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European brands are ramping up their US presence with new stores, undeterred by declining fashion and luxury sales as customers grapple with inflation and cost of living increases. Will those consumers be there to spend when stores open?
In September, Belgium’s Essentiel Antwerp opened its first US outpost in Soho, New York. In recent months, Paris-based Ba&sh opened stores 17, 18 and 19 in Boston, LA and San Diego, respectively. A Soho flagship is slated for 2024. Kurt Geiger plans to open its first six standalone stores in 2024 (two in Florida, three in Southern California and one in New York), on top of its existing 400-strong US wholesale doors. Two weeks ago, Berlin-based handbag company Vee Collective launched with Neiman Marcus. Founder Lili Radu is gearing up for a move to New York to support the brand’s US expansion. And just last month, Swiss sportswear brand On opened its fifth US location in Miami.
“Our new store in Miami underscores our continued investment in the Americas, which is On’s biggest market and our biggest growth driver globally… Portland, Austin, Chicago… you’re next,” Britt Olsen, On’s GM of the Americas and head of global commercial strategy said at the time.
What’s with the European influx?
It’s an interesting time to be doubling down on the US, experts say. US consumer demand was down across recent earnings reports, from Tapestry to Moncler. But, things could be worse. “We’re somewhere between a recession and ‘just’ a downturn,” says Karla Martin, managing director for the fashion apparel and footwear practice at Deloitte.
Consumers in the accessible luxury bracket have been hit the hardest by this downturn, posing a potential hurdle for contemporary European brands looking to double down on the US market. However, experts flag that this means there’s room for brands to fill the ever-increasing gap between top- and low-end fashion, for those now unable to splurge on the high-end, but might be spending in the middle.
The slowdown also needs to be contextualised, Federica Levato, senior partner and EMEA leader of fashion and luxury at Bain Company, flags. “This year’s slowdown should be read in conjunction with last year’s hypergrowth and this year’s challenging macroeconomic scenario (combined also with a stop to government stimulus),” she says, noting that the US luxury market is still 20 per cent above 2019 levels.
Europe’s mid-market is flatter, as the continent is more directly affected by the events in Ukraine and is seeing inflationary pricing at present, Deloitte’s Martin flags. “If European brands in the mid market need more reach, there’s a US customer that’s proven already for that,” Martin says. Consumer diversity and spending power is a pull, says Ruari Mahon, founder and director of commercial consultancy Loughlin Joseph, noting that the country’s GDP remains the highest in the world.
Europe is also still reeling from pandemic impact, perhaps more so than the US, says Kurt Geiger CEO Neil Clifford. For this reason, the brand is about 18 months behind on its trajectory for Europe than the US, he says on why the brand is doubling down on America. And, for many, the US is still the place to be seen. “North America is (along with some countries in Europe) seen as aspirational,” Martin says. “So, to be an aspirational brand and not have a presence in the US makes it harder to be seen being worn by somebody. It makes it harder to get on somebody’s TikTok feed. It makes it harder to find influencers. Because influencers are strongly tied to opportunities in the US.”
Intentional expansion
It’s not as easy as setting up shop. European brands will have to adapt their strategies to fit the market. “The biggest mistake brands make is just to think you can lift and shift the product,” Martin says. Brands need to adapt to US sizing; avoid getting into the discounting game; and understand the returns culture in America (which, she says, is more robust than Europe).
“The strategy has to be incredibly deliberate — especially in such a competitive market,” says Ba&sh North America CEO Desiree Thomas. Ba&sh’s US-specific initiatives include a style ambassador programme (where key consumers are invited to host private trunk shows); at-home personal styling; and small, private dinners with key clients. “The US customer is more open to having unique experiences,” Thomas says. “The customer is more ready to be part of the brand experience.”
The US is a big country. Brands need to treat it as such. “You have to look at micro clustering consumers,” Deloitte’s Martin says. “Brands used to have a ‘hot and cold’ strategy. Now, they’re saying, ‘we need a strategy for Miami, Atlanta, Dallas and San Diego’ — which would all technically be hot stores. But [they] are nothing alike, besides maybe price point and temperature.”
Martin also encourages brands to look beyond New York alone, to what she calls the “smile”: New York, down to Atlanta, then Texas, and back up to California. “I do think there are really influential markets in the US for where style originates,” she says, offering Miami as another city example along the smile line.
Brands also need to be aware of logistical differences, including compensation, worker’s rights and severance notice periods (just two weeks versus European countries’ month-plus), Mahon says. Additionally, state laws and operations differ across the country. Aware of these intricacies, Essentiel had a team dedicated to this, co-founder and CEO Esfan Eghtessadi says.
Filling the gap
There’s a gap in the market for people who don’t want to purchase fast fashion, but can’t afford high luxury, Deloitte’s Martin says. “Historically, North America has proven to be a good market for that. There are a lot of consumers in that market that are not being served.” There are more European brands in this arena, she contends, that are primed to fill that space. However, that gap is closing. As Mytheresa CEO Michael Kliger told Vogue Business earlier this year: “Aspirational customers are buying less.”
Brands are moving forward with the ethos that, while this consumer group might be buying less luxury, their spend can be captured at a price point that’s a rung or two lower. Kurt Geiger wants to fill what CEO Clifford calls the “white space”. After entering the US in 2018 by way of wholesale, the brand has performed better than expected (it’s the top-selling, non-pure luxury brand at its stockists, which include Bloomingdale’s and Nordstrom, Clifford says). The CEO attributes this, in part, to the brand’s price point.
“Our price point is super sharp,” he says. “We’re talking about $300 for a handbag.” Kurt Geiger deliberately sets its prices 20 to 25 per cent lower than what it sees as its competitors. For this reason, Clifford isn’t so concerned about tempered aspirational consumer spend.
There may be a gap in price and product, but there isn’t one in noise. European brands are competing for awareness in a crowded fashion landscape, and are starting at a disadvantage. Brands will face difficulty in terms of recognisability, Deloitte’s Martin says. “If you don t travel a lot, if you don t go through big duty frees, there’s a lot of brands you don t know about.”
Essentiel’s Eghtessadi is acutely aware of this need to boost brand awareness. “We want to build community like we have in Europe,” Eghtessadi says. Both Essentiel and Ba&sh launched their US e-commerce sites at the same time as they launched stores in a bid to “reinforce” the brand’s presence across channels, the execs say.
Kurt Geiger is also cognisant of this need to boost familiarity — which is largely the impetus for opening standalone stores. (There are six planned for 2024.) “We think our brand awareness needs stores,” Clifford says. “I think that the best way to communicate our values around kindness, creativity and London — which are our three pillars — is via a physical space.”
Plus, there may be a gap now, but moving forward, the US is seeing consolidation in the mid-market aspirational space — Martin points to the Tapestry-Capri merger.
Diversifying consumers
For European brands opening in the US, it’s not just about America — it’s also an entry point to a more global market. “To go to New York is not just to go to the States — it’s to go global,” Essentiel’s Eghtessadi says. He notes the Latin American and Asian tourists he saw walking around Soho, in addition to visitors from around the country. “Every day we have a customer coming from a place we didn t expect,” he says.
In addition to tourist traffic, the US also has international eyes on its fashion scene. “When you look at Chinese consumers, they still have a high affinity for US brands and brands that are successful in the US,” Deloitte’s Martin says. “So, it could be a stop on the train to greater China growth as well.”
For Essentiel Antwerp, the US is indeed a step towards global growth. “We are a big player in Europe, less in the States,” Essentiel’s Eghtessadi says. “This whole process and this long-term view in the US is to allow us to become a global brand. Global awareness of the brand is the main goal.”
There’s also an untapped demand from the US’s ethnically diverse consumer base, which has historically tended towards aspirational brands, Martin says, citing a recent Deloitte report. Both African and Latin American middle class consumers play a big role in aspirational brands, but are under-marketed to, she says. “If you’re willing to invest in advertising dollars and understand where she is, what she wants to buy, her sizing — that makes it a real opportunity.”
Kurt Geiger has picked up on this amongst Latin American consumers. “We didn’t start off with a strategy to talk to her from a ‘McKinsey perspective’,” Clifford says. But, he says, it struck a chord in cities such as San Diego. The success is also a driver for Kurt Geiger’s plans to expand into South America (it recently opened three stores in Mexico).
Diversity within the US shouldn’t be overlooked, Deloitte’s Martin says. “Europe is probably more homogeneous across the continent,” she says. “Whereas in the US, there is more diversity at every income level and they have a really underserved community in aspirational luxury and the diverse consumer.”
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