Aside from tourism and commercial real estate, it’s hard to imagine an industry that has been as devastated by Covid-19 as retail. In the US, malls are empty. Big brand chains from J Crew to Brooks Brothers to Lord & Taylor have filed for bankruptcy. In the work-from-home era, people still buy things — computers, home office equipment and wine — but apparel just isn’t top of mind these days.

US commerce department figures show that there was a 20 per cent decline in clothing sales last month compared with August 2019. When even Anna Wintour, the editor-in-chief of Vogue magazine, is at home in her sweatpants, who is thinking of dressing up?

Of course, if you are selling leisure wear, it is a different story. I recently caught up with Bayard Winthrop, chief executive of a private, midsized sportswear retailer, American Giant, I wrote about last year. The company produces upscale hoodies, T-shirts and other types of casual wear beloved of coastal hipsters.

Mr Winthrop says his company is actually on track to surpass its pre-Covid-19 sales growth goal of 35 per cent this year, thanks to a major uptick in sales post-lockdown. After minimal sales in March and April, revenues were up 60 per cent in May and 80 per cent in June, according to Mr Winthrop.

Part of this is luck — being in the right category. “If we were selling suits or formal wear, I doubt things would be looking good,” he says. But beyond this, his story holds some interesting lessons for brand survival in the pandemic era. 

Lesson one: lead with digital. Selling direct to consumers online was part of American Giant’s business model from the beginning. It was an important way to offset the higher labour costs incurred by its brand proposition, which is all about localised “Made in America” products. The company sources every element of its trademark sweatshirts, from cotton to cutting to finishing, in the US. Selling mostly online necessitated top-notch data analytics, which is where much of the company’s capital expenditure goes. This reflects a broader pre-pandemic trend towards higher earnings, innovation and enterprise value among the most digital-dependent corporations — a shift that has, of course, been put on steroids since coronavirus struck.

The second lesson: be creative about cost cutting and deal renegotiation. Mr Winthrop says plummeting sales early in the pandemic forced him to literally clean the house in an effort to cut costs. He ended up gathering scraps of fabric from factory floors that ordinarily would have gone into the bin and turned them into new garments.

Covid-19 also turned the tables between American Giant and its commercial landlords. Counter-intuitively, Mr Winthrop is looking to open a number of new retail branches in prime locations over the next few months, because real estate companies are suddenly willing to be much more flexible about floating leases in which payments would rise and fall depending on the company’s sales. “It’s been apocalyptic for landlords, and that gives us the opportunity to lean into deals that are going to be more symbiotic than in the past,” he says.

I’ve been hearing similar things from a number of tenants in midtown New York, which has become a bit of a ghost town with both tourists and business people gone because of the pandemic. One high-end salon and spa owner told me that he had been able to negotiate a floating monthly rent based on his sales, as had a nearby restaurant owner.

It is too soon to draw any firm conclusions, but I wonder if this could mark the beginning of a longer-term shift in tenant arrangements in some urban areas — and possibly even the residential mortgage market. Economists such as Nobel laureate Robert Shiller have long argued for mortgage payments that floated based on indicators such as unemployment rates or housing prices, in order to create a more resilient system in which risk is shared more equally.

The third and final lesson: price matters, but so does purpose. Mr Winthrop attributes part of the sales uptick to consumers’ growing interest in the “Made in America” mission that is a core part of the company brand. Certainly, localism is getting a lot more press these days thanks to the recent White House moves to block imports of certain products such as apparel from China, because of concerns about the use of forced labour in Xinjiang, where around 1m people, mostly Uighur Muslims, have been detained in re-education camps.

There is also a broader trend: younger shoppers are demanding that the companies they spend money with reflect their values, be those a desire for ethically and locally sourced products, or ones that are more environmentally sustainable.

Millennial and Gen Z consumers are nothing if not cost conscious — numerous studies show they are very cost-conscious and almost always search for coupons and do comparison shopping online. But they also value sustainability. Younger consumers would rather pay a bit more for a product that lasts longer (a higher quality garment rather than fast fashion, for example). Some even rent or borrow rather than buying new items (witness the rise of subscription services that allow consumers to use and return everything from clothing to furniture).

As ever, in crisis comes opportunity.




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