Why Are So Many of Our Favorite Brands Dying?
We’re not even two months in to 2015 and already one thing is clear: America’s favorite brands, from J.Crew to Levi’s, are battling to keep their customers happy. And while some are simply having a couple of bad months, others are closing up shop altogether. Nineties catalog brand Delia’s is liquidating, so is C.Wonder and Wet Seal. Kate Spade New York announced last week that it would close all Kate Spade Saturday stores, folding the little sister brand into KSNY. On the same day, Gap made news by firing its creative director, Rebekka Bay, only to eliminate her position altogether. And don’t forget about the teen retailers: while Wet Seal and Delia’s are kaput, Abercrombie & Fitch, Aeropostale, and American Eagle are in the midst of an identity crisis.
So, what’s happening? Why are all the brands we grew up with on the outs?
Reason #1: The Internet.
A decade ago, retail brands feared that the web would eliminate the need for physical stores. That didn’t happen. In fact, e-commerce only made up 9 percent of retail sales in 2014, according to Forrester Research. However, the web did make it easier to launch a new brand.
While it used to take years for a brand to establish itself beyond one or two stores, digital-first companies like Warby Parker, Everlane and Ayr were able to gain faster followings thanks to online marketing. Starting a brand online is also cheaper because it eliminates the costs of a physical store. Today, successful e-commerce companies are opening brick-and-mortar outposts, going head to head with more traditional retailers at every level. The increased competition has been scary for old-school brands. Not only are they competing against each other, but savvier digital counterparts that made a business out of communicating with their customer online.
What’s more, most online brands are great at storytelling because they needed to gain the trust of the audience more quickly than retailers in the past. Some of the older brands have shifted gears so many times that it’s hard to remember what they’re actually selling. “These stores are starting to lose brand meaning. They’re unable to generate the kind of buzz that an apparel retailer needs to be successful,” says Robert Passikoff, founder and president of Brand Keys, a New York-based consultancy. “Think about it: If you ask someone what the words ‘Victoria’s Secret’ mean, they’ll say ‘intimates.’ If you ask about ‘J.Crew,’ they’ll say ‘preppy.’ But if you ask about ‘American Eagle,’ they’ll say ‘Uhhhh.’ That ‘uhhhh’ is the sound of a brand dying.”
Reason #2: Discount Culture.
But even if a brand has a great product and a consistent story, crazy discounting is making it harder and harder to be successful. Fast fashion brands like Forever21 and H&M can avoid the discount trap because their wares are already absurdly cheap, but stores that are one notch above in quality and price are forced to mark items down almost as soon as they hit the sales floor. (For instance, by mid-January, Club Monaco had sliced another 30 percent off of items that were already on sale.) In a 2014 survey conducted by PricewaterhouseCoopers, 84 percent of consumers said they choose where to shop based on the prices of the items in the store, up from 74 percent in 2013. The result is that store profits—the amount of money a company makes after it pays its employees, pays the rent, etc.—are generally down by half from 2006, according to research firm Retail Metrics. Smaller profits equal less money to spend on new products, new stores and new ideas.
Reason #3. The End of the Mall.
If you’re over the age of 25, chances are you spent a lot of time at the mall as a kid. But the popularity of mixed-use real estate changed that. Today, stores sit beside restaurants, which sit beside condo buildings. (And most of the retail spaces have an outdoor entrance.) As these sorts of properties became the norm, big sprawling malls fell out of fashion. Check out Deadmalls.com to see for yourself. On top of what’s already happened, about 15 percent of US malls will close within the next decade (according to real estate analytics firm Green Street Advisors). For brands that were typically located in malls, this shift has been difficult. That’s why those with a more boutique-y vibe, like Banana Republic and Madewell, have fared better over the past couple of years. They can live as easily on a city street as they can in a mall—maybe even better.
But are all of these stores doomed? Of course not. Passikoff says what while retail climate is stormier than ever, a few brands—particularly Victoria’s Secret, Old Navy, and J.Crew—stand out as having lasting potential. “Part of it is that they know what they stand for,” he says. “Consumers have more information than ever before. They talk to each other before they talk to the brand, which means you have to have some meaning, resonance, emotional engagement. Or no one is going to pay attention to you.”
Related: Gap Eliminates Creative Director Position
Gucci Redesigned Its Menswear Collection In One Week
Forever 21 Matches Styles to Consumer Demand With Oracle Retail
