How True Religion Apparel Has Changed Its Business Model
Have you ever considered buying a pair of jeans for $398 dollars? Chances are that most people will say "no." However there are some, granted the design and fit are right, who will actually purchase those jeans for that kind of dough. At True Religion Apparel (NAS: TRLG) , it is quite common to see such high prices. In fact, in 2010, the average price for a product in its retail store was $170 for women's products and $175 for men's.
The prices have been this high ever since the company was founded in 2002 on the principle of targeting affluent fashion-oriented customers. So to those of you who were hoping that the change in its business model came in lowering prices, I am sorry to say that this is not the case.
Is the company changing its religion?
Based on the name of the company: True Religion, one may think that this company identifies with a particular religion such as Christianity, Judaism, Buddhism, or perhaps far less common such as gnosticism. Instead this company has a totally unique religion coined by the founder and CEO Jeffrey Lubell: "That's people, and we all wear jeans." And that, too, is still the same.
Has the company's image gone for a revamp?
No. It is continuing to stay true to its "Malibu hippie/bohemian chic" image. And so far there are no plans to stray from that.
Then what's changing?
The difference comes in the fact that the company was originally set up as a wholesaler, selling its merchandise to major department stores such as Nordstrom (NYS: JWN) ; Bloomingdales, a brand under Macy's (NYS: M) ; and Saks Fifth Avenue, a subsidiary under Saks (NYS: SAKS) . But over the past few years, that part of the business has been contributing less and less of net sales. Instead, True Religion Apparel is transitioning into focusing more on being a retailer. Look below for more details.
U.S. Retail and E-Commerce
|% of Total Sales||3.92%||69.20%||100%|
U.S. Retail and E-Commerce
|% of Total Sales||51.99%||28.83%||100%|
Note that there are a couple other segments comprising total sales that are not displayed.
As you can see, four years ago retail sales in the U.S. were just a small percentage of total sales, whereas wholesales in the U.S. accounted for the bulk of revenue generated. And as the years went by, retail slowly started to take away market share from the wholesale segment, ending at 52% and 28.8% share of total sales, respectively.
Retail creeps up on wholesale
In December 2005, True Religion opened its very first retail store. By 2007, it had a total of 15 stores open, and by 2010 it had a grand total of 94 stores in the United States alone.
The wholesale segment in the U.S. has had nowhere near the same explosive growth that the retail segment in the U.S. has been posting. In fact, in the last two years, wholesale has been posting declining sales growth. The women's premium denim market has been lagging, and major department stores as a result started shifting their floor space and available money away from this market. Secondly, True Religion has been trying to keep its image as a premium apparel seller. Therefore, it has reduced the amount of clothing it has been selling to off-price retailers that have the ability to sell their clothes for significant discounts.
As a result, from 2006-2010, wholesale segment sales in the U.S. increased by only 7.9% while the retail segment increased by an astounding 3,329%!
Foolish bottom line
By focusing more on the retail segment, True Religion was able to post increasing yearly revenue throughout the financial crisis, while many other apparel companies were actually losing revenue. Therefore, this change in the business model has truly helped True Religion come out of this recession as a winner.
At the time this article was published Fool contributor Igor Meyerson owns no shares of the companies listed. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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