Denim’s Resurgence Sparks Growth Opportunities for Guess
Guess U.S.A. x Babylon Skate Park Festival
A strong demand for denim is making Guess, Inc. executives hopeful that the company will meet its aggressive $2.8 billion revenue target by fiscal 2024. In a Q2 2022 earnings call last week, Guess CEO and director Carlos Alberini told investors that he’s confident the brand has numerous opportunities for growth, including honing in on successful categories like denim and enhancing the in-store experience.
The company’s most recent sustainability report underscores the increased emphasis on denim, with dedicated efforts on making the category more environmentally friendly. In FY 2021, 21 percent of the brand’s denim followed the Smart Guess guidelines, which require jeans to contain at least 20 percent certified sustainable materials and use production methods with reduced environmental impact. By 2025, Guess aims to increase that number to 75 percent.
It’s also increasingly focused on denim circularity and is getting ready to launch its first denim drop made in accordance with Ellen MacArthur Foundation’s Jeans Redesign guidelines. It’s also continuously iterating on Resourced, its jeans take-back program, and expanding Guess Vintage online to European shoppers to make authentic vintage Guess items more accessible.
Throughout Guess’ global markets, denim is a top performer, with categories such as activewear, knits, dresses and outerwear also picking up speed. Even in Asia, where customer traffic is “most challenged” as a result of the Covid-19 pandemic, the category remains at the top.
Scaling back promotions
The quarter saw a 133.7 percent revenue increase from two years earlier, which Alberini attributed to expense management. Earnings from operations in the quarter increased 90 percent to $87.4 million from $46 million two years prior. Operating margin increased 7.2 percent to 13.9 percent from 6.7 percent from two years prior, driven primarily by lower occupancy costs, higher initial markups and almost nonexistent promotional activity—the latter of which is a long-term strategy for the brand.
“While we are currently operating in what might be an abnormally low promotional period industry-wide, this company will never go back to the levels of promotional activity that it had pre-pandemic,” he said, adding that a lack of discounting will help add value to the brand and eventually train the consumer that “if you don’t buy today, you may not find that product.”
That said, marketing and advertising activity remains strong. Alberini noted that the brand is actively pursuing brand partnership events to engage consumers and elevate the label. From Aug. 20-21, the denim brand invited VIPs, social influencers and skate enthusiasts to come together at Lot 5, the space outside of its Downtown Los Angeles headquarters, for the launch of the Guess U.S.A. x Babylon Skate Park Festival and their second capsule collection together. “It’s these types of customer events that really drive that younger customer closer to the brand,” he said.
Other marketing initiatives include direct mail and advertisements in more than 120 magazines. The company also recently implemented cloud solutions from Salesforce for Customer 360 implementation, which Alberini said allows for more personalized and efficient marketing.
Though the gap between the performance of Guess’ tourist-centric stores and non-tourist-centric stores is still wide, it narrowed significantly in Q2 versus Q1, suggesting that domestic travel is picking up.
Behind the scenes, the labor market has also been impacted as companies are challenged to rehire workers, to which Guess responded by sizing inventory buys and increasing labor rates to attract retain employees throughout the supply chain. It’s also accelerating deliveries when possible, changing countries of origin when appropriate and investing in faster transportation modes accordingly.
“At Guess, we remain laser focused on what we can control,” said Alberini.
One of the biggest focuses for Guess in the near future is expanding its brick and mortar presence, as Alberini noted that there are many cost-effective options available and “stores are the best vehicle for us to showcase our assortment and experience the brand.”
It plans to test new concepts, including pop-ups and stores dedicated to accessories, athleisure and the Marciano brand—with very limited lease terms and great potential for renewal. In terms of location, the company is setting its sights on Russia, Germany, China, France and the U.S. and Canada. The new stores will look different, with upgraded features like enhanced WiFi networks, extended payment methods and mobile check-outs. The company expects to complete these projects by the end of next year.
“We are seeing [an opportunity for growth] in many of the markets where we used to have a strong store presence,” said Alberini. “We see opportunities to go back, and we have a pretty good idea of what to expect from those locations.”