the messages that today’s advertisers want to share and the reality of the dynamics within our own walls: our neighborhoods, our workplaces, and our places of gather.

A timely lesson bound to reemerge

Eighty years ago, a war threatened democracy. And in the first month of 2021, democracy is again under siege. At the root of today’s unrest is the myth that an election was stolen – the same contest that saw historic levels of African-American voter turnout in swing states. The corollary is not a mistake. In the 1940s, corporations were proponents of the war’s resolution. They manufactured goods and used their associations with the war efforts to espouse American ideals. Where is today’s equivalent? One possible explanation is that media has never been more fractured and brands’ abilities to promote ideals has diminished over the decades. The explanation more difficult to hear is that perhaps we are more like the racially-segregated country that Owens came home to than we are willing to admit. Look no further than our own workspaces, virtual or otherwise.

Back then, we needed Cadillac to build engines for fighter planes. Today, we need brands to internally reflect the ideals of America that they so desperately want to espouse in marketing: from workplace equity to representation in leadership. This past week, many Americans have found that we are not what we thought we were. Today’s primary mission is to heal a deep-seated division. The resolution is found within the walls of our homes, our places of gather, the workforces that we build alongside, and our nation. Maybe and only then can the marketing and advertising of today reflect who we as Americans believe ourselves to be. As of now, there aren’t many examples at which to point.

The refrain seems to grow louder by the day from people who look like me. You love my culture but do you love me? Corporate America never answered that question for Owens and the many other pioneers of his day. In doing so, we missed an opportunity to beat down evil in its idea stage. Perhaps today’s corporations will see the need to be more dynamic in how they respond. First, with action, and then, through the amplification of messaging that has been proven to impact the hearts and minds of the people.