Apparel Makers and Stores
By pjain Published May 9, 2020, 8:22 a.m. in blog Invest
Apparel store BM$ and Lessons
Deep Discounting in Covid-19 Makes it worse for Apparel Makers
Adobe data finds that apparel prices fell 12% in April, the biggest decline for the month in 5 years and comparable to Black friday style deep discounts. The apparel category had a tough April, with online prices dropping 12% for the month, according to the latest data by the Adobe Digital Economy Index. That’s the steepest April decline in five years.
Mall Landlords dominant Operational Creditors in retail apocalypse
Fast fashion stores like Forever 21 became one of the largest tenants of American malls, with 480 locations nationwide. And by 2015, business was booming.
Forever 21, which currently has a total of 549 U.S. stores, will continue to operate hundreds of stores, many of which are major tenants in malls across America. The company invested heavily in the mall model, at one point operating stores in some 800 locations. Malls will undoubtedly feel the pain of Forever 21 store closures, especially heading into the holiday retail season. “Many of the Forever 21 stores are big stores, not quite the anchor roles of the department stores, but nearly so. When they close, foot traffic to malls will likely decrease, which may indeed cause other mall stores to close,” - Kahn of Wharton.
Forever 21 has already started downsizing its stores. And as one of the largest tenants of America's mall's, a widespread shutdown of Forever 21 could exacerbate what's already being referred to as the "retail apocalypse," which has already closed more than 15,000 retailers across the US and could shut down 75,000 more, according to investment firm UBS.
Able to Raise Funds - high leverage Promoters
Supply Chain Dynamics
Real cost of goods small part of List price
Sales 50%, 30% etc. - on marked up prices
Consignment - returnable goods
Discount Inventory Closeouts
=== Sports Apparel Companies
Key factors
Support by Top Athletes - expensive but high priced brands
Nike and UA rely heavily on endorsements from professional athletes
Nike NKE - strong brand
Adidas ADDY.Y - restructuring/TA worked
-
Since mid-2015, Adidas launched a five-year turnaround plan that called for faster production and rotation of its products, expanding its direct-to-consumer channels, and deeper engagement campaigns with its customers, retailers, and partners. Those efforts paid off: Adidas' annual revenue rose 40% between 2015 and 2019, its gross margin expanded from 48.3% to 52%, and its operating margin rose from 6.5% to 11.3%. Adidas' stock has rallied roughly 260% over the past five years, easily outperforming its rivals
-
In contrast to multi-million celeb contracts, Adidas took a rev-share enlisted popular celebrities and secured more creative partnerships.
- Kanye West, who created its best-selling Yeezy shoes;
- Beyoncé, who developed a new line of signature footwear and apparel while relaunching her own Ivy Park brand;
-
Kylie Jenner, who promoted Adidas' Falcon sneakers.
-
Better shoes
Adidas foam-based "Boost Technology" soles also resonated with runners, and prompted Nike and UA to launch similar products.
-
Able to lock in younger shoppers with its products
-
Adidas was the third most popular footwear brand for teens behind Nike and VF Corp's Vans. Under Armour didn't even crack the top five.
-
Much of Adidas' growth in North America, where it generated 8% constant currency sales growth last quarter, seemingly came at the expense of Under Armour, which posted a 2% sales decline in the region last year.
-
Adidas adopted strategies in China to enlist LOCAL celebrities and launching bold new collections inspired by Chinese culture. Those aggressive localization efforts generated a 15% jump in its Chinese revenue last year.
VF Corp
CROX zacks#2
DLTH zacks#2
UAA XX Under Armour UA
Q2'20 [2 (7 27) 54] b5 cP=10.4 DE=0.8 $5b ni=-520m fPE=58x
- Sales declined -60% across all categories, except Connected Fitness
- Uphill tasks as few buyers return to stores
- Supply chains compromised as China trade war hurts all
Fairly liquid - could survive
Under Armour ended Q2'20 with $959 million in cash
Company has enough liquidity to endure fairly draconian scenarios, including ongoing starts and stops of stay-at-home measures in the future - RJ analysts
Key Factors in Poor Performance
Poor Brand Positioning
Under Armour came into FY20 with weak positioning (including pre-coronavirus) and the pandemic appears likely to extend brand challenges and limit recovery versus peers.”
SEG: ?? Lack of Sports events - reduces high margin Brand Sports Clothing
Dilution on billions of Acquisition
Deep discounting a habit with UA - devaluing brand
UA had before C19 announced a 2020 strategy designed to grow its challenged North American business. One goal of the strategy was to reduce the amount of merchandise sold at a discount and through off-price channels.
Excess Inventory clearance needed post C19
Under Armour does not have the brand consideration or compelling product assortment necessary to reaccelerate sales post the current crisis. Elevated inventory levels should pressure gross margin for the balance of the year and stymie Under Armour’s ability to introduce new product.
Tighter management of Cash flows needed to get back to profitability post C19
It entered into cost savings program, NOT opening a mega NY Flagship store
Under Armour will need a path to profitability improvement on a lower revenue base and additional expense reduction - analyst Jim Duffy
Hurt by stronger competitors
Better-positioned competitors like Nike Inc. NKE, +0.55% will take market share from Under Armour.