Revenue is great, engagement is critical, but the ultimate measure of any business is profitability. Every year Apparel examines the profit margin of the top apparel manufacturers and retailers and ranks the top 50 in its annual Apparel 50 report.
The report reveals some interesting trends: 1. China continues to be a growth market for apparel retailers as many on the list are working diligently to establish a presence in the thriving market. 2. Millennials continue to be a key demographic, vital to the survival on every retailer. 3. Foot traffic continues to decrease across the apparel segment, leading to increased store closings. 3. Sales continue to struggle for the majority of the segment.
The full report is available for free download here. Below is a quick look at the top 10 retailers to make the list, omitting the apparel companies that do not have their own retail outlets.
Michael Kors took the number one positon in this report for the second year in a row. While The Top 50 reflects each company’s most recent fiscal year, MK would still claim the top spot based on its first three quarters of FY17, with a profitability of 16.89%. Globally, its digital flagships, including the launch of one in China in October, have been exceeding expectations, while comp sales at its own retail locations are down in various regions because of declining store traffic, weak tourism and weak consumer confidence ― as well as a shift to shopping online. To reverse this trend, MK is adding footwear in its largest volume doors; focusing on its fast-growing dress category, highlighted by a new online dress shop; and increasing spending on digital marketing. Profit Margin: 18.46%.
With China’s active wear market valued at $28 billion and growing, the world’s largest middle class, and more than 450 million Millennials living an increasingly active lifestyle, it makes sense that lululemon has its sights on the country. It opened its first three stores last year to strong performance, and will continue with a market densification strategy centered in Tier 1 cities. lulu’s products are firing on all cylinders: in women’s bottoms, comps were up 14% in Q4 on a strong quarter the previous year, while momentum continues in men’s, with comps up 20%, heading toward the company’s goal of $3 billion in women’s and $1 billion in men’s by 2020. Profit Margin: 12.94%.
Currently 75% of Nike’s styles generate 99% of its sales. By editing out the underperforming 25% and increasing it innovation efforts, Nike plans to drive more growth and choice from fewer styles. The strategy is part of its “triple double” plan to double down on innovation, speed and direct connection to the consumer. The commitment to increased consumer connection is evident in its Soho store, which offers a one-to-one personal shopping service, invitations to running and training clubs and the opportunity to try out the newest products. Profit Margin: 11.61%.
Kate Spade was acquired by Coach in May for $2.4 billion. Coach pulls a former rival into the fold, gaining entry to Kate Spade’s strong Millennial following, as well as its growing lifestyle portfolio, including products such as bedding and kitchen accessories. For Coach there is untapped global potential for the business, which has remained focused on building a differentiated business model through its lifestyle brands, a partnered approach to expansion, a channel-agnostic strategy, controlled points of distribution, and a focus on D2C sales. Profit Margin: 11.12%.
With the purchase of Kate Spade, Coach has moved into acquisition mode, and is shopping for other high-end brands, reportedly including Jimmy Choo and Burberry, after a successful transformation plan over the past three years that focused on product, stores and marketing. Last year saw acceleration in North American direct business, a pullback in distribution in the highly promotional department store environment, and growth in international, especially in mainland China and Europe. Profit Margin: 10.25%.
The denim-focused retailer has been a solid producer and a staple at the top of these rankings for many years, and while it still turned out solid profits, sales, net income and profits decreased significantly over the previous year. That is likely in large part a result of declining foot traffic in malls, where about 85% of the company’s stores are located. For the first time this year the company closed more stores (6) than it opened (5). The Buckle’s target demographic does a lot of shopping online ― and the company is working to grow its digital share, via an improved app that will allow for BOPIS, while still keeping its sharp focus on its hallmark in-store customer experience. Profit Margin: 10.05%.
L Brands is truly a global business, opening more than 100 new stores outside of North America in 2016 to end the year with 830 stores in 78 countries, including China, where it took ownership by acquiring 26 stores from its franchise partner. It also launched its online business on TMall Global and opened its first two full-assortment VS stores in that country, on its way to six by year-end. Profit Margin: 9.21%.
Van’s edged out The North Face to become VF’s largest brand in 2016, with revenue up 7%. It was a good year for the branded lifestyle apparel, footwear and accessories behemoth, with revenue up 1% to $12 billion; international sales up 6% to 38% of business, including double-digit growth in the non-U.S. Americas and in China; and D2C up 9%, including more than 20% in e-commerce. Profit Margin: 8.94%.
If you need further proof that consumers cannot get enough of the treasure hunt-style off-price retail sector, look to the performance of Ross Stores, which owns and operates Ross and dd’s Discounts stores. Over the past fiscal year, the company’s sales rose 7.8% to $12.9 billion, and Ross Stores plans to capitalize on this strong performance by opening about 80 to 90 new stores this year: roughly 20 for the dd’s brand and 70 for Ross. Profit Margin: 8.69%.
By the numbers, 2016 was a pretty good year for the boutique-style chain that sells an assortment of quirky and colorful women’s apparel and accessories. Francesca’s is planning several tech initiatives for 2017 including: Omnichannel capabilities such as buy in store and ship to home, and buy online, pickup in store. A new POS chainwide to better capture customer details, whileequipping store staff with handheld scanners to accelerate markdowns and physical inventories. Piloting a new loyalty program over the summer prior to a pre-holiday full rollout. Experimenting with a new store format. And increasing digital marketing to drive traffic into stores. Profit Margin: 8.62%.