For Western fashion companies, the last few years have provided a sobering reminder of the perils of making the wrong investments. Many companies in Europe and the U.S. increased their retail store space; others invested heavily in their e-commerce websites, believing that direct sales from their own branded stores would be essential to their success. Not all of these bets were right for every company, and companies that got it wrong have been penalized heavily. Many of them are struggling with the resulting high fixed costs and diminished retail store productivity.
The companies’ challenges are evident in declining profits and sharply lower shareholder returns. Strategy&, PwC’s strategy consulting business, analyzed 41 Western fashion companies (publicly listed European apparel manufacturers and retailers and U.S. fashion players with significant European business) and determined that they provided an average total shareholder return (TSR) of 5.8 percent on a compound annual basis from 2013 through 2015. That is a significantly lower TSR than most other consumer sectors achieved and represents a steep falloff from the fashion companies’ returns just a few years earlier. Luxury fashion companies and middle-market fashion companies have deteriorated the most, Strategy&’s analysis shows. Two other fashion segments — sportswear and best value — have been more resilient from a TSR perspective thanks to their better fit with consumer trends.
This is an important time for fashion companies to make sure that their strategies are clear and differentiating. The companies’ priorities should include making operations leaner and using any freed-up funds to push their organizations to be more entrepreneurial, more customer-centric, and more adept at connecting to outside partners through technology. The fashion companies that make these adaptations will be in the best position to prosper — and return more to their shareholders — in the years ahead.
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