Lingerie is having its moment in the retail spotlight, thanks in part to the #metoo movement, an increased attention to inclusivity, and the growth of start-ups focused on direct-to-consumer. But don’t forget the guys, because underwear is getting a chance to shine too.
In the second installment of a new financial Q&A series, Sourcing Journal caught up with Dana Telsey, equity analyst and founder of Telsey Advisory Group, for an update on the current trends in the intimates and underwear categories.
Sourcing Journal: Obviously the intimates category isn’t new, but it seems as if it’s finally catching up with the fashion trends that are out there right now. What’s your read on the interest in the sector?
Dana Telsey: When you think of the intimates market now, these brands are all doing something different. Direct-to-consumer brand ThirdLove is testing a physical store. American Eagle’s Aerie is gaining traction in loungewear. Abercrombie & Fitch’s Gilly Hicks has been relaunched and they are starting to open their own stores.
SJ: It seems that the search for undergarments isn’t limited to just the women’s market, that men, too, are showing an interest in what’s available for them, right?
DT: For guys, underwear is becoming more interesting too. Underwear is the most searched category at Under Armour. And Calvin Klein underwear is one of the most popular items sold on Amazon.
SJ: What’s on the horizon that you think could be particularly interesting?
DT: Victoria’s Secret will be having its Investor Day in September. It’ll be interesting to see what the game plan is going to be under the new CEO [John Mehas] and after the extended period of time of subpar results. And we’re seeing that ThirdLove is gaining some traction. Harper Wilde, a competitor, is so brand new that it is just at the beginning stage.
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SJ: But it still seems like now it’s the women themselves who are showing greater interest than before in intimates. Why now?
DT: For women today, innerwear can be outerwear. There is now a functionality aspect that has extended beyond what’s been available in the past. A lot of women are also updating their wardrobes. Intimates now have many more different categories where women can adapt the fashion appeal to their lifestyle and for work.
SJ: You’ve mentioned Victoria’s Secret, which is still a dominant player in the market. And the DTC brands, ThirdLove and Harper Wilde, as well as the teen brands Aerie and Gilly Hicks. What about Hanes and Jockey, or Warner and Olga, the brands that we used to hear a lot about?
DT: Brands have to update and re-identify themselves. Calvin Klein is continuously updating itself. The other brands have become more basic, and sell at the mass or mid-tier level at retail. Where are they branding? Do they go by the wayside? The category of intimates can be very profitable, but the investment is also very high due to the runs of sizes and the amount of goods needed.
SJ: It also seems that women who wear plus sizes finally have a range of options now that they didn’t have before. ThirdLove already has 78 size options, and Universal Standard is exploring an expansion into intimates. Should we expect to see a greater focus on size inclusivity?
DT: Size inclusivity is a greater focus because some of these newer brands are started by women. They are using data to inform them about what products they should make next and what features to include.
SJ: Let’s talk for a second about the public companies in the teen retail market. How well is Aerie doing?
DT: Aerie’s growth has been impressive. 2018 sales were around the $650 million range. The Aerie brand is growing at a double-digit rate overall, and has been for a number of years. That’s not just from comps sales, but also from its online business. Think about the messaging from Aerie. It’s about being real, inclusive, using untouched visuals and role models, and the brand’s approach to body positivity. Body positivity is where it all starts. The brand is on track to grow to reach $1 billion in sales. The customer retention rates remain high, and the e-commerce penetration continues to grow.
SJ: And what about Gilly Hicks?
DT: Looking overall to what Abercrombie is doing, you can’t compare Gilly, either size or scale, to Aerie yet. But based on the business of Abercrombie and how it has been increasing its operating profits [and] reducing store size to drive square footage productivity, the company has a lot on its plate. They’ve resurrected Gilly in all Hollister stores and will expand with standalone and side-by-side stores. It’ll be an opportunity to gain some market share. Gilly is in the right category, and it’s part of Hollister, which is Abercrombie’s strongest brand.
SJ: You mentioned the new CEO at Victoria’s Secret earlier. What are his challenges?
DT: Victoria’s Secret is a big question mark. There’s a new CEO in charge and his first new product assortment just came out for fall. Investor Day is in September, and they haven’t had one for a while. We (Wall Street) want to know what is the game plan. If you take a look at the first-quarter results, comps were down around 5 percent. Overall sales were down by the same amount, with gross margins down significantly.
If you look at the store base for 2019 and 2018, it looks like the company will end this year with 1,100 stores. That’s down from last year’s 1,143 stores. The company will need to focus on enhancing productivity by making the store more impactful. It is closing 50 stores this year for the first time, so it’s reassessing its store base and the look of the stores. This was a $7.2 billion business for the last two years, but operating profits have been on the decline so the company has a lot of work to do to fix it.
SJ: Tell me about Hanesbrands? Even though Victoria’s Secret has a huge base, Hanesbrands is a big player and has sizable market share too.
DT: Hanes has its name brand Hanes, plus Bali, Playtex and Maidenform. The brands are sold through different formats, and the parent company is building its omnichannel capabilities. As for marketshare, Hanes is the No. 1 or 2 player for basics, which is about 70 percent of the total business.
Intimates is primarily bras, and [some] shapewear. The basics business has been performing better lately, and it’s been supported with media [marketing] and some improvement in distribution…. The Hanes brand is known and consumers trust it. That’s what led to the company’s success with its basics business.
On the intimates side, a lot of the company’s wholesale doors have closed. The [distribution has been primarily] focused on department stores and mid-tier stores. The consumers who shop there buy just once or twice, and stock up when they do. It does sound like the company plans to introduce new innovations in the second half of the year. Bras are 70 percent of the intimates business, with the remaining one-third in shapewear.
Women are also buying less shapewear because clothing is less fitted. The company is now focusing on developing new merchandise initiatives for shapewear.
SJ: What is Calvin Klein’s future in underwear, and didn’t PVH Corp., Calvin Klein’s owner, recently ink a deal in men’s?
DT: Calvin Klein Underwear continues to remain very strong. It’s going to do a licensing deal with Nike for men’s underwear. It will launch in fall 2020. The business is expected to do $100 million over time and Nike gets the Calvin Klein brand’s expertise and strength in underwear, which is what the franchise is known for.
SJ: Speaking of PVH, the company acquired The Warnaco Group Inc. about six years ago. Where is the Warnaco business now?
DT: PVH has transformed it, whether on the people side or in supply chain enhancements. Underwear for PVH remains very strong. In the past couple of years, it bought DTC start-up brand True&Co. for its data analytics knowledge. That has been applied to the underwear business, and PVH has added new technologies to the core intimates business, such as wire-free options.
SJ: Lululemon Athletica Inc. started in yoga apparel, but now is in intimates, particularly bras. With so much competition out there, what’s special about what they offer?
DT: Lululemon has its intimates wall, and the brand specializes in functionality. The company adds that to everything, whether it’s new features or fit. And there’s a lot of technological innovation in its fabrications. Comfort is a big feature, and the brand offers specific usage functions for different items.
SJ: How has the athleisure trend impacted the intimates category?
DT: It has added new categories of bras. Think about the sports bra. How many are using that as an addition to their everyday bra? And you have an evening bra. Now you can have a collection of bras.
SJ: There’s been talk that athleisure, which as a trend has been around for years, might be waning. Do you see that and what then would be the impact on the intimates category?
DT: I don’t see athleisure going away as a trend. In fact, sports bra options are growing even more.