Is There Any Hope For Guess’s Dwindling Market Share?

Specialty apparel retailer, Guess (NYSE:GES), operates 492 retail stores in the U.S. and Canada along with a wholesale channel, that constitutes close to 33% of its value as per our estimates. The retailer is among the well known brands in the country, but it holds less than 0.5% share in the U.S. apparel market, indicating the highly developed and competitive retail landscape of the country. While such a small presence in the market would imply substantial room for improvement, it is surprising that the company has actually lost its share in the market over the past five-six years, despite continued expansion. Guess’s retailing strategies, its online weakness, the poor performance of accessories business and the growth of fast-fashion brands are among the few factors responsible for this market share loss.

Our price estimate for Guess stands at $32, implying a premium of close to 60% to the market price.

See our complete analysis for Guess

Guess’s Market Share Has Been Coming Down

Back in 2009, Guess held a share of 0.55% in the U.S. apparel and accessories market, that stood at $205 billion, according to data complied by the United States Census Bureau. In the subsequent year, the company’s share improved to 0.59%, driven by the launch of 49 new stores and 18% growth in its wholesale revenues. However, Guess’s market share declined slightly to 0.57% in 2011, even though its net North American revenues increased by 4.3%. The main reason behind this was the strong growth in overall apparel and accessories market, that increased from $213 billion in 2010 to $229 billion 2011, and easily outpaced Guess’s revenue growth. In 2012, the company’s share fell further to 0.54% as its retail revenues remained flat, and wholesale revenues increased just 3.7%, while the market grew 5.2%. The U.S. apparel and accessories market growth slowed down to just 3.3% in 2013 on account of a pull back in consumer spending, which was particularly alarming at Guess. The company’s retail revenues fell 3.7%, partially due to store consolidation, and its wholesale revenues were down 7.6%. The retailer’s market share for the year settled at 0.50% and fell to 0.45% at the end of Q3 2014. ^[1]

Guess has been unable to hold even such a small portion of the market due to its retailing strategies and merchandise issues. The near future is not looking too good either, given that the retailer is planning to shut a total of 50 underperforming locations, that will make revenue growth unlikely.

We have estimated Guess’s market share based on its reported North American retail and wholesale revenues. Since the company does not provide any revenue break-up for U.S. and Canada, we have used net revenues from the regions for the purpose of comparison. However, it must be noted that Guess’s market share in the U.S. is actually less than the aforementioned figure.

Why Has The Share Declined?

Guess and its licensee partners operate with six different store concepts: the GUESS? full-price retail stores, the GUESS? factory outlet stores, G by GUESS stores, the GUESS? Accessories stores, the MARCIANO stores and the GUESS? Kids stores. While the company does not differentiate between these concepts while reporting revenues, it has on occasions said that weak performance of its accessories business and full-price stores has been the main reason behind its struggle. These two formats make up over 30% of Guess’s retail store fleet in the country and hence, their weak performance is reflected on the retailer’s overall results. The company’s strategy of operating with full prices in its largest store concept has driven customers to other brands who offer attractive deals and discounts.

Affordable fashion-forward players such as Zara, Forever 21 and H&M have been very successful over the past few years, due to an expansive product range that has resonated very well with price and fashion conscious buyers. They have taken customers away from affordable casual apparel retailers such as Aeropostale (NYSE:ARO) and American Eagle Outfitters (NYSE:AEO), and relatively upscale players such as Guess, by providing a balanced option between the two segments. As a result, these players have somewhat lost their footing in the market.

Moreover, Guess’s weakness in the online space, which is growing at a rapid pace, is also responsible for its market share decline. U.S. buyers in numbers have been switching from store to web shopping, which has propelled online growth and at the same time, resulted in an industry-wide decline in foot traffic. Since Guess earns an insignificant portion of its revenues from online sales, it has lost more due to a decline in foot traffic than it has gained from incremental online sales.

Can It Improve?

Given that the future of retailing in the U.S. is e-commerce, it is unlikely that retailers such as Guess will expand their store networks in the country. In fact, several of them including Guess are actually consolidating their respective networks. In August last year, in an effort to improve its margins, the company announced that it will close 50 of its underperforming stores world-wide within 18 months. Guess shut four such locations in the U.S. in the third quarter, and is likely to close some more going forward and expand at a slower-than-historic pace. Therefore, its revenue growth in the region is extremely difficult, as robust growth in comparable store sales is unlikely given the small size of its online channel.

It is almost evident that the company will have a tough time in improving its market share from the current level. Guess is employing several omni-channel strategies to enhance its store sales by leveraging buyers’ online shopping interest. It is also working hard on its merchandise design and prices to position them in-line with customer preferences. While the retailer’s efforts may eventually help it improve its revenues, fast-fashion retailers and online players will grow at a faster pace in the meantime.

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1. Clothing & Clothing Accessories Stores, The United States Census Bureau [↩]