DTC Dispatch #042

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Outlet malls are still a thing, even for luxury retailers

If you grew up in the ’90s, weekend plans often included a trip to the mall. Beyond socializing and browsing your favorite stores, outlet malls were a go-to for budget-conscious shoppers seeking luxury deals.

However, in recent years, outlet malls seemed to lose their appeal as more consumers turned to e-commerce for discounted luxury goods.

Yet, despite inflation leading to reduced discretionary spending, it has also breathed new life into the once-overlooked outlet mall.

Our take: Outlet malls held a special allure for those seeking luxury items at more accessible prices. But as online shopping surged, the charm of outlet malls began to fade, with many consumers opting for the convenience and variety that e-commerce offered.

However, in a surprising twist, inflation has played a role in reviving the outlet mall. As consumers tighten their budgets, the appeal of finding high-quality products at lower prices has brought shoppers back to these retail hubs. Unlike the digital marketplace, outlet malls offer the tangible experience of seeing, touching, and trying on items before purchasing—a reassurance that’s become more valuable in uncertain economic times.

The resurgence of outlet malls is a testament to their enduring relevance. They offer a unique blend of affordability, brand-name appeal, and the in-person shopping experience that online stores can’t fully replicate. As inflation pressures persist, outlet malls may continue to thrive, reminding us that sometimes, the old ways still have plenty of appeal.

Like Nike before it, On plans to grow margins via DTC sales

Swiss athletic shoe company On Holdings saw its Q2 net sales surge by 27.8% year over year, reaching 567.7 million Swiss francs ($656 million). This growth comes in part thanks to their newly signed brand ambassador, Zendaya, who has made a significant impact in just a few months, according to company executives.

Like Nike, Crocs, and Levi's, On is prioritizing its direct-to-consumer (DTC) sales channels, both online and through physical stores. The company recently opened its second store in Paris and its first in Hong Kong, with plans to open 100 more locations in the coming years. Executives also projected that their gross profit margin will improve in the latter half of this year and into the next, as DTC sales continue to outpace wholesale revenue.

Our take: On Holdings' 27.8% Q2 sales increase showcases its growing influence in the athletic footwear market. The decision to sign Zendaya as a brand ambassador has quickly paid off, boosting visibility and shaping new product releases.

The company's focus on direct-to-consumer (DTC) channels, both online and in-store, mirrors strategies from giants like Nike. Recent store openings in Paris and Hong Kong reflect On's global expansion plans, with 100 more locations on the horizon. This DTC approach not only drives sales but also enhances profit margins, positioning On for continued growth and success in a competitive market.

Explainer: How mass fashion can benefit from the luxury slowdown

After three years of post-pandemic growth totaling 24%, the luxury market's expansion slowed significantly in 2023, growing by just 4% to $362 billion, according to Bain & Company. The market softened each quarter, with uncertainty lingering due to contrasting signals from a recovering Chinese market and slowing demand in the U.S. and Europe.

This uncertainty has persisted into 2024. GlobalData retail analyst Neil Saunders explained to Just Style that the primary issue is a fatigued consumer base. With tighter finances, particularly among middle-income shoppers, spending on luxury goods has declined. Saunders emphasizes that this downturn is closely tied to the economic health of key markets, which directly impacts luxury sales.

The challenges facing the luxury fashion sector present a prime opportunity for mass-market fashion brands to take advantage of the changing landscape.

Our take: The luxury market's deceleration after three years of rapid growth reflects shifting consumer dynamics that mass-market fashion brands should seize upon. While luxury brands grapple with declining demand, especially in the U.S. and Europe, this presents a golden opportunity for more affordable fashion labels to capture a larger share of the market.

With middle-income consumers tightening their budgets, the appeal of luxury goods diminishes. This shift opens the door for mass-market brands to attract those who still desire style and quality but at a more accessible price point. By offering trendy, well-made products at competitive prices, these brands can capitalize on the growing demand for affordability without sacrificing style.

Moreover, mass-market brands that emphasize value, sustainability, and convenience will likely resonate with consumers seeking alternatives to luxury. As the luxury sector navigates economic uncertainties, the opportunity for more accessible fashion brands to thrive has never been greater.

How E.l.f. Beauty Drives Success Through Culture

In a notable 2023 interview, E.l.f. CEO Tarang Amin discussed the key drivers behind the company's impressive 15th consecutive quarter of growth (now 21). When asked by Jim Cramer how E.l.f. stays so connected to its consumers, Amin credited the company's workforce. He highlighted that over 65% of E.l.f.'s employees are Gen Z and Millennial, more than 75% are women, and over 40% are from diverse backgrounds. Additionally, E.l.f.'s board of directors is among the few in corporate America with two-thirds women and one-third minority representation.

Amin's commitment to diversity and inclusion extends beyond E.l.f. He has set a goal to double the number of women and diverse individuals on corporate boards by 2027. This commitment was underscored by E.l.f.'s bold May campaign, "So Many Dicks," which aimed to raise awareness about the lack of diversity on corporate boards. The campaign, created in collaboration with Oberland, pointed out that men named Richard, Rick, or Dick outnumber women and diverse groups on public company boards.

Not every company is willing to take such a bold stance, but Amin believes it's a necessary step to push Wall Street towards greater diversity and inclusion.

Our take: E.l.f.'s impressive growth under CEO Tarang Amin highlights the impact of its diverse and young workforce—over 65% Gen Z and Millennial, more than 75% women, and over 40% diverse. This diversity is central to their success and connection with consumers.

Amin's commitment extends beyond E.l.f., aiming to double the number of women and diverse individuals on corporate boards by 2027. The provocative "So Many Dicks" campaign, which pointed out the disparity of men named Richard, Rick, or Dick on boards compared to women and diverse groups, is a bold move that sparks necessary conversations.

E.l.f.'s proactive stance on diversity and inclusion sets a strong example, proving that meaningful change requires both intention and action. Amin’s approach shows that diversity isn’t just about ethics—it’s a crucial business strategy.

Resale rules in Emily In Paris season four

If you needed proof of the growing appeal of resale fashion, look no further than Season 4 of Emily in Paris. The season showcases a range of vintage clothing and prominently features Vestiaire Collective in the storyline.

Vestiaire Collective, the luxury online retailer, joins a roster of brands like Rimowa and Chopard that have appeared in the show. In this season, Vestiaire Collective is woven into the plotline of Mindy Chen, who, facing financial difficulties, decides to sell some of her designer pieces. The show's spotlight on Vestiaire Collective underscores its role as a leading expert in authenticating and selling pre-loved fashion.

With Emily in Paris drawing nearly 60 million viewers, this exposure is likely to attract many new customers to Vestiaire Collective.

Our take: The inclusion of Vestiaire Collective in Season 4 of Emily in Paris highlights the growing prominence of resale fashion. By integrating the luxury online retailer into the show's plot—where Mindy Chen sells her designer pieces due to financial challenges—*Emily in Paris* effectively showcases the appeal and legitimacy of pre-loved fashion.

Vestiaire Collective’s prominent role in the storyline, alongside established brands like Rimowa and Chopard, not only emphasizes its expertise in authentication but also positions it as a trusted destination for high-quality secondhand fashion. With the show’s substantial viewership of nearly 60 million, this exposure is likely to boost Vestiaire Collective’s visibility and attract a broader audience.

This strategic placement underscores the increasing mainstream acceptance of resale fashion, reflecting a shift towards more sustainable and accessible luxury options. For Vestiaire Collective, it’s a smart move that capitalizes on the show's massive reach and aligns with the growing trend of valuing both style and sustainability.