The Coresight Research team attended the inaugural ReMode two-day conference in Los Angeles, November 13 and 14. ReMode is focused on disruption and sustainability in the fashion industry, helping the industry navigate the new realities across the value chain via its four foundational pillars: ReThink, ReMake, ReInvest and ReMarket. More than 150 speakers, 80 innovative solution providers and more than 1,000 attendees came together to help build the future of the fashion industry.

Luxury’s Evolving Role in Sustainability

A number of luxury executives and consultants participated in ReMode to discuss the evolving role of the luxury industry in sustainability. It is natural the luxury sector leads and inspires the fashion industry in sustainability: Consumers pay more for and expect more from luxury products, and it is where sustainability should thrive, according to Eva Kruse, President and CEO of Global Fashion Agenda.

Sustainability has been integral to Kering’s business strategy for the past decade. Kering has 13 luxury houses of fashion, leather goods, jewelry and watches, including Gucci, Saint Laurent, Bottega Veneta and Balenciaga. Laurent Claquin, Head of Kering America, said “Kering regards sustainability as an opportunity, and a source of inspiration and innovation.” Kering is changing the way it designs luxury products by including nonfinancial criteria to create sustainable value for customers and society via its environmental profit and loss (EP&L) methodology.  And in the spirit of collaboration, Kering has open sourced its EP&L methodology to catalyze others. “Sustainable business practices allow us to be here together for the future,” Claquin commented.

Morten Lehmann, Global Fashion Agenda; Laurent Claquin, Kering Americas; Julie Gilhart, Parsons School of Design; Eva Kruse, Global Fashion Agenda; Simon Lock, Ordre
Source: Coresight Research

Simon Lock, Cofounder and CEO at Ordre, listed a number of ways the luxury fashion sector has and can become more mindful of its impact on the globe: using virtual online showrooms which reduces travel and lowers the carbon footprint of the industry; in colleges, new generations of designers are being taught to design in a more sustainable way; and blockchain has the potential to form a transparent record and database of a product’s journey, from raw materials to retail, allowing for a more qualified and informed purchase decision.

Julie Gilhart, a member of the Parsons School of Design Board of Governors, said, “Luxury has an obligation to lead the way with sustainability. We are setting trends in fashion, rooted in artisanry and quality, we should set this trend as well.” Claquin concurred, “(Sustainability) is a necessity and, for luxury, a duty, a double duty,” citing Gucci’s Equilibrium, Claquin said Kering has a culture of purpose balancing aesthetics and ethics, and that the brand and its people are committed agents of social and environmental change.

Recommerce Circularity

The RealReal has a solution to fashion’s built in obsolescence: Consign it for the next fashionista. One of the largest luxury consignment startups, The RealReal, is a retail choice that helps the planet by reducing the waste and environmental impact of the fashion industry. It is built on authenticating luxury products and eliminating the risk of counterfeit goods. Rati Levesque, Chief Merchant at The RealReal, said the company has sold over 8 million items since its 2011 launch.

The RealReal has multiple virtues, in addition to fostering a more sustainable industry, the company acts as an acquisition channel for many luxury brands providing entry to first-time value focused millennial buyers. Buyers and sellers are getting maximum value out of luxury goods. Even the luxury brands have taken notice and are beginning to work with The RealReal. Levesque mentioned a partnership with designer Stella McCartney to make a shared impact and advance their shared values; consignors at The RealReal earn a Stella McCartney gift card when they consign a Stella McCartney product. Together, they are extending the lifecycle of luxury items. Levesque said The RealReal will extend this type of partnership to additional luxury brands.

Levesque also spoke to the value of growing data at The RealReal, with insights into current macro and micro trends, by brand, region and age group. The company publishes an annual State of Luxury Resale Report replete with this best-selling brands and emerging designers in luxury resale. Gucci was in first place in terms of sales growth in the first half of 2018, in the August 2018 report, achieving 62% growth in women’s.

Customer Centricity

Greg Petro, Founder & CEO of First Insight spoke to using technology to build a customer-centric organization. Two areas in which retail executives are underestimating the impact of consumer behavior is smart speakers and product pricing. According to First Insight’s consumer and retail executive surveys, only 2% of retail executives acknowledge the impact of smart speakers, despite a 75% increase in the number of consumers who own smart speakers since December 2017, and that 59% of consumers with smart speakers are using them to research prices.

Regarding pricing, First Insight data reveal that 40% of consumers rank price as the most important factor in their purchase decisions, but only 20% of retail CEOs felt pricing was ranked as important.

Voice of the Customer analytics (VoC) was cited by 59% of executives as the most transformative technology for their business and 46% of retail leaders plan to invest in VoC in the next 12 months. That compares with 49% of executives that named predictive analytics as most transformative and 63% planning to invest in predictive analytics in the coming 12 months.

The Coresight Research team attended the first China International Import Expo held in Shanghai, November 5–10. The event attracted a total of 172 countries, regions and international organizations, more than 3,600 companies and more than 400,000 domestic and foreign buyers. In the keynote address, President Jinping Xi said China will import US$30 trillion worth of goods and US$10 trillion worth of services over the next 15 years.

The event was the platform to launch more than 5,000 new products, technologies and services. Deals totaling US$57.83 billion were struck at the event. At the Hongqiao Economic and Trade Forum, global business leaders discussed the latest global trade issues, while the National Pavilions in the Expo were full of scientific, technological and cultural demonstrations.

Companies including General Electric, DuPont, Mitsubishi Electric, Microsoft, Canon, Hitachi, Siemens, Dell and other Fortune 500 companies set up exhibition pavilions.

The Hongqiao Economic and Trade Forum at the Expo featured business leaders such as Bill Gates of Microsoft and Jack Ma of Alibaba as speakers.  International political and business leaders  came together to discuss major issues of global economics and trade. Below, we feature images from the event.

National Pavilions from Different Countries Showcase Their Culture and Industrial Advantages

A total of 81 national pavilions from 82 countries and three international organizations met to cover trade in goods, services, industrial clusters, investment, tourism and distinctive products.

Source: Coresight Research

International Corporations Showcase Their Latest Products

Companies exhibiting in the pavilions included more than 200 companies from Fortune 500 companies and leading firms in different industries.
Below, we feature photographs from the event.

Source: Coresight Research

The Coresight Research team attended Cosmoprof Asia 2018 in Hong Kong. Cosmoprof is the leading B2B beauty trade show in Asia and also offers a three-day education program in which industry experts share insights and information on key beauty industry trends.
Our team attended sessions led by industry experts and met brand owners to learn more about the newest trends and products. Here are our top takeaways from the first day.

The Global Beauty and Personal Care Market Is Seeing Solid Growth

Yiting Liu, Beauty and Fashion Analyst at research firm Euromonitor International, outlined that the global beauty and personal care industry has been growing at 5% compound annual growth rate since 2012, and estimated total retail sales will be $491billion for 2018. The category’s global retail sales value is forecast to grow to $616 billion by 2022. Asia Pacific has played a prominent role driving growth for the global beauty and personal care industry. Liu outlined that companies with natural product offerings enjoy higher CAGRs since 2012 than those without natural product lines.

Growing Awareness of “Green” Beauty and “Ethical Consumerism”

Consumers no longer focus only on price and quality, but also on the wider impact products bring to society and the environment. Liu defines“ethical consumerism” as product consumption that does no harm to the environment or society. Ethical consumerism is driving the evolution of “green beauty,” which has three aspects:

• “Green”and ethical positioning, for example, “free of animal testing” products or “100% recyclable” packaging.
• Getting products certified by a recognized industry body, for example, Halal certified.

Use of naturally or botanically derived ingredients, such as aloe and olive leaves.

Source: Coresight Research

Liu added that there is a growing trend of using three types of ingredients in beauty and personal care products:

• Locally sourced ingredients such as mangosteen from Thailand.
• Super food ingredients such as broccoli and blueberries, which add nutritional value of the products.
• Fermented ingredients such as fermented black sugar and yogurt.

Industry Players are Adopting Sustainability Measures to Up Their Game

Amarjit Sahota, Founder and President of Ecovia Intelligence, defined sustainability as companies meeting present demands without comprising the ability of future generations meeting their own. Using this definition, Sahota added that companies in general are adopting several types of sustainability measures:

• Adoption of natural ingredients as replacement to synthetic ingredients.
• Sustainable and ethical sourcing of natural and organic ingredients, for example from renewable sources.
• “Green” packaging such as plastic-free packaging.
• Waste management to reduce costs and increase efficiency, where some companies are adopting zero-waste initiatives.
• Social investment, for instance volunteering and charitable donations to third world countries.

Panelists from different companies shared their best practices in the sustainability space:

• Paolo Braguzzi, CEO of haircare company Davines, said Davines addresses sustainability by reducing plastics and packaging, getting its energy from 100% renewable sources, and measuring its own impact on the environment.
• Christina Ho, Marketing Manager of chemical company Croda, shared that Croda uses renewable ingredients in manufacturing sites. Ho added that Croda ensures no child labor is used, and that ingredients for skincare products are sourced from ethical suppliers. In addition, Croda employs third party assessment and requests each employee donate 1% of their time on social work.

Steven Ko, CEO and Founder of Hair O’Right International Corporation, said companies should see sustainability as a competitive edge rather than a corporate social responsibility (CSR) initiative. Furthermore, Hair O’Right uses recyclable products and have United Nations Sustainable Development Goals written clearly in the company’s CSR reports.

Source: Coresight Research

Source: Coresight Research

Black Friday Forecast: Much Colder than Last Year

The Thanksgiving-Black Friday holiday week is expected to be colder than last year, with extreme cold hitting on Thursday, November 22 and Friday, November 23. Snow is expected from Massachusetts to Albany, with wind chills falling below zero in the Northeast and into the teens from Philadelphia to Washington, DC. Temperatures across the US Gulf coast and the Canadian prairies are expected to be warmer than last year.

The figure below shows a temperature forecast map (versus last year) for the Thanksgiving-Black Friday week in the US and Canada.

Source: Planalytics

The colder weather year over year should drive demand for apparel such as winterwear in Denver (29% higher), fleece in New Orleans (16% higher), sweaters in Phoenix (14% higher) and boots in Montreal, as well as other winter needs such as ice melt in Boston and snow throwers in Minneapolis (19% higher). Demand for cocoa is expected to be 11% higher in Nashville.

Source: Planalytics

December Forecast: Warmer and Wetter

The December forecast is expected to be warmer than last year, particularly in Eastern Canada, but cooler in the US Southwest. The forecast also calls for more precipitation than last year across most of the US.

Source: Planalytics

Demand is expected to be higher for fleece in the Southwest but lower for boots, gloves and hot cocoa across the rest of the US. The impact of the warmer weather is expected to generate an incremental $1.1 billion in sales for restaurants, $727 for home-center stores and an additional $247 million for specialty apparel. Poor air quality caused by fires in northern California could dampen holiday spending in the San Francisco Bay Area.

This forecast should generate weather-driven demand in December as illustrated below.

Source: Planalytics

The warmer weather is expected to drive lower demand for ice melt in Toronto, gloves in New York City and jackets in Atlanta.

On November 8, Ulta Beauty hosted its annual Analyst and Investor Day in Itasca, Illinois. The day consisted of presentations from CEO and Director Mary Dillon, SVP of Brand Marketing Shelley Haus, Chief Merchandising and Marketing Officer Dave Kimbell, SVP of Merchandising for Prestige Beauty Tara Simon, CFO Scott Settersten, Chief Store Operations Officer Kecia Steelman, SVP of Digital and E-Commerce Prama Bhatt and Chief Supply Chain Officer Derek Hornsby.

The main themes of the day included customer loyalty, new products, celebrity collaborations, technology investments and bringing newness to the product assortment with a focus on exclusives, independent brands and prestige brands.

The company announced that it will no longer provide quarterly guidance. Ulta will provide specific annual guidance on its fourth-quarter earnings calls and update that as needed throughout the year. Ulta also announced that it is retiring its “All Things Beauty, All in One Place” slogan and replacing it with “The Possibilities Are Beautiful” as its new brand expression.

Ulta’s Net Sales Grew by 120% from 2013 to 2017

As of November 8, Ulta operated 1,163 stores in 50 states as well as its Ulta.com online store. Some 96% of Ulta stores are approximately 10,000 square feet in size. The company is moderating its store opening plans, and now plans to open 80 stores in 2019, and 70–75 stores in each of the following two years, with a target of operating 1,399 stores in 2021. The company’s previous estimate, as of August 30 this year, was to operate 1,400–1,700 stores in the US over the next few years. When asked about international expansion, CEO and Director Mary Dillon said, “We’re studying; we don’t have anything to announce today.”

Ulta grew revenues by 120% from 2013 to 2017, from $2.67 billion to $5.88 billion. The company raised its fiscal year 2018 comp guidance from 6%–8% growth to 7%–8% growth and reiterated its full-year EPS guidance of “low 20% growth.”

Slide from Ulta Beauty 2018 Analyst and Investor Day presentation
Source: Ulta Beauty

More than 95% of Ulta’s Sales Go Through the Ultamate Rewards Loyalty Program

Dave Kimbell, Chief Merchandising and Marketing Officer, said that membership in the company’s Ultamate Rewards loyalty program has grown by 64.8% over the past three years, from 18.2 million members in 2015 to 30 million members as of November 2018. Kimbell said that more than 95% of the company’s sales go through the loyalty program, which enables Ulta to track all of those items back to an individual, providing the company with a deep understanding of purchasing behavior.

Slide from Ulta Beauty 2018 Analyst and Investor Day presentation
Source: Ulta Beauty

Ultamate Rewards Loyalty Members Spend $200 Annually and Hold 30% Share of Wallet

Kimbell said that Ultamate Rewards loyalty program members spend an average of $200 per year at Ulta and account for 30% of all beauty spending at Ulta. They also represent 30% of all “beauty enthusiasts,” he said. Ulta’s loyalty program has three tiers, Member, Platinum and Diamond. Its Platinum and Diamond members represent more than 40% of beauty spending, while Regular members account for 30% of beauty spending.

Slide from Ulta Beauty 2018 Analyst and Investor Day presentation
Source: Ulta Beauty

Ulta Has Added 250+ Brands Since 2016 and Has Focused on Exclusives and Independent Brands and on Introducing Customers to Prestige Brands

Ulta reported that it has added more than 250 brands since 2016, 100 of which are in skincare. The company reported that it is seeing a blurring of the lines between mass (drugstore brands) and prestige (premium) brands, with most Ulta guests shopping across both brand segments. Tara Simon, SVP of Merchandising for Prestige Beauty, said that the company’s customers are exhibiting “mass migration,” meaning they may start at Ulta buying mass brand products and then, over time, begin buying prestige products, while continuing to buy just as many, or more, mass brand items.

By introducing consumers to prestige brands, the company is gaining share of wallet. Simon reported that Ulta currently holds 23% of the prestige beauty market, according to The NPD Group, up from 15% in 2016, with the majority of the growth since 2016 coming from cosmetics.

Slide from Ulta Beauty 2018 Analyst and Investor Day presentation
Source: Ulta Beauty

Simon said that over the past two years, Ulta has added more prestige brands and increased penetration of its prestige portfolio, which includes Chanel, Clinique, Estée Lauder, Kate Somerville, Kiehl’s, Lancôme, MAC, Mario Badescu, NARS and Peter Thomas Roth.

The company is also focused on bringing independent brands in-store and is working with digitally native brands. Ulta reported that it is seeing significant growth in brands that it has introduced, including ColourPop, Dose of Colors, Juvia’s Place and Morphe. Simon said that the company sees the expansion of all brands across its portfolio as an opportunity to increase its share of wallet.

Ulta has increasingly focused on new and exclusive products to include in its Ulta Collection. Exclusive products that are sold only at Ulta represent 9% of the company’s portfolio. The Ulta Collection and products that were designed specifically for Ulta, such as IT Brushes for Ulta and Tarte Double Duty Beauty products, represent about 6% of the business. The remaining 3% of the exclusive portfolio includes partnerships with brands such as Morphe and Kylie Cosmetics, where Ulta serves as the brand’s exclusive brick-and-mortar retail partner.

Slide from Ulta Beauty 2018 Analyst and Investor Day presentation
Source: Ulta Beauty

Ulta Announces Collaborations with Kylie Jenner and Kim Kardashian West

Simon announced that Kylie Jenner will launch Kylie Cosmetics at Ulta on November 17, both in stores and online, beginning with the brand’s Lip Kit. Jenner has more than 118 million followers on Instagram and, in 2016, her Lip Kit sold out within one day of the initial launch. This announcement followed news that Kylie Jenner’s sister, Kim Kardashian West, is launching four scents in her KKW Fragrance line at Ulta for the holiday season. The KKW Fragrances will be available in Ulta stores (but not on Ulta.com) beginning November 25. Simon highlighted that these partnerships will provide customers with an opportunity to try products that were previously only available online. She added that Kylie Jenner “is super excited to be able to have a place for her fans to come and actually touch the product and try it because she’s selling a whole lot of this online, and nobody’s ever touched the stuff before they buy it. So, we couldn’t be happier. We think it is going to drive a lot of traffic to the stores.”

Slide from Ulta Beauty 2018 Analyst and Investor Day presentation
Source: Ulta Beauty

Ulta Is Investing in Technology to Build an Innovation Ecosystem with the Goal of Becoming the Digital Store of the Future

Prama Bhatt, SVP of Digital and E-Commerce, said that the company is creating a commerce and content platform that connects its physical and digital guest journeys. The company emphasized that its main focus is on personalization and connecting online and offline experiences in order to tailor its communications and help consumers navigate the beauty space. Bhatt provided an overview of the company’s technology partnerships and acquisitions:

• Ulta invested in technology startup Spruce to develop a services system to facilitate booking salon appointments. The system aims to increase consumer engagement. Spruce is live in Ulta’s pilot store and Ulta plans to launch the new system in a limited number of stores in 2018 and then roll it out to its entire fleet in 2019.
• In September 2018, Ulta acquired QM Scientific, an AI startup with capabilities in computer vision, recommendations, natural language processing and visual search. QM Scientific has been recognized by the National Retail Federation as a disruptor in the retail space.
• Ulta also acquired GlamST, which it had partnered with to develop the GLAM LAB virtual try-on experience, in order to help build out its capabilities for AI and AR. GlamST combines AI, AR and machine learning capabilities with a focus on virtual makeover solutions, image processing, graphics and effects.
• Ulta has made foundational investments in Iterate, a digital workflow platform that tracks trends, provides research and curates technology partnership opportunities. Iterate enables rapid prototyping and provides access to startups.

Slide from Ulta Beauty 2018 Analyst and Investor Day presentation
Source: Ulta Beauty

Source: Company reports/Coresight Research

3Q18 Results

Urban Outfitters reported 3Q19 revenues of $973.5 million, up 9.0% year over year and above the consensus estimate of $967.9 million. Adjusted EPS was $0.70 up 70.7% from the year-ago quarter, above the consensus estimate of $0.62 and above last year’s EPS of $0.41.

By brand, Anthropologie Group net sales were $385.0 million, up 9.4% year over year. Urban Outfitters brand sales were $379.2 million, up 7.2% from the year-ago quarter. Free People sales increased 12.0%, to $202.2 million, and Food and Beverage sales increased 14.5% to $7.1 million.

By division, retail net sales increased by 8.7%, to $878.9 million and wholesale segment sales were up 12.4%, to $94.7 million.

The company reported that store comps have been positive for each of its brands for the third straight quarter, due to increased average unit selling prices and increased units per transaction. By brand, Free People comps were up 12.0%, below the 13.4% consensus estimate. Anthropologie Group comps were up 8.0%, beating the 6.4% consensus estimate, and Urban Outfitters brand comps were up 7.0%, below the 7.8% consensus estimate.

The company reported that in retail, both digital and store channels comps delivered positive results. Digital led the way, posting double digit sales increases at each of the brands, driven by increases in sessions, average order value (AOV) and conversion rate.

During the nine months ending October 31, 2018, the company opened a total of 14 new locations—three Free People stores, four Anthropologies Group stores, four Urban Outfitters stores, and three Food and Beverage restaurants; the company closed four locations: one Urban Outfitters store, one Free People store and two Anthropologie Group stores. During the nine-month period, three franchise-owned Urban outfitter stores were opened.

The company reported that its international business is a strategic focus for the brand. In November 2018 it opened its first retail location in Amsterdam.

Outlook

The company did not provide quantitative guidance for FY19.

• In early 2019, Urban Outfitters plans to open its second European location. Additionally, the company plans to open Free People’s first franchise location in Tel Aviv.