Top 10 Most Profitable Retailers, 2015
Revenue is great. Stock performance is a bonus. But profit is king. Retailers are in business to make money and there is no greater indicator of financial success then profit margin.
Apparel Magazine's annual Top 50 ranks the 50 apparel brands with the highest overall profit margin. The good news for apparel retailers is the average profit margin for the first 10 retailers to make the list increased to 11.37% in 2015, up from 10.68% last year. Interestingly, last year's highest profit margin among retailers was claimed by lululemon with a 17.57% score, which bests this year's top retailer The Buckle (14.10%) by over three percentage points.
The Buckle. The Buckle is steady — it has remained in the Top 5 since it debuted on this ranking in 2009. It is enjoying 13 consecutive years of sales growth, which it attributes, year after year, to the talent, dedication and longevity of its teammates, and their commitment to create the most enjoyable shopping experience possible. The company continues to expand, opening 16 new stores, completing 18 full remodels and closing six stores, ending the 2014 with 460 stores in 44 states. Profit Margin: 14.10%.
Kate Spade. The company has knocked it out of the park since rebranding last year from Fifth & Pacific (as it completed the divestitures of Juicy Couture and Lucky Brand), moving closer to its $4 billion at retail goal. Continuing to hone its strategy, in January it announced plans to close its lower cost Kate Spade Saturday stores and Jack Spade men’s stores to focus efforts on expanding its core brand in the four categories of women’s, men’s, children’s and home, which, along with a reduction in the number of outlet stores it plans to open, should help to avoid the loss of cachet and overexposure that has taken a toll on luxury brands such as Michael Kors and Coach. Profit Margin: 13.98%.
lululemon athletica. In the fourth quarter, Ivivva — lululemon’s girls’ yoga wear brand — saw comp store sales jump 51% over the same period the previous year. The retailer's men’s wear is also on the rise, driven by its Sweat line, with sales up 13% in Q4. The company launched a mobile shopping app, which achieved more than 367,000 downloads in 2014 and an activation rate of 76%, representing approximately 8% of online sales in Q4. It also began processing sales in store from its online inventory. A third DC that opened in Columbus, Ohio extends distribution capacity for Europe and cuts shipping times to the Eastern U.S. by half. Profit Margin: 13.30%.
Christopher & Banks. The retailer climbed 39 positions in the annual ranking, despite a challenging retail environment of soft traffic and continued pressure on apparel discretionary spending. Even so, 52 of the company’s 518 stores reached or exceeded net sales of $1 million (vs. four in 2011). Continuing to roll out its new missy-petite-women (MPW) store concept through openings and conversions, the retailer ended 2014 with 50% of stores in the new format, a strategy it tested in response to customer surveys that revealed that nearly 30% of its customers shopped both brands. By combining all sizes 4 to 24 and CJ Banks and Christopher & Banks brands in one shopping location (and all websites into a single e-commerce site) customers can find everything they need in one place. Profit Margin:11.25%.
Nike. For the fourth year in a row, North America revenues grew at a double-digit pace — increasing by more than $4.5 billion to surpass $12 billion in FY14 — and profitability in the region also hit record highs. The athletic apparel manufacturer and retailer continues to innovate across product and business, growing a connected community of athletes globally via its digital ecosystem, which in Q3 FY15 included expanded links between experience and commerce, such as its new NIKE SNKRS app, introduced during the NBA All-Star game in New York, which allowed consumers to see, share and buy footwear on their mobile devices. Growth at Nike.com was up 42% for the same quarter, and the company expects to drive growth in this business in part by increasing consumer access to product customization. Profit Margin: 9.69%.
Polo Ralph Lauren. The company grew market share in a competitive retail environment, which it attributes not only to product but to steady investment in shop environments and marketing that express the distinction of its brands. Ralph Lauren is changing its internal infrastructure, shifting from a more decentralized regional and channel structure to a centralized global brand management model, bringing disparate functions of design, merchandising, planning, creative and marketing into six dedicated brand groups, each run by a brand president. In 2016, the company plans to open approximately 40 to 50 directly operated stores globally, while the global launch of Polo Sport in fall 2015 will take the company deeper into the swiftly growing active wear segment of the marketplace. Profit Margin: 9.21%.
L Brands. The company is doubling down on its core businesses, exiting non-core apparel and makeup to focus on core and shared product offerings. At flagship Victoria’s Secret, which controls 35% of the lingerie market, and where sales were up 5% to $7.2 billion, the company is responding to the swiftly changing demands of the consumer with speed initiatives focused on shortening front-end product development, but the company also saves time by shipping via air, which this year allowed it to completely bypass the challenges posed by the West Coast port strikes. Profit Margin: 9.10%.
Francesca’s. The retailer continued its rapid growth, finishing 2014 with 539 stores, up from 451 the prior year, as it marches toward its goal of 900 over the next five to six years. Francesca’s boutique-style stores — each offering approximately 3,000 items — keep customers coming back frequently by providing new merchandise five days a week across a merchandise mix that is 50% apparel, with the balance spread amongst jewelry, accessories and gift categories. The company is in the early stages of its digital development, with direct-to-consumer sales growing at double-digit rates in 2014 but still representing less than 4% of net sales. Profit Margin: 8.50%.
Ross Stores. The off-price retailer opened 86 net new locations: 64 Ross Dress for Less and 22 dd’s DISCOUNTS, ending 2014 with 1,362 stores in 33 states, DC and Guam. It plans to open approximately 70 Ross and 20 dd’s stores this year, as it moves toward its goal of at least 2,000 Ross and 500 dd’s locations. Both chains this year delivered fast new product while operating on lower inventory levels. In 2014 the company invested $210 million to acquire its New York Buying Office building, and this year it will complete another new DC. Profit Margin: 8.37%.
Gap. The biggest brand growth is expected to come through Old Navy, which has been getting product right, even as Gap and Banana Republic have had off-trend missteps. Old Navy turned in positive comp sales results during each quarter in 2014, including an 11% increase during the fourth quarter, which CEO Art Peck attributes to consistently on-trend product and improved supply chain initiatives. In 2015, new leadership at both Gap and Banana Republic will be looking to replicate the successes of Old Navy, where men’s, kids and baby as well as women’s have been firing on all cylinders. In working to bridge the digital and physical shopping experiences for customers, the company has added programs including Order in Store and Reserve in Store. Profit Margin: 7.68%.