No. 272: A “Tier A” Path Forward

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The worst thing to happen to the American mall is the boom of online-first modern luxury companies. And it’s also the best thing to happen to the American mall.

There are 1,100+ malls in America and approximately 320 are graded Tier A. We have an oversupply of malls but that does not mean that traditional, anchored shopping centers no longer have a place in consumerism. We’d argue that Tier A malls have yet to see their best years. We expect their footfall traffic KPIs to grow, while B and C tiered malls continue their trends toward repurposed real estate and other methods to maintain footfall traffic KPIs (mall opportunity, sales opportunity, and store performance).

Suzanne Mulvee, director of research at CoStar, cites that “lower-quality malls in markets with smaller populations and lower incomes will continue to close” —a trend that persists today. And here’s a data based position:

Green Street Advisors, a research firm, forecast a 6.0 percent drop in market revenue per available foot (RevPaF) for class-B and -C malls from 2018 to 2022, versus a 0.5 percent increase for class-A malls during the same period. 

Private market values of class-B and -C malls have also dropped the most since January 2017, according to Green Street, plunging 27.0 percent and 25.0 percent, respectively, year-over-year. Meanwhile, the values of class-A malls declined by 14.0 percent year-over-year.

National Real Estate Investor

So what does this mean for digitally vertical native brands (DNVB), old and new? In short, online-first brands should be positioning their product offering for inclusion in Tier A malls. First, let’s look at the established. A retail presence for DNVBs varies, as such:

  • Harry’s has a prominent position in J. Crew shops (Tier A)
  • Shinola has marquee positioning as stand alone stores (Tier A)
  • Mizzen + Main has prominent position at Nordstrom (Tier A)
  • Bevel has showroom real estate at Macys (Tier A / B)
  • Warby Parker has great stand alone stores (Tier A)
  • Greats has marquee positioning at Nordstrom (Tier A)
  • Ministry of Supply has great stand alone stores in Tier A areas
  • Homage has great stand alone stores (Tier A)
  • Bonobos has stand alone stores and Nordstrom positioning (Tier A)
  • MeUndies has positioning at Nordstrom (Tier A)
  • Goop is opening sponsored pop ups (Tier A)

There are very few presences in Tier B malls and virtually no DNVB presence in Tier C malls. These brands have done a wonderful job positioning themselves as modern luxury companies. They’ve been incubated online for five to ten years and they’ve become prominent enough to live as lifestyle brands in traditional retail spaces. It’s a forgone conclusion that omni-channel operations should be a focus for DNVBs; retail real estate analysis is a skill that is becoming more and more important. And DNVB’s are well-positioned to benefit from the Tier A adoption of the online brands. Recall this quote from Issue No. 265:

2PM’s Meghan Terwilliger had this to say:

Luxury, however you define it, is a brand’s embodiment of characteristics that make it desirable. Historically, those characteristics have been more ‘What’ features like quality, exclusivity, and cost. You can still define luxury as characteristics that make a brand desirable, but those characteristics have shifted. Quality is table stakes.

Характеристики, которые делают бренды более желанными, - это "как", такие как превосходный клиентский опыт (как я воспринимаю бренд), значимая миссия бренда (как они отдают свои силы и меняют мир к лучшему) и вовлеченность в жизнь общества. Является ли он созданным художником и чрезмерно дорогим? Возможно, нет. Но если это продукт или даже целый опыт, который очень желанен, его можно считать роскошным брендом. Так уж сложилось, что DNVB обладают отличной инфраструктурой для поддержки характеристик, определяющих современную роскошь.

There are DNVBs that are launching daily. It is important that these brands understand that online retail mechanics has its limits. For these brands to expand into $30 million or more in annual revenue, omni-channel strategy can provide longterm growth. Additionally, this can reinvigorate top funnel sales through online channels.

Here are the top five suggestions for DNVBs launching today:

  • Master the first product. Bonobos began with pants, Mizzen + Main with a single white dress shirt, and Bevel with one blade.
  • Develop a strong sense of product ambassadorship. Mizzen + Main targets millennials, but the most capable buyers are between the age of 34-45. Developing a sense of loyalty with them can pay dividends. For their peers that don’t shop online, they’ll become a top funnel driver of them to your brick and mortar locations.
  • Avoid discount promotion, even at the beginning. Price stability over time is crucial. The moment that a brand is seen as a discounter, the Tier A mall demographic loses interest (with few exceptions).
  • Emphasize advertising to Tier A mall consumers. When DNVB’s grow online, they need to focus on the customers that possess the greatest LTV (lifetime value) potential. This correlates with Tier A mall shoppers.
  • Establish relationships with non-competitive retailers. It can be a powerful signal of longterm viability when existing brands co-sign your early product. This is most often seen by way of product collaborations, cross-promotion, or merchandising your products in their flagship stores.

Retailers that appeal to…the upper class are thriving. One look at Houston’s Galleria, Columbus’ Easton Town Center, or Miami’s Bal Harbour Shops will confirm as such. This is the future that many in retail are planning for. So no, retail is not dead. But retail is leaving the middle class behind because, frankly, so are we.

2PM Member Brief No. 5

In the first sentence, I wrote that online retail is the best and worst thing to happen to malls. In many ways, this is true. The shuttering of weaker retailers and shopping centers is long overdue. Experts attribute this trend to the emergence of online retail brands (and the excessive private equity debt that these retailers accrued to compete with them).

We have more retail real estate than any developed country on earth. Malls are not dying, the bad ones are. While eCommerce efficiency is appealing to digital marketers, the brick and mortar channel is golden for brand operatives who are establishing their brands as modern luxury products. Marketing is arithmetic, whereas brand-building is more of a subjective art. If you were to ask the chief executives at each of the aforementioned brands, they would point to their brick and mortar successes as great milestones. There will be fewer malls in the coming the years, but an early bet on the ones that remain will position young DNVBs for omni-channel success.

Read the rest of the issue.

By Web Smith and Meghan Terwilliger | About 2PM 

Краткий обзор для участников № 15: Экономика подписки

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Pictured: Katrina Lake, Founder and CEO of Stitch Fix

Subscription models are replacing legacy commerce models throughout the industry — from eCommerce to digital media to fashion retail and grocery — the benefits to this model have been welcomed by both businesses and consumers. Business has evolved into the subscription economy and adoption is only going to increase. One of the foremost issues in this new economy will not be acquisition (CPA), it will be retention (LTV).

Meghan Terwilliger on CPA and LTV

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No. 271: A Modern Luxury Update

There is a famous scene in The Social Network where Justin Timberlake’s portrayal of Sean Parker tells Jesse Eisenberg’s Zuckerberg contemporary the story of the Victoria’s Secret rebirth. In the script, it was Sean Parker that explained the genius of Les Wexner and his ability to change with the times after acquiring the $6 million / year business for a fraction of its real value, only to turn it into a $500 million dollar brand just four years later. The brand grew from four to nearly 100 stores in that short amount of time. It was a historic turnaround for a brand that was more niche than it was main street at the time.

The fundamentals of the brick and mortar lingerie business changed because Wexner emphasized the appeal of the brand to female consumers. He set aside the money-losing model of selling lingerie to men and replaced it with one that focused on female customers. But more importantly, he recognized that it should have been that way all along. It was an authentic move that evolved Victoria’s Secret (and its parent company: L Brands) into the $10 billion dollar company that it is today. But the brand is overdue for another shift. And it’s worth considering the recent hires and acquisitions by Wal-Mart to turn L Brands‘ most valuable ship around.

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Now led by CEO Jan Singer (former CEO of Spanx and Global VP at Nike), Victoria’s Secret cites the lingerie icon’s struggles on corporate restructuring, ending the famous catalog, and exiting the swimwear category. These are contributing factors, in addition to increasing pressure from eCommerce-first retailers. Business of Fashion:

The growing competition is promoting more variety in models and products. Now in its fifth year, online retailer ThirdLove has shoppers answer a series of intimate questions about their breasts — which of these nine illustrations matches your breast shape? — while reassuring consumers that every woman’s body is unique. The company has raised $13.6 million from investors and expects to double its sales this year. Companies like Adore Me, True&Co. and Everlane are taking a similar approach.

Their chief challenger, Adore Me (21) was founded in 2010 with the express intent to challenge Victoria’s Secret by giving consumers an online-first, inclusive alternative to the lingerie titan. The latest Inc. 5000 list has Adore Me’s growing 1,400% from 2014 and 2016 with revenues exceeding $100 million. Now, Adore Me is looking to expand offline and the timing couldn’t be worse for the L Brands subsidiary. GlobalData Retail Managing Director Neil Saunders:

Niche players may only have a small share compared to Victoria’s Secret, but their innovative approaches mean they are nibbling away at its market share.

In addition to intimates brands expanding into VS’ territory, there are adjacent pressures from the athleisure market, an evolving beauty market, and the rejection of lingerie by consumers looking for comfort, function, and individuality. Rather than continue competing against the likes of Adore Me (21), THINX, Inc. (31), and Third Love (51), or Savage x Fenty, Victoria’s Secret could re-invest in the brand, messaging, and end-to-end processes by following Wal-Mart’s lead.

Making a strategic acquisition to evolve Victoria’s Secret’s prized retail real estate could be just what the forty-year old retail property needs. The brand has a history of retail innovation. In addition to Wexner’s early decision to rebrand the shopping experience, Victoria’s Secret was one of the first brand’s to invest in early eCommerce (1999). In a recent retail roundtable, it was proposed that L Brands execute a Lore-like acquisition to oversee the brand’s eCommerce and omni-channel experience.

In addition, an interesting pivot was discussed. Victoria’s Secret could house brands and content across beauty, women’s athleisure, and intimates. The express goal would be to rebuild Victoria’s Secret as the premiere women’s-only destination – a house of brands, with their VS namesake positioned as the most premium offering within the store.

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Lean Luxe Founder, Paul Munford

In a conference call with Lean Luxe’s Paul Munford, he added, “Not every brand deserves to exist forever.” He also added that L Brands‘ recent track record has been less than favorable, making the idea of a pivot like this highly unlikely. Specifically, he cited the $710 million dollar La Senza acquisition (2006) that did not achieve the intended effect. According to Munford, there was no indication that the retail group could operate with the same speed and precision that Wal-Mart has since Marc Lore became their eCommerce CEO. Munford added, “With Lore coming in at Wal-Mart, there wasn’t a negative track record of Walmart acquiring brands and dropping the ball. Walmart just started from scratch. So comparatively, Victoria’s Secret’s task seems harder.” 

Though Munford and I disagreed on the approach that the vaunted L Brands subsidiary should take, we did agree that VS is a brand that is long overdue for a modern luxury update. One of the first names that arose when discussing who’d be a great number two to Jan Singer was Emily Weiss, founder of Glossier.

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