Marcella Wartenbergh, CEO of Pepe Jeans owner AWWG: ‘In the face of AI, humans must continue to provide emotion’

The face of the fashion industry continues to change, and with it come new challenges that put to test the well-established systems already at play. It is these imminent obstacles that FashionUnited spoke to Marcella Wartenbergh about. The CEO of the Spanish-based multinational, All We Wear Group (AWWG), took up the helm position in 2019, and set about on a mission to enhance sales and bolster the growth in new markets.

The group currently operates as the parent company of fashion and lifestyle brands Pepe Jeans London, Hackett, and Façonnable, as well as the distributor for Spain and Portugal of the American brands Calvin Klein and Tommy Hilfiger from PVH Corp, where Wartenbergh has previously held a series of senior management positions.

In an interview with FashionUnited Spain, Wartenbergh speaks on the current and future events at AWWG, from fiscal outlooks and strategies of its portfolio to what the fashion industry as a whole should anticipate from ongoing developments during 2024 and 2025.

What are your projections for closing your latest fiscal year of 2023/24?

Continuing the trend we've experienced following our five-year strategic plan, which has served us very well at a group level, we expect to close our last fiscal year, this 31 of March 2024, with sales around 655 million euros (708 million dollars), and with 70 million euros (76 million dollars) in EBITDA. Indicators that will see the company closing the year with double-digit growth compared to a year ago.

How have periods like Black Friday and Christmas bolstered these results? Are these events becoming more or less decisive for AWWG?

Black Friday is becoming a greater challenge each year, not just for AWWG but for the entire industry. We've moved from just one day to two, three, or four days of discounts, to a week or even 10 days. For us last year, I think our discount strategy was quite intelligent, designed and implemented with the consumer in mind, but also considering the value of the product and the brand. The results we gathered weren't excessively above our forecasts, but we did manage to stay at the higher end of them, with growth of between 3 to 4 percent over last year's sales volume.

And what about Christmas?

During Christmas, we saw even greater growth and better consumer behaviour, especially around the Hackett and Pepe Jeans brands, which translated into a sales increase of around more than 10 percent compared to the year prior. But this growth was supported by consumer interest, not only towards discounted products but towards new collections. This indicates that our new full price offerings for the coming season are capable of capturing public interest from December, which also helps us not only to consolidate results but to advance in our strategy to induce a change in consumer behaviour, valuing the brand and product.

What challenges would you say you've had to face as a group, especially over these last few months?

Without moving much from these dates, the biggest challenge we are facing, which was particularly evident during November to December of last year, is the climate. At the start of the autumn/winter 2023/24 campaign, it was too warm, leading us to have an excess inventory of winter and outerwear garments that didn't sell even with discounts, because people didn't feel like buying those items. It wasn't until these first weeks of 2024, when it started to be terribly cold in Northern Europe, that people began to take out coats, and buy new ones; but by then, they were already discounted.

What solution do you envision for tackling this issue?

I believe that climate change is the biggest challenge the industry faces. This is a matter I've discussed with many of my colleagues in the sector, questioning when the time will finally come to change the calendar to align brand and consumer schedules. Perhaps we should launch jackets in stores around December/January instead of having them sit unsold from September. The same goes for summer collections, with linen garments arriving in stores around February - who wants to wear linen in February? It's effects like these, stemming from climate change, that undoubtedly present the biggest challenges to the sector. It will be interesting to see exactly how and what measures are agreed upon to address them.

Starting with Pepe Jeans, what has the brand’s financial performance been like throughout the 2023/24 financial year?

The distinction you make about the company's performance is interesting because, as you rightly point out, each brand behaves very differently, which in turn enriches AWWG's portfolio. As for Pepe Jeans, its performance has been perhaps the most moderate of all, with growth for this year expected to be around 8 percent. It's important to note that this growth has occurred in the midst of the ‘Pepe Evolution’ strategic plan we are implementing within the brand, coinciding with the 50th anniversary of its founding.

We are endeavouring to evolve the brand to gain and grow amongst what we call the "old years" demographic, those consumers aged between 28 and 38. This is an age group where we observe a fashion consumer who already has life experience, is very loyal to brands, has a very good purchasing behaviour, and likes fashion, but above all, likes to wear good fashion. Pepe is responding well and creating very good connections with this audience, as we started to see with the first changes introduced in the brand at the start of the autumn 2023/24 campaign.

To what extent are you starting to see these changes?

In terms of product, for example, we've seen significant double-digit growth in footwear, especially in the collections of trainers and boots. Beyond the success of the products, this is helping us create the ‘total look’ for the brand we're aiming for. Also, with all this and the new actions implemented, we've seen a significant increase in all men's proposals. Today, I can say the brand is now evenly supported 50/50 by men and women. This is not at all common in the fashion world, where brands typically have a greater weighting towards either men or women.

How will you continue to advance Pepe Jeans' market repositioning?

This spring, we're scheduled to take the next step in the ‘Pepe Evolution’ strategy, focusing on consolidating the brand as a reference in denim fashion, and also on advancing the group's objective of accelerating not just discount purchases, but full-price purchases.

In comparison, how has Hackett's performance been?

Hackett is on fire, with double-digit growth rates of between 20 to 30 percent, and stores where we're registering sales above that 30 percent, year-on-year. The indicators are very strong and positive especially in the UK, Spain, and we're also seeing a high growth rate in Germany and France. We estimate that we will continue to grow at very high levels in the future, while accelerating the expansion of the brand, especially in the Middle East and India.

What would you say are the main drivers fuelling this growth at Hackett?

Unlike Pepe, at Hackett we are facing a brand that is aimed at a more mature customer, between 40 and 50 years old, who is looking for fashion but is especially seeking quality. With this in mind, we have concentrated on quality, and on enhancing its nature as a high profile brand. During Covid, and with all the changes in consumer behaviour it brought, we rejuvenated the brand and managed to lower the average age of our audience; a refreshment that was undoubtedly needed, which we continued a year ago by changing the firm's logo.

Since then, men have returned to what we call a "smart casual" style, demanding garments for a wardrobe that can go from very casual to adopting a "new business" style; Hackett's collections are designed precisely for this versatility. This has helped us maintain very good performance, at a time when, after the end of the pandemic, everyone wants a jumper, a pair of chinos, a blazer again... and we as a brand have been able to adapt in time to this demand.

It seems to be a great performance, undoubtedly, but perhaps especially surprising given the context we find ourselves in, correct?

I also have to acknowledge that the ‘high premium’ sector has been one of the least affected by the drop in demand, for two reasons. Firstly, because the luxury consumer can afford these brands; and secondly, because the consumer who was accustomed to buying these items has not suffered the effects of inflation as much as the middle-class consumer has.

And what about Façonnable? How has the firm been performing over this last financial year?

Façonnable's performance has also been a success, partly because it occupies practically the same market position as Hackett. We're talking about a brand likewise aimed at a demographic between 40 and 50 years old, seeking quality, who may recall the brand's origins as a French fashion house, a memory to which we have also responded by giving the firm the refreshment it needed. In terms of products, we have focused on investing in jumpers, polos, and shirt-wear — which have a high turnover— and overall in simple, yet well-crafted products of very good quality.

These items make up an offer that is completely opposite to that of Hackett, inviting you to think of a very relaxed atmosphere, and dressing in a "chic French" style. In terms of markets, we are focusing on expanding the brand mainly in France, Belgium, Portugal, and Spain; countries where we have been opening a new store every month, or every two months, are registering very good performances, hence we are now starting to expand into new markets such as Mexico and other key countries in Latin America and the Middle East. As you can see, each of the three brands has a very determined strategy, for a very specific brand and consumer profile, and that's why we maintain them so independently.

From here, we come to Tommy Hilfiger and Calvin Klein, the two major PVH brands for which you are the strategic partner for Spain and Portugal.

With both, we continue to maintain a growth strategy, which we greatly support from both sides. I always say that our relationship with the Tommy and Calvin teams is not limited to selling and invoicing, but we actually act as the "brand management" for the brands, for Spain and Portugal.

How far do your responsibilities with both brands extend?

We are like a local extension of their teams, from which we take care of everything from managing sales and points of sale to selecting the products that will be marketed in Spain and Portugal based on the direction of both brands. Although it is they who indicate, for example, marketing strategies, who decide how the store windows should look, or give the final authorisation for the opening or closing of a certain point of sale, decisions that we implement, we always work very closely with both parties.

How has AWWG responded to the tensions arising from the war between Russia and Ukraine? Has this affected the company's regular performance?

Our exposure in these markets was already minimal before the war, so its effects have been significantly mitigated within the company. As for our strategy to deal with its effects, we have decided to maintain the group in a ‘neutral’ position regarding our operations, but indeed halting any expansion plans in the region.

In Ukraine, where we already had a small distributor, we have continued, and continue, to make shipments, as well as to Poland and the rest of the Eastern European countries where we were already operating. The same in Russia, where we continue our operations at the same level, because our exposure in this market is really minimal. For example, Hackett did not exist in Russia before the war, and continues not to be sold in Russia, a country where we did have expansion plans before the war, for which we had already approached and opened discussions with some distributors; all plans that we stopped immediately as we are no longer looking to expand.

As for the inflationary tensions as a consequence of this war, how have they affected AWWG at the group level?

The war itself has not greatly affected our operations due to our low exposure, but we have sincerely been more affected by all that inflation generated as a consequence, especially during the initial stage of the war, with the skyrocketing costs in electricity and gas. Fortunately, this sharp increase in costs has been brought under control over time, but its effects, including the recession in consumption that is reaching Europe, I believe are what will continue to affect not only our business but the entire industry in Europe.

Are you already seeing signs of this loss of purchasing power from consumers in regards to inflation?

The consumer has lost purchasing power due to the rise in costs as a result of inflation, which, moreover, continues to affect industries, including the fashion industry. Because inflation and the increase in the CPI have affected us all, and everything, from the increase in expenditure we have to face in terms of personnel, to the electricity bills of the stores, the price of rents, the cost of office paper…

How has AWWG addressed this generalised increase in operational costs?

What we have done at AWWG is to launch a series of very ambitious and energetic initiatives, aimed at trying to absorb as a company a good part of the increase in those costs, instead of attempting to pass all that burden onto the consumer. Something we have done because we believe it was what we had to do as a company, and we have done it through a cost reduction process carried out, on one hand, by a determined strategy in product engineering; on another hand, investing in what I call a "smartification" of our processes; and thirdly, working even more closely with our customers.

How does this commitment to implementing new ‘product engineering’ translate?

This is a process that we have sought to carry to all our design departments, especially those of product design, where we have invested a lot of time in knowing how to make the same product we were making, and new ones, but saving costs. To this end, we have allocated resources to understand how patterns should be designed and cut to save fabrics and processes, how to optimise the use of fabrics, or how to continue consolidating our commercial relationships with suppliers, but producing.

For example, in seasons where factories have the capacity to offer better costs. In short, strategies in product engineering and product production, with which we have been able to mitigate many of the effects of that inflation and that increase in costs that we have been experiencing throughout this last year, instead of simply resorting to raising our consumer sale prices.

And as for the ‘smartification’ of your processes?

What has been sought under this label is to identify measures and see how digitisation and a better and more optimal stratification of our processes can ultimately contribute to improving the company's results, so that not everything ends up being reflected in the final price of the products. How? By trying, for example, to be much more efficient in stock management, to improve the shipments we send to customers, or to work better and with better planning with logistics companies.

You pointed to a closer working relationship with your customers, but to what end? Is it to serve them the products more efficiently?

Yes, not just through the optimisation of shipments, but also by working with them to ensure we are offering them the best product at the best price. This does not mean offering them the cheapest price, but products with the best price that the customer is willing to pay for that item. A strategy that aligns with what I have always defended, which is that if a Hackett blazer is going to cost ‘X’ price, that blazer has to have the best fabric, the best fit, the best quality, the best service, and the best market price for a product of those characteristics.

Are the added tensions in the Middle East and the transport route through the Red Sea affecting the normal behaviour of the company?

Yes, the problems occurring in the Red Sea affect the entire industry, and naturally us as well. To tackle them, in our case, having productions in India, Bangladesh, and other Asian countries, we are looking for alternative routes, for which we have already had several meetings, and we are also working hand in hand with the retail departments of our clients, especially those that are our ‘key accounts’, such as El Corte Inglés or Galeries Lafayette.

And for your customers, what kind of solutions are you considering adopting?

In the face of blockades in the Red Sea, the main consideration is alternative routes, but these require more time, so one way or another, we start from the basis that products will arrive with a 15-day delay over the usual time. Here the point is, accounting for those 15-20 days of base delay, to see how we can be more efficient, for our own operations and for our customers. As a solution, what we are doing is, working very closely with those same customers, as well as with the managers of the sales points, trying to ensure that the stores are always well stocked and have everything they need.

For that, we are prioritising the shipments of certain items over others, which we consider can arrive 15 days later without issue, at the time of closing shipments. We are also sending a small part of the orders by train and by air transport. But this is a temporary solution because we cannot, nor do we want to, send everything by plane. Not only because of the increased costs involved but also because of the large CO2 emissions these air shipments entail. For all these reasons, I say that the decisions taken must be intelligent solutions, because there have also been occasions when we have sent a lot of products, and not everything ends up selling within the expected timeframe.

Are there any other challenges the fashion industry as a whole is facing?

No, currently I would say that these are the three main causes that will affect the industry, also obviously because they are the ones currently occurring. Regarding the Middle East, I would only point out the incidents in the Red Sea, because, for example in our case, having business in all the countries in the area, in Israel, Jordan, Lebanon..., to this day, we have seen no interruption of our business.

As a consequence of tensions in the Red Sea, I believe there will also be two important issues that will affect the fashion industry. The first is that in 2024 there will be a stabilisation of prices, with inflation being much lower after, I believe, it has already reached its peak; and the second issue is that, as I pointed out, there will be a cooling of demand, as a consequence of the drop in consumers' purchasing power.

How would you thus sketch the profile of the 2024 fashion consumer?

In 2024, we will have a very cautious customer, who, given the uncertainty of what is to come, will take many precautions before proceeding with spending. Therefore, it will be a consumer who is already showing a greater study of what they want to buy, when they want to buy it, and concerning when they want to buy it. This profile is what will lead to a year of smart sales, rather than emotional sales.

What are the specific challenges you from AWWG, at a group level, will have to face?

I don't believe our challenges are very different from those faced by many other companies in the industry. In this respect, we all agree and have a series of three factors to consider and focus on, which are new marketing strategies, digitalisation challenges, and people. Alongside these three factors, at least in our case, naturally, the brand and the product, which are the living heart of the company. But a heart cannot be without a body, which is the people; people who need digitalisation, who need marketing to make that organism work.

To what extent do you see each of these strategic hurdles posing a challenge for the industry?

Starting with marketing, in recent years what has happened is that there has been a huge cost increase in marketing, especially in digital marketing, relating to the increase in assets that companies have to allocate to this area, compared to the costs of five or eight years ago. Today, the business in the online channel and in e-commerce is not made up of just one photograph.

There are several photographs, more videos, more resources for the newsletter, more investments in YouTube, TikTok, Instagram, Facebook... and to that add the price inflation that has also occurred from Google and Meta services. Cost increases that you must assume if you want to be a global brand.

And when it comes to digitalisation?

In the past, many companies were very analogue, everything could be done with Excel, everything could be approached from a report... but that has ended. Today, companies require a stratification of their processes, of their way of operating, and for this, investment in digitalisation and digital renewal is necessary. I am not referring to e-commerce only, but to the digitalisation of internal processes and the implementation of all those programmes and systems that a company like ours requires to function.

Today the industry demands us to stay in constant, accelerated renewal. Every year we have to rethink how to improve, what new system to implement, what new way of doing things we can adopt... and all at a much faster pace than in the past. The industry itself demands that we be up to date, and that requires, not only maintaining those investments in systems but also being able to count on people trained to implement them as required.

When you point to people as the third challenge for the industry, were you referring to this?

Yes, not only for these investments but also investments in offices, in introducing new remote working modalities, in ensuring good vacation periods. In short, investing in making people happy to come to work. I face these three major areas more, as you point out, as challenges, because ultimately the increase in marketing costs is to keep in touch with our audience. And we must learn to do it in a smart way.

Digitalisation is where the world is heading, and we must know to stay on that path; and the investments in our people, for which in our case we have invested many resources to ensure they can have the perfect balance between life and work, are a capital issue, because people are always the most important asset of any industry, and any company.

Looking ahead to 2024/25, do you see the trend of fewer impulse purchases translating into more full-price sales?

That is the goal, following also the strategy we began when I took over management more than four years ago; a strategy aimed at improving the ratios of full-price sales each year. I have always thought that this is the end goal, and what needs to be done is to definitively change the approach and move to a sustained offer at full price. This is something I believe we can achieve precisely through these ‘intelligent sales’, from which we need to start educating the consumer about the values of the product, and what the brand stands for. It is precisely towards this that our marketing strategies are aimed at, educating the consumer that the product is worth what it costs, and why it is worth it.

In recent years, we have launched major sustainability projects and initiatives, and this is something we need to communicate to consumers. If our jeans are priced at 89 euros, it is because they offer the quality that best matches that price, they are made from more sustainable cotton, they do not contain chemicals, and we offer the best fit.

The same goes for a Façonnable shirt, for which we need to educate consumers so they understand that if they are paying 130 euros for a shirt, it is for the design, the fabric, the cut, the colour, perhaps even because the shirt does not need to be ironed... and yes, it's also for the marketing and for carrying a brand that makes you feel good. All these are values and qualities we need to educate the consumer about.

How does this align with the new rise and ‘golden age’ of fast fashion depicted by results like those of Inditex or the digital platforms like Shein or Temu?

I believe that fast fashion will continue to exist and be a part of everyone's wardrobe, but brands know how to offer the consumer something different. We offer them the pride of purchasing the product of the brand they like, a brand with which they identify emotionally, either because of the values it conveys or because of all those product qualities I mentioned; hence why we invest so much in highlighting the features of our products.

None of this is incompatible with the existence of fast fashion, which continues to provide the consumer with another purchasing option to continue shaping a wardrobe that has become very democratic, where brands from fast fashion to "premium" and super-luxury coexist. In that mix, I believe, lies the interest of today's fashion, and of course we want to be a part of it.

What strategies and forecasts do you maintain for each of your main brands in the portfolio for the coming period?

All our brands we estimate will continue to maintain a growth rate during our next fiscal year, with particularly outstanding performance from Façonnable, for which we foresee double-digit growth and will continue to pursue an aggressive expansion strategy with the opening of about a new point of sale per month. Hackett, on the other hand, will maintain more moderate growth, which will be supported both by its performance in already consolidated markets, such as Spain, Portugal, and France.

The brand has an equally aggressive expansion plan, which focuses primarily on the Middle East, India, Latin America, and Eastern Europe, a region where we will also continue with our expansion plan in markets such as Germany. Meanwhile, Pepe will maintain a lesser growth, estimated at a single digit, compared to the double digits of Hackett and Façonnable.

Is the Pepe Jeans US launch planned for this year?

When it comes to the expansion into the US, I've already had several discussions with people there, and we are currently evaluating and searching for the best model to introduce Pepe into this new market, which we find to be quite interesting, especially for a British brand like Pepe Jeans. At this moment, we are holding various discussions, so I discard the idea that the firm's entry into the US will happen in the short-term. It would more likely point towards a medium-term period.

We cannot finish without discussing how you perceive two major issues that are defining the present and future of the industry: sustainability and artificial intelligence (AI). Firstly, how are you advancing in sustainability at AWWG?

It's been two years since we officially created our CSR team, who have been focusing their work around four key pillars; product, people, partners, and places; what we call our four ‘P’s’. It is from this strategy, and specifically from the product aspect, that we have launched and initiated up to three strong initiatives to grow in sustainable products, which have allowed us to make significant progress in sustainability, directly linked to the product itself.

Today we can say that 92 percent of all Pepe jeans are more sustainable, whether it's due to the cotton we use, the dyes, the processes, or the threads. Among these fibres, for instance, we've also begun to make greater use of materials like recycled polyester, or sustainable cotton which, for shirts, now represents 95 percent of all the cotton we use, not just in Pepe, but across the entire company.

With the measures being adopted by the European Union to combat "greenwashing" is the upcoming Digital Product Passport (DPP) that various companies are starting to implement even before its final approval.

In our case, we have made significant progress, in collaboration and thanks to the factories we work with, which not only have extensive experience in what they do but are also meeting all the requirements we are demanding of them, for example, in terms of worker treatment or CO2 emission levels. With these advancements as a starting point, we have begun to implement, and in fact, have already launched internally, our own European traceability passport project; a project for which we have formed a specific team making great strides in developing the initiative.

To what extent do you believe generative AI is revolutionising the fashion industry, and how are you confronting and implementing it at AWWG?

I confess to being a huge fan of AI because I truly believe that AI can become your assistant, your translator, or help you, within fashion, to explain many things and to save a significant amount of resources and time. At AWWG, we are making extensive use of it in creating mood boards, to see how they could look for marketing campaigns, product ideas, or even new store concepts. It's a tool we use in the "pre-" phases, which serves to clarify and explain concepts and ideas, because not everyone has the imagination required to see or visualise certain things.

We are also making extensive use of AI for text writing, not so much for official statements, but rather generating the basis of certain text from HR, for press releases, etc. It's also proving to be a great help with customer service, not to replace personalised assistance, but to maintain initial contact with the customer, posing the first three or four routine questions, such as "which order are you referring to", "what is your tracking number", etc.

As you can see, we already have several initiatives underway, plus others we are already testing, but always with the viewpoint of not leaving everything in the hands of AI. Only incorporating those measures that can make our work easier; because blind implementation of AI can also lead to creating confusion and more complications in certain processes.

Beyond mood boards, has AWWG used AI to begin generating its first AI-made designs, as some other companies have done?

No. We have conducted small experiments, but they have not gone beyond that; certainly not to the point of being able to say "this collection" or "this design" has been created with AI.

What do you think about the industry promoting ads like these; especially considering the criticism that AI could be used to undercut creative jobs and accelerate production rhythms?

Undoubtedly, AI is a tool that speeds up processes, and above all, it can save you a tremendous amount of time doing many repetitive tasks. Having said that, I believe the emotional part of the industry that only humans can provide, should not disappear; and moreover, the fashion industry itself should work to continue maintaining it, because it's that emotional aspect that enables you to maintain a connection with the consumer. AI is a tool that facilitates and reduces times, but it will not prevent the designer, marketing creative, team leader, HR worker, or a CEO from being necessary; even when, as in my case, they may use AI to help carry out their work, or rather, part of their work.

To what extent have you personally relied on and resorted to using AI?

During the 2023 holiday season, I used AI to draft my Christmas message to all the company's employees. Personally, I like writing, but I don’t always have all the time or energy to do so. Drafting that speech through AI, which proposed a base text, saved me two or three hours of work. It was not the final draft, but it did help me to not start with a blank page; and if you compare the result, comparing that message with the previous year's, you would see that both are 100 percent Marcela.

Are we returning to that value of the ‘emotional part’ of the industry?

Yes, and I believe, following this last example I gave, that it is very important that AI is not the one that writes, but a tool that can help you not start with a blank sheet; that's where the great help that AI provides lies. To counter AI, humans must continue to add emotion; must continue to do the creative part responsible for giving personality to text or designs. With AI, we will have a great assistant, but not a creator. It's a tool for streamlining processes, yes, but not for doing the entirety of the work.

This article was originally published on FashionUnited.ES. Translation and edit by Veerle Versteeg and Rachel Douglass.