- Guess' Q4 fiscal 2013 results remained weak due to low
traffic in North America and Europe
- The weak holiday season, payroll tax increase and
unfavorable weather conditions impacted North America while the
weak economy weighed on Europe's growth
- To address the issue, Guess is employing strategies such as
omni-channel retailing, increasing products at opening prices,
shortening the lead time, in-store events and social media
marketing to attract customers
- The retailer is also looking to reduce its dependence on
Southern Europe by expanding in regions such as Russia, which
provides good potential
The Q4 fiscal 2013 results for
) remained weak due to low store traffic in North America and
Europe. The weak holiday season in the U.S., payroll tax increase
and low store traffic due to adverse weather conditions led to 6%
decline in the retailer's comparable store sales in North America.
In addition to this, sluggish economic conditions in Southern
Europe, which accounts for more than 60% of Guess' Europe revenues,
weighed on its international growth. However, Asia was a bright
spot and continues to be promising market.
To address the weakness in North America, Guess is making a few
changes in its management and working on multiple strategies to
attract more customers. Moreover, it is looking to reduce its
dependence on Southern Europe by expanding in lucrative markets of
Russia and Germany. Complemented by healthy growth in Asia, these
strategies can pay off for Guess in the long term.
See our complete analysis for Guess
What Is Guess Doing To Attract More Customers?
Guess is focusing on elevating its brand image through in-store
events and social media marketing. In-store events such as the
summer festival are aimed at attracting more customers with
distinct product offerings. Guess is launching a music festival
capsule collection for this summer, which includes unique bohemian
style handcrafted vintage apparel and accessories. On the social
media front, Guess has made significant strides with its Facebook (
) fan following increasing from 1 million in 2012 to 4.6 million
presently. Social media marketing can be very helpful in reaching
out to a large audience with relatively small investment.
Additionally, Guess is undertaking omni-channel retailing by
combining the online and in-store mobile platforms with a social
experience. The company has installed iPads in its stores to better
interact with the customers. The intent is to create a seamless
shopping experience across all channels.
American Eagle Outfitters
) is also looking to develop its omni-channel capabilities. Guess
recently started fulfilling its web orders through its store
inventory and also introduced a feature that allows online orders
to be picked up at its stores. A similar strategy has worked well
for other retailers such as Urban Outfitters (
) and Ann (
), and is likely to help Guess as well.
On the product side, Guess will be increasing its denim and
iconic style offerings at opening price points of $75-$95 to better
balance its product mix, which we believe can help sales.
Currently, the majority of its products fall in the $108-$148 price
range. The company is also looking to add new prints, fits and
washes in its denim range, which defines its heritage.
Additionally, it is working on reducing the lead time to about five
weeks in order to remain responsive to changing trends. Guess' main
problem has been low store traffic and these strategies might
provide the solution.
Changes In North American Retail Management For Effective
It's clear that Guess' management needs to enhance its focus on
formulating and implementing effective strategies for North
America. The retailer is hiring new executives for crucial
departments of design and merchandise. The new design head comes
with a strong 15-year experience in women's apparel segment. The
company believes that the new management will help it execute its
Increasing Dependence On Russia And Germany
Guess' two key markets, Russia and Germany, delivered
encouraging results in an otherwise troubled Europe. Most of the
retailer's revenues in Europe come from the southern region, which
faces significant economic challenges. Therefore, Guess is looking
to increase its reliance on these two markets. Revenues from Russia
have grown substantially over the last couple of years. As a part
of its long term strategy, the retailer plans to continue expanding
in this region. According to Guess, Russia's business has a
potential to triple over the next five years, and it sees a similar
potential in Germany as well.
Russia is becoming an important market in Europe since it
remains relatively untapped. According to Mckinsey, apparel space
per 100,000 Russians is only 37,600 square feet, which is just 10%
of what it is in the U.S. Despite having lower per capita income as
compared to Russia, Brazil has larger apparel space. Moreover,
Russians tend to spend about 3.1% of their income on apparel, which
is noticeably more than China, Germany and the U.S. This clearly
indicates the growth potential of Russia's apparel market. Through
2015, McKinsey expects the region's apparel market growth (8%) to
remain faster than the income growth (7%).
Our price estimate for Guess stands at $28, implying a premium
of about 15% to the market price.
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