Retail’s Rough Start to 2022

Fashion Stocks on Markdown

  • Many retail stocks have fallen sharply over the last two months
  • Uneven holiday sales, concerns about inflation and the supply chain are weighing on investor sentiment
  • Retail tech stocks are the worst off, amid broader concerns about whether start-ups are overvalued

Investors are betting heavily that retail’s mid-pandemic boom is over. The selloff has caught up long-struggling brands like Gap (down 10 percent in 2022) and Macy’s (down 12 percent), but also hasn’t spared recent high fliers like Abercrombie & Fitch (down 7 percent). There’s no single reason for the plunge. Supply chain issues have hampered sales, and Omicron scrambled demand forecasts. Customers may baulk at rising prices, and the end of child tax credits in the US will reduce the spending power of low and middle-income shoppers. More broadly, there is perhaps a sense that brands that quickly bounced back from pandemic lows will find it harder to demonstrate they can maintain that momentum over the long term. After all, the average apparel retailer wasn’t exactly in robust shape back in 2019, so a return to the pre-pandemic status quo isn’t necessarily something to celebrate. Digital brands have it doubly bad. In addition to investors’ concerns about retail generally, these companies are caught up in questions about whether we’re near the end of a years-long tech rally that enabled blockbuster IPOs for companies like Farfetch (off 31 percent this year) and Allbirds (down 18 percent).

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The Bottom Line: One indicator of whether this is a temporary correction or the start of a longer downturn is whether the recent wave of fashion IPOs continues. Again, the tea leaves are mixed here: ABG, owner of Brooks Brothers, Forever 21 and other brands, suspended its IPO plans in favour of private equity investment. But StockX is reportedly charging ahead.

LVMH Brands in Demand

  • LVMH reporters fourth-quarter and full-year results on Jan. 24
  • Louis Vuitton and Dior are on a hot streak, with the conglomerate’s fashion and leather goods division seeing sales rise 38 percent in the first nine months of 2021 compared with 2019
  • Sotheby’s will auction 200 pairs of Louis Vuitton X Nike Air Force 1 sneakers, designed by Virgil Abloh, between Jan. 26 and Feb. 8

There is a certain predictability to big luxury’s financial results. With one or two exceptions, the largest brands have seen their sales and market clout rocket higher, with no sign of slowing down. There’s little reason to expect anything different from LVMH’s results this week. As for news, Louis Vuitton CEO Michael Burke said last week that the brand is in no hurry to announce a replacement for Virgil Abloh. Beyond that, expect an update on Tiffany, now under LVMH for a full year (last quarter, the company cited the jeweller’s “remarkable performance”).

We’ll get a more unconventional gauge of Louis Vuitton’s brand heat two days later when 200 pairs of Louis Vuitton X Nike Air Force 1 sneakers go up for auction at Sotheby’s. The shoes, first seen on models at Abloh’s runway show in June, represent the final edition of a particularly influential and lucrative collaboration. Abloh’s Off-White X Nike releases in 2017, known as “The Ten,” played a key role in integrating sneakers into the luxury mainstream. Several smaller releases followed; the Louis Vuitton X Nike shoes on auction this week likely represent some of his final sneaker designs. Proceeds from the auction go to The Virgil Abloh™ “Post-Modern” Scholarship Fund, which supports Black fashion students. What they might fetch in the resale market is anyone’s guess; pairs of the designer’s take on the Air Jordan 1 Retro High OG last sold for over $7,000 on StockX.

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The Bottom Line: The biggest luxury brands have thrived during the pandemic, while even LVMH has had a tougher time setting up its smaller labels for such consistent success. One test for whether that is changing is Celine: the brand is showing signs of taking off after a rocky start. Can it build on that momentum?

A Minimalist Couture Week

  • Haute Couture Week runs Jan. 24-27 in Paris
  • Almost all brands, including heavy hitters such as Dior and Chanel, are going ahead with in-person shows, even as the Omicron variant forced cancellations of some men’s shows the week before
  • Many of the events and parties surrounding the couture shows were cancelled or postponed
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The pandemic has created some strange optics for the fashion industry from the start, but there’s something especially jarring about a toned-down couture week, showcasing fashion meant to be worn on red carpets and to galas that seem to be perpetually postponed. The week remains an important showcase for brands: for proof, look no further than Schiaparelli, which under Daniel Roseberry’s creative guidance has turned a series of wow moments into the seeds of an international business beyond couture. Similarly, Glenn Martens used Gaultier’s signature body prints for Y/Project’s show last week and will be serving as the label’s guest designer this week. Pieter Mulier’s second show for Alaïa is happening off schedule on Sunday. And Fendi, which previously showed couture only in the fall, is also making an appearance this week.

The Bottom Line: When Armani and a handful of other labels pulled their shows a couple of weeks ago, it seemed like the pandemic had claimed another season. But the other dominoes never fell, and brands seem more determined than ever to press ahead with in-person events.

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