The Apparel Top 50 for 2018: Brick and Mortar and Digital Closing the Gap
Apparel is in its third decade of producing its Top 50 Report, an annual ranking of the most profitable apparel companies, with at least $100 million in sales, that trade on the U.S. stock exchange.
For even the most successful apparel players, 2017 was a difficult year — particularly the first half — coming on the heels of a string of challenging years that have witnessed store downsizings and bankruptcies, and much gnashing of teeth over the fate of brick and mortar, as well as that of retail overall. Against this backdrop — or perhaps more accurately, fueling this backdrop — are rapid-fire changes in retail including the continued growth of e-commerce and mobile shopping and the attendant rising expectations of personalization and seamless customer experience.
Robert Wallstrom, CEO of Vera Bradley, may have put it best. Asked about the company’s challenges, he replied: “Over the last few years, retail has been going through a very disruptive cycle, and the industry has changed forever. Technology has revolutionized retail: the e-commerce channel has become the primary growth engine; marketing has transformed to a “digital-first” strategy; the physical store has moved from a place of purchase to a place of brand experience; and artificial intelligence is becoming the core engine to drive change faster than anyone could have previously imagined.”
That about nails it.
TOP 50 BY THE NUMBERS
You don’t even have to look beyond the numbers on the chart (see below) to see how these trends are impacting the apparel world. In rolling up the Top 50 revenue, net income and profitability numbers, we can see that while total revenues and net incomes were up from those of the Top 50 companies of the previous year — $287.6 billion vs. $285.8 billion and $19.7 billion vs. $19.3 billion, respectively — average profitability fell from 6.2 percent to 5.9 percent. Apparel businesses presumably worked harder and they sold more, but pulled in less profit, on average. There are, of course, individual exceptions to this. Tapestry, Macy’s and Chico’s, for example, saw revenues drop, yet kept more of what they made, with profitability up vs. the previous year, a sign that they are perhaps working smarter.
Still, overall lower profitability as a group is far better than some alternatives: bankruptcies were abundant in the apparel space in 2017, and included The Limited, Wet Seal, Eastern Outfitters, BCBG Max Azria, and Gordmans. So far this year, Nine West, The Bon-Ton Stores, and A’gaci have also filed for bankruptcy.
Although overall profit margins were down slightly, it’s instructive to note that all 50 of the firms that made this year’s rankings were indeed profitable, which is not a given. In some years, there simply are not 50 profitable public apparel firms, leading to rankings that in the past have sometimes included those in the red. If we look back to the 2009 Top 50 Report, for example, which reflects the 2008 fiscal year, otherwise known as the start of the Great Recession, we find that the bottom seven companies, Nos. 44-50 — Delta Apparel, Destination Maternity, Chico’s FAS, Perry Ellis International, Tween Brands, New York & Company and G-III, respectively — were all unprofitable. Nine years on, and many of those are squarely back into the black on the Top 50. The exceptions are Destination Maternity and Tween Brands (now part of Ascena Retail Group), which were unprofitable this year, and New York & Company, which was just barely profitable, but not enough to make the rankings.
Other companies that fell off the list since last year? Hanesbrands and Express, at Nos. 10 and 40 last year, respectively, stayed in the black, albeit with less than 1 percent profitability, while Under Armour and Genesco, at Nos. 30 and 36 last year, respectively, slipped into the red. Two others fell off due to acquisition: Kate Spade was acquired by No. 3 Tapestry (formerly Coach), and G&K was acquired by Cintas.
It’s interesting to compare those at the top of that 2009 Top 50 chart, too, to see where they stack up in 2018. In 2009, the most profitable company, snagging the No. 1 spot, was True Religion, now privately held. No. 2 was The Buckle, perennially in the top 10, which this year nabbed the No. 6 spot. No. 3: lululemon athletica, another perennial top-of-the-charter comes in at No. 7 this year. No. 4: Urban Outfitters, this year landed toward the lower part of the chart at No. 37. No. 5 in 2009 was Guess?, which sits at No. 43 this year.
No. 6 was Nike, one notch higher this year at No. 5. Gymboree held the No. 7 spot in 2009, but last year filed for bankruptcy; similarly, bebe stores, which nabbed the No. 8 spot in 2009, last year managed to skirt bankruptcy but had to close all of its stores as part of a deal that involved a bridge loan from Great American Capital Partners. No. 9 Cintas occupies the same ranking this year, while No. 10 Jos. A. Bank is now part of Tailored Brands, this year at No. 39.
Just for fun, we took a look at Amazon ($177.9 billion in revenue) and Walmart ($500.3 billion in revenue), just to see where they’d stack up, if they were included on the Top 50. (They are not eligible, because they offer so much product that is outside the apparel category.) Had they been included, Walmart and Amazon would have occupied spots Nos. 49 and 50, with profit margins of 1.97 percent and 1.71 percent, respectively.
There are always many reasons for the ups and downs of an individual company. In any given year there can be huge expenses or losses due to store closures and store openings, fashion missteps, mismanagement, weather, natural disasters, political disruptions, currency fluctuations, higher energy and raw materials costs, and the like.
Yet, as stated above, today’s retailers face an environment that’s changing faster than ever before, one that is swifter to weed out companies that cannot change fast enough when it comes to adopting new strategies and technologies — and talent — and employing them effectively. E-commerce has placed new pressures and expense on apparel companies, up and down the supply chain, but particularly in areas of logistics, fulfillment and returns, the strain of which, if not handled well, can render the channel much less profitable. Increasingly, apparel companies are addressing the returns problem on the front end with sizing algorithms, and on the back-end with better processes and technology. Nike recently opened its new Rebound facility in North America, its first to be focused solely on accepting returned products and getting them back into the marketplace faster, with the goal of maximizing full price, inseason selling, said CEO Mark Parker, in a recent earnings call.
Kohl’s made a huge splash last year when it announced that it would be accepting Amazon.com returns at certain of its U.S. locations. That’s a win-win-win. It’s convenient for customers; it brings more traffic into Kohl’s; it saves Amazon time and money.
Always, too, there is the product. In addition to mounting pressure to move faster to market, to engage the consumer, to fulfill her demands and do everything seamlessly, there is the not-so-simple need to create compelling fashion that delights. From Columbia Sportswear’s Star Wars Empire Strikes Back Collection (which sold out in December in stores and online in minutes) to Kohl’s new POPSUGAR brand set to launch in September, Apparel’s Top 50 are on a never-ending quest to hit the sweet spot, no pun intended. Some of our Top 50, too, continue to expand into new categories and product lines well outside of apparel and footwear. This year, Delta Apparel’s Salt Life brand introduced its own craft beer line in Florida.
These are the Top 50 apparel companies for 2018: