Retail Looks Past Holiday to the Future at ICR – WWD

As Wall Street continued to digest holiday results — which were exceedingly mixed for retail — industry bigwigs at the annual ICR investor conference in Orlando, Florida started to pivot toward the future. 

Inventory is expected to be better in line in the coming year and comparisons are set to get easier in the second half. 

So companies public and private were out pitching their potential. 

Geoffrey van Raemdonck, chief executive officer of Neiman Marcus Group, touted his company’s place in the still-hot luxury world.

“It’s a good place to be right now,” van Raemdonck said. “It’s a market that has been growing and is forecasted to continue to grow. There are more high-net-worth individuals, and they’re richer and more affluent than pre COVID[-19].”

Likewise, Urban Outfitters Inc. showed holiday gains in its Anthropologie and Free People businesses, which overshadowed declines at its namesake brand. Buzzy sneaker company On Holding said it is looking to become more of a “head-to-toe brand.” And the soon-to-be-CEO of Lands’ End Inc., Andrew McLean, started to lay out some of his thinking for the company. 

Investors were feeling a little bullish. Among the fashion gainers for the day were companies that have been making the rounds at ICR, including Urban Outfitters Inc., up 8.6 percent to $27.66; Lands’ End, 6.6 percent to $8.92; Oxford Industries Inc., 3.6 percent to $106.24, and On 3.1 percent to $19.71.

There was one unusual disruption for what is typically a buttoned-down and financially focused affair. 

“Don’t let sheep, cows and other animals suffer for your clothing any longer,” said a protester who interrupted the Urban Outfitters presentation. “Animal-derived materials are always a product of extreme cruelty, violence and fear. We will not stop showing up and speaking out until you stop selling animals’ skin, fleece and feathers.”

Shortly after that, the webcast of the event went silent for a few minutes before picking back up and finishing as usual. Representatives of Urban and ICR did not respond to WWD requests for comment. 

The conference appeared to proceed on without another hiccup. Here, a look at what how retailers were reaching out to Wall Street at the start of what’s expected to be a tough year.

Neiman Marcus Group

Despite the volatile economy and shaky stock market, Neiman Marcus Group executives are making the case for sustained profitability.

“We believe that in good economies, we’ve been able to demonstrate accelerated growth and profitability. And in economies that are more volatile, we can demonstrate continued growth and resilience,” maintained van Raemdonck, during his presentation to investors.

“We are lucky to operate in the world of luxury,” said the CEO. “It’s a good place to be right now.”

“We have free cash flow that we can reinvest in our business, as well as generate more cash on a run rate basis,” added Katie Anderson, NMG’s executive vice president and chief financial officer. “We also make our profit from our core assets. A lot of companies in our industry make money from credit cards or off-price. That’s not us. We are profitable across our channels.…We also have over a billion dollars of liquidity, which gives us a ton of flexibility.

“We have sightline to profitable growth,” said Anderson. “And we also have sightline to margin expansion. As you know, leaning into relationships is a lot cheaper than chasing new customers. We have top brands that don’t discount. We have customers that pay full price and categories with high margins.”

The Neiman Marcus Group is privately held by Davidson Kempner Capital Management, Sixth Street Partners and Pacific Investment Management Co. Eventually, the group of owners will want to cash in on their investment, possibly through a public offering of NMG or a sale to another retailer, or to private equity. So it’s important that NMG executives broadcast the state of the business to Wall Street as well as to the luxury brands it sells.

Van Raemdonck did note that NMG, in its fiscal year which concluded July 31, 2022, generated $5 billion in gross merchandise value sales, an 11 percent earnings before interest, taxes, depreciation and amortization margin rate, and $495 million in adjusted EBITDA, and that for the six months of the current fiscal year, NMG experienced a 6 percent comp gain in GMV sales. Gross merchandise value refers to all the merchandise sold through NMG stores and websites, owned, on commission and through consignment. The company does not disclose net profits.

On a comparable basis, NMG was up 33 percent in sales, the company reported in October. Over the past several seasons, six Neiman Marcus stores and all but five of the Last Call clearance locations were closed. 

NMG’s positive report on the state of its business comes despite other industry reports that the luxury sector is slowing in some cases amid the uncertain outlook on the economy and a stock market that last year lost some value.

But van Raemdonck said the U.S., where NMG operates all of its stores, “has been over the last couple of years the largest and the fastest-growing market. And there’s been growth and a shift to consumption online, which we believe we are most poised to capture and capture profitably given our omnichannel approach.”

Through its investment in Farfetch (revealed last year) and access to that company’s infrastructure, NMG will launch BergdorfGoodman.com internationally later this year. He said NMG online generated $1.5 billion last year and 300 million visits.

Van Raemdonck emphasized that profitability is sustained through successful efforts to generate greater full-price selling; sales associates who build relationships with customers; operating three retail channels — stores, online and remote selling, and curating “with the right product assortment but also the right experiences” for customers.

“We spend time curating brands, curating the assortment and ultimately we buy with our own money,” meaning wholesaling rather through leasing arrangements. Whereas certain retailers such as Bloomingdale’s have opted for leased shops to be able to sell certain brands, Neiman’s has avoided the leased model aside from a couple of exceptions, such as with Louis Vuitton.

Van Raemdonck said NMG’s omni business model is “so tied to profitability,” adding, “If you take a customer who shops in a single channel online, they spend 1X. If we’re able to migrate them across channels, they spend 5X. And if we’re able to get them in a relationship with a sales associate, who curates assortments for them and experiences, they spend 12X. Mind you, it’s the same cost of [customer] acquisition, but it’s just migrating the person and as they migrate, they’re buying more full price.”

Furthering the case for profitability, van Raemdonck said NMG operates a “very clean, profitable and tight network of stores located where customers and high-net-worth individuals live. It’s 36 locations of Neiman Marcus and one for Bergdorf Goodman, and we exited off-price, but for five liquidation stores. We are investing in our stores and we are investing $200 million of strategic [capital expenditure], half of which is funded by landlords, and that will touch half of our stores — our top 10 stores — and a third of the total fleet.

“The goal there is to make our stores look even better, but it’s also making sure that we increase the distribution of brands and that we move more and more toward offering services and experiences.”

Activations with companies such as Prada Group “can be very profitable and lead to sales in the seven figures over a couple of days, or sometimes even on the first day of a launch because it’s about activating our customer for something that they can’t get anywhere else,” van Raemdonck said.

Key brands sold at NMG are “growing their distribution by themselves, but in parallel, they’re growing with us. We have access to that unique luxury customer, who we can outfit across all categories, and most brands are strong in one category, not across all categories. We provide [brands] with value-added services,” including targeting the right customers, or providing them insights on what customers want, or where the white space is in their offering. He also said brands benefit from NMG’s integrated channel business model.

“Over the last 12 months we’ve increased the points of distribution with our top luxury brands, not all luxury brands, by 600 points of distribution,” van Raemdonck said. “We’ve added 200 emerging brands, many exclusive to us. And about 60 percent of the top 20 brands have done exclusive activations with exclusive collections, just this fall alone.”

Urban Outfitters Inc. 

Urban Outfitters Inc. pushed through weakness at its namesake brand, relying on its Anthropologie and Free People businesses to drive its holiday sales up 2.3 percent. 

That tops the strong performance seen in the last two months of 2021, when sales were up 14.6 percent, compared with holiday sales two years earlier, right before the pandemic.  

Free People posted a 15 percent comparable sales gain while the Anthropologie Group was up 7 percent and the Urban Outfitters business sagged 10 percent. 

Frank Conforti, copresident and chief operating officer at the company, said the fourth quarter is coming in about as expected — with currency headwinds taking some oomph out of the growing nameplates while the Urban Outfitters brand remains “challenged.” 

“We didn’t change our margin guidance for the quarter because we still believe that gross profit margin will be down approximately 50 basis points for the quarter,” Conforti said. “And that will largely be driven by increased markdown rates, and that’s largely driven by the Urban Outfitters brand. So we remain committed to getting inventory in line by the end of the quarter. It has taken increased markdowns to move through that product that we knew was not performing well for that brand.”

But he said Urban Outfitters has an “opportunity for them to show improvement” going forward and that Free People and Anthropologie are “feeling really good about where their spring product is positioned and the reactions that we’ve seen from the consumer.”

Neil Saunders, managing director of GlobalData, noted that the company “joined American Eagle and Abercrombie & Fitch in reporting a solid set of holiday numbers — proving that not all of apparel retail was in the doldrums over the festive period.” 

Saunders said the weakness at the Urban Outfitters brand was “indicative of a younger customer who has been affected by inflationary pressures and is cutting back on discretionary purchases. Our data also found that core shoppers have become moderately less loyal to Urban Outfitters and are shopping around more to secure a bargain. All of this was exacerbated by a lack of range discipline resulting from excess inventory.”   

On Holding

Martin Hoffman and Marc Maurer, co-CEOs of On Holding, the buzzy Swiss running brand, said the goal when the company launched in 2010 was to disrupt the running shoe world. Its focus on performance and sustainability for its footwear that focuses on an explosive take-offs and cushioned landings — what it describes as “running on clouds” — led the company to go public in the summer of 2021.

Despite supply chain disruptions in 2022, On still managed to exceed 1 billion Swiss francs in sales last year. Some 94 percent of sales during the holiday season were at full price — in spite of the highly promotional environment — which provides the company with “a lot of confidence moving into the first quarter.”

Looking ahead to this year, they said the company will continue to focus on performance, innovation and sustainability. Top products include the Cloudnova, which appeals to a young customer; Cloudneo, a fully circular product sold on a subscription model, which had a “successful start,” and the Cloud Prime, a product that will eventually capture carbon and use it to create footwear.

Tennis will become a larger part of the conversation as will the expansion of apparel as On strives to become more of a “head-to-toe brand.” Maurer said although On has offered apparel for several years, 2023 will mark a full-on push into the category. The company said it has learned that “pieces that are rooted in running and that you can wear all day and every day are working really, really well,” and that will be the primary focus. 

Lands’ End Inc. 

Jerome Griffith, CEO of Lands’ End Inc., and CEO-designate Andrew McLean, turned out at ICR to discuss the business just before the official changing of the guard on Jan. 27. 

McLean, who has been working alongside Griffith since November, pointed to Lands’ End’s potential. 

“I see a little bit of a unicorn out there in that we have these two digitally native businesses, we have our b-to-c [business-to-consumer] and our b-to-b [business-to-business], and they have to do something that not many others do out there,” McLean said. “They are scaled with scalability ahead of them and they’re profitable. And that’s an astonishing place to be.” 

Lands’ End is a business that in many ways was caught in the cross currents of change for much of the past two decades. Traditionally a catalogue player, the company was acquired by Sears, which added Lands’ End shops-in-shop to its own doors. And then the company was spun off as Sears headed for bankruptcy and it took a while for it to find its footing. 

Dana Telsey of Telsey Advisory Group, who led the conversation with the CEO and his successor at ICR, asked Griffith what he was most proud of from his time at Lands’ End and he pointed first to the manner of his exit.  

“One of the things that everybody can see from us sitting up here is this is the first orderly transition of leadership that this company has had in over 20 years,” Griffith said. “And I think that’s a great thing for the brand.”

He also pointed to specific parts of Lands’ End product offering. 

“One of the things that we really tried to do is home in on exactly what the brand is and bring up franchises and franchise items,” Griffith said. “And we have that today. I mean, if you look at our swimwear business, we’re the number-one online company selling swimwear in the U.S., I think that’s great. We’re in the top five or top six I think with outerwear in the U.S., also great.”

Now it’s up to McLean to shape the next leg of the company’s evolution, which could include more Lands’ End stores. Certainly brick-and-mortar is under heavy consideration, although the company is also retaining its catalogue roots. 

“Physical stores are definitely one of the priorities as we think about our plan for the coming years,” McLean said. “We’re really looking at a number of ideas in there, and I’m going to put a plug in here for our catalogue before I get to physical stores, because we already have an amazing physical manifestation of our brand, and that’s in our catalogues.”

Oxford Industries Inc.

Tom Chubb, chairman and CEO of Oxford Industries, detailed the journey his company has taken to success over the past 15 years in a session late Monday.

Although the company started 80 years ago as a private label manufacturer, it shifted from “owning the needles…to owning the consumer,” he said.

By “flipping the portfolio” and selling off the private label businesses to focus on lifestyle brands including Tommy Bahama and Lilly Pulitzer, Oxford has reaped the benefits.

In 2016, Chubb said adjusted earnings per share were $3.30 and this year, that number is expected to be $10.60 to $10.75. That number is at the high end of the company’s previously announced guidance for the year and comes as a result of a strong performance during the holiday and early resort selling season, the company said Monday.

“We’ve got a portfolio of lifestyle brands, and this is a very important point to understand about us because it’s a real differentiator,” Chubb said. “They’re not just brands, but they’re lifestyle brands. And so, what is happening? What is a brand versus a lifestyle brand? Well, in a brand, you’re really just creating a thing. In a lifestyle, you’re creating a whole world, a dream if you will, an aspiration. And when that world resonates with people, they really want to engage with it, they want to populate it, they want to move in, they want to be part of it. And when you succeed in doing that, you have a customer who’s a very, very loyal customer that you can keep for a very long time, and that is what we do as a company.”

Oxford’s largest brand and “most fully developed lifestyle brand,” he said, is Tommy Bahama with annual sales of $861 million. That is followed by Lilly Pulitzer with sales of $331 million.

In September 2022, Oxford bought Johnny Was, which has around $200 million in sales. This addition helped the company diversify into higher price points, gave it a more balanced geographic reach and less of a spring/summer aesthetic, Chubb said.

The remaining group is the “emerging brands,” which consist of Southern Tide, The Beaufort Bonnet Company and Duck Head and had sales of $111 million combined. Chubb said the company looks at this platform as a “great place for these smaller, earlier-stage brands to accelerate their growth. It’s also a good landing place for us to put any smaller acquisitions that we might do.”

One significant move the company made last year was the planned opening of the Tommy Bahama Miramonte Resort in Indian Wells, California. Chubb said the company is working with the current hotel operator and is acting as the licensor, which means it will “define the customer experience, the look and feel of the hotel, down to the smallest details. But they’re actually running it on a day-to-day basis. And then, we collect a royalty on the hotel revenues.” That resort is expected to open later this year.