The fashion store industry

[beerbaron]

Chou Funds cough my eye with The Gap. And I'm currently browsing the 10-k and I'm trying to understand the dynamics behind fashion stores (Aeropostale is attractive too!). Maybe some people have already sent some time thinking about this industry so it would be helpful.

 

What does a company have to do to move a dominant player?

-Obtain prime real estate locations

-Effective and focused advertising

-Create store environment that welcomes the target group

-Pricing in line with the target group's budget

-Superior sales force

-Buyers that understand their market AND the trends

-Good inventory management

 

Now that's all the main points I can think of. But there is certainly more. Also from my point of view all the points above except the real estate cannot be considered as a durable competitive advantage. So if most of those points cannot be considered as a durable advantage how can you evaluate them? How can something as weak as good advertising campaign become a great long term asset?

 

BeerBaron

 

[hyten1]

check out vic recent write up on gps

 

lampert has been buying

 

[king888]

One of the most successful retailer in the last decade might be ZARA. The store in my city has people lining up to the cashier like they get freebie. And I heard that they spend almost nothing in advertising.No tv commercial,etc.

[Myth465]

One of the most successful retailer in the last decade might be ZARA. The store in my city has people lining up to the cashier like they get freebie. And I heard that they spend almost nothing in advertising.No tv commercial,etc.

 

Thats a good point. I have never seen a ZARA commercial.

[mevsemt]

I've been watching GPS too.  On a numbers basis alone it looks cheap, but the company is facing some stiff headwinds, so it's "cheapness" isn't entirely unjustified (at least IMO). 

 

The thing that really caught my eye is the buybacks.  Over the last 7 years the company has gone from 991 MM shares to 550 MM shares, and their buybacks have only been increasing.  Over the same time period their revenue has fallen from 16.3 B to 14.6 B, but free cash flow has been relatively flat averaging around +1 B.

 

My take is there's some "optionality" here - if they actually hit a fashion trend and get their revenue to grow this stock could be a homerun, but in the meantime they're doing the right thing by aggressively retiring shares. 

[username]

One of the most successful retailer in the last decade might be ZARA. The store in my city has people lining up to the cashier like they get freebie. And I heard that they spend almost nothing in advertising.No tv commercial,etc.

 

Thats a good point. I have never seen a ZARA commercial.

Because there aren't any.

I understood they focus on the display window.

 

The things one learns as a shopping mule... :P

[beerbaron]

It got me thinking, what's the expected life of a brand in the fashion industry? I can't seem to find a lot of trademark that were really dominant for a long time (40+ years). Even stores seem to have a finite life expectancy...

 

BeerBaron

[maxprogram]

It got me thinking, what's the expected life of a brand in the fashion industry? I can't seem to find a lot of trademark that were really dominant for a long time (40+ years). Even stores seem to have a finite life expectancy...

 

Mostly because the specialty apparel business has only been around since the '70s/'80s. Before that there have been clothing "brands" but you could only get them at a department store, catalog, or later on discount retailers. No one really manufactured/designed their own clothes and then sold them (excepting of course one-off independent stores).

 

Specialty apparel chains really got started with Leslie Wexner's The Limited -- which began in the '60s but didn't seem to get going until the '70s. Gap was started in 1969 and a few other of the older chains (like Zara) in the '70s also.

 

Very hard to get a durable comp. adv. here. Good locations are a start (but probably makes little difference today, short of some department stores and the like with very good city locations). Probably some brand loyalty due to habit with some clothing items (socks, underwear, victoria's secret, etc.).

 

Probably the best advantage you can get in this businesses is management. If the person/people who run the co are great merchandisers, they will do well and take share from competitors. Ex. Mickey Drexler, Jim Sinegal, Leslie Wexner, Ron Johnson. As in investing, it's an art, not a science.

[rijk]

Probably the best advantage you can get in this businesses is management. If the person/people who run the co are great merchandisers, they will do well and take share from competitors. Ex. Mickey Drexler, Jim Sinegal, Leslie Wexner, Ron Johnson. As in investing, it's an art, not a science.

 

if this is correct, then ARO could be an interesting opportunity, look at the last 10 years ROE (25 - 65 %) & ROA (12 - 30%)

 

is the worldwide internet launch a desperate move or could this aeropostale back on track?

 

http://www.digitaljournal.com/pr/427839

[merkhet]

I've looked at ARO in the past, and I think it's likely to provide a stellar investment over time.

 

They've cloned the original The Limited playbook (have a fast manufacturing/distribution process and immediately clone the new styles) as it pertains to J. Crew, American Eagle, The Gap and Abercrombie.