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From Chasing China to Dominating Digital: These Are the Top Trends Defining Retail Right Now

With the retail earnings season in full swing, insightful trends are starting to emerge that show how some of the industry’s biggest names are shouldering the pandemic that has been affecting their businesses for about a year now.

Skechers USA Inc., Deckers Brands and Under Armour are among the boldface names that have put up recent earnings results and as expected, companies leaned into digital as the global health crisis took aim at physical stores, which were hit by government restrictions as well as broader consumer apprehension.

China, which has purportedly outpaced the rest of the world in its pandemic recovery has also risen to occupy a bigger role in a lot of footwear brands’ plans. And, perhaps also unsurprisingly, companies that play in pandemic-friendly spaces such as outdoor/active as well as home goods and housewares are enjoying major momentum.

Here, a look at the key themes in retail Q4 earnings results so far.

All About China

While Skechers has steadily upped the importance of its international business — working to make it account for more than 50% of overall sales as of 2019 — the brand has had to rely on the better-performing Asian markets more than ever amid the pandemic.

During the fourth quarter, reported Feb. 4, the Manhattan Beach, Calif.-based company saw its international wholesale business advance 2.5% led by a 29.7% increase in China. Meanwhile, Baltimore-based Under Armour, which announced Q4 results last week, saw its overall wholesale business decrease 12% with revenues on its home turn in North America down 6% to $924 million. And while international sales also dropped 7% to $448 million, the Asia-Pacific region was up a whopping 26%.

The trend sustained over in the luxury market as well, Tapestry CEO Joanne Crevoiserat touted the company’s “notable sales gains” in digital as well as China when it announced Q2 results early this month. The New York-based company reported “significant” sequential improvement in revenue trends across all of its brands — led by its performance in North America, while Mainland China saw growth of more than 30% year over year.

Digital x3

With digital disruption taking aim at traditional retailers for the better part of six years, many firms had been making calculated investments in e-commerce in hopes of better positioning their businesses for future growth. But when the pandemic started to take hold in the United States last March — forcing the temporary closures of many brick-and-mortar spaces — fashion players were forced to rapidly accelerate those digital goals. In fact, companies with the capital on hand to do so, took several months to accomplish e-commerce objectives they initially planned to tackle over the course of a few years.

So far, it’s been paying off with, in many cases, triple digit gains.

During Q4, Skechers’ e-commerce sales shot up 142.7% and Tapestry said it, too, saw digital revenues advance in the triple-digit percentage range to represent a third of its global sales and nearly half of its revenues in its home continent.

While Under Armour and Columbia Sportswear did not hit the triple-digit growth marker for digital, both firms saw their e-commerce growth outpace other areas of the business. UA logged a 25% growth in e-commerce despite declines in wholesale and COLM’s owned-digital sales ticked up 41%.

Capri Holdings, parent to Versace, Michael Kors and Jimmy Choo, also enjoyed overall e-commerce growth of 65% — although Jane Hali & Associates analyst Jessica Ramirez cautioned that digital gains for many companies aren’t “really a surprise,” adding “if you’re not doing well in e-commerce right now, then something is definitely wrong.”

The Running Market Boom

Another trend that has been solidified by earnings reports so far in the season is the strength of the outdoor and running markets — as shut-in performance athletes and novices alike increasingly seek out outdoor activities, including running and hiking, in pandemic times.

Hoka One One, for example, proved to be a big driver in for Deckers Brands in Q3, with sales climbing 52.1% to $141.6 million. And market watchers told FN they don’t believe the momentum will slow down any time soon. In fact, financial services firm BTIG said in a note early this month that the brand could eclipse $550 million in sales by fiscal year 2022.

Even Under Armour, which has struggled to find its footing in the North America market in recent years and was clobbered by market watchers for its 2018 decision to focus in on the performance market, is seeing gains thanks to the uptick in outdoor activity.

“Everything indicates that we’re going to be much more focused on a healthy lifestyle, and that means you need performance products as opposed to athleisure products,” Matt Powell, senior sports industry adviser with The NPD Group Inc told FN of UA’s recent turnaround successes. “A year ago, I was critical of Under Armour because we were in a major athleisure cycle and they had stuck to performance. It looks like after the pandemic, the market’s going to swing back to them.

For the three months ended Dec. 31, the Baltimore-based company posted an adjusted net income of $54.5 million, or adjusted earnings per share of 12 cents, compared with analysts’ bets of a loss of 5 cents per share. Revenues declined 2.6% to $1.4 billion, while market watchers predicted sales of $1.25 billion.

 

Editor’s Note: Tapestry Inc. refers to the 13-week period ended Dec. 26 or Dec. 30 as Q2 while Deckers Brands and Capri Holdings refer to that same period as Q3. Most other firms mentioned in the article describe this period as Q4.

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