On a chilly May afternoon, lucky pedestrians on Manhattan’s Columbus Avenue encountered a yellow food truck offering beignets and cold brew coffee, while a brass band played steps away.

To get their hands on the treats, passersby didn’t have to pay, but rather just share their email address and a few minutes of their time to learn about women’s apparel brand MM.LaFleur, which recently opened a store on the block.

Most happily obliged, fetched their beignets and went on their way without actually stepping foot in the store. But that was enough for MM.LaFleur, which hosted a series of similar events across the city to promote its new summer collection last month.

“These events can be costly and expensive,” said Sarah LaFleur, the brand’s founder and chief executive, “but we don’t expect to close a transaction.”

The point, rather, is to remind the local customers that the store is nearby and be top-of-mind next time they’re in need of a blazer or stretchy trousers. The beignet and happy music, meanwhile, adds another positive association to the brand.

With the pandemic firmly in the rearview mirror, fashion companies like MM.LaFleur are once again embracing in-person events from trunk shows to shopping parties to drum up brand awareness and, in some cases, drive customers directly to the cash register. Utilising this form of brand marketing, marketers say, is more critical than ever, as social media has become a less favourable channel for advertising in recent years, thanks to decreases in ad effectiveness alongside increases in ad rates.

“Performance marketing continues to be as unpredictable as ever and hard to understand, and for us, this is a direct way to reach our potential customers and communicate and leave an impression that an ad on Facebook never can,” said LaFleur.

It also helps that, post-pandemic, consumers crave social activities. Retail sales in the US, for instance, rose marginally in April, in part driven by spending at restaurants. The travel industry expects 2023 to be close to a record-setting spending year.

“In the post-Covid era, and people want to see people; people want to feel special,” said Savannah Engel, a fashion publicist who revamped her business, an agency called Savi, last year to prioritise event marketing over traditional PR for her clients.

Go Big or Go Home

By reallocating budget from digital marketing, brands can splurge on big creative events that leave a memorable impression on consumers and drive store traffic too.

New Orleans-based sunglasses brand Krewe, a client of Engel’s, recently hosted a crawfish boil outside of its New York flagship in the Meatpacking District, an endeavour that required Krewe to obtain five different city permits and ship 1,000 pounds of live seafood from Louisiana to New York’s LaGuardia airport.

The event wasn’t free for attendees — tickets cost between $75 and $135 — and Krewe donated $50,000 of sales proceeds to Memorial Sloan Kettering Hospital. It was an investment for Krewe, said Amanda Brody, the company’s VP of brand marketing, but it resulted in plenty of sunglasses sales that day — the rainiest day in May — in addition to generating awareness for the relatively small brand.

“The sheer volume of people that were not familiar with the brand, being able to come in and touch the product in real life is significantly more valuable than being targeted online,” Brody said. “And once we get them [in-store], they’re going to stay in the brand sphere.”

The biggest, most costly events will often yield the least tangible returns. With large scale events where attendees aren’t necessarily shopping the products — whether it’s a cookout, a fashion week party or a travelling beignet truck — the ultimate goal is to provide consumers a positive experience with the brand. Some may convert a few days later, and some will forget about it altogether. Others may come back to the brand months or even years later.

“Oftentimes, you can’t tell if the event is a success,” LaFleur said. “You have to be willing to put yourself out there and your brand out there and say, ‘I’m going to do this because I believe it will have an impact.’”

Test Out Different Formats

There are opportunities, for smaller shopping events to more directly drive sales, such as trunk shows and in-store shopping events. In addition to large seasonal activations like its beignet truck parties, MM.Lafleur throws monthly shopping events in its Bryant Park and Washington, DC showrooms, hosted by a collaborating brand or corporate partners like real estate investment firm Pretium Partners and law firm Labaton Sucharow.

Marie Oliver, a North Carolina-based women’s apparel brand that also works with Engel has adopted a regional events strategy combining up to 10 small, in-store trunk shows per year with six to eight intimate, shopping-free dinners for local media, influencers and high-profile community members that require more resources and planning. Typically, the brand will host events in multiple formats in each city it visits, like Houston, Dallas and Charleston, said founder Sarah Evenson.

While these dinners don’t directly boost the brand’s sales, there is a lift in social media engagement following each event. They have also contributed to an overall sales increase: Marie Oliver’s e-commerce channel has grown 175 percent in the past year, according to Evenson.

“We as consumers are constantly bombarded with advertising,” she said. “With these in-person events, you’re taking them and bringing them into your world … It creates a memorable evening that gives them a personal connection with the brand for them to be a long-term consumer.”

Pick a Partner

One way to introduce new customers to a brand through an event is to find a co-host, whether that’s another like-minded fashion business or a food provider with its own following. Partners will often split the cost of the event, according to Engel — an easy way to save money without having to skimp.

New York-based designer Jonathan Cohen has experimented with a number of shopping events at his Upper East Side pop-up store, many of which involve a partner. He’s hosted trunk shows for brands he’s friendly with, like hatmaker Gigi Burris and book signings for fashion writers. When a friend started a churro business, Cohen invited him to cater a happy hour soiree in the store’s backyard. The designer has even invited top clients to host their own shopping parties at the store, creating an immediate word-of-mouth effect for the brand.

“It was always a lot because we were having a party and would be running up and down helping clients and altering stuff for them,” Cohen said. “But we always see our sales skyrocket when we do these events.”

At Cohen’s more casual gatherings, the more people that attend, the bigger the attraction becomes. Pedestrians passing by the store will often come inside when there’s a big crowd. Ultimately, in the post-pandemic world, consumers are eager for connection.

“The events that seem to work the best are those that bring together a really interesting community of people,” said Sarah Willersdorf, global head of luxury at Boston Consulting Group. “Allowing customers to come together … works really well, especially if the founder is there.”

This week, Shein, the Chinese fast-fashion phenomenon that has rapidly emerged as a dominant force in the space, raised $2 billion at a $66 billion valuation, down one-third from its last funding round, according to The Wall Street Journal.

Shein’s many detractors, from rival retailers to China hawks in Washington to sustainability advocates and independent designers who claim their creations were ripped off, have been waiting for a moment like this. (Italian designer Giuliano Calza is the latest to join their ranks, calling out Shein this week for copying a shoe design for his brand, GCDS.)

The company isn’t invincible. Earlier this month, a bipartisan group of US lawmakers called on the Securities and Exchange Commission to require Shein to independently verify that it is complying with a ban on goods manufactured in China’s Xinjiang region ahead of any IPO. Shein said in a statement to BoF it has no suppliers in Xinjiang.

For now at least, the threats to Shein are mostly theoretical.

Even at its reduced valuation, Shein is still one of the world’s biggest fashion companies; $66 billion is more than the market capitalisations of Adidas, H&M and Burberry — combined. Among fast-fashion retailers, only Zara-owner Inditex is bigger.

And though Shein’s sales growth has slowed in the US, it’s projecting global revenue to rise 40 percent this year, according to the Journal report. The newspaper also cited investors who said the lower valuation may be paving the way for an initial public offering.

The sorry state of some of Shein’s rivals was also on full display this month. British e-commerce retailer Boohoo Group reported Tuesday that its profits had halved in the year ending on Feb. 28, on total sales of £1.77 billion ($2.2 billion) — an 11 percent dip from the year prior. At Asos, sales fell 8 percent to £1.84 billion ($2.3 billion) in the six months ending on Feb. 28, while its adjusted earnings before interest and tax, plummeted from £26.2 million to a loss of £69.4 million. A.k.a. Brands, which owns Princess Polly and other lines, earlier this month said first-quarter sales dropped 19 percent. Its market capitalisation is under $50 million, compared with $1.4 billion at its September 2021 IPO.

What’s become clear is that Shein has successfully captured the slice of the market occupied by the last wave of online fast-fashion brands. Five years ago, Boohoo, Asos and others were seen as the faster, leaner challengers ready to take on Zara and H&M. Shein is even speedier at bringing viral trends to market and offers a far wider assortment of products. It’s using its billions of dollars in venture capital funding to get even faster, such as by building distribution centres in the US and Europe.

Rival online retailers are struggling to respond. But Shein hasn’t had the same disruptive effect on the category’s giants. Inditex saw a 17.5 percent uptick in sales in 2022, while H&M posted a 12 percent increase in the first quarter of 2023. (Inditex has not yet published first-quarter sales figures.)

Zara and H&M have weathered Shein’s rise thanks in part to their vast store networks. In 2022, Inditex’ in-store sales increased 23 percent, the company reported, even as it closed hundreds of locations. Online sales, meanwhile, grew by 4 percent. H&M noted the same trend in its most recent quarterly earnings report: sales in stores increased in the first three months of 2023 even though it also had 7 percent fewer locations than the year before.

Post-pandemic, stores are once again a vital part of brand building and the customer experience. Physical retail provides an opportunity to build trust with consumers by showcasing a higher quality of product, allowing Zara to charge higher prices than Shein. H&M uses its stores to promote designer collaborations, most recently Mugler, and burnish its sustainability credentials.

H&M and Inditex can’t ignore the threat posed by Shein. But the Chinese retailer’s lower valuation is a sign that its investors have tempered their expectations a bit, at least for now. Last year’s $100 billion figure at the time was higher than even Inditex’s market cap. It reflected total domination of the fast-fashion market. Its current $66 billion valuation is appropriate for a company that has earned its place in the category’s top ranks, a status that the likes of Boohoo, Asos and Fashion Nova never quite achieved.

Could Shein someday open stores of its own, though? If it did, Zara and H&M would have reason to worry. Their rival has already held a series of wildly popular pop-ups around the world, including a recent one in Paris that drew thousands of shoppers and long queues outside the store in Le Marais.

THE NEWS IN BRIEF

FASHION, BUSINESS AND THE ECONOMY

Burberry Americas slowdown sours China rebound. Shares fell 6 percent after deteriorating sales in the Americas overshadowed a resurgence in Chinese demand. The British megabrand is in the midst of a transformation under chief executive Jonathan Akeroyd and designer Daniel Lee.

Gucci stages cruise show in Seoul. With sparkling lights and beating drums, Italian luxury label Gucci took over a 14th-century Seoul Palace on Tuesday to showcase its cruise collection, blending Korean heritage and modern fashion.

Giorgio Armani to stage couture show during Venice Film Festival. Armani Privé, the Italian designer’s haute couture line, will present its next collection on Sept. 2 at the Venetian Arsenal.

Farfetch returns to sales growth. The online luxury retailer’s revenue rose 8 percent year-on-year in the first quarter of 2023, above analyst’s expectations.

JD Sports’ profit to top £1 billion this year. The group reported profit before tax and exceptional items for the year to Jan. 28 of £991.4 million.

US retail sales increase in a sign of steady consumer spending. US retail sales increased in April, suggesting consumer spending is holding up in the face of economic headwinds including inflation and high borrowing costs.

Boohoo profit halves as shoppers face squeeze. Boohoo said on Tuesday it made adjusted earnings before interest, tax, depreciation and amortisation (EBITDA), its key profit measure, of £63.3 million ($79.9 million) in the year to Feb. 28, slightly ahead of analysts’ consensus forecast of £62.1 million but down from the £125.1 million made in 2021-22.

T.J. Maxx parent raises profit view as cost pressures ease. TJX Companies Inc. lifted its annual profit forecast on Wednesday, banking on easing cost pressures to cushion a pullback in consumer spending on discretionary items.

Rare Rolex Milgauss fetches record $2.5 million at auction. A rare and pristine condition Rolex Milgauss watch sold for $2.5 million, smashing records for the highest amount paid at auction for the Swiss brand’s timepiece made for scientists.

Advertisers say stricter regulations will end the era of greenwashing. Insiders welcome stricter rules in the UK and EU over the use of terms such as ‘carbon neutral’ in adverts, and claims concerned with offsetting.

Florida taps tannery, accessories brands to help tackle python population. Invasive Burmese pythons are devastating wildlife but one firm believes turning snake leather into accessories could be a win-win.

Century 21 reopens flagship store in Manhattan. Legendary off-price store Century 21 reopened its flagship location in Manhattan’s Financial District after filing for Chapter 11 bankruptcy in 2020 during the Covid-19 pandemic.

Higg Inc. rebrands as Worldly. The sustainability analytics platform’s new name distances it from a greenwashing controversy last year that engulfed the Higg Index — the suite of data tools it was originally built to host.

Lululemon takes minority stake in recycling tech company. The athleisure brand has taken a minority stake in Samsara Eco, an Australian company that uses enzymes to recycle plastics like polyester and nylon into new materials.

THE BUSINESS OF BEAUTY

Beyoncé appears to tease hair care line on Instagram. Beyoncé posted a series of images on her Instagram account that appeared to hint at the launch of an upcoming beauty brand.

Chanel taps Timothée Chalamet as fragrance ambassador. Chanel has named actor Timothée Chalamet as an ambassador for its Bleu De Chanel fragrance. The team-up marks the 27-year-old’s first fashion or beauty partnership.

Brazil’s antitrust watchdog approves L’Oréal deal to buy Aesop. Brazil’s antitrust regulator Cade on Wednesday recommended the approval of the sale of Natura & Co’s Aesop brand to French cosmetics company L’Oréal, according to the country’s daily gazette.

PEOPLE

Angelina Jolie launches fashion venture. Actress and humanitarian Angelina Jolie announced the launch of Atelier Jolie, a new fashion-focused business venture on Wednesday.

CFDA/Vogue Fashion Fund names finalists. After awarding prizes to all finalists for the past two years, the initiative will revert to naming one winner and two runners-up.

16Arlington wins BFC/Vogue Designer Fashion Fund 2023. The emerging British label 16Arlington founded by Marco Capaldo and the late Federica “Kikka” Cavenati will receive a £150,000 cash prize and business mentoring.

Lagos Space Programme wins International Woolmark Prize. Lagos Space Programme, the nonbinary luxury label by Adeju Thompson, was named winner of the International Woolmark Prize on Monday.

MEDIA AND TECHNOLOGY

Montana’s TikTok ban: why has it happened and will it work? On Wednesday, Montana became the first US state to ban the social video app TikTok.

Vice Media files for bankruptcy. Vice Media, which owns Vice, women’s media brand Refinery29 and fashion and culture-focussed publication i-D, filed for Chapter 11 bankruptcy on Monday.

Amazon plans to add ChatGPT-Style search to its online store. Amazon Inc. plans to bring ChatGPT-style product search to its web store, rivalling efforts by Microsoft Corp. and Google to weave generative artificial intelligence into their search engines.

Compiled by Sarah Elson.

The latest funding round for the Chinese fast fashion behemoth, now based in Singapore, values the company at $66 billion, according to a report in the Wall Street Journal Wednesday. That’s well below the $100 billion valuation Shein received a year earlier.

Investors leading the round are Sequoia Capital, General Atlantic and Mubadala, the sovereign-wealth fund of the United Arab Emirates.

Known for its ultra-low prices and thousands of new styles everyday, Shein saw its sales slowing in the summer and fall of 2022 after years of explosive growth, according to BoF analysis of data from Earnest Analytics.

In 2023, however, Shein expects revenue to grow by 40 percent, according to sources cited in the Wall Street Journal report. Last year, Shein posted $23 billion in sales, the people said.

Shein currently faces regulatory scrutiny from American lawmakers amid geopolitical tensions with China. A lower valuation would give room for the company to recover market value in the case of an IPO, existing investors told the Journal.

Congress sent a letter to Shein, among other international retailers, earlier this month posing the question of whether their supply chains comply with US legislation that bans cotton sourced from China’s Xinjiang region.

Shein also faces heightened competition from rival Temu, a shopping app made by Chinese online marketplace Pinduoduo that touts just as affordable prices and deep assortment of products.

In recent months, Shein has opened new warehouses and manufacturing facilities in the US and Europe.

“We’re very excited about the direction of the business,” said Peter Day, Shein’s global head of strategic communications, told BoF earlier this year. “We see ourselves as being well-positioned in the macroeconomic environment.”

Learn more:

Shein’s Years of Explosive Growth Are Over. What’s Next?

The fast-fashion retailer saw sales decline in the back half of 2022, as the novelty of its endless selection of trendy, ultra-cheap clothes wears off.

Universal Standard, the New York City-based brand known for offering products in sizes 00 to 40, has purchased plus-size workwear label Henning, the company told BoF Wednesday.

Created by model and former Glamour editor Lauren Chan, Henning is a small direct-to-consumer brand that offers straightforward, office-appropriate pieces like blazers and trousers at a contemporary price point. Under Universal Standard, Henning will cease operations and fold into the larger retailer, according to Chan and Universal Standard co-founder Polina Veksler.

Chan will take on the role of head of brand partnerships at Universal Standard, where she’ll oversee collaborations and work alongside its marketing team. As an influencer in the size-inclusive community, Chan will also help drive customer engagement for Universal Standard through livestreams and other consumer-facing events.

Henning will bring its workwear expertise to Universal Standard, which is known for elevated basics. The first collection to reflect a sharper and deeper focus on the category will be in fall 2023, said Veksler, who serves as the retailer’s chief executive officer.

“[Workwear] is a white space in the market, and it’s the No. 1 thing our customers say they want at our trunk shows,” Veksler added. “Lauren has a lot of expertise in the offering that’s lacking in the space, and also the marketing [component] and communications to the customer, and expertise on the fit side of things.”

Veksler launched Universal Standard with co-founder Alex Waldman in 2015 with the ambition of democratising the shopping experience regardless of size. Today, the company touts itself as among the most size inclusive fashion brands in the world. In 2018, Universal Standard raised $7 million Series A funding from investors, including Natalie Massenet’s venture fund Imaginary, Gwyneth Paltrow, and MatchesFashion founders Tom and Ruth Chapman.

Today, Universal Standard is fully profitable and will continue to explore opportunities to expand its offering and make size-inclusive fashion more accessible. Retailers often encounter challenges in producing plus-size apparel because larger sizes require different base patterns for the same style, and are therefore more expensive to manufacture. Retailers like Old Navy and White House Black Market ventured into the plus-size market with fanfare, only to scale back their size-inclusive offerings years later due to disappointing sales.

The demand is there — but the margins are often hard to justify for mass retailers. At the same time, recent trends in fashion have strayed away from the ubiquitous “body-positive” messaging of the 2010s. The Y2K resurgence embraces ultra-thin body standards, bolstered by the easy accessibility of diabetes medication that’s popular today for weight loss.

“There’s been a lot of chatter about regression in size inclusivity in fashion,” said Chan. “The truth is, fashion has never been that inclusive, and that’s why businesses like ours exist. We have to stay focused. The industry might be regressing, but it puts our foot harder on the pedal.”

Retailers are coming to grips with the end of cheap loans.

Central banks around the world are hiking interest rates as they fight the highest inflation in four decades. In the US, the Federal Reserve has set its benchmark rate, which determines borrowing costs across the economy, at 4.75 percent to 5 percent, a level not seen since 2006, with another quarter-percentage-point increase expected in May. In the UK, the Bank of England, too, has hiked interest rates, to 4.25 percent as of March.

For consumers, higher rates translate to more-expensive mortgages and higher interest on their credit card balances. That leaves less money for discretionary expenses, including new sneakers and sweaters. Retail giants are already feeling the pain: companies including Gap Inc. and Michael Kors-owner Capri posted sales declines in the fourth quarter.

For retailers, the Fed’s moves are forcing a mindset shift. From 2008 onward, interest rates were near zero, meaning many companies gave comparatively little thought to the cost of borrowing. Now, debt payments are a much bigger factor when deciding whether to expand into a new market, open a store or launch an online advertising campaign. Many face a difficult choice: scale back their plans, or compensate for higher interest payments with savings elsewhere, whether it’s through layoffs, reduced inventory or closing stores.

“In simplest terms, it’s all about capital allocation,” said Dylan Carden, an analyst at investment bank William Blair. “Running a levered balance sheet with debt frees up capital to invest … But when debt costs more, the upside isn’t there.”

Macy’s, Tommy Hilfiger-owner PVH Corp. and American Eagle are among the big retailers that paid down debt in the past year as interest rates rose. The pain is more acute for smaller companies that don’t have the financing options or cash flow of a global chain. And that’s doubly true of companies that borrowed heavily over the last decade when interest rates were near zero, including unprofitable start-ups and brands that were acquired by private equity firms in debt-fuelled transactions.

As loans come due, those firms will have to refinance at higher rates or divert cash to pay down debt that was once earmarked for growth strategies. It’s a trap that can be hard for companies to escape. Bankruptcies are on the rise; last month, Standard & Poor’s said private equity-owned companies are filing at their fastest pace since 2020.

In this environment, making the best decisions regarding debt and cash flow is essential. That can mean offering the right concessions when negotiating with lenders and knowing which projects are worth the added interest expense — and which can be postponed.

Weighing the Options

For companies facing debt that’s due in the near term, they have two main options: to refinance at a higher interest rate or pay down as much of it as possible. In order to make this decision, it’s critical for companies to assess the needs of the business.

“If you had to allocate free cash flow toward debt, it means less money to go toward building technology, pricing models, hiring and distribution channels,” said Carden.

If there aren’t short-term business improvements needed, retailers may opt to pay off their debt now to save cash in the long run. In recent quarters, American Eagle Outfitters, Capri, Nordstrom, PVH and off-price retailer Burlington Stores retired debt.

Plus-size retailer Torrid Holdings, meanwhile, said it’s preserving cash for building the business rather than paying down debt early.

“Any excess cash we have right now is going to be focused on growing the business,” Tim Martin, the company’s chief operating officer and chief financial officer, said earlier this month in response to a question from an analyst about whether the retailer planned to pay down debt this year. “That’s the number one focus as of today.”

Retailers that refinance may pay more each year in interest but protect their cash flow to fund investments. The gamble here is that these projects will yield higher returns than the interest rate on the debt used to pay for them. That grows more difficult when rates are higher.

Or, if there’s a particularly urgent problem or a can’t-miss opportunity, companies can always borrow more, even at today’s rates. VF Corp., whose Vans brand has struggled recently, took on two new loans in February totalling $1 billion to fund product innovation and sustainable materials, as well as to pay down short-term debt, the company said.

Setting Priorities

The metric to determine which path to take is called WACC, or the weighted average cost of capital.

“It measures what [rate] retailers can borrow money at and the opportunity cost of not investing in whatever project they need the debt for,” said Kelly Pedersen, who leads PwC’s US retail practice. “What we’re finding is that the hurdle rate to make an investment has increased, meaning you have to show higher returns on an investment to justify it.”

Whether a levered company chooses to refinance or not comes down to understanding the needs of the business.

“One of the first things we would counsel is to look at the investments you have to make, the investments where, if you don’t make these, it will harm the core business,” said Joel Rampoldt, partner and managing director in the retail practice at consultancy AlixPartners.

This could be refurbishment in stores or e-commerce software that enables inventory tracking, but if they’re not fit for purpose, he added, “you’re not meeting customer expectations.”

For instance, a company might borrow to pay for a new customer-data analytics platform that would enable a retailer to deliver more effective marketing to consumers. If it results in a quick boost in sales that recoups the project’s cost, it’s borrowed money well spent.

Other business improvements, such as a new human resources system or financial reporting software, may increase efficiency among employees but won’t directly result in higher sales or profits. These are the projects that retailers often defer when borrowing costs rise, though too little investment on these fronts can cause problems over the long run.

Negotiating With Lenders

An alternative to using cash to pay down a loan is a debt-for-equity trade, a common practice in which debtors receive a stake in a company for either retiring the loan or changing the structure of the debt.

Earlier this year, Rent the Runway announced it was able to restructure its debt to push back the maturity date from 2024 to 2026 and delay the steepest interest payments without changing the total interest rate of 12 percent. As part of the deal, its lender will be able to purchase 2 million shares of its Class A stock.

Restrictive covenants are another option, where the retailer agrees to limit certain actions or reach performance standards in exchange for more favourable terms on its loan. For instance, a brand could promise its lender not to open new stores unless it maintains a certain level of cash flow. In return, it would get a reduction in its interest rate or an extension on payments. Lenders sometimes insist on final approval of management changes, acquisitions, assets sales and dividends.

Retailers can also tie favourable loan terms to business performance, such as reaching a level of comparable-store sales every quarter. If the standard is not met, the retailer would agree to pay extra interest. This practice is less common, Rampoldt said, because it could become dangerous when the retailer struggles.

Regardless of whether a company faces the prospect of refinancing, it’s critical to preserve cash in an economic downturn. One way to increase cash flow is to reduce the amount of inventory commitment, Pedersen said.

“Even a small amount of inventory reduction, 5 percent or less, could result in saving tens or hundreds of millions of dollars,” he said.

Ultimately, the most important task at hand is to drive profitability while keeping operations as efficient as possible.

“Managing the business and operating as a really good retailer, that comes first,” Rampoldt said. “Simply being a good performer makes all the questions regarding financing much easier to solve.”

For most of its first decade, The RealReal’s mission was to find as many new resale buyers and sellers as possible, whatever the cost. Its new objective: make the most of the customers it has.

In an interview with BoF, John Koryl, who took over as chief executive in February, laid out a strategy built around convincing the site’s users to send in more Birkins, Cartier watches and other big-ticket items. Once they do, The RealReal will offer services like a dedicated “concierge” to walk them through the selling process, a feature it will begin to roll out Tuesday, and other offerings aimed at convincing sellers to search their closets for more high-end goods to sell.

Customers turning to The RealReal to offload their Reformation dresses or anything else valued at under $1,000 will have access to many of the same perks. They just won’t receive as much for their pieces as they used to under a new commission structure that went live in November to howls of protests from longtime sellers.

Koryl, who joined after the commission revamp and previously held senior roles at Canadian Tire Company and Neiman Marcus, said the commission structure will continue to evolve. That and other changes to come are part of a bigger project — making The RealReal profitable for the first time in its 12-year history.

“This isn’t a reinvention,” he told BoF. “All of this is a tweaking of what’s been done.”

But in another sense, the strategy under Koryl marks a pivot from how The RealReal has operated since its founding by Julie Wainwright in 2011. From the start, the goal was to create and then dominate a market for secondhand luxury fashion, which Wainwright in interviews defined as occupying the space between eBay and Sotheby’s. The RealReal would be the best reseller with the best service — it was among the first to offer at-home pickup for online consignment — and the deepest assortment of vintage Dior and last season’s Gucci, at the best prices.

It succeeded, mostly. In the US, The RealReal is the favoured resale destination for fashion aficionados looking for a treasure hunt or to clean out their closets. Revenue topped $600 million last year.

But offering a white-glove resale experience proved expensive: the company posted a $196 million loss last year. The bill for those years of rapid growth has come due in other ways; customers have complained about lost goods, delays and poor customer service. Resale platforms of all types have never been able to shake concerns about counterfeits, no matter how much money and technology they pour into the authentication process. The RealReal’s stock, which priced at $20 in its 2019 initial public offering, trades at $1.15 today, close to a level where it could face delisting. Wainwright stepped down as CEO last June.

Koryl and chief operating officer Rati Sahi Levesque are now tasked with finding a way for The RealReal to turn a profit while maintaining growth, all with a ticking clock: Several competitors facing a similar dilemma have been acquired at valuations that were down sharply from their peak.

Koryl said the concierges, dubbed RealService, will help with retention, while the focus on more-expensive listings will help with margins. So will investing in automation to set prices and authenticate products. He’s also looking at new revenue streams, including product warranties and monetising product data, such as analysis on why some items retain more value in the secondary market. The impact on revenue and profit will be visible in the second half of 2023, he added. The RealReal hopes to reach profitability by the first quarter of 2024.

Investors are waiting to see if the new measures pay off. The stock hasn’t budged from its lows. The company predicts first-quarter revenue to be in the range of $135 million to $145 million — down from $147 million a year earlier. Analysts on average are predicting just 4 percent revenue growth this year, compared with a 29 percent increase last year, but see losses narrowing.

“The amount of hyper-growth that The RealReal went through, there were some mistakes along the way,” Koryl said. “Yes, we have to find new ways of monetisation ... yes we have to put more automation around authentication, but the core business model of what we’re doing has held up in crazy times since its founding.”

Fine-Tuning Consignment

The RealReal has long touted its consignment experience, offering services for customers hoping to offload pre-owned pieces. But it hasn’t always run smoothly. In recent months, users have griped about lost items, processing delays, mislabeled listings and prices that didn’t make sense. An August New York Magazine headline summed up the platform’s strengths and weaknesses: “The Real Real Is a Total Mess. And I Can’t Quit It.”

RealService is The RealReal’s answer to those complaints. The concierge programme will advise sellers through the entire process, from authentication to pricing, whether they list one item or 100. The company had tested out the service among a number of consignors late last year, and found it improved customer satisfaction.

“The level of service needed for our sellers was much higher than we anticipated,” Levesque said. “Because we were growing so quickly, I don’t want to say we lost sight of our seller experience but we had to be very reactive.”

The RealReal also unveiled Tuesday its new data centre, which will educate consignors on what brands and specific pieces retain resale value and what’s hot on the platform. In addition, the company introduced a handbag pricing tool that gives sellers an estimate of what their item will fetch.

Low-Cost Growth

The new commission model will reduce inventory, ideally by reducing the number of unprofitable items sellers send in, such as keychains and other trinkets from luxury labels, or items made by less desirable brands. The Nothing is set in stone, Koryl said.

“We made commission changes and did we get those exactly right? No. I call it a Goldilocks situation,” said Koryl. “Was it too hot in the past and too cold what we did? We’re going to have to find just right, and it won’t be just right for everyone.”

The RealReal has also greatly reduced the number of what it calls “direct buys,” where it purchases brands’ inventory at wholesale prices. Beauty, which relied solely on direct buys, is being wound down.

Other recent cost-cutting measures include the shuttering of four retail stores and a headcount reduction of 230, or about 7 percent of its workforce, the company announced last month.

“We’re calling this the ‘reset’ year, where we’re still growing,” said Levesque. “But we’re getting rid of unprofitable growth.”

New Revenue Streams

Another critical component to The RealReal’s path to profitability will be introducing new revenue streams, an idea that the company revealed in a letter to shareholders last fall.

Possibilities include return insurance — the platform currently doesn’t allow returns on items that have been marked down — product warranties, on-site advertisements and data monetisation.

“The other thing we haven’t done is monetising the deep rich data we’ve collected,” said Koryl. “Is it advertising on our own site? Putting that data together and packaging that up for people in the luxury market? That incremental revenue could flow directly to the bottom line and will help put us on a profitability curve.”

“Getting [to profitability] will take a lot of tweaks to pricing and new revenue opportunities,” Koryl said. “But we have a lot of levers to pull to get there.”

As a kid in the 1990s, Trisha Okubo remembers shopping at Gap and Banana Republic in her local mall. But those mall visits didn’t mean she went home laden with shopping bags — in fact, whenever she saw a shirt or a pair of trousers she liked, she’d wait until they went on sale. And inevitably, they would.

Years later, as Okubo built her own jewellery brand, she knew she didn’t want her shoppers to have the same expectation for discounting.

“I didn’t want to fall into that trap,” she said.

Of course, that’s easier said than done. When planning a season’s worth of products, it’s impossible to know the exact consumer appetite for each style. Trends come and go overnight. Especially since the pandemic, consumer sentiment can be tepid one day, spike the next and then plummet just as fast.

Too conservative of an approach to inventory means missing lucrative full-price sales and risking shopper disappointment — an opportunity cost that most brands are reluctant to bear, especially if they answer to public shareholders every quarter. More often, retailers overestimate demand, and are stuck with excess goods with no other option than to mark down prices.

“First of all, the approach should be to minimise markdowns as much as possible in matching supply and demand better,” said Cowen analyst Oliver Chen.

The consequences of a product glut can be dire, as not only Gap and Banana Republic but also countless other mall retailers have learned in the past two decades. A constant stream of promotions can cause irrevocable damage to the perception of a brand, effectively conditioning consumers to wait for prices to fall or skip retail altogether and head straight to off-price retailers like Saks Off Fifth or T.J. Maxx (T.K. Maxx in the UK).

In certain European markets, markdowns and promotions are government regulated. Federal policy in France, for instance, limits promotions to two periods in the summer and winter. But in North America, the UK and other parts of the world, fashion companies are left to their own discretion for discounting strategies. They can mark down as much of their assortment as frequently as they’d like, for better or for worse.

Marketing plays a key role in underscoring the value of a retailer’s offering. Creative promotions, such as product bundles or personalised shopping events, can also help reduce the need for discounting. In the last segment of the inventory cycle, brands and retailers can look to third-party platforms to help offload leftover merchandise.

While there is no single blueprint suitable for every brand or retailer, the objective of this case study is to unpack the full inventory and markdown process and identify best practices in each stage, from the “test, read and react” approach in the planning stage to working with the most innovative start-ups in the liquidation space.

Click below to read the case study now.

Until recently, Vans sneakers seemed to sell themselves.

The skateboarding shoe brand reported double-digit growth every year between 2004, when VF Corp. acquired the brand for $396 million, and 2019. As soon as the popularity of one of its five signature styles began to slip, another would be elevated to take its place; the era of canvas Slip-Ons seamlessly flowed into the age of Old Skools.

That charmed run came to an abrupt halt during the pandemic. Consumers didn’t want classic silhouettes in new prints anymore. They wanted something that felt genuinely new. Vans canvas sneakers suddenly looked quaint next to brands like Hoka and On, which promised a modern mix of comfort, performance and style. Where Vans sales grew 24 percent in the year ending March 2019, they fell 11 percent in the nine months ending December 2022.

“It was almost like we could do no wrong in the 2017 to 2019 sprint,” said Kevin Bailey, global brands president, Vans. “But we weren’t feeding product innovation. We were dramatically under-funding our product part of the business.”

VF Corp. had brought Bailey back to the business in March 2022 in an effort to revitalise Vans, neck and neck with The North Face as the conglomerate’s biggest brand by revenue ($4.2 billion in fiscal 2022). He had served as Vans’ president between 2009 and 2016, when he left to be VF’s president of action sports coalition as well as Vans. Most recently, he was president of emerging brands and the Asia-Pacific region.

For the most part, the plan is a standard one for reviving a fallen brand’s prospects: Exit weak wholesale accounts, reduce the overall assortment of styles and streamline marketing efforts. But the real key to Vans’ future will be introducing new styles relevant to the needs of the consumer today.

“[Vans] are out of style and out of sync with fashion, and they don’t have a new product out there that resonates,” said Janet Kloppenburg, retail analyst behind JJK Research Associates. “But they do have a highly recognised brand name … where they don’t need to spend all this money toward brand awareness.

The Turnaround Plan

In hindsight, the signs of trouble were clear well before the pandemic, or the rise of On.

At the peak of Old Skool’s reign as the most coveted Vans style, before the pandemic and 1990s style had just begun to come back, Vans flooded the market with the shoe. To any retailer that wanted to get its hand on it, the company said yes.

“Everyone wanted that shoe and we let them have it,” Bailey said. “We became ubiquitous.”

Going forward, Bailey plans to be judicious with product allocation and sever ties with some stockists. Since 2020, Vans has already closed 1,500 wholesale accounts.

Bailey plans to run Vans as a “vertical retailer,” with some 1,000 of its own stores and e-commerce at the forefront of its merchandising strategy rather than letting wholesale dictate the brand’s future, he said.

In recent years, the direct-to-consumer strategy has proven to pay off for larger brands like Nike and Uggs, which scaled back on wholesale to improve their margins and better control how consumers view their brand. For well-known companies, department stores are no longer crucial for brand awareness as they are for younger labels.

To take charge of its brand perception, Vans will overhaul its marketing efforts to focus on fewer but bigger campaigns, reduce the number of overall styles and improve store presentation.

“It became very kind of disorganised the way we showed up as a brand,” Bailey said. “We had too many SKUs, where, if you look at our footwear wall, it’s overwhelming. What story are we trying to tell? Even as an employee I’m looking at our wall, and I’m struggling to find that story.”

Immediately after returning to Vans in March last year, Bailey formed his own team to make these changes. He tapped Vans alum Marissa Pardini from sister brand The North Face to be Vans’ chief product and merchandising officer. He hired Ian Ginoza, a collaborations expert with stints at Nike and Adidas, to lead a new division at Vans called Pinnacle, which will oversee premium products and special concepts.

It became very kind of disorganised the way we showed up as a brand

Under Pardini, Vans will skim up to 40 percent of its current assortment to present a tighter, more consistent offering. The brand will finally prioritise product development with a new team infrastructure that divides the brand into four categories: skateboarding, lifestyle (including core classics), Pinnacle and outdoor performance, perhaps the most promising development.

Under Ginoza, Vans will also reduce the number of collaborations in which it participates. “Where you’re going to see us lean into is a refined selection [of tie-ups],” said Bailey, pointing to successful recent ones, such as its capsule with indie label Collina Strada, and to some less on-point collaborations, such as a licensing deal with Disney and a recent collection with gummy bear candy maker Haribo.

“I think we’ve maybe confused consumers as to what we’re doing there,” Bailey said.

Foray Into Performance

By far its most ambitious undertaking, the new outdoor performance division — Bailey dubbed it MTE, or made for the elements — will lead Vans’ efforts in bringing to market new shoes, such as its version of a walking sneaker akin to On or trendy trail running brand Salomon. So far, MTE houses a line of hiking and waterproof shoes and will introduce a number of new models geared toward comfort and other technical attributes outside of skateboarding.

“Post-Covid, consumers are just doing a lot more outdoor stuff, and Vans need to address that,” said Kloppenburg.

Vans has what many of its newer competitors don’t: decades of brand recognition. Bailey’s ultimate objective is to harness that recognition into a new compelling reason for customers to come back to the brand again.

“The problem is, [our customers] are not buying frequently,” he said. “[Our customers] might want to buy a more fashion-forward shoe or an athletic shoe that’s in style at the moment, and we’re not bringing them that type of newness and excitement.”

Post-Covid, consumers are just doing a lot more outdoor stuff, and Vans need to address that.

But soon, it will. New products under the MTE division are already available in stores, and more will hit shelves this fall. A smaller overall assortment will be reflected in the fall collection.

“The return to growth will be back half of the year, but the first half will still be tough,” Bailey added.

In an effort to cut costs, the luxury resale platform will lay off 230 employees and close four stores this year, the company said in an SEC filing Thursday.

The layoffs will affect 7 percent of its workforce. The RealReal will close its San Francisco and Chicago flagships, as well as two additional stores in Atlanta and Austin. The company will also shutter two consignment offices and reduce its office spaces in New York City and San Francisco.

The RealReal “will continue to evaluate its real estate presence as it deems appropriate to create efficiencies and to address trends in the marketplace and macroeconomic factors,” it said in the filing.

A number of retailers and brands have taken steps to reduce headcount in recent months. Earlier this week, Neiman Marcus Group announced plans to eliminate about 5 percent of its workforce. In January, Ssense laid off 138 employees, or also about 7 percent of its overall workforce.

Last year, The RealReal announced it was on track to be profitable by 2024. In the past year, its shares have lost more than 80 percent of their value.

Learn more:

Can Fashion Resale Ever Be a Profitable Business?

Companies like The RealReal and ThredUp promised Wall Street that with scale comes profit. But operational costs and competition have kept them in the red.

In partnership with ThredUp, the American retailer now offers customers a way to buy and sell pre-worn J.Crew products online, the company announced Tuesday. Dubbed J.Crew Always, the platform allows shoppers to mail in their secondhand pieces with a prepaid shipping label and receive store credit in return.

In tandem with online resale, J.Crew is also launching a vintage assortment that will be available in select stores, including pieces from the 1980s and 90s.

The retail chain has worked with ThredUp before. In 2019, sister band Madewell tapped ThredUp to create the Madewell Forever progamme, which allows shoppers to trade in their old Madewell denim for store credit. The progamme was extended in 2021.

Learn more:

Why Brands Are Racing Into Resale — in Five Charts

Hundreds of fashion companies are looking to build their own resale channels, giving rise to a new class of B2B start-ups that aim to help them navigate the nascent industry.

The online rental platform is launching an Amazon Fashion storefront, it announced Tuesday.

On its own website, Rent the Runway already offers discounted pre-worn pieces at the end of their rental cycle from its hundreds of brand partners, including Jason Wu, Sandro and Madewell. The Amazon selection includes styles from about 35 brands. Rent the Runway expects the partnership to serve as both a form of marketing as well as a boost in revenue.

“Collaborating with Amazon Fashion brings Rent the Runway incredible brand awareness,” Jenn Hyman, Rent the Runway co-founder and CEO said in a statement. “We believe strategic relationships like this can ignite a new engine of growth for our business.”

Rent the Runway made a push into resale in 2021, when the company made it possible for non-rental members to purchase items on the “clearance” items on its website.

While consumers have been quick to embrace secondhand fashion, rental is a tougher sell. Rent the Runway had 134,240 active subscribers in the third quarter 2022. That’s compared to 950,000 active buyers on The RealReal in the year ending Sept. 30.

Rent the Runway has narrowed its losses in recent quarters. It expects to break even on adjusted EBTIDA, or earnings before taxes, interest, depreciation and amortisation, in the “near term,” Hyman said in a recent earnings call.

Learn more:

How to Make Rental Work

After years of trial and error, rental platforms have found new ways to improve margins and acquire customers, such as focussing on niche categories. Profitability remains elusive, however.

After more than a decade of legal wrangling, a jury in New York will in the coming weeks decide whether Thom Browne can keep his stripes.

Adidas sued the designer and CFDA chairman in 2021, alleging his namesake label is using a four-stripe pattern that’s confusingly similar to the activewear giant’s three-stripe logo, including on sportswear basics such as hoodies and joggers. Thom Browne argues that the two companies are not direct competitors, and that shoppers are unlikely to confuse his $750 leggings with Adidas’ much more affordable offering.

The trial began earlier this week and could conclude as soon as late next week, according to court documents.

The particulars are similar to countless other legal actions brought by designers and brands who felt their work was ripped off. But there’s more at stake here than who has the right to put parallel lines on a shirt.

The outcome of the case could expand the power to enforce trademarks across the fashion industry and beyond, at a time when what it means to be a fashion brand has fundamentally shifted. Today, few brands stay within the confines of their niche specialty, such as luxury suiting or running shoes. To grow and scale, it’s increasingly necessary to launch new categories, collaborate with other brands and operate across multiple price points. Regardless of the verdict, the Adidas-Thom Browne case will set new parameters for how brands go about this process.

The conflict goes back to 2007, when Adidas demanded the designer cease using what was then a three-stripe motif on a sport coat. The label switched to a four-stripe mark, and all was well. For a while.

Thom Browne put the four stripes on everything from hoodies to overcoats to socks. The designer sold his brand, which he founded in 2001, to Zegna in 2018 in a deal that valued the brand at $500 million. In 2021, Thom Browne generated €263 million ($280 million) in revenue (Adidas reported €21 billion in revenue in 2021).

It was Thom Browne’s expansion into activewear that put the brand back on Adidas’ radar, Adidas claims. In November 2020, the label released an official line of running apparel that included shorts, compression T-shirts and other athletic gear featuring the signature four stripes. Timing is a key point of contention: Thom Browne claims it’s offered sportswear-inspired products since its early days.

In June 2021, Adidas filed a trademark infringement lawsuit in New York federal court, claiming that because Browne had ventured beyond suiting and formalwear into “athletic-style apparel,” his stripes were once again “confusingly similar to Adidas’ three-stripe mark.” The conflict hinges on whether Thom Browne’s use of stripes on its casual sports-inspired styles creates confusion for consumers who would otherwise associate the stripes with the German sports giant.

Thom Browne has argued that the two brands are not direct competitors because they are in different sectors of the market, it as a luxury brand and Adidas as a mass player. The label also claims that Adidas, after 14 years, had missed the reasonable window of time to take legal action.

But what makes the case so interesting lies between the lines of legal text: both Thom Browne and Adidas have stepped outside the boundary that back in 2007 marked their respective domains in fashion, said Jeff Trexler, associate director of the Fashion Law Institute.

It’s true that Thom Browne has leaned into activewear, including becoming the official uniform maker for Spanish football club FC Barcelona in 2018. As consumers at all income levels have embraced more casual fashion, many other luxury brands have made similar moves. Even Zegna, best known for its suits, is basing its growth strategy around everyday attire.

Adidas also encroached upon Thom Browne’s territory, partnering with luxury brands like Gucci and Khaite in recent years. At $850, a pair of Adidas X Gucci Gazelles is more expensive than Thom Browne’s tech runners.

“It’s like in international politics, where you have peace as long as you stay in your own territory,” said Trexler. “You have one superpower with a sphere of influence and another with its own sphere of influence, and as long as they remain separate, they’re not going to fight.”

Thom Browne and Adidas are hardly the only fashion companies vying for market share outside their primary specialty. Today, collaborations and category expansion are key drivers of growth for brands big and small. In theory, a number of fashion companies can find themselves in the same position as Browne or Adidas, forced to defend a signature style because they’ve “crossed streams,” so to speak, with brands that are far from direct competitors.

“The idea that a brand is confined to one elite market and there are other brands out there to colonise other parts of the market, that’s an old idea. It’s a dying or already dead idea,” Trexler said. “Today, no brand will say any product line is off limits. Anywhere from sneakers to socks to belts to bed linens and cookware, brands want to be lifestyle brands, where they can conquer everything.”

Depending on the outcome of this week’s trial, brands may have to exercise more caution when it comes to new products and partnerships.

“This is going to make a lot of business for lawyers in the coming years,” Trexler said.

THE NEWS IN BRIEF

FASHION, BUSINESS AND THE ECONOMY

Stitch Fix to cut 20 percent of salaried workers as chief executive steps down. Founder Katrina Lake said she would return to the CEO role and announced layoffs amid slumping sales. In the three months ended Oct. 29, Stitch Fix’s net revenue fell by 22 percent from a year earlier, while active clients fell by 11 percent.

Britain’s Next sees lower profit in 2023 as consumer outlook darkens. The group raised its pretax profit forecast for the current year which ends this month to £860 million ($1 billion) from a previous forecast of £840 million after full price sales rose a better-than-expected 4.8 percent in the nine weeks to Dec. 30. But it forecast full price sales down 1.5 percent and pretax profit of £795 million, down 7.6 percent year-over-year.

Everlane slashes 17 percent of corporate workforce. The DTC basics brand announced internally on Wednesday that it will cut staff to help improve profitability by the end of the year amid rising inflation and recession fears, according to an internal email viewed by BoF.

Rolex gets more expensive in UK and US with latest price hikes. Rolex prices climbed by an average of about 2.6 percent in the UK and 2.2 percent in the US, according to analysts at Barclays.

Hong Kong’s retail sales post surprise drop in November. Retail sales value fell 4.2 percent from a year ago, the Census and Statistics Department said Wednesday. That was far worse than the economists’ forecast of a 4.8 percent rise. It was the worst performance since March, when sales plunged 13.8 percent.

THE BUSINESS OF BEAUTY

Morphe brand, once valued at $2 billion, closing all US stores. On Thursday, the beauty label listed about 20 locations on its website.

PEOPLE

Victoria’s Secret brand chief executive Amy Hauk departs. Hauk will step down as chief executive of the Victoria’s Secret and Pink brands effective Mar. 31, according to an SEC filing from the company on Tuesday that also announced the completion of its acquisition of DTC lingerie brand Adore Me. Martin Waters, CEO of Victoria’s Secret & Co. will assume her responsibilities.

MEDIA AND TECHNOLOGY

Hermès and the MetaBirkins creator are set to go to trial. In a one-page ruling on Dec. 30, US district judge Jed Rakoff shot down each side’s hopes of obtaining an immediate conclusion to the saga, with a trial set to commence on Jan. 30.

Compiled by Joan Kennedy.