The US’s economic recovery has been described as “K Shaped”, a letter whose shape with a growing gap between lines portrays the widening of the wealth gap. While overall, this disparity is negative for middle and lower class Americans, it’s a positive for luxury retailers who are filling the gap for the wealthy to spend money, while restaurants and vacations are out of the question.
- US Unemployment rate has declined to 6.9%
- Total holiday spending is surprisingly projected to climb this year from 2019, according to a Deloitte analysis.
- Demand for high-end clothes and pricey jewelry is already rebounding from a slowdown earlier in the pandemic.
- The Salvation Army expects a 155% increase in the number of people needing Christmas assistance this year, and it launched a campaign this month to increase donations.
- Upper class American’s see a different reality as many have “more” disposable income as a result of not being able to eat out and travel as much.
- However, there are much larger and more devastating economic constraints on a large percentage of the population who have been significantly disadvantaged over the past 8 months.
A Blue Win for Fashion
With a win by the democratic party in the US presidential election, it’s easy to say that the majority of brands who spoke on the election are content. But what does it mean in reality for fashion over the next 4 years? There are several areas to explore:
- Covid-19: With plans for a more uniform and organized response to Covid-19, both managing the pandemic and in providing businesses and consumers with economic relief would encourage consumers to shop and provide a safe space to do so.
- Stimulus: 400,000 small businesses have gone bankrupt since the pandemic and many are part of the fashion industry. With a candidate in favor of stimulus relief, depending on what and if both Democrats and Republicans can agree upon in terms of stimulus will determine the degree to which unemployed and struggling businesses will be helped.
- Travel: Positive vaccine news sets the stage for tourism recovery, hopefully nationally and internationally.
- International Relations: China is luxury fashion’s largest market and the world’s largest exporter of clothing and textiles. As a new president takes office, there is discussion that trade and general international relations could be restored, which could bring a plethora of outcomes for fashion in both countries.
- Labor rights: Biden has advocated for raising the national minimum wage to $15 per hour and is likely to address the e-commerce warehouse workers cause, which could improve worker’s rights but force corporations to lower profit margins.
- Environment: Biden, at a minimum, is likely to shift back to its pre-2016 stance on environmental issues. These policies will increase the cost of manufacturing but also increase incentives to utilize recyclable materials and greener/cleaner assembly techniques.
- Corporate Finances: With plans to raise the corporate tax rate from 21 percent to 28 percent, businesses will have to give away an additional 7% that they have been able to keep over the past 4 years.
A Good Day to be Single
Singles Day or “Double 11” is a national commercial holiday in China that takes place annually on November 11th. Popularizing the anti-Valentine feel, it has skyrocketed in popularity as the masses have embraced a day dedicated to being single and spending up to “treat yourself”. Alibaba CEO Daniel Zhang created Singles Day sale in 2009 which began the trend that has surpassed Cyber Monday in single-day transactions. However, this trend has extended far beyond Alibaba with retailers and companies big and small have joined to celebration:
- High-end sneaker brand Golden Goose was among the international brands participating in Double 11 for the first time.
- Surpassed sales targets by 40 percent and had 60 percent of sales to first-time customers.
- Alibaba and JD.com (China’s 2 largest retail competitor’s).
- More than $116 billion in gross merchandise volume (GMV) over the Singles’ Day sales periods.
- Alibaba said GMV on its platforms was up 29 percent over last year, reaching 498.2 billion yuan ($75 billion).
- JD.com also set a new sales record of 271.5 billion yuan ($41 billion) during the event (increasing 33% compared to last year).
- Other brands that have embraced the trending holiday and have included their own stales range from Target, Expedia, and Uniqlo, to TOPMAN and Foot Locker.
Fast Fashion Luxury Food Or Fast Food Luxury Fashion
Unlikely partnerships are expanding reach beyond the traditional customer base and traditional appeal. With the recent success of the McDonald’s and Travis Scott Cactus Jack meal, creative, innovative and frankly wacky partnerships are forging a strong connection between food and fashion.
Say the phrase “Cactus Jack sent me” and get your Quarter Pounder with cheese, plus bacon and lettuce, along with medium fries, barbecue dipping sauce, and a Sprite. A Travis Scott, highly anticipated clothing line followed and soon sold out: demonstrating the impact of the alliance across the board, in both music, clothing and cheeseburger sales. But above all, the collaboration provided a revamp of an old school brand within a new generation.
So why was it the perfect partnership?
Strange partnerships can often bring attention but that is not necessarily a recipe for success. These collaborations are less about the type of partner and more about how the partner fills a gap in a brand’s image. They are intended to open up new markets, brighten an image, and create a positive association, but above all there should be a tie, a purpose and a genuine alignment in values in order to do so. It was natural for Travis and the golden arches as we frequently ate Quarter Pounders throughout his childhood.
So who else has been able to perfect the recipe?
- Karl Lagerfield and KFC partnership to celebrate the 80th anniversary of its original fried chicken recipe
- J Balvin and McDonald’s collaboration to include and speak to their latino/hispanic segment
- Charlie D’Amelio and Dunkin Donuts
- The Anti-Social Social Club and Panda Express
- Alexander Wang and McDonalds “sold out in seconds” in a campaign exclusively in China (2019)
The Little Blue Box
The much anticipated American Tiffany and Co acquisition by french luxury house LVMH is back on!
The agreement? Primarily similar to the original, but features a new 2.5% discount on the original $135-a-share agreement pricing it at $131.50 in cash.
They have also agreed to settle their pending litigation which has taken center stage in the news in our last market update when it seemed like LVMH was going to walk.
Stocks to Follow
Share Price: $14.09
Market Cap: 6.02 billion
General Market Relevance: The post covid world is a changed one- especially in regards to athleisure. With the latest boom, athleisure is a growing category with no signs of stopping, making it easy to trade in suits for sweats. However, direct competitors have been able to capitalize on the momentum where UnderArmour has been left behind.
Backstory: 2006 UnderArmour went public and became the official footwear supplier of the NFL- targeting the footwear category different than direct competitor NIKE
- Third-quarter revenue remained at $1.4 billion, but beat predictions of $1.2 billion.
- Net income came in at $38.9 million, down from $102.3 million a year earlier.
- Announced the sale of its MyFitnessPal exercise tracking platform for $345 million.
- The US SEC (Securities and Exchange Commission) is currently investigating for accounting revenue recognition violations (regarding the use of pull forward sales in order to meet sales objectives)
- Footwear revenue increased 19% in the third quarter of 2020 from the year prior
Estee Lauder Companies Inc
Share Price: $249.49
Market Cap: $90.22 B
Portfolio includes: Clinique, MAC Cosmetics, Origins, Jo Malone Cosmetics, BECCA, Smashbox among others
- CEO Fabrizio Freda sold 77,530 shares of the business’s stock in a transaction on Wednesday, November 11th
- Beat analysts expectations for last quarters sales led by a strong Chinese market and increase in skincare spending online
- Sales in the Asian Pacific market grew 9% (led by purchases in duty free airport locations as Chinese travel has increased and the shift to everything “at home” has promoted skincare sales as people trade in bronzer and concealer for the more natural and minimalistic route: moisturizer and serums
Share Price: $25.87
Market Cap: $1.35B
- World’s largest retailer of diamond jewelry
- Should profit off of turnaround in post Covid lifestyle which will hopefully allow indoor shopping experiences especially as the holiday season approaches
- 3,200 stores (Kay Jewelers, Zales, Jared The Galleria Of Jewelry, Piercing Pagoda, and JamesAllen.com)
- Stock has gained about 18% in the past 30 days
- Expected to release quarterly earnings on December 3rd
- Competitors: Tiffany & Co, Movado Group, Envela Corp
Share Price: $45.56
Market Cap: $15.48B
Backstory: A London based online luxury fashion retail platform that sells products from over 700 boutiques and brands founded in 2007.
- Founded with the vision to “redefining how fashion is bought and sold” through technology, data and innovation
- Announced partnership with Alibaba and Richemont to fund a platform to that will better position the US retailer to sell to the Chinese market
- Stock price recently hit all time highs at $50.36
- Reported revenue is up 71% year over year while gross profit was up 82%
- It has struggled in general over the past few years, but is emerging as it is clear, in a post covid world, much of luxury fashion is moving online