Fashion Briefing: Gap’s sale of Intermix spotlights increasing competition for luxury shoppers

On Tuesday, multi-brand luxury retailer Intermix announced that private equity firm Altamont Capital Partners had entered an agreement with Gap Inc. to purchase Intermix for an undisclosed sum. Gap has been vocal about its focus on its billion-dollar brands since selling off its proprietary Intermix competitor Piperlime in 2015. At the time, Piperlime was pulling in less than $100 million in annual revenue, which was less than 1% of Gap Inc.’s total revenue. In 2020, 28-year-old Intermix, which Gap acquired in early 2012 for $130 million, reportedly also accounted for less than 1% of Gap Inc.’s total revenue.

Gap Inc. declined to speak about the sale via an interview, but a spokesperson for the company’s specialty brands said that it’s part of Gap Inc.’s “Power Plan 2023,” announced in October. The 3-year strategic growth plan aims to achieve consistent “sales growth, margin expansion and strong operating cash flow” by leveraging the distinct strengths of Old Navy, Gap, Banana Republic and Athleta. “We’re focused on growing our purpose-led, billion-dollar lifestyle brands,” the spokesperson stated in an email. In April, Gap Inc. also sold children’s apparel company Janie and Jack to Go Global Retail. It acquired the company for $35 million in 2019.

More brands are gravitating to the direct-to-consumer model, in the name of gaining control — of their presence, production schedule and customer — and also increasing their margins. And it’s clear that Gap Inc. is on the same page, in terms of wanting to eliminate third parties. In its annual reports, it routinely calls out Intermix as a blip within its business model: “With the exception of Intermix, virtually all aspects of brand development, from product design and distribution to marketing, merchandising and shopping environments, are controlled by Gap Inc. employees.” It also then clarifies that the design of Intermix’s third-party products is out of Gap’s hands.

Intermix’s focus has long been going-out clothes by emerging and established designers, including Jonathan Simkhai. Ulla Johnson and Nanushka. However, it did expand its offerings to more casual styles including activewear during the pandemic. One-third of its products are exclusive to the company, and those designs are based on its buyers’ feedback to designers on what’s selling. It offers personalized service via stylists online and through its 31 stores. 

As for Altamont Capital Partners, it aims to link with and grow middle-market companies undergoing a transition. It has $2.5 billion of assets under management, and its consumer portfolio companies include action sports apparel brands Billabong and Huf.

Altamont Capital’s entrepreneurial team culture makes it a good fit for Intermix, said Jyothi Rao, the retailer’s CEO who joined as president in 2014. “We can [now] accelerate growth and take meaningful leaps in our strategic roadmap, versus small incremental steps,” she said. 

Intermix’s goal is to establish itself as “the premier omni-channel retailer” for women seeking a highly curated and personalized experience, said Rao, who will stay on as CEO. “We now have an opportunity to acquire more customers and establish a best-in-class customer experience, as well as omni-channel capabilities.” 

Competition for luxury customers has been heating up. That’s especially since the start of 2020, amid the mass pivot to online shopping and the retail marketplace boom. Brands seem to have scrapped the notion that casting a wide net leads to brand dilution. Oscar de la Renta, for one, is now selling everywhere from The Yes to Instagram’s Shop to Amazon via Luxury Stores. As retailers like to tell it, the one that best personalizes customers’ shopping experience — most often using AI, in collaboration with a human touch — wins the day. However, those that can spend the most on digital advertising have a clear leg up, when it comes to acquisition alone.  

Keoni Schwartz, managing director of Altamont Capital Partners, called Intermix’s U.S. focus is its competitive advantage. “A lot of multi-brand retailers are trying to move into the American space, but Intermix already has strong footing in the American multi-brand retail landscape and understands the American consumer,” he said. “There is market share to grab out there as other retailers struggle, and we believe we can set up Intermix to take a leadership position and shape the future of multi-brand retail.”

But multi-brand retailers have continued to close up shop since early 2020 including Need Supply, Opening Ceremony and Kinfolk.

“We came into the pandemic with tremendous momentum; stores were positive comping, e-commerce [sales] were growing at 35% [per year] and our customer [base] was growing by a double-digit [percentage],” said Rao. “So 2020 was certainly a setback.”

However, she said business is now back to pre-pandemic levels. She owed that to Intermix’s “omni” inventory structure, which has allowed it to shift products between its nationwide stores based on demand from both online and in-store shoppers. She also credited the fact that its customers are largely locals versus tourists.    

Intermix has successfully changed with the industry tides before. When Gap scooped it up in 2012, it was one in a group of buzzy multi-brand physical retailers that were specializing in contemporary and high fashion and focused on brick-and-mortar. That group also included Scoop, which launched in 1996 and didn’t launch e-commerce until 2010, and Kitson, launched in 2000. Digital-native competitors including Shopbop and Revolve were taking market share at a rapid clip. Scoop closed its doors in 2016, though it’s since reemerged as a Walmart brand. And Kitson closed in 2015, though it’s since reopened. 

Intermix has no plans to turn its back on brick-and-mortar entirely, but it will streamline its footprint and prioritize digital. “We believe the right formula is to have an enviable collection of boutiques that are incredibly productive and profitable and integrated with a much larger e-commerce business,” said Rao. “Omnichannel is what the customer is looking for.”  

In the shift to ACP’s hands, Rao said that the Intermix team will stay intact and that its structure will not change. “We have adequate transition support from Gap Inc. that will allow us time to ensure a smooth transfer to being a standalone independent company,” said Rao. “We don’t anticipate any disruption to our business.”

While speaking at a Glossy event in October 2019, Rao spoke about the perks of Intermix being under the Gap Inc. umbrella. “They help pay our bills!” she said. “[They’ve] allowed us to do many things, because we’re able to integrate a lot of the functions they’re so great at — they have an incredible real estate team and legal team. In addition, we also get a lot of benefits in terms [things like] media purchasing, because of their scale and their rates. For a mid-size company like ours, it’s super-helpful to have a parent company of that size.” 

Intermix has long considered offering exclusive designer products to be one of its key differentiators, but competitors including Elyse Walker are starting to downplay that popular wholesale strategy. The pivot is in sync with rising consumer interest in products that are even more exclusive, like ultra-limited-edition streetwear styles and hard-to-find vintage items. Revolve has been ahead of the curve — rather than rely on designers for special items, it’s launched its own portfolio of brands, fueling their popularity through its influencer network and activations. Owning the brands you sell is just smart business, as Gap would agree.

Though exclusives will continue to be an important part of Intermix’s strategy, the company is now working to build out its own brand, Intermix Collection, Rao said. It’s actively enlisting BIPOC designers to develop fabrics and designs for the label. 

What in-store technology have customers come to expect?

Retail strategy and design firm The Lionesque Group, an MG2 Company, just released a research report on consumers’ use of in-store technology. The research was based on a survey of 650 U.S. consumers. Below, Melissa Gonzalez, CEO of The Lionesque Group and principal at MG2, breaks down the results.

The key stats:

• 39% of consumers prioritize technology that helps them find the best deal.
• Consumers see 3X more value from deeper product knowledge than product recommendations.
• 68% of consumers are more likely to interact with personalized messaging. 
• 2/3 of consumers are comfortable with technology in the fitting room.

When it comes to in-store tech, are retailers too focused on enabling convenience vs. saving customers money?
Convenience is still one of the top areas of customer gratification. However, if they want to drive loyalty, they could lean more into creating programs that provide incentives and rewards to consumers, especially female shoppers. According to our survey data, men value saving time and money at comparable rates (31% and 32%, respectively), while women value saving money, at a significantly higher 48%. 

What’s key to offering a personalized experience in-store?
Knowing your customer. Personalization isn’t a persona-based approach. As a brand, you need to have insights into your customer’s past purchases, browsing history, sizing data, and current needs and wants. [You should be] doing purposeful targeting, equipping store associates with effective clienteling tools and integrating consumer-facing technologies that allow customers to choose a journey suited to them. Think: lift-and-learn technology like Perch. It begins the [customer] interaction with a short survey, then follows up with curated selections and recommendations, which makes for a customized, more personal shopping experience.

How should brands be catering to fashion shoppers, specifically, via in-store tech investments?
For fashion, especially for men, fit is a key element. If they find their fit, they will stay loyal to a brand and, usually, we see them purchasing more per transaction when they have that confidence. Women care about fit, but want more selection and variety in their wardrobe — one can not have the same outfit in too many social media posts! So after finding the perfect fit — which is a top pain point for men and women — they want product recommendations for complementary pieces to complete the look or to ensure variety in their looks. That said, women shoppers are getting more sustainably conscious, so having a seamless circular fashion program, like those powered by technology such as Trove, are in-store investments we are seeing brands consider more and more.

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