New Optimism For High Street Fashion Stocks In The Age Of The Thrifty Consumer


Image Source: Unsplash
Many clothing brands have spent 2024 claiming that the weather had dampened customer appetite. Whether it was too hot, cold, or wet for optimal spending may pale in comparison to the perfect storm of thrifty, pre-loved clothing apps. The global second-hand apparel market value reached $152.5 billion in 2023 and is expected to grow at a CAGR of 15.2% through 2031. This presents a significant challenge for luxury and fast fashion stocks alike. Although eBay has long been an entity for retailers to contend with, the recent rise of clothing-focused pre-loved marketplaces like Depop and Vinted has shaken the industry up, and the shockwaves have been felt on Wall Street. Some of the world’s largest clothing stocks, like Nike (NKE), Lululemon (LULU), H&M, LVMH, Dior, and Kering, have all suffered losses between Q1 and Q3 2024, despite the relative strength of the S&P 500 during this period. Of course, there are many factors at play when it comes to clothing stocks. While weather plays a role, so too does the impact of historically high interest rates on consumer spending power.In addition to this, Wells Fargo analyst Ike Boruchow has highlighted that this year’s highly polarizing US presidential election is likely to generate a 150 to 200 basis points slowdown in revenue trend for retailers, with more Americans likely to be glued to the ongoing coverage prior to the event. However, this doesn’t account for the relative success of off-price fashion stocks like TJX, which grew 26% between Q1 and Q3 this year. It also fails to consider the continued rise of thrifty second-hand clothing apps. So, could shifting consumer sentiment be playing out on Wall Street in real time? 

Fashion’s Sustainability Problem
In the post-pandemic landscape, customers have become increasingly environmentally aware. Their collective drive to embrace sustainability means that they’re willing to pay more for eco-friendly products. PwC data suggests that more than 80% of consumers have claimed that they’re willing to pay more for sustainably produced or sourced goods. To quantify this, some consumers are content with paying on average 9.7% more for goods that meet specific environmental criteria, such as locally sourced, made from recycled materials, produced in a supply chain with a low carbon footprint, or more. With as much as 40% of clothes made every year, amounting to 60 billion items, failing to sell, the fashion industry has long been brought into the spotlight for its severe wastefulness throughout the production process. Remake World’s Fashion Accountability report, which measures progress on human rights, and environmental, economic, and political issues within fashion supply chains, has claimed that 52 major fashion companies are stagnating in terms of their accountability. The 2024 report highlighted leading brands like Patagonia, H&M Group, SKIMS, Ralph Lauren, and Reformation as some of the stagnant firms. 

The Perfect Storm
This blend of environmental inefficiency comes at a time when digital transformation is helping to create a more interconnected reseller market for second-hand fashion at an unprecedented rate. Over the past decade, buying used clothing has not only become easier than ever before, but thriftiness has become fashionable. According to a report from second-hand fashion retailer ThredUp, 67% of UK millennials shop second-hand, while as much as 40% of the clothing in a Gen Z closet is pre-owned. The report also claims that by 2027, the value of the fashion resale market will reach a value of $3.5 billion. While the pre-loved clothing industry has long struggled to turn its innovative business models profitable, Lithuania-based second-hand fashion platform Vinted recently became an industry trailblazer after reporting a 61% rise in sales to turn the company profitable for the first time. Vinted’s annual sales reached €596m ($657m), providing a blueprint for other businesses like Depop and RealReal that are operating at a loss to move out of the red. With social media platforms like TikTok continually expanding its second-hand luxury fashion stores to new locations, it’s clear that multiple factors have caused the perfect storm in consumer appetite for second-hand clothing. But what does this mean for fashion stocks? 

Retailers to Embrace Change
Digital transformation has made it easier than ever for clothing reselling to become a success, and retailers will need to embrace change to continue thriving. Already we’ve seen firms like Lululemon, Cos, and Isabel Marant embracing reselling on their websites and in-store. In the case of recent Isabel Marant data, two-thirds of its second-hand buyers have gone on to become new direct clients. This illustrates the potential for growth that embracing second-hand selling brings for retailers. Crucially, embracing second-hand selling can also provide brands with invaluable CRM insights to build stronger retargeting campaigns based on more comprehensive customer data. When second-hand purchases are made in-store, modern systems can utilize the data generated by the transaction to better understand customer trends, spending behavior, and product insights to shape future first-hand clothing lines. 

High Street Copes Better Than Luxury
According to eToro data, despite luxury fashion retailers outperforming their high street counterparts consistently over the past five years, growing at an average rate of 76% compared to just 16%, signs of a trend reversal are underway. Over the past year, eToro’s designated high street basket is up 11% while the luxury basked is down 8%. Worryingly, this performance is weaker on both fronts compared to the Stoxx 600 and FTSE 100 with the two indexes growing 14% over the same period. The data shows UK brand Next was among the best performers over this period, growing 44%, while the likes of Zara and Inditex rallied 36%. Other notable high-performers from the observation period include Primark owner ABF and Italian firm OVS, up 27% and 17%, respectively. Summer months have seen a flurry of sell-offs among luxury stocks, potentially pointing to customers becoming largely more price-conscious, with UK firms Mulberry and Burberry both opting to oust their chief executives due to weaker performances. As a result, Burberry received summer downgrades from Barclays, with Kering also suffering downgrades from analysts at Barclays and RBC. Despite this, some high street retailers like Shein are growing to the point where a listing on the London Stock Exchange appears likely in the coming months, according to the BBC. However, not all high-street clothing brands are flourishing. Recently, we saw Superdry become the latest retailer to delist its stock, leaving the London Stock Exchange in the process. 

What’s Next for Fashion Stocks?
It’s clear that the lure of luxury products at second-hand prices is a challenge for fashion’s most prestigious players to overcome on Wall Street. However, 2025 is likely to be a year that offers a far more comprehensive picture of how the industry will respond. Consumer spending power is weak, which will always present a challenge for luxury brands, and the distraction of the US election could be a significant factor in the slowing of sales.However, the rise of second-hand fashion can’t be understated. With leading apps beginning to turn a profit, we may have a glimpse into what the future of Wall Street’s biggest fashion players may look like. As for high-street fashion, the resilience of the industry means that investors could still find joy in some of its most innovative players. In working to embrace the age of the thrifty consumer, high street stocks can find new value by navigating the perfect storm of digital transformation, shrinking spending power, and heightened environmental awareness.More By This Author:Can Brick And Mortar Retail Stocks Still Inspire Investors In 2024?
Is Your FX Liquidity Provider As Compliant As It Claims To Be?
Why Amazon’s Newfound $2 Trillion Market Cap Is Just The Start For The AI Boom’s Forgotten Tech Giant

Reviews

  • Total Score 0%
User rating: 0.00% ( 0
votes )



Leave a Reply

Your email address will not be published. Required fields are marked *