1) Fenty Beauty becomes the fastest-growing celebrity cosmetics line

What happened

  • Sales for Fenty Beauty, a cosmetics line created by Rihanna, Sephora and Kendo, were five times higher than Kylie Cosmetics in the month after its September 2017 launch. The makeup brand continues to outshine other celebrity lines, including Kat Von D and KKW by Kim Kardashian.

Why it matters

  • While brands traditionally feature light and medium skin tone models in campaigns, Fenty Beauty launched its campaign with 40 women representing every skin tone and ethnicity. Like the plus size industry, large companies across the beauty space continue to leave money on the the table for fear of ostracizing clientele, giving new brands like Fenty the opportunity to scoop out a huge and hungry market that’s often been ignored. Fenty customers are spending the most on makeup annually compared to customers of other celebrity brands, indicating a need for more high-quality products for diverse audiences.
  • With Rihanna as not only the face of the brand, but its creator, Fenty’s business model is built with minorities and authentic voices at the center. The brand is assessing the pulse of the market, where beauty vloggers and social influencers are quick to voice opinions and, as tastemakers, wield increasing power over the consumer base. In contrast to Fenty, online influencers harshly criticized Tarte’s new line of 15 foundations, which only included three options for tan and deep complexions, to which the brand quickly apologized and is reformulating its product for a re-release.

2) Alibaba, the Chinese online shopping pioneer, moves offline, as Amazon does the same in the U.S.

What happened

  • Alibaba CEO Jack Ma, determined to increase revenue and find new customers who aren’t already online, is now looking into offline retail for growth. With stakes in grocers, electronic chains and mall operators, Ma is introducing his concept of “new retail” to brick-and-mortar stores, outfitting them with Alibaba’s technology and data to bring personalized services and ads to customers.

Why it matters

  • Although there is faster growth in online than offline sales, over 84% of sales still take place offline in China, giving Alibaba reason to go offline for growth and capital. This mirrors Amazon’s offline retail ambitions in the U.S., where close to 90% of sales happen offline. The bet is that creating holistic retail experiences that allow shoppers to purchase products both online and offline is better than either/or.
  • Its too early to tell if Alibaba’s offline ventures will be profitable, but the company is also developing its own chain of stores that combine groceries, restaurants and delivery services, in addition to its cashier-free mini-mart, which opened six months before Amazon Go. It will be worth watching how deeply Alibaba and Amazon will own these offline footprints versus providing the technology to support them.

3) H&M decelerates its store expansion and announces a new off-price brand

What happened

  • After unsatisfactory in-store sales over the holiday and in the last quarter, fast-fashion company H&M plans to slow down its store expansion this year, opening 390 new stores and closing 170. It will also launch its ninth brand, Afound, dubbed “a style- and deal-hunting paradise” in the tradition of the retailer TJ Maxx.

Why it matters

  • Afound is yet another brand playing in the off-price space, as Macy’s has been dabbling with “Backstage” locations inside of its flagship spaces, and Nordstrom continues investing in Nordstrom Rack. H&M is using its coveted higher-end brands like & Other Stories and Swedish heritage to create its own version of high-quality, low-priced goods and re-attract its lost shoppers.
  • While middle-market and higher-end brands are moving down market, either to attract a new customer base or supplement falling premium and full price sales, questions loom about the financial effects of these decisions. Acquiring and retaining new customer bases is expensive, especially if shoppers have less brand affinity because they are shopping by price. Additionally, as prices decrease, margins and free cash flow might as well.

4) Mall landlords are fighting for the best tenants

What happened

  • As retailers trim back expansion plans, landlords for flagship properties are fighting for the best tenants. One Nordstrom in Kansas will move from a “B” mall owned by CBL Properties to an “A” mall owned by Macerich and Taubman Centers only 12 miles away, exemplifying the risk to landlords and the abundance of real estate that companies have to choose from.

Why it matters

  • Real estate developers are secondary casualties in the retail shakeout and have been dealing with closing stores, having to dole out rent concessions and facing diminishing mall foot traffic in recent years. With “A” properties growing in popularity and “B” properties falling in favor, developers must figure out how to retain their high-quality tenants and experiment with ways to bring in the foot traffic that’s going online or to “A” malls. If not, a serious domino effect could take place as all of the quality tenants continue fleeing the “B” properties, which would cause shoppers to follow suit.
  • With anchor stores losing their luster, real estate developers are experimenting with ways to replace them, usually opening up gyms, restaurants or Apple stores. Although these developments work for “A” malls, landlords at “B” properties cannot use these more expensive tactics that don’t fit in with their shoppers’ needs. Instead, they must think through other more utilitarian services that they can provide to recapture lost renters, such as parking, delivery and pickup improvements.

5) Americans are actually spending less on clothing and more on digital goods and experiences

What happened

  • Americans have more money in their wallets, but revenue for the apparel industry is slumping to new lows—the percentage of U.S. household spending on clothing has shrunk to half of what it was four decades ago. It’s not a problem that discriminates between traditional retailers versus digitally-native brands; this affects everyone selling physical products.

Why it matters

  • Consumers have been spending more money on technology than apparel for the first time since 2010. In this sense, apparel companies are no longer only competing against one other, but technically against everywhere else a dollar could be spent. Technology is famous for constant iterations and design improvements, traits apparel companies are lacking but need to learn from.
  • Conversely, innovation in the beauty industry has led to higher spending in the category, indicating that investing in the future can positively affect the macro outlook for consumer spending categories.