Tag: Apparel Retail

New Macy’s CEO Tony Spring looks to revive a 166-year-old retailer fighting for relevance

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Tony Spring speaks at an event unveiling the Macy’s new women’s apparel brand, On 34th, in July. Spring is former CEO of Bloomingdale’s and begins as Macy’s CEO in February 2024, succeeding longtime Macy’s CEO Jeff Gennette, right.

Melissa Repko | CNBC

Inside its headquarters in New York City’s Herald Square, Macy’s got ready to unveil its newest women’s clothing brand. Its incoming CEO Tony Spring prepared for his own reveal.

Spring took the stage in mid-July in front of fashion influencers, reporters and Macy’s employees, standing beside his soon-to-be predecessor, Jeff Gennette. He was at the pinnacle of his career, making his first public in-person appearance since being named CEO-elect of the 166-year-old department store operator.

Yet where many top executives would have lapped up the limelight, the 58-year-old retail veteran and leader of Macy’s higher-end department store chain Bloomingdale’s kept his remarks brief. He spoke for less than two minutes, then quickly stepped aside for On 34th, the company’s new brand of women’s clothing and accessories, to get the spotlight.

Spring will step onto a bigger stage and inherit the iconic department store’s issues when he takes over the role of Macy’s CEO on Sunday. His push to revive the retailer will depend in no small part on his ability to curate strong brands and store designs — and let the products win over shoppers.

Among the company’s challenges, Spring will contend with inflation-weary shoppers who continue to watch their discretionary spending, confront lower employee morale after more than 2,000 recent layoffs and stare down a contentious battle with activist investors. Macy’s has lost cachet with younger shoppers and brands who see its sprawling stores and endless aisles of merchandise as a relic of the past.

Investors have taken notice. Macy’s stock closed at $18.63 per share Friday, giving it a market cap of $5.11 billion. Shares have fallen about 24% in the last year.

Spring will face existential questions about how Macy’s can stay relevant and grow rather than shrink, as competitors such as Amazon, T.J. Maxx and even Target and Walmart steal away sales. He will also lead Macy’s promising efforts to chase suburban shoppers with smaller stores in strip malls, expand its offerings of trendier exclusive brands and luxury names, and build on the strong performance of newer businesses such as its beauty chain, Bluemercury, and its off-price business, Backstage.

In CNBC interviews, current and former Macy’s employees, industry leaders and investors said Spring will bring a deep retail background, a merchant’s sharp eye and credibility with coveted national and global brands from his decades at Bloomingdale’s.

Yet they acknowledged the new CEO will have his hands full. Some expressed concern that as a longtime executive at the company, Spring won’t bring the same scrutiny an outsider would.

“When you have an internal appointment, you don’t tend to see that much shake-up in the wider team, and sometimes that’s needed,” said Neil Saunders, managing director of research firm GlobalData. “The biggest risk is just really that. Someone new comes in the post, but we just see a continuation of the same old strategies without much new thinking.”

Macy’s declined interview requests for this story, but Gennette praised Spring as the right person for the job when the company announced his retirement and his successor’s appointment in March. Gennette pointed to Bloomingdale’s strong results — the higher-end department store has outperformed the namesake Macy’s brand in recent years — and described Spring as “an ally and trusted partner in advancing Macy’s, Inc.’s strategies.”

“Tony consistently innovates for the customer, is an exceptional brand builder and an excellent talent developer who has strengthened our culture through his leadership,” he said in the news release.

‘A merchant at heart’

Spring’s ascension to the top role at Macy’s is the culmination of nearly four decades with the retailer. Fresh from graduation from Cornell University, he was hired by Bloomingdale’s in 1987 as an executive trainee in the White Plains, New York, store.

He moved up the ranks, ultimately becoming CEO of the higher-end department store in 2014.

Even as he rose, Spring described himself as committed to one of retail’s key building blocks: making sure stores draw customers in, invite them to linger and surprise them with beautiful displays and items they didn’t know they needed. It’s a touch shoppers and Wall Street believe Macy’s could use as it fights for relevance.

“I’m a former merchant,” he told the audience at the launch event for Macy’s “On 34th” brand in July. “I still consider myself a merchant at heart.”

Bloomingdale’s is known for having a knack for understanding customers and which brands to carry. The chain, which has 55 locations across the country, has been a crown jewel of its parent company despite its smaller size. It carries pricey and prominent luxury brands, including Theory, Sandro and Alice + Olivia, but also has popular and more affordable in-house brands, such as Aqua.

It has also drawn shoppers with limited-edition pop-ups and collections of merchandise that tap into the cultural zeitgeist or cater to the Instagram and TikTok generations, such as an exclusive Barbie-themed clothing line.

Macy’s namesake brand accounts for most of its stores and revenue, yet Bloomingdale’s and Bluemercury have seen better sales trends.

On CNBC’s “Mad Money” in October, Spring said his time at Bloomingdale’s reinforced “it’s all about curation of product and the delivery of a better experience for the customer.”

“Retail is theater,” he said in the interview.

He described Bloomingdale’s as “a growth vehicle” but said the company’s namesake brand can be one, too.

“We’re talking to different customers and we can obviously learn from one another without becoming one another,” he said.

GlobalData’s Saunders has criticized Macy’s for sloppy displays, bland merchandise and poor customer service at its namesake stores. He said after leading “the better-run part of the business” in Bloomingdale’s, Spring needs to bring those “softer skills” to Macy’s.

“Get some pride back into the business,” he said. “That might mean making some investments. It might mean putting back in visual merchandising teams. It might mean investing more in staff and labor hours, but I think it’s a decision worth taking. And it’s a relatively easy win.”

Spring will have tougher tasks, though, Saunders said. In a competitive industry, Macy’s needs a sharper identity to compete with specialty retailers, big-box stores and off-price players that often beat the department store on convenience, value and fashion, he said.

And, he added, Spring must take a hard look at the company’s real estate footprint to decide where it should shut stores, shrink locations or expand outside the mall.

Wooing investors and brands

In his new role, Spring will have to charm investors, shoppers and hot brands. It’s a delicate balance, as its efforts to boost sales, make the store experience more appealing to customers and win over investors hungry for profits could at times clash.

As its stock value has eroded, Macy’s has gotten smaller by most other key metrics, too. Over the past decade, the company has closed about a third of its namesake stores. Its annual net sales have fallen during that same period, from about $28 billion in 2013 to $24.4 billion in the last full fiscal year it has reported, which ended in late January 2023.

Its employee count has fallen by about 45% from 2013 to 94,600 people as of the end of that fiscal year.

Macy’s announced Jan. 18 that it will shrink its head count and store footprint even more. It laid off more than 2,300 employees and announced it will shutter five more of its namesake stores.

Macy’s struggles have turned the retailer into a target for the activist investors Spring will face down as he becomes CEO. Its board last month rejected a $5.8 billion proposal by Arkhouse Management and partner Brigade Capital Management to acquire the shares of the retailer that they don’t already own and take the department store operator private.

In an interview on CNBC after that rejection, Arkhouse managing partner Gavriel Kahane signaled that he hasn’t given up yet. He called on Macy’s to open up its books to the investors, or the firm will take the matter to shareholders, he said.

Certainly not done with pursuit of Macy's acquisition, says Arkhouse's Kahane

Investors will get their best glimpse into the health of the company Spring is inheriting in late February, when Macy’s is expected to report its holiday-quarter results and its outlook for the year ahead. In the previous quarter, the retailer said it expected same-store sales to decline by up to 7% in the fiscal year that ended in late January.

Though the company’s sales are sagging, Spring will take over promising pockets of the business, as well. Its smaller stores, which Macy’s is opening in a growing number of strip malls, have outperformed sales at its traditional, mall-based locations. After launching the women’s clothing brand On 34th, Macy’s plans to debut and refresh other lines that shoppers can find only at its stores and on its website. That private brand strategy has succeeded for other retailers, such as Target.

Spring’s career as an insider has raised concerns among some industry analysts. A Macy’s spokesperson said that while Spring came up through Macy’s, he has pushed for adding fresh perspectives to the retailer’s leadership team. Many of the company’s recent top hires have come from the outside.

Those include his successor at Bloomingdale’s, Olivier Bron, who was most recently CEO of department stores in Thailand; and Sharon Otterman, Macy’s new chief marketing officer, who came from Caesars Entertainment.

Having the right national brands will also shape Macy’s future success. It’s another area where Spring’s experience as a merchant could benefit the company.

Compared with rival Nordstrom, Macy’s has been slow to add younger and newer brands that can draw fashion-forward customers.

As Macy’s expands its third-party marketplace, some new brands have joined its website. One of those is Untuckit, a men’s apparel brand typically sold directly through its own stores and website.

Just ahead of the holiday season, the company’s clothing debuted on Macy’s website. It was Untuckit’s first meaningful push into wholesale, said the brand’s CEO and co-founder Aaron Sanandres.

Sanandres said he saw Macy’s as a way to reach shoppers who haven’t yet discovered Untuckit. Now, he said, it’s considering its next moves in wholesale — including the possibility of selling apparel at Macy’s stores.

Yet he said he has grappled with the same questions that other popular brands may have. Will merchandise get confined to a corner of Macy’s huge stores? Will its reputation take a hit from being carried by a retailer associated with old-school malls or 40%-off signs? Can it keep tight control over its own brand’s level of promotions?

“There are a lot of conversations around that, and it’s partly why we’re baby-stepping into the relationship to make sure we don’t see any negative pushback from our customer,” he said.

One of the most crucial parts of Spring’s job will be attracting millennial and Gen Z shoppers who don’t share the same loyalty as their parents and grandparents to Macy’s namesake stores and website, said Oliver Chen, an equity research analyst for TD Cowen.

Winning those shoppers over will come down to having better merchandise and a sense of style, he said.

“You need to be inspired by Macy’s,” he said. “The customer doesn’t necessarily want the cheapest thing from Macy’s. They want a nice, fashion-forward thing.”

Some of those shoppers are like Annie Rush. On a recent weekday, she zipped in and out of Paramus Park mall in New Jersey to make a purchase for one of her teenage sons.

Rush said she prefers to shop online, where she can search for what she wants with the help of filters. At a Macy’s store, the sea of options can be overwhelming, she said.

“Sometimes they offer too many things,” Rush said. “It’s like decision paralysis. You can’t find what you want or have to dig.”

With an Old Navy bag in hand, she cut through Macy’s only to get to the mall’s parking lot.

— CNBC’s Gabriel Cortes contributed to this report.

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Lululemon shares surge after reporting 24% sales growth, raising full-year guidance

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Lululemon reported earnings that beat Wall Street’s estimates on the top and bottom lines Thursday and raised its full-year guidance, bolstered by improvements in China and freight costs.

Shares of the company surged more than 12% in extended trading.

Here’s how the retailer did in its fiscal first quarter compared with what Wall Street was anticipating, based on a survey of analysts compiled by Refinitiv:

  • Earnings per share: $2.28 vs. $1.98 expected
  • Revenue: $2 billion vs. $1.93 billion expected

The company’s reported net income for the three-month period that ended April 30 was $290.4 million, or $2.28 per share, compared with $190 million, or $1.48 per share, a year earlier. 

Sales rose 24% to $2 billion, up from $1.61 billion a year earlier.

China revenue alone grew 79% from the year-ago period, when the country was still reeling from Covid restrictions and roughly one-third of Lululemon’s 71 China stores were closed for a period of time.

“Our Q1 results were strong as guests responded well to our product offering in all our markets across the globe. A meaningful acceleration in our China sales trend, coupled with lower air freight, contributed to our better than planned financial performance,” finance chief Meghan Frank said in a statement. “We are pleased with our momentum heading into the second quarter and for the full year as reflected in our revised outlook for FY23.”

The retailer now expects to see full-year revenue of $9.44 billion to $9.51 billion, up from a previous range of $9.31 billion and $9.41 billion, and beating Wall Street’s projections of $9.37 billion, according to Refinitiv. It expects full-year profit of $11.74 to $11.94 per share, compared with a prior range of $11.50 to $11.72. That also topped analysts’ expectations, which called for $11.61 per share, according to Refinitiv. 

Lululemon is expecting second-quarter sales to be in the range of $2.14 billion to $2.17 billion, representing growth of about 15%. Lululemon expects diluted earnings per share to be in the range of $2.47 to $2.52 for the period. That second-quarter guidance was largely in line with Wall Street expectations, according to Refinitiv.

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Lululemon shares surge in extended trading after a strong quarterly report.

The apparel retailer, which sells high-end yoga pants, shoes and other athletic wear, saw a 24% year-over-year increase in sales, even as it lapped strong comparisons in the year-ago period, which came during an easier macroeconomic backdrop.

This time last year, Lululemon had just raised its prices, but shoppers were still flocking to its stores and filling up their digital carts. And they weren’t yet feeling the pressure of persistent inflation.

Total comparable sales, which tracks digital revenue and sales at stores open for at least 12 months, were up 14% in the quarter, which fell short of estimates of 15.1%, according to StreetAccount.

While comparable store sales outperformed expectations in the most recent quarter — jumping 13%, compared with StreetAccount estimates of 8.3% growth — direct-to-consumer revenue fell short of projections, increasing 16% from the prior-year period, compared with the 22.3% jump analysts had expected, according to StreetAccount.

While DTC revenue increased compared to last year, it represented 42% of total sales, compared to 45% in the year-ago period.

Gross margins in the quarter increased 3.6 percentage points to 57.5%, driven by a reduction in airfreight expenses. That was above the 56.7% analysts had been expecting, according to StreetAccount.

By category, women’s sales increased 22%, men’s gained 17% and accessories were up 67%.

Inventory, which has been an ongoing issue for Lululemon, was up 24% at $1.58 billion at the end of the quarter and is expected to be up 20% in the next quarter. During an earnings call, company executives insisted its inventories are in line with sales growth and said they’re “comfortable” with its position.

Still, they acknowledged Lululemon has work to do.

“We will still have opportunities … to get our inventory [turnover rates] back to historical levels. We have seen some material improvements in supply chain and lead times but not all the way back to historical positioning,” said Frank during the earnings call. “So, too soon to say when we’ll move back to those levels, but that would be the goal over the longer term.”

The company expects to open 50 net new company-operated stores in the fiscal year. Thirty to 35 of them will be in international markets, with the majority planned for China.

Discretionary spending

While the company largely caters to higher-income consumers who tend to fare better against macroeconomic pressure, retailers across the industry have cited a pullback in discretionary spending and higher-ticket items. 

During Nordstrom’s earnings call Wednesday evening, executives noted the high-end customer is “pretty resilient,” but they’ve also become more cautious.

Meanwhile, Lululemon said it has seen no changes in its customers’ shopping habits.

“In terms of our guests’ metrics, they’ve remained very strong. We’ve seen no change in our cohort behavior, in terms of frequency of purchase or engagement,” said CEO Calvin McDonald. “In addition, in quarter one, transactions by existing guests increased 22% and our transactions by new guests increased 28%.”

During the current earnings season, some analysts cautioned soft goods retailers, or those that sell items such as clothes and shoes, could see a drop in margins because of increased promotional activity and an overall pullback across the sector. 

The results on that front have been mixed so far.

Many retailers have benefited from supply chain tail winds, such as reduced freight costs, that have boosted their margins. But for some, a lot of those savings evaporated because of increased promotions and upticks in shrink, among other headwinds.

That rang true for Foot Locker, but others in the category, including Gap and Urban Outfitters, were able to hold the line on promotions and saw the benefits to their margins. 

Connected fitness

Last month, CNBC reported Lululemon is looking to sell its at-home fitness business Mirror and has approached competitor Hydrow as a potential buyer.

The company announced it would acquire Mirror for $500 million at the height of the at-home fitness bonanza in June 2020 in a bet that people would continue to exercise at home, even after Covid pandemic restrictions ended and gyms reopened. 

The segment has since rebranded as Lululemon Studio but it has been weighing on its balance sheet. 

During its previous fiscal quarter, the company said it took $443 million in impairment charges related to Mirror and told investors hardware sales have come in below expectations. 

Lululemon acknowledged the at-home fitness market has been under pressure.

Similar to Peloton, Lululemon has begun pivoting the segment away from being solely hardware-focused.

Recently, the company launched a new digital app for Lululemon Studio, which costs the same as Peloton’s starting membership at $12.99 a month and gives customers access to its fitness classes without the need to buy its hardware.

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This startup wants to curb fast fashion by helping you rent out your closet

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By Rotation, a U.K.-based clothing rental app, hopes to eliminate the need for fast fashion by making peer-to-peer clothing rental mainstream in the United States.

The startup expanded to the United States in May. By Rotation aims to grow usage in New York City this year before expanding to two other major U.S. cities next year.

By Rotation may sound like another rental service such as Rent the Runway, Armoire or Nuuly, but its founder and CEO Eshita Kabra-Davies is quick to point out that its peer-to-peer structure more closely resembles sharing-economy companies such as Airbnb and Uber.

By Rotation has taken a social media-style approach to building its community of lenders and renters by encouraging dialogue and giving users the option of receiving notifications when their favorite lenders list new items.

Individual users decide if they are willing to ship their items to users in other states. Some will offer only hyperlocal pickup rentals.

“The vision is really to be able to walk three streets down and pick up a rental, even last minute, because you have a few lenders in your neighborhood that are the same size as you, and we’ve already seen that happen in London,” Kabra-Davies said.

By Rotation founder & CEO Eshita Kabra-Davies

Source: By Rotation

The digital fashion rental market is expected to more than double in value from $1.3 billion in 2021 to $2.8 billion by 2030, according to data from Verified Market Research. Meanwhile, online resale is expected to reach $38 billion by 2027, according to ThredUp’s 2023 Resale Report. 

Despite the expected growth, online fashion rental and resale has proven to be a difficult business, especially on Wall Street. The challenges have come partly because many in the space hold a lot of inventory and spend a lot of money to do so. 

Shares of Rent the Runway, ThredUp and The RealReal are all down about 90% since the companies went public. All three companies have yet to become profitable.

By Rotation does not own a single item listed on its platform, making it a standout among the other major rental and resale players in the U.S. Instead, the inventory and listings come from the people using the app. Kabra-Davies describes it as a “very cost-efficient business model” that is “completely different to what the incumbent players are doing in the U.S.”

“No one is doing what we’re doing,” according to Kabra-Davies. “We don’t need to sell. We don’t need to tell people, like, please list your items, we will give you money for it; nor do we need to buy any items to build up that supply.”

In the U.K., By Rotation has more than 330,000 registered users with more than 68,000 listings. U.S. users have already listed more than 1,800 items across at least 15 states, according to Kabra-Davies.

The growth is happening organically, she said. The startup plans to start marketing in the U.S. this summer.

As the app grows, the startup is taking steps to ensure renters are trustworthy and lenders’ items are protected from damage. For example, a new user cannot rent an item that has a retail value above $1,000 through the app until they have completed several other lower-priced rentals and have been reviewed and rated for those rentals.

By Rotation uses smart pricing to help lenders determine listing fees. It recommends that each item’s daily rental fee be about 3%-5% of the item’s retail value, Kabra-Davies said.

By Rotation has not publicly shared its valuation, but it is actively seeking new investors for its third round of funding. The company raised $3.8 million in prior rounds, according to Kabra-Davies. 

Despite being early in its fundraising, the company is on track to be profitable by spring 2025, according to Kabra-Davies.

Randi Wood, a renter from the Los Angeles area who is using By Rotation to lend out items from her small business, Entre Nous Showroom, recently rented a dress from By Rotation for a trip to Mexico. She described her experience as “really great” and said she appreciates how the user-run app drives interactions.

“The person that I was renting the dress from, she was very communicative, and it was like, right away, we were having a back-and-forth conversation,” Wood said.

‘Racist and broken’ system

The desire to create something different led Kabra-Davies toward her business in the first place. The idea for By Rotation first came to her in late 2018, while she was planning her honeymoon to Rajasthan, the state in northern India where she was born and from where she emigrated.

“I wanted to wear nice clothes on my holiday and I thought about renting but there was no sort of digital fashion rental player here in the U.K. or even Europe,” she said. “I started thinking about how I actually just wanted to reach out to all these women that we see on social media, who seem to wear one outfit once and never repeat them ever again.” 

Kabra-Davies admits the concept of reaching out to someone unsolicited to borrow their clothes is a bit weird, so she did what many people do. She purchased some new outfits to wear while on vacation.

But those outfits took on a new meaning once she arrived in India a few months later.

“There was a lot of textile waste. And I just couldn’t help but feel that I was probably part of this problem. I had bought new clothes for this holiday, and I wasn’t sure that I loved what I was wearing,” she said.

Kabra-Davies was deeply concerned about how one of her passions was hurting people in the country where she was born. In fact, a new report from the European Environment Agency found that 90% of used clothes and textile waste from Europe ends up in Africa and Asia.

“It just kind of felt racist and broken,” she said. “I was investing in all these nice clothes. It was actually very problematic to the entire world in terms of climate crisis.”

Shortly after returning from her trip, while still working in investor relations at Marathon Asset Management in London, she decided she wanted to merge her corporate business experience with her lifelong love of fashion and her newfound concerns about the unintended consequences of fast fashion. So she began By Rotation as a side hustle.

The app officially launched in the U.K. in October 2019, about six months after By Rotation was incorporated, and Kabra-Davies transitioned to running her new company full-time.

A lean business model

As By Rotation moves into the U.S. market, Kabra-Davies hopes the low-cost business model can give it more room to grow — and give the startup an edge over its established competitors.

Martha Petrocheilos, a lender based in New York, said she uses By Rotation because it has “the latest and greatest of fashion.” In the past, she said, she has tried Rent the Runway but found that it had “really old inventory,” which she attributes to the company “[holding] inventory as opposed to individual lenders.”

The lack of inventory also makes By Rotation more sustainable and helps prevent the apparel from ending up in landfills.

Esther Gross holds one of her dresses listed to rent on By Rotation.

Source: Esther Gross

Esther Gross is still setting up her By Rotation closet in New York but has experience using the app from when she previously lived in the U.K. She compares renting out items from her wardrobe to “a new investment asset class.”

Gross started a spreadsheet to keep track of the retail cost and rental revenue of each item in her digital closet. “There were four items that I made the full price back on in the U.K., and then there was another seven that I made over 50% of the price back,” she said.

Over time this revenue became her shopping budget, and she “was never buying more than what I was making on By Rotation.” 

It’s By Rotation’s lean business model that is helping attract attention from competitors.

The startup has “essentially no cost of acquisition,” said Kabra-Davies, who also said she’s been approached by at least two public companies in the rental and resale space.

One of the companies has “looked at our app and also our documents,” she said. Kabra-Davies has met with the other at least once.

When asked if she was open to selling her company, she said, “There’s a price for everything, but I’d love to see the ticker ‘BYRO.'”

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How Timberland, Vans, VF Corp. are making sure their cotton isn’t ‘greenwashed’

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Smallholder Farmers Alliance purchase of organic cotton from farmer member.

Norielle Thomas, Smallholder Farmers Alliance

As the harvest season finished at the end of January in Haiti, retail giant VF Corp. made a notable purchase: what is believed to be the first-ever verified regenerative cotton crop grown in the country. 

For the holding company behind brands like Timberland, The North Face, Supreme and Vans, the purchase was significant. For one, it signaled a broader approach to sustainable farming, evolving from an earlier focus on organic cotton — where the emphasis is on the elimination of inputs including pesticides and synthetic fertilizers — to regenerative cotton agriculture practices, which place greater importance on soil health, water retention, and local economic benefits, in addition to the chemical input management.

Timberland had already reintroduced cotton to Haiti following a 30-year absence from the country in collaboration with the Smallholder Farmers Alliance, a nonprofit that establishes farmer cooperatives. After five years of study and field experiments, the company introduced its first products made with Haitian-grown organic cotton in the spring of 2021, including two types of sneakers and a tote bag. But the focus quickly moved to regenerative agriculture, a practice more activist shareholders are pressing with big consumer companies. 

“Regenerative agriculture is really important to Timberland and VF because it’s about restoring the soil,” said Atlanta McIlwraith, Timberland’s director of social impact and activation. “We feel like it’s a way to directly address climate change. I think a lot of brands talk about sustainability, and we do as well, but if you think about sustainability, it’s really about doing no harm and maintaining things as they are. And regenerative is really drawing a line that’s higher.”

Behind the scenes, there is another notable aspect to the agricultural first related to technology. With support for Timberland, VF Corp. and VF Foundation, the Smallholder Farmers Alliance worked with Terra Genesis — a Thailand-based firm that VF just announced this week it has a collaboration with on sourcing regenerative rubber — and the Data Economics Company to create a farm data tracking service to verify regenerative cotton crops.

When a farmer decides to work with the Smallholder Farmers Alliance, a local agronomist will start coming to their farm and collecting data on regenerative farming, as well as establishing the standards that these farms must meet. If a farm passes the survey, farmers profit not only from the cotton sale, but from the data that verifies the cotton is regenerative.

VF Corp’s efforts with regenerative cotton in Haiti come at a time of growing pressure from consumers for companies to adopt more sustainable practices.

Three out of five consumers in a recent survey claimed that at least half of their last purchase consisted of socially responsible or sustainable products, according to the IBM Institute for Business Value. 

“This consumer demand drives the brands and big companies to want to use more of these products produced in that way,” said Jennifer Hinkel, managing director and CGO of the Data Economics Company.

Consumer brands facing greater ‘greenwashing’ scrutiny

But corporate sustainability claims are being more aggressively challenged by regulators and politicians.

Last year, the Federal Trade Commission charged Kohl’s and Walmart with falsely advertising their rayon products as bamboo since 2015, with the companies agreeing to pay $5.5 million in combined penalties.

The FTC is weighing even stiffer penalties for “greenwashing” and is currently contemplating a revised set of rules for environmental marketing claims, with a public comment period set to end later this month.

“If there’s no traceability, there’s no evidence that it is what you say it is,” said Patricia Jurewicz, founder and CEO of the human rights nonprofit organization Responsible Sourcing Network. “People want to know. You don’t want to be saying that there’s better cotton in this product, if in reality, there’s cotton in there that could be contributing to forced labor or other harmful practices,” she added.

This data collection process also gives smallholder farmers a greater say in their relationship with big brands, shifting the balance of power a little in an industry that long favored the consumer companies, according to the Food and Agriculture Organization of the United Nations, especially with food crops. The Rockefeller Foundation is currently looking at similar regenerative verification for food agriculture around the world.

The way that the data is collected and packaged is designed to give ownership to the farmer for licensing. “You don’t actually get ownership of the data as VF or a customer. You get to license it and use it for specific purposes,” said Data Economics Company managing director and CTO Arka Ray. 

Data Economics Company serves as the operating system for the entity managing the effort for farmers, Smallholder Data Services, and the farm level data traceability all the way through to the end purchasers, such as VF, and traceability back to compensating the farmers. Empowering small farms in direct connection with larger brands and markets, will be important to bringing sustainability through to the consumer end market, Hinkel said. 

Taking regenerative agriculture global will be a challenge

Applying this approach to the cotton industry and associated products will be complicated. Most cotton is blended with other cotton crops based on characteristics of the cotton, including color, strength, length, and price point, “and what’s realistic for some of the fast fashion that’s out there,” Jurewicz said. “What’s harder is applying these technologies to conventional cotton, to all the cotton that’s out there, rather than just to the real responsible cotton,” she said.

Even with progress made in recent years on organic cotton production, it’s still a tiny piece of the global industry. The 2020/21 global harvest of certified organic cotton was up 37% year over year, according to the Textile Exchange, but that represents 1.4% of all cotton grown globally. And Haiti, in particular, plays a very small role in global production, having only reinitiated cotton farming in recent years. The top five cotton-producing nations — India, China, the U.S., Brazil and Pakistan — control 77% of the global output, according to OECD data.

Nevertheless, while regenerative agriculture may be an emerging concept in developed markets like the United States and Europe, it isn’t new to Haitian farmers.

“When it’s introduced to smallholder farmers, we don’t really say, ‘Oh, here’s a new thing called regenerative’ because they recognize each of the practices of regenerative agriculture as things they’ve done in the past, things their parents did,” said Hugh Locke, senior editor president and co-founder of Smallholder Farmers Alliance and Smallholder Data Services.

VF Corp. was introduced to Haiti through Timberland, which started its efforts in the country in 2010 when the footwear company became the founding corporate sponsor for the Smallholder Farmers Alliance. Originally, Timberland and the Smallholder Farmers Alliance worked together on a tree planting operation under which smallholders were rewarded with credits for helping to reach the goal of planting 5 million trees, and they could then use those credits in exchange for seed, tools, training and other agricultural services.

McIlwraith says that Timberland and the Smallholder Farmers Alliance saw unexpected benefits from that program back on the farm, producing a 40% increase in smallholder farmers’ organic crop yields and 50% to 100% increases in farmers’ incomes.

“Haiti is so degraded, environmentally talking, and because of that any other project cannot be sustainable. So, we tackle the problem from its roots, which is environmental degradation in the country,” said Timote Georges, executive director and co-founder of Smallholder Farmers Alliance.

Tracking and verifying this data has encouraged more farmers to switch to regenerative cotton farming.

“There is a positive community kind of peer pressure that emerges and encourages farms to participate in this data network. … And which then by osmosis gets more and more farms to adopt regenerative practices because the ROI loop is very clear,” Ray said.

As brands create stricter goals tied to production practices, they will need to be able to demonstrate that they’re meeting them. “So I think all of that together, it will continue to incentivize this type of data tracking traceability,” Jurewicz said.

Sustainable development goals are hopelessly off track, World Bank senior managing director says

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Demand for luxury watches shows no sign of fading, says Audemars Piguet CEO

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The luxury watch market is well-positioned to avoid a crash as tight supply and a new generation of young collectors drive demand, according to the CEO of Audemars Piguet.

Luxury watch prices on the secondary market fell 8% last year, with some top models falling more than 20% from their peak, according to WatchCharts. Experts have been warning that the watch bubble could burst, along with crypto, NFTs and other trendy post-pandemic booms. Yet in the past two months, prices have begun to stabilize on the back of what some see as lasting, strong demand.

“I don’t see prices going much lower,” said Francois-Henry Bennahmias, CEO of Audemars Piguet — one of the so-called Big Three of the luxury watch world along with Rolex and Patek Philippe. “People still want to reward themselves, and when they want to reward themselves, they will look at the most respected companies, in watches, jewelry, fashion, you name it.”

Bennahmias said the luxury watch market is benefitting from a vast and structural shift to younger buyers. During the pandemic, a flood of millennials and Gen Z consumers poured into the collectible watch world, educating themselves online and coveting rare watches worn by sports stars and celebrities on social media.

With the top watchmakers built on the promise of limited production, supply can’t keep pace with demand.

“The quantities from the watch companies didn’t evolve,” Bennahmias said. “And the demand became crazy, because we saw the arrival of young people that just were more and more interested in watches. And some people with money who were not even looking at watches before found out that building a watch collection could be something interesting.”

Audemars Piguet’s Royal Oak Offshore Selfwinding Chronograph in black ceramic, celebrating the 30th anniversary of the collection.

Source: Audemars Piguet

Bennahmias said unlike the fickle meme-stock investors of 2021, today’s young watch collectors are here to stay. The average age of an Audemars customer is now 10 or 12 years younger, he said, than in the company’s recent history. Despite living most of their life online and immersed in digital products, Gen Z and millennials have developed a particular attraction to highly crafted, mechanical watches.

“When the Apple Watch came out in 2014, everyone was telling us that we will actually die,” Bennahmias said. “They said no young person would ever wear a watch again, if they did it would be a smartwatch. The funny thing is, we thought that young people couldn’t appreciate exclusivity, craftsmanship, watchmaking. They did.”

Bennahmias said younger generations are becoming some of the brand’s top ambassadors.

“They are the ones preaching the choir with social media and everything. They are our best advertising campaign, and they are bringing their parents actually to the brand,” he said.

Market markups

The big challenge for watchmakers is the secondary market, where pre-owned watches can sell on any of the dozens of online watch sites.

With demand for watches outpacing supply of new inventory, prices for pre-owned watches have skyrocketed, along with online sites like Chrono24, Watchfinder and Watchbox that buy and sell pre-owned watches. Preowned watch sales reached $22 billion in sales in 2021, accounting for nearly one-third of the overall $75 billion luxury watch market, according to a recent report from Boston Consulting Group.

Prices for pre-owned versions of some of the top “trophy” models — like the Patek Philippe Nautilus, the Rolex Daytona and the Audemars Piguet Royal Oak — can run two or three times their retail price. A pre-owned Audemars Piguet Royal Oak “Jumbo” that retails new for $35,000 is currently listed on Chrono24 for $115,000. Some have listed for over $130,000.

The mark-ups have sparked widespread frustration among collectors, who claim watchmakers are deliberately limiting production to boost prices and resale values — making their watches more attractive as investments. Bennahmias said many of the price corrections are “healthy” and that the watchmakers prefer customers who are true, long-term watch-lovers rather than speculators trying to pump up prices.

“I want this to be very clear for everyone,” Bennahmias said. “We’re not playing the market. We’re not doing anything to make the price go one way or the other. We make a certain amount of watches that we think could be accepted by the world. We say this is the right number, then the market is free and will do whatever they want.”

Audemars Piguet produced only 50,000 watches last year and is expected to produce about 51,000 this year, Bennahmias said. The brand, founded in 1875 and still family-owned, has long championed quality, craftsmanship and exclusivity over revenue growth.

Audemars Piguet is continuing to expand its production and facilities in Switzerland. But Bennahmias said that even if the company wanted to meet demand, which would be well over 80,000 watches a year, the company wouldn’t be able to find and train watchmakers fast enough.

Francois-Henry Bennahmias, CEO of luxury watchmaker Audemars Piguet.

Credit: Audemars Piguet

“The board of directors, meaning the family members, have never ever asked me in my 11 years for any growth in percentage terms, ever,” Bennahmias said. “They have never said ‘Francois, we want 10% or 15% or more.’ No. They say, ‘Francois, we still want to be around 200 years from now.’ That’s a completely different vision on how to build the success of a brand.”

Bennahmias admits the company has “made mistakes” when it comes to handling customers who arrive at their stores only to be told there are no watches available or that the wait time, if they’re lucky enough to get on the list, is up to two years. He said sales staff are now better trained to explain the limited production, the low numbers of each model produced and how many are delivered to each country.

He also said he wants 30% of all watches to go to buyers who have never owned an Audemars Piguet, to keep bringing in new customers.

“We are learning every single day, and it’s not always perfect,” he said. “What we found out through the course of the last three, four years, is that we need to educate people more.”

Audemars Piguet’s Royal Oak Offshore Selfwinding Chronograph in black ceramic, celebrating the 30th anniversary of the collection.

Source: Audemars Piguet

Audemars is now celebrating the 30th anniversary of its popular Royal Oak Offshore model, a larger version of its signature Royal Oak. When the Offshore was first launched, however, the model was widely scorned, according to Bennahmias.

“People trashed it,” he said. “When the watch came out people looked at it and said, ‘You guys are crazy.’ And we were not so confident in launching it. Slowly but surely it took off, to the point where it was a huge success.”

Next steps

Bennahmias, who will be leaving his role as CEO at the end of this year, declined to identify his potential successor or his next position.

He more than tripled Audemar Piguet’s sales during his tenure to over $2 billion and is well known in the watch world for his close ties to Jay-Z and other hip hop stars, as well as Hollywood celebrities, professional athletes and artists.

Some have speculated his next job is as likely to be in sports or music as it is luxury or watches.

“I think I’ve done what I was supposed to do with Audemars Piguet,” he said. “I’ve got so many other things I want to do with my life. I’ve got many different passions. Music is one. Sports is another one. And luxury obviously, and I want to do other things. I’m not done yet.”

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