Fashion companies are facing a tough end to the financial year that shows no signs of letting up. Layoffs and a worsening economic outlook driven by inflation are leading to store closings in the traditional retail environment. At the same time, there is a need among brands to address growing C-suite stagnation as outsiders shake up industry textbook formats for the better. Here’s a breakdown of three trends set to negatively impact the industry so far this year.
In an effort to cut costs, a number of brands, including Everlane, H&M, PVH and Nordstrom, have recently laid off 10-15% of their corporate workforce. DTC brands have been hit particularly hard, with core brand Everlane laying off 17% of its 175 corporate employees while cutting staff at three of its 11 stores. This is the second time in two years that Everlane has laid off employees. Earlier in March 2020, it laid off hundreds of retail and customer service staff reported union busting efforts.
“Several so-called disruptor brands like Stitch Fix and Everlane are facing passionate challenges to the validity of the DTC business model,” said retail analyst Steve Dennis. “They are dealing with a fundamental overestimation of what their overall addressable market was. [For those that have gone] public, they first received a lot of venture capital money, which led to the belief that these big brands could only be built largely online. This is now just a reckoning of what was a fundamentally flawed investment assumption.”
DTC fashion brands are expanding their sales channels following in the footsteps of other brands that were once DTC only. Glossier was talked about as a DTC success story, but it was omnichannel last year through a Sephora partnership.
Jamie Gill, fThe Outsiders Perspective, a non-profit incubation platform that aims to increase representation in the fashion industry, says that while the layoffs will hit hard globally, they should not prioritize positive changes in the industry.
“In times of turmoil, fresh perspective is essential, so the case for incorporating talent from diverse backgrounds is even stronger,” said Gill. “As the pandemic has taught us, times of uncertainty compel us dig deep as a business leaderwith and reshape the business to accommodate it and evolving consumer sentiment and consolidate new business priorities.“
Deteriorating economic outlook leading to closing deals
Inflation, recession and the war in Ukraine led to market disruption and a worsening economic outlook for the first half of 2023. create cash reserves and reshape its value proposition, sees external costs concentrated in two areas: people and business. Although 2022 was a better year for in-store fashion retail, following consumers’ focus on e-commerce during the pandemic, key in-store shopping events such as holiday season did not reach due to inflation. Now, for example, Macy’s is closing four of its full-line stores. Department stores including Kohl’s and Nordstrom are also set to close in 2023 UBS analysts.
“If you’re a moderate department store retailer or a moderate price brand and you don’t have amazing value or you’re not an in-demand brand, then you’re in trouble,” Dennis said. “Brands like H&M may not have the same problems as Macy’s, Kohl’s or JCPenney, which seem to have struggled to defend their market position. When [market] it flattens or shrinks a bit, then it will just be about market share and how to get a bigger piece of the pie.”
C-suite stagnation
As brands reevaluate their priorities in a changing economy, many are making changes at the C-suite level. At Lacoste, the brand is transitioning to a collective creative model as Louise Trotter steps down as creative director. Last year, Gap Inc.’s Sonia Syngal, MatchesFashion’s Paolo De Cesare and Lyst’s Chris Morton all left their C-suite positions in July. Both Gap and Lyst have also reported layoffs in recent months.
Tricia Logan, managing partner of the global consumer and retail practice at executive search and consulting firm DHR Global, said she expects increased C-suite activity in the past year to continue into 2023, based on CEO turnover in the past year alone week. DHR Global’s clients range from privately held mid-sized companies to multi-billion dollar publicly traded organizations and have increased recruiting needs across the spectrum.
“While it’s not unusual to see changes early in the year as companies come out of the fourth quarter, early indicators suggest we’ll see increased movement,” Logan said. “Economic uncertainty, a renewed focus on omnichannel and ESG priorities will be a priority for many companies, ultimately leading to new hires and/or changes among existing companies. Two of the biggest opportunities today relate to the needs of innovative leaders and organizational restructuring.”
Dennis expects that even traditional department store leaders will begin to focus on new profiles as they look to reinvent their C-suites.
“Traditional retailers that have been around for a while continue to be self-directed and look for leaders who fit into a fairly conventional framework. This has not led to dramatic transformations for some brands that need a more experienced leader,” he said.