Young retailers like Madewell and West Elm are driving major growth for their parent companies - we broke down the factors of their success
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- West Elm, Madewell, and Athleta are driving sales growth for their parent companies, legacy brands that have been around for decades and are looking for ways to stay relevant.
- As older brands in portfolios struggle, these newer ones are quietly succeeding - but it's actually not surprising they're doing so well.
- They all sell stylish, high-quality products that also offer high value, have impressive commitments to sustainability, and leverage smart partnerships with other brands (or even their own customers).
While brand-new and online-only direct-to-consumer companies are the buzziest things to hit the retail industry as of late, much of US retail is still anchored by decades-old veterans. Think of the classic department stores, catalogs, and shops your parents and grandparents used to browse: Macy's, Nordstrom, Levi's.
In the face of the "D2C revolution" and changing shopping habits, the big brands are (mostly) holding up just fine. However, it's not the flagship brands driving the most growth and keeping revenue numbers up for their parent companies - it's the smaller offshoots targeted at younger shoppers that are the secret stars of the show.
We looked at three retail companies in home and apparel that are pulling more than their weight.
Williams-Sonoma, Gap, and J.Crew were founded in 1956, 1969, and 1983, respectively. Williams-Sonoma launched home furnishings brand West Elm in 2002, Gap acquired activewear brand Athleta in 2008, and J.Crew bought the rights to and reintroduced denim brand Madewell in 2006.
In Q4 of 2018, West Elm led all of Williams-Sonoma, Inc.'s brands with an 11.1% increase in comparable sales. Williams-Sonoma grew 0.1% and Pottery Barn declined 0.4%. In a similar vein, Madewell's comparable sales increased 22% while J.Crew's increased 6%.
These growing brands don't sell in the same categories or directly compete with each other, but we noticed many similarities that are helping them succeed even when the flagship brands of their parent companies aren't.
They sell style, quality, and value, and they're easy to shop online.
The popularity of online shopping is part of the reason for growth. E-commerce revenue for Williams-Sonoma, Inc. grew 14.3% to $1 billion, making up nearly 55% of total company net revenue last quarter. With its more affordable yet stylish furniture, West Elm appeals to the very group driving these online sales: Millennials and older Gen Z-ers.
They're the unique demographic that wasn't born with devices in their hands but also quickly grasped and embraced this brand new Internet thing and now love using its convenience to shop. Their higher disposable income makes them stray away from discount stores and privy to nicer quality things, but they're not yet at the luxury level, nor do they want to be.
Above all, they value value itself, and places like West Elm and Madewell perfectly represent the types of goods they would consider baby investments: $300 bookshelves to occupy the home they'll be inhabiting for the next 10 years rather than $40 ones for the series of apartments they never stay too long in, $130 jeans that stay structured and comfortable through countless washes rather than $50 ones they have to rebuy every couple years.
West Elm, Madewell, and Athleta all offer stylish products that give shoppers an opportunity to express their individual personalities. Madewell's personalization services are a popular way to embellish its best-selling leather totes. Featuring collections of bright colors and creative patterns that flout the black leggings trend of the traditional fitness world, Athleta makes working out a little more exciting.
At the same time, they aren't so trend-focused as fast fashion retailers that pieces become irrelevant within a year. Athleta's Work/Commute/Travel line has sleek and comfortable workwear, like this Insider Picks favorite Blazer, that will stand the test of time but is obviously made for a modern office space.
And in the home, West Elm helps shoppers balance the line between stale, uninspiring model home and amateur design student gone wild - layered bedding ideas for a luxurious night's sleep, or sculptural glass lighting to inspire bright ideas in the kitchen and living room.
All three brands also proudly commit to sustainable and socially responsible practices.
These days, it's not enough to make a product that simply does its job. It should also reduce harms done to the environment and workers involved in the manufacturing process. Among the many ways citizens can improve the world for future generations, like volunteering with environmental groups or calling their political representatives, they can also shop and spend their money responsibly.
West Elm designs the majority of its items in-house, allowing it to control its offering of organic, sustainably sourced, and Fair Trade Certified products. In 2014, it became the first-ever US home retailer to offer Fair Trade Certified products. By 2020, 100% of all the cotton in its bedding will be organic, while 50% of its wood will be sustainably sourced.
Madewell does its part by partnering with Fair Trade USA to make its denim. For each Fair Trade Certified product, it pays a premium to a Community Development Fund run by the people who make its clothes, and each factory votes on where this extra money goes. It also has a jeans recycling program where customers turn in old pairs, which will be turned into housing insulation, and receive $20 off a new pair of jeans.
In its alternative down jackets, you'll find Primaloft insulation (made of 100% recycled material); in its swimsuits, recycled water bottles; and in its clothing, Tencel or Refibra fibers made from renewable wood sources and sustainably harvested wood pulp.
Athleta is a certified B Corp, meaning it meets "the highest standards of verified social and environmental performance, transparency, and accountability." Balancing purpose and profit, Athleta uses recycled polyester and nylon, Tencel fabrics from sustainably managed forests, and organic cotton. Currently, 60% of its materials are made with sustainable fibers, and its 2020 goal is to reach 80%. It has also taken a page out of Gap's book by bringing over the P.A.C.E. program to empower women to create better futures for themselves and their communities.
Partnerships aren't treated as afterthoughts.
Deliberate collaboration with some of those D2C startups we mentioned in the beginning have further helped West Elm and Madewell maintain its young, fresh sensibility. At West Elm, you can shop Leesa mattresses and Bouqs flower bouquets. Starting in summer 2019, you'll be able to rent West Elm furniture through Rent the Runway. Madewell is home to a curation of up-and-coming brands like Topo Designs bags, Summersalt swimsuits, and Lively lingerie.
The relationship is a win-win for both sides. Online startups get the increased exposure at more trusted and established retailers, and the retailers in turn get points for helping shoppers discover cool new brands.
Athleta's "partnerships" run a little differently in that it directly involves customers in some of its design processes. Its post-mastectomy bras, for example, have special design features to make breast cancer recovery comfortable and are co-created with breast cancer survivors.
If heritage parent companies like Williams-Sonoma, Gap, and J.Crew want to grow and thrive, they should continue investing in the qualities that make their smaller brands so successful.
These include high-quality, accessibly priced products that are meant to be investment pieces, sustainability and responsibility initiatives that lead rather than catch up to the rest of the industry, and strategic partnerships that make winners out of both parties.
As retail continues changing at a rapid pace, we think it's a good idea to keep an eye on the hidden gems of large legacy companies.
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