Why Investing Fashion Stocks Is So Hard: 3 Failures & 3 Comebacks
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Why is investing in fashion stocks considered so risky?
There is zero moat in fashion. The only moat they have is the idea that the consumer says, Yes, I like this. There's absolutely zero switching costs in fashion.
So Crocs went from just 109 million in revenue in 2005 to 847 million in 2007. It just became a global phenomenon here. And by 2007, they generated 168 million in net income. Revenue declined 24% in the span of two years, and then they nearly went under in 2008-2009. Lulemon had a really bad quarter percent decline in comparable sales. They reduced guidance for the full year. They went from guiding for three to four percent sales increase for the full year to f a decline of five to seven percent.
That's kind of why I've learned in the space to always take profits off the table.
Welcome to the Canadian Investor Podcast. I'm Simon Benanger. I'm back with Dan Kent. We have a really fun episode. We'll be looking at fashion companies. So we'll be giving some examples of companies that were once great and then never recovered and eventually went into bankruptcy. We'll be looking at companies that actually were once great and then managed to fall out of grace and then recover from that and the inspire the reason we got we decided to do this episode it was inspired by Lululemon's disastrous quarter and as I was doing my notes for the last earnings and news that we did on Thursday. I was just getting into it and figuring out okay how can they turn things around what's work with other fashion companies in the past that
That were struggling for a period of time and managed to turn it around. And it just would have ended up being way too long for a just news and earnings segment. So we decided to do that. You'll go over, you'll start off by essentially just looking at some of the challenges that c fashion companies face and some of the common mistakes that companies do and the quickly changing, I guess. consumer sentiment when it comes to fashion in general. And I guess Nike and Lululemon were kind of the exception in terms of staying power and duration for some time. But even those two have fallen out of favor pretty rapidly over the net last couple of years.
Yeah, I feel like everybody says that such and such company is like kinda breaking the rules in terms of fashion until they don't. And Nike and and Lululemon are the yeah, clear indicators of that over the last while.
Yeah, it's almost as if when people say that, it's like a death knell for them. It means that it's gonna happen. Although to be fair, Nike specifically, they were for decades, they were a top brand. Like they really they were just the exception, essentially. I think you also have some more uh luxury brands, like the high-end luxury that have like a bit more of a staying power, but for the most part, most fashion companies, as we'll see. It's ups and downs at the very least. Some of them do stay stay fairly relevant for long periods of time, but again, that relevancy kind of ebbs and flows. So they might have a peak and a bit of a kind of crisis and then recover. But we'll go all over that. We have some fun examples.
Had a whole lot of fun researching this, looking at really old financial statements too. And Yeah, let's get started.
Yeah, so I kinda had I wanted to go over some reasons why I don't really think fashion is a space you can ever money in I don't want to say make money in over the long term, but I would say kind of buy and hold over the long term. And I say this having bought numerous fashion companies. I currently own a Ritzia. I've owned a Ritsia for quite a while. I've owned Lululemon in the past. That would have been well before my appearance online with stock trades or or even the podcast. And then I own Canada Goose, but I still do think there's some pretty key reasons why these companies are, I mean, if effectively impossible to just set and forget. So uh the first one I would say is management has the hardest job on the markets.
I would say this is these companies are the hardest companies on the stock market to actually manage well. Right. And some companies just like if you think about it, some companies just run themselves in terms of demand.
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Chapters
4 chapters
1
Why is investing in fashion stocks considered so risky?
0:00–15:27
2
What fundamental challenges make fashion companies hard to manage?
15:27–29:05
3
How did Express, Quiksilver and Aeropostale fail and wipe out shareholders?
29:05–42:48
4
What lessons do the failures of Express, Quiksilver and Aeropostale teach Lululemon investors?
42:48–54:13
Speakers
2 identifiedMore from The Canadian Investor
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