Fast fashion brands are facing the same downward pressure on sales from their financially strapped younger consumer base that we discussed in our update on specialty retail two weeks ago. One can see that for their open-center locations in Placer.ai.
- H&M reported flat revenue for their Americas region during Q4 2022 along with significantly lower gross margins and Q1 2023 revenue expectations that fell short of market expectations. The U.S. is H&M’s largest region, representing about $3.5B in sales and stores that do around $7M in sales per unit (including digital sales).
- Readers will recall that Forever 21 is operated by SPARC Group, with CEO Winnie Park and Chief Marketing Officer Jacob Hawkins coming aboard in early 2022. An interview with Hawkins it read, "The first step in any omnichannel journey is to intertwine the physical (store) and digital (website, app) worlds of a brand. Forever 21 has done this, merging its online and offline inventory, promotions, pricing and creative so that “everything is available, visible and consistent” no matter what channel a shopper is currently using.” In the digital side of that omnichannel journey, Forever 21 is trying to win the moment against Shein, H&M, Gap, Urban Outfitters, Primark, Old Navy and many others on TikTok. It is smaller than all of these with only $3B in revenue (2019).
- Zara (the largest retail brand of Inditex) reported Americas region revenue of about $6B in 2022. Company-wide, the average sales per location is $9M (including digital). In contrast to H&M, 2023 has started strongly with +18% growth during February and early March. The America’s region was up +20% in 2022, which was mostly driven by comparable-store growth. The America’s region is only 40% the size of its Europe business (ex-Spain); as such, the U.S. is viewed as a growth market, with the earnings release reading, “We see significant long-term growth opportunities in the U.S. Over 2023-2025, Zara will undertake at least 30 projects.” (below). The company ended 2022 with 98 locations in the U.S. There are only 10 verified Zara locations in Placer, but these averaged 344K visits in 2022, twice that of Forever 21 and Old Navy.
Source: Inditex Full Year 2022 Results Presentation
- Recall two weeks ago we wrote about Shein having U.S. sales of around $10B (roughly the same size as Old Navy) and rapid growth expectations ahead. To produce that growth, it needs to open new fulfillment centers (FCs) to lower shipping costs and get closer to the consumer to reduce shipping times, which are currently an unappealing 10-15 days. It opened its second FC on the perimeter of Indianapolis last April and it was intended to ramp to 1,000 full-time employees by year-end. However, as shown in the figure below, activity to the fulfillment center (visitors, employees, and residents per Placer.ai) was curiously trending down into the holidays. Shein is privately-owned, as such, we don’t know their figures; however, given the challenges for the category and the digital channel overall, we suspect that things are running below plan. Shein has two more FCs openings planned, a new 1.8M square foot FC in Southern California (Cherry Valley) this spring (according to the WSJ) and the other in a location yet to be named in the Northeast. Should the Northeast location not be named over the next several months, that will tell us (along with lower FC activity levels at Indianapolis and Cherry Valley), that things are indeed running slower.
