Bankruptcy Watch: A Digital Look at Apparel Retailers on the Brink, From Fast Fashion to Lasting Luxury
The retail apocalypse may be an overstated phenomenon. Retail sales are generally still growing, and the changing landscape of brick-and-mortar retail is giving room for some expansion. Walmart, Target, and Costco are opening more locations, capitalizing on omnichannel investments and increased spending by low-income consumers. Discount stores Dollar General and Dollar Tree are also opening stores, and so is affordable-clothing retailer Old Navy, despite, or maybe because of, its split from Gap.
But still, shifting demands have resulted in significant casualties in the retail sector. Retail giants like Toys R Us and Sears have fallen victim to the rise of Amazon. Earlier this year Payless ShoeSource filed for bankruptcy and prepared to close its remaining 2,500 stores in the U.S after recovering somewhat from its bankruptcy in April 2017. And luxury stalwart retailer Barneys New York declared Bankruptcy and will shutter more than half its locations.
Much of the commentary on these closings points rightly to the rise of eCommerce as a major factor in the demise of many retailers. But retailers who have been agile enough to adapt have seen gains.
Payless, for example, faced perhaps more opportunity than many retailers because Shoes are generally a more competitive category than many others. Amazon’s market dominance isn’t quite as lopsided as in other categories, and Payless’s name and footprint could have yielded growth online with the right marketing approach and omnichannel experimentation. But instead, transactions on Payless.com declined year-over-year throughout 2018, while the Shoe category at large continued to see substantial, sustained growth.
A great deal of this just comes down to a failure to adequately market Payless.com. Data from Jumpshot’s insights tool shows that in Q3 2018, for example, Payless.com had very high conversion rates on Paid Search, Organic Search and Display Ads relative to category leaders, but barely utilizes them. Increasing spend on Display Ads, and Paid Search alone could have brought in more traffic and more transactions.
Would that have saved Payless’s debt issues and overexpansion? Probably not. But the environment for discount shoes was ripe for Payless to thrive online and data shows they didn’t have the right approach to capitalize.
The bankruptcy of Barney’s resulted from perhaps the opposite problem. The once iconic designer retailer is being pushed out by high-demand brick and mortar rents. Additionally, traditional eCommerce stores are becoming increasingly saturated for luxury retail. It’s no longer mainstays like Bloomingdales, Saks Fifth Avenue or Neiman Marcus (more on that one in a bit) that Barney’s has to contend with, but also newer e-retailers Net-a-Porter, Yoox and MatchesFashion as well as consignment sites like The RealReal.
And those later challengers might be more of a pain since Barney’s high-price points and high fashion don’t compete well when consumers have a diverse set of options before them. Purchase analysis data from the Insights tool shows that transactions have only grown modestly, and it’s the way customers browse and compare options that offer a window into why. Among shoppers for shoes on a subset of luxury top eCommerce sites, Barneys converts a low percentage of buyers when shoppers consider other websites.
When shoe buyers consider products only on barneys.com, the site is relatively competitive with peers, driving 4.4% of those shoppers to buy, higher than Neiman Marcus, Net-a-Porter and Farfetch and lower only than Bloomingdales. But when shoppers consider products on other eCommerce sites—and nearly 70% of shoe shoppers who visit Barneys.com do—the number of those shoppers Barneys is able to convert is remarkably lower, just under 2%.
Only Farfetch.com wins a lower percentage of these so-called cross-shoppers. And Farfetch customers are uniquely loyal among this group. Just 39% of shoe shoppers on Farfetch consider other domains. 61% of Neiman Marcus shoppers and 72% of Bloomingdales shoppers consider other domains when searching for shoes, and those domains drive higher conversion rates with those groups.
This makes life for Barneys difficult. It has decent performance among loyalists (better than new entrants like Farfetch and Net-a-Porter), but its audience comprises more like those for Neiman Marcus and Bloomingdales, searching for variety and good prices. Plus, Barneys.com doesn’t drive the traffic of any of these competitors. Farfetch, which drives the most traffic of these sites, is reported to be in talks to buy the ailing brand, which makes sense. If they can bring the traffic, there may be a path forward to capitalize on Barneys’ unique status.
Forever 21 has filed for bankruptcy and may close some 178 of its 700+ stores. Analysts indicate that its overemphasis on shopping mall locations and reliance on inexpensive products haven’t aged well in an era of rising costs to produce clothing and falling foot traffic.
Online, Forever 21 faces difficulties as well. So far in 2019, forever21.com ranks 14th among all eCommerce websites in the Women’s Clothing category in terms of transaction volume, pulling about 1.5% share of transactions. But only two sites—macys.com and nordstrom.com—have posted a smaller conversion rate than forever21.com among shoppers who have viewed a product page in the category. Similarly, only one retailer in the top 15 (walmart.com) shows a lower average price for purchased items.
That combination of low price and conversion rate reveals the underlying precarity of the brand. If consumers aren’t as motivated to buy the products Forever21 sells as they are with other retailers, and low prices aren’t moving products how they’re used to, clearly some kind of brand evolution needs to take place.
Like Barneys. Neiman Marcus has an identity based on luxury cred. But its sales and profits are falling, and high debt makes the company’s future uncertain at best. Online sales are a little steadier, even showing modest growth over the last few years.
But that growth may be coming from a reliance on paid search to bring in traffic. Jumpshot Insights data shows that 23% of the traffic to neimanmarcus.com has come from paid search in Q3 2019, much higher than competitor sites like Nordstrom, Bloomingdales and Saks Fifth Avenue.
And that reliance is relatively new. Since January 2017, the % of traffic Neiman Marucs’s website derives from paid search has grown steadily from just over 5%.
This kind of spend is understandable when building a website to drive from scratch.
Victoria’s Secret, the lingerie giant whose parent L Brands has reported declining revenues and rising costs, closed 53 stores earlier this year. Overall, conversions on victoriassecret.com seem to be matching overall trends at stores.
Site visits and transactions in 2019 are both down about 6% through August. And product views are down even more substantially. Shoppers engaged with 12% fewer product pages than they did last year. The one bright spot seems to be that in Women’s Intimates (naturally the biggest segment in terms of sales for eCommerce brand and retailer Victoria’s Secret) transactions have grown 2% through August.
Compared to other retailers in the category, this may not be enough to thrive in the long term. Some have raised questions about the safety of Victoria’s Secret’s brand, and Jumpshot data shows that other retailers are growing even faster than Amazon in the Women’s Intimates category.
After a hiatus, Victoria’s Secret brought swimwear back to its range of apparel. And this summer the brand saw success. They didn’t dominate the category, but among similar brands and retailers, Victoria’s Secret posted competitive numbers, driving the 7th most transactions in the Women’s Swimwear among several eCommerce sites.
Monthly sales in the category going back a year show that responsiveness to consumer demand can yield growth and success, even for brands with difficulties ahead.