This story first appeared in the February 8, 2017 issue of WWD. Subscribe Today.
That’s not the way to survive the U.S. retail slump, said Guess Inc. chief executive officer Victor Herrero.
The ceo, who succeeded cofounder Paul Marciano, is confident about the business but respectful of what he calls a structural shift under way in North American retail. For Guess’ brick-and-mortar operations, it’s a question of what to do domestically in a landscape where promotions are king but certainly not the sure-fire ticket to winning anymore.
“Without any doubt, we are in a complete structural change and there will be a consolidation of retailers,” Herrero said, discussing his take on the broader marketplace. “You go to any mall and there is too much product offering. It’s not so much about changing marketing campaigns and such. It’s much more [about being] very consistent. In bad times, people get nervous in the U.S. I think it’s much better not to get nervous and try to be very consistent.”
Consistency for Guess means charting a steady course, knowing that retail is a global business for the company, and that Europe and Asia are helping offset North American challenges.
Guess opened more than 50 stores in Europe during fiscal 2017, ended in January, but it’s not sticking to any one script as to how many more will open there or in Asia in the coming years.
“When I was at my previous company [Inditex Group] people were saying ‘Ah, how many stores’ because I opened more than 1,000 stores in Asia in 10 years,” he said. “But it’s not a question of how many stores. What’s important is opening stores that are going to be profitable from the beginning….How many stores? Unlimited, if I have the profitability — but if I don’t have the profitability, believe me, I won’t open any.”
Closures in North America are likely inevitable but how many is yet to be determined. Company-owned stores globally total more than 900, with licensees and distributors operating more than 700. About 400 stores are in North America, with about half of them in leases either coming due or with a kick-out clause in the next three years.
“It’s giving us a lot of flexibility,” Herrero said of the leases. “The landscape is changing so rapidly… a shopping mall that three years ago was an excellent mall now is worse off. There’s so much change going on in the North American market that you have to react very fast. You cannot say ‘Oh, I’m going to give another chance [to an underperforming store].’ It’s better not to give the chance. You close the store and if the future situation is more, let’s say, predictable, you can start opening stores once again.”
Something that’s perhaps less uncertain is the success of the company’s G by Guess retail concept, which has more recently proven to be a bright spot for the company. Herrero attributes that to the brand’s offering for both men and women. It does well no matter the location, whether in Class A malls or the B or C locations.
It also helps that G by Guess is lower-priced than the company’s namesake collection, but pricing isn’t always the key to winning, Herrero said. Retail’s over-promotional environment in North America has created a new normal, but retailers need to return to brand roots and specialty products that justify higher prices.
Even digital, direct-to-consumer brands are finding difficulty plotting their next moves. “E-commerce in North America — it’s not promotional,” Herrero said. “It’s super-promotional.”
Start-ups that have built brands and businesses as category killers, selling direct, touting that they’ve cut out the retail middleman and thereby offer the cheapest price possible, have had tremendous success, Herrero acknowledged. But they don’t have the product diversity or brand heritage to give them enough of a boost to do well at brick-and-mortar. That’s where Guess and other long-standing brands may have a leg up, he said.
“It’s very convenient for a customer: ‘I want to buy a dress and I don’t know what kind.’ They will go to a category killer that’s only doing dresses or shirts or leggings. That’s my worry,” he said. “Everyone says e-commerce is the future. Yes, it’s the future, but for now, the main problem is that the future here is so promotional. It’s important that you try to be a destination for something. You can be a destination for a white cotton T-shirt. You can be a destination for leggings, or whatever you are. We want to be a destination for trendy items with this DNA that is sexy, independent and adventurous.”