The big leagues in fashion? Call it a cool $7 billion.
That’s the dividing line between a “scaled” business and something less, according to a new analysis by Morgan Stanley analyst Alex Straton.
“The global apparel and footwear market is highly fragmented, with even the largest players only occupying [a low-single-digit] market share,” Straton said in a research report. “In fact, the majority of apparel and footwear companies — nearly 70 percent — sit at less than $1 billion in retail selling value. This is a function of low barriers to entry, and makes for high competitive intensity in the space.
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“Looking at the top apparel and footwear companies globally by revenue, less than a third have crossed the $7 billion-plus mark. Indeed, many businesses are ‘stuck’ in the [low- to midsingle-digit] billion dollar top line range — but face either market or management expectations of breaching the rare $7 billion threshold,” she said.
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Even the giants have only a sliver of the pie.
Nike logged the largest market share in the study, but still had only 3.5 percent of the global market, looking at retail selling value, which gives the brand full credit for sales through other retailers. The active giant was followed by Zara-parent Inditex (2 percent market share), Adidas (1.8 percent), Uniqlo-parent Fast Retailing (1.2 percent), H&M (1.2 percent), Shein (1.2 percent), Gap (0.9 percent), Anta (0.8 percent), LVMH Moët Hennessy Louis Vuitton (0.7 percent) and VF Corp. (0.6 percent).
As part of the exercise, Straton took 10 key attributes of fashion companies and looked at what the biggest of the big had in common.
The $7 billion-plus club tends to skew toward Western markets, but have good traction across borders, sell more than apparel, lean into their direct-to-consumer business, focus on either mass or luxury with a big lifestyle assortment, more than one brand and heritage. Most companies, small and large, are chasing consumers who are younger and women.
While much of this goes to figure — big brands tend to sell lots of categories and have a long history — Straton also looked to see which companies are ready to move up, or down, to another tier.
Straton said Abercrombie & Fitch Co. and On Holding had scale potential that “may not be fully appreciated by the market” while market revenue expectations for Amer Sports, Gap Inc. and Under Armour Inc. “may be overly optimistic.”
Abercrombie, for instance, has $5.1 billion in revenues, but has most of the traits of companies that have breached $7 billion — lacking only consumer traction away from its home market and a stronger offering beyond apparel.
On the other hand, Morgan Stanley said Under Armour Inc. (which has $5.1 billion in revenues, but more in retail sales value) is punching under its weight. Specifically, the report pointed to its focus on apparel, its reliance on wholesale and its traction with women shoppers and consumers under 35 — areas that are all seen as important to growing very big businesses.
Scale is a topic that is clearly getting a fresh look in fashion.
In Paris, Kering’s new chief executive officer Luca de Meo is going the other way and sharpening the focus, cutting a 4-billion-euro deal to sell its beauty business to L’Oréal while putting a longer timeline on any deal to buy the rest of Valentino.
But many more are looking to go bigger.
Jamie Salter’s brand management giant Authentic Brands Group has built a portfolio with retail sales of over $32 billion and the founder is gunning for $100 billion in sales in short order by continuing to acquire larger companies.
Another big believer in scale is Tapestry CEO Joanne Crevoiserat, who’s looking to build the $5.6 billion Coach into a $10 billion business and turn around Kate Spade.
And to get there, one of the big changes the company is making is mental.
Instead of chasing after consumers who bought handbags last year and trying to sell them another one, Tapestry is starting to target everybody who could buy a bag — an addressable market that currently stands at 1.9 billion people for the company.
By that way of seeing things, Coach and Kate Spade have a collective market share of 0.6 percent and plenty of room to grow.
“We’re winning with a new generation of consumers, particularly with the momentum we’re seeing in the Coach brand,” Crevoiserat told WWD last month. “And we’re doing that because we’re not thinking about the market in maybe traditional terms.”