Fashion stocks seek redemption after Wall Street collapse – WWD

Wall Street has always been a rollercoaster — but the ups and downs have all been outgrown, leaving fashion to race into 2023 with more than a little stock market whiplash.

Investors are constantly assessing the outlook for everything, taking the economy, consumers, new products, strategy and performance and boiling it down to a single data point – the all-important stock price.

And while ups and downs are expected as individual companies and sectors grow ahead or as the economy cools, something more is happening.

The investment crowd fundamentally changed expectations for the consumer sector in 2022 as e-commerce growth slowed, inflation and interest rates soared and recession loomed. Last year also had its optical problems, and quarterly financial reports often paled in comparison to the go-go days of 2021 when the world first re-emerged from COVID-19.

The Dow Jones Industrial Average fell 8.8 percent in 2022, but fashion fell further and faster.

A WWD study of 104 global apparel, luxury, retail and beauty companies found that only 26 firms in the space beat the Dow last year. (Elf Beauty Inc. led the way with growth of 66.5 percent, while Dillard’s Inc. in Mid-America’s standby department store gained 38.7 percent).

Luxury also held on to its pandemic gains and continued to power despite economic concerns, but 2022 was the year defined by the losers.

Among those hit hardest were some of the buzziest names of the past few years, either new to Wall Street or pushing newer business models that investors are still trying to get to grips with.

Companies that lost more than 70 percent of their value last year included resale specialist ThredUp Inc., Aka Brands Holding Corp., tech crowd sneaker maker Allbirds, cosmetics company Olaplex Holdings Inc. Consumer eyewear pioneer Warby Parker Inc.

This is billed as a rude awakening for the big wave of IPOs in 2021 and leaves the position of some newcomers in doubt.

“Honeys fall fast and the first move is stupid,” said Matthew Katz, managing partner at SSA & Co.

This reflects the flight of investors from a hot new idea to a more tried and true business model – and it seems likely that investors will continue to seek safety.

“We are in a period of uncertainty,” Katz said. “And some would say it’s becoming increasingly certain that trouble is ahead.”

So companies that are still working on their operations may come under pressure.

“Where there is unfinished business, the inefficiencies are compounded during the slowdown,” Katz said.

For example, resale platforms quickly captured the imagination of investors, but now have to prove themselves as more brands get into the game and the industry evolves.

Poshmark Inc., which was valued at more than $7.4 billion after going public in January 2021, bought Naver for $1.2 billion and shares of The RealReal Inc. in October. even ThredUp is struggling.

Jessica Ramírez, principal research analyst at Jane Hali & Associates, said: “When we look at the additional selling … we were also very surprised at how quickly Wall Street adapted to it, which we almost thought didn’t make sense. It usually takes [Wall Street] longer than you warm to some of these ideas.’

Turns out, investors quickly fell in love in 2021 and quickly moved on.

Many of the companies that built in private hands fell short of the high expectations of the public market.

Allbrids was next.

Ramírez said the brand “has a glass ceiling to the excitement it can create and the buzz it can create.”

The brand is in step, even leading the sustainability movement, but is still finding its footing.

“There’s a good reason for it, but the shoe is not attractive,” Ramírez said. “You need to have a good product that’s attractive and have a good story behind it.”

It is stable businesses and proven models that are winning on Wall Street today, such as off-pricers Ross Stores Inc. and TJX Cos. Inc., which have been feasting on the industry’s excess inventory after all the COVID-19 supply chain backups.

“Ross and TJX really took advantage of what’s available and killed it with their purchases,” Ramírez said.

Dick’s Sporting Goods Inc. she also proved her abilities.

“The product has really taken off there — the private label and the relationships they build with all of their retailers have really increased,” Ramírez said, noting that the retailer is also taking advantage of the continued increase in outdoor activities. “They are very tuned in and they do a pretty good business.

Dick’s, TJX and Ross not only beat the market, but posted modest stock gains last year — at a time when small gains counted for big ones.

Much of the trouble over the past year has come from changes in the consumer market that have been bigger than any one brand.

As prices rose, lower-end customers began to have to choose between fashion and food. More consumers returned to stores, slowing e-commerce growth. And Russian President Vladimir Putin’s invasion of Ukraine has upended the geopolitical calculus, threatening Europe and forcing many companies to close business in the once-promising Russian market.

It could require similarly sweeping changes to help bring retail back this year – but in the second half, when comparisons loosen again.

John Kernan, an analyst at Cowen, said deflation in supply chain costs and more normal inventory levels would boost sentiment in the second half.

“We favor cheap stocks relative to history given the several hundred basis points of gross margin relief from lower ocean container and airfreight rates, along with the normalization of sector inventory levels and lower prices in the second half,” Kernan said. “Balancing supply chain risks, inventory turnover and gross margin is the source of value creation in this sector.”

This is a very rewarding journey back to success on Wall Street after a very tough year for fashion.