Guess what? Here come the Gen Z shoppers - and they love the store!

Profile picture for user slauchlan By Stuart Lauchlan June 10, 2019
Summary:
Guess has issues with e-commerce, but the retailer reckons it can win in store via a Gen X appeal.

Guess bag

Of all the cliches in the retail sector in recent years, the pursuit of the Millennial ranks as one of the most irritating, particularly the assumption that this most-sought after of beasts grazes onto in the digital realm. It’s that fallacy that has in large part led to so many brands throwing everything into online and mobile platforms at the expense of their ‘legacy’ real estate store frontage.

Guess what? There’s a new demographic with disposable income out there - and these customers love the stores! That’s the argument being put forwards by Carlos Alberini, just over 100 days into his role as putative turnaround CEO at Guess, who has Generation Z customers front-and-center in his sights:

This is a generation that is almost 50% larger than Millennials and has a preference to shop in-store. A recent Bloomberg study found that 95% of this Gen Z customer visited a store over a three month period, versus 75% of Millennials and 58% of Generation X-ers. We are also conducting tests in stores to increase the presence of key products developed for the Gen Z customer and we have seen strong sell through as a meaningful productivity improvement when we did so.

The Gen Z focus also expands opportunities, he adds:

With this Generation Z move, we are seeing that retailers that in the past wouldn't have even considered us, they are super excited to do a lot of business with us. Just two great examples are, Urban Outfitters and Pacific Sand Wear. We have developed a very nice business with both of them and they are super happy and they want to continue to expand the relationship…we just did a pop-up in Fred Segal. Who would have thought that Guess' was going to be representative of Fred Segal You know, just that is a type of store that normally would only take luxury type of brand.

Of course it’s inevitable that the Gen Z-ers will themselves become retail cliches and probably in pretty sharp order, but Alberini doesn’t limit his attention to one tier of customer, a sound idea that others would do well to emulate:

Our customers represent multiple generations that are young, sexy and adventurous at heart. We inspire our customers to express their true selves through the people they relate to, the way they dress, how they spend their free time, the music they enjoy, the places they visit, the activities they engage in. In an essence, we want to inspire them to express their true selves in the way they live their life. We see Millennials and Generation Z customers as our biggest growth opportunity. They love the brand and shop us for street wear and vintage inspired trends, viewing Guess' as accessible luxury. They shop each collection launch and tend to purchase at full price.

Ticking boxes

They also demand what he calls:

an incredible customer experience that includes amazing product inspired by the Guess DNA and lifestyle, speed and flexibility, omni-channel capabilities and data-driven personalized marketing.

OK, so that’s a mission statement that ticks a lot of the right boxes. The trick - yet to be proven by a retailer whose losses continue to rise- is how to turn that into reality.  Alberini talks up investing in tech and data analytics capabilities across functional areas of the firm:

We are already evaluating options to invest in process improvement tools in all of this areas. Regarding functional accountabilities, we are approaching several operational and support areas with a consistent global focus. Some examples of functions with global responsibilities are finance, strategy, IT, logistics, sources and product development, inventory management, human resources and real estate.

When we talk about data analytics, I talk about making sure that we use customer data in the right way to perfect personalized marketing, which is something that we will be working on and we are already doing some testing. There is also a lot that we can do on allocation and fulfillment and we are talking to a company that I used in the past to really optimize how we place inventory and where we place it on how we fulfill. We have opportunity in logistics and distribution. Frankly this is huge, both in North America and in Europe to use data to do a better job in the way we service the business.

He adds:

Customer centricity consists of placing the customer at the center of everything we do, including, perfecting the omni-channel experience. We have strong customer files in the Americas, Europe and Asia that provide a lot of insight into the customer's product purchase history and their behavioral shopping patterns. By leveraging this data, we'll be able to map the customer journey and through predictive analytics be able to personalize marketing effectively and delight the customers by delivering the product and experience that they are looking for… We are also reassessing our current systems and tools to deliver a seamless omni channel shopping experience, and we plan to implement new technology to perfect our capabilities globally.

The CEO also throws  AI and Machine learning into the mix. With those buzzwords ticked off, there’s a suggestion that Guess is going to remain a follower of the latest trends in tech at a time when the basics still need fixing. A lot of what Alberini is talking about is aspirational. He admits:

The tools are not here. I mean, we have some tools. Of course we have planning on allocation systems. But what I'm talking about, it will take some time. But most of [these] applications [will] sit on top of our IT infrastructure. We are not talking about going and implementing SAP here. It’s more about bringing these applications that sit on top of what we already have. So the implementation time is significantly shorter. So we're talking about not just [yet]. I think we're not going to see much of this this year, but definitely next year for sure.

E-commerce sluggish

One thing that does need to be fixed is the e-commerce side of the omni-channel pitch. This is an area where Alberini concedes Guess is a laggard:

E-commerce penetration is still below best-in-class industry standards. While our e-commerce business in all regions is growing at a faster rate than the other channels, our penetration is still below industry standards. Last year, we did roughly 12% of our direct-to-consumer business online. Best-in-class companies are operating at between 30% and 40% penetration. With the right technology and a perfected omni-channel experience, we don't see issues to significantly improve from where we are. And with a bigger business, we see an opportunity for margin expansion in this business as well.

Getting the e-commerce strategy right is going to be critical to help meet ambitions for presence in China, where offline stores are present only in 34 of the 60 biggest cities:

Our e-commerce business can also grow significantly, considering that Guess ranked among the top 50 international brands doing business with Alibaba via Tmall 12/12 last year. You know our team in China specifically has done a great job in growing the CRM database. And we feel that there are opportunities to continue to do that effectively. We have seen also an opportunity with the Tmall and of course we are talking to that team to benefit from those opportunities as well.

It’s interesting to hear a US retailer talking up China prospects as opposed to worrying about the impact of trade war, although this is on Alberini’s mind as well :

We are working very actively on this and we are managing the situation as the best we can - shifting sourcing out of China as fast as we can, sharing impact of tariffs with vendors. We have very strong relationships that go back many many years and in some cases these vendors have some other places where they are doing business, so we are looking into placing the production with them in other places.  We have been trying to really stay ahead of this issue and in many cases the vendors were able to react.

My take

There’s a lot more detail needed about the specifics of Guess’s turnaround strategy and now that Alberini is past the 100 days in situ mark, he’s going to have to set out his priorities a lot more clearly. The ‘we’re going to do lots of stuff with tech, but not just yet’ angle isn’t a winner for me, especially when the e-commerce strategy is so behind-the-times and in need of urgent attention. That said, the emphasis on the store side of the omni-channel mix is a welcome one. The retailer is heading towards its fifth decade in the near future. To get past its 40th birthday, there’s a lot of work still to do.