May 1, 2017

Outerwear Heats Up, Drawing Fashionistas and Dealmakers

WWD – More fashion is fueling both interest and business in parkas, bombers, the so-called shacked and more.

Outerwear Heats Up, Drawing Fashionistas and Dealmakers

Bella Hadid stepping out in a Maje bomber jacket in New York last summer.

The fashion revolution has finally come to outerwear — and everyone is getting fired up.

Puffers are becoming much more prominent. Style sites are pushing the “shacket” — a mash-up of the shirt and the jacket. Retailers and e-commerce sites are rapidly adding to their assortments. Analysts are rating Canada Goose a “buy” after its March initial public offering. And dealmakers and major fashion groups, such as including Coach Inc., are looking at the category for their next big acquisition.

The once-stodgy corner of the apparel industry, more concerned with keeping people warm than on trend, is now adding more looks that bring serious style in midweight fabrics that can be worn in the warmer months, which there could be more of given climate change predictions. The fall runways from New York to Paris and beyond were filled with outerwear looks for both women and men as brands seek to capitalize on the growing demand for the category.

The move to a more stylistic punch is a transition the broader apparel market made long ago — outerwear is just catching up.

“It was a slow evolution,” said Stephanie Solomon, fashion director at Lord & Taylor. “It used to be a very utilitarian business. Now it’s much more fashion-driven and when I talk about statement coats, these coats are coats that are meant to be noticed, that are fashion right. And the customers are responding.”

Solomon said outerwear used to be based strictly on the weather, with merchants “looking at the Farmer’s Almanac and saying, ‘Make this true that we’re going to have the coldest winter of the century.’

“Now the market’s coming to realize that customers will respond to fashion first, and [then] if the weight is right and appropriate for the weather,” she said.

Enter a steady stream of bomber jackets, moto jackets, cotton parkas, puffer jackets, shackets, embellished denim, active luxury styles and “packable” down parkas that can squeeze into handbags and more.

Coach chief executive officer Victor Luis told WWD in January that, “For the foreseeable future, outerwear and footwear offer the next most significant opportunities for us to both grow and create value.”

He said when consumers like the brand, they are more willing to pay full price for outerwear and footwear than for many other items.

Arne Arens, general manager of the Americas for VF Corp.’s The North Face business, said the outdoor brand is looking to reclaim the category, having come off a strong run marked by double-digit expansion.

“In the last two years, our rate of growth has slowed somewhat, and there are several reasons for that, some external and some internal,” Arens said recently to investors. “The external reasons, I think we’re all familiar…the marketplace, retailer bankruptcies, warm weather, a heavily promotional marketplace. But I think we have to be honest with ourselves as well, there have been some internal challenges also. First of all, we saw the rate of newness and innovation slow down especially in our core outerwear business.”

Now he said the brand is “reigniting that core outerwear business through heightened focus on design and innovation.”

The attention devoted to the category is clear, not just in the stores and on the streets but online, where outerwear makes up 5 percent of the U.S. e-commerce offering, according to Katie Smith, senior fashion and retail market analyst at retail analytics firm Edited.

Edited’s data shows that Farfetch, Asos, Macy’s, Saks Fifth Avenue and Nordstrom have the biggest online outerwear businesses in the U.S. The most-stocked brands including Antigua, Moncler, Nike, The North Face and Burberry.

The bomber trend dominates the assortment, making up 13 percent of all outerwear styles online.

The number of women’s outerwear looks arriving online rose 12 percent in the fourth quarter, driving a 31 percent increase in sell-throughs. Men’s wear saw an 11 percent hike in new arrivals and 58 percent growth in sell-outs.

That trend continued with first-quarter arrivals up 21 percent for women’s wear styles and 14 percent for men’s.

The most successful outerwear brands over the past year, based on Edited’s reading of replenishment and discounting, were Moncler, Canada Goose and The North Face in women’s and The North Face, Helly Hansen and Nike in men’s.

“We’re moving into a tremendous amount of newness and creativity,” said Gary Fritschi, merchandise manager for outerwear at The Doneger Group. “The consumer is responding.”

Fritschi said the true active looks that had been popular had peaked and were now giving way to new approaches.

“The customer’s moving, she is moving fast,” he said. “The outerwear piece is the most visible. One of the things that is very trendy and trend right, you’re looking at slightly oversize, elongated silhouettes that are loose and open and flowing. You’re starting to see jackets that are going down below the fanny, coats below the knee, so it’s making the wardrobe look completely different in proportion.”

Shifting to a more style-savvy approach has made the business look completely different as well, particularly given the 2013 IPO of Moncler, which now has a market capitalization of 5.5 billion euros, or $5.9 billion, and the offering of Canada Goose, which has a market cap of $1.8 billion and was seen as a big win for private equity backer Bain Capital.

“Moncler kicked off the trend and showed a lot of brands like North Face what they can do with a little bit of style and a little bit of color,” said Kim Vernon, president and ceo of the Vernon Co. consultancy.

“Canada Goose was a nice brand that got the right money and put the right people behind it and did a great job growing; it’s now a much more fashion-forward outerwear brand,” Vernon said.

Wells Fargo analyst Ike Boruchow rates the Canada Goose stock “outperform” and described the company as “a rare find — an upwardly trending brand, with meaningful opportunities for top-line growth and margin runway.”

Boruchow said the company, which gets 70 percent of its sales from the U.S. and Canada, can grow overseas, build its direct-to-consumer business, which includes stores and e-commerce, from 11 percent of sales last year to 50 percent in five years and also bring more production in-house.

Together, the analyst said those three elements could push Canada Goose “to a more ‘luxury’ margin structure.”

It’s the kind of potential that others are looking to buy into.

Sandbridge Capital bought a minority stake in Rossignol with an eye toward taking the ski brand off the slopes and building a fashion lifestyle brand, including outerwear.

“Having a clear positioning around that performance heritage and technical DNA of the brand, this is something very important in an industry and a world that has a lot of sameness,” said Kenneth Suslow, founding managing partner of Sandbridge, who is chairman of Thom Browne and sits on the boards of Derek Lam and Rossignol. “You need to have something special.”

Lee Equity-backed Interluxe, which is led by chairman Gary Wassner, recently invested in Canadian outerwear brand Mackage. Founded in 1999 by designers Eran Elfassy and Elisa Dahan, the company built a successful contemporary outerwear business and moved into ready-to-wear in 2010 and handbags in 2013 and is now inching into retail.

“The great thing about Mackage is that it was a little bit of a hidden gem in the sense that it was a family business out of Canada and really did hold onto its roots,” said investment banker Janki Lalani Gandhi, managing director at Lincoln International.

There may be plenty of momentum right now and oodles of change, but life is not necessarily free and easy in the category.

“The tough thing with outerwear is the fact that it is seasonal,” Gandhi said. “So you have to really be able to weather the cyclicality of the business and try to build a part of your offering that helps to sort of alleviate that.”