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Wednesday, July 9, 2014 by Christoph.Schmid|Comment 0
within category Online apparel market,Consumer disruption,HMb,ITX,DEB,MKS,ADS,VFC,NKE

The online apparel market segment is more than likely to generate a number of winners, and is therefore interesting from an investment point of view. The companies which will distinguish themselves from the competition are likely to be those with highly integrated and vertical business models, i.e. control over design, development, production and sales. Strong brand names will obviously drive online shopping experiences which will complement the retail store network.

Company Ticker Sector Upside Potential Sharpe (FY01)
HENNES & MAURITZ (H&M)
 HMb Apparel Retailers
 7% 6.01
Investment case: H&M runs an online segment, but neither the sales figures nor other fundamental data such as margins are disclosed. Given the early stage of the operations, it can be assumed that the volume is still low and margins are below average. H&M should be able to unlock substantial value from its online services (as its products are non-perishables) provided it can link its store services to specific web-related actions and vice-versa.

   

Company Ticker Sector Upside Potential Sharpe (FY01)
Inditex
 ITX Apparel Retailers
 5% 5.79
Investment case: Inditex manufactures its own brand names (Zara, Massimo Dutti, Pull & Bear, Stradivarius, Bershka, etc.). Their products are mainly located in the medium to high-price segment. Inditex runs an online segment, but neither sales figures nor other fundamental data such as margins are disclosed. The company states that margins achieved are not dilutive.

    

Company Ticker Sector Upside Potential Sharpe (FY01)
Debenhams
 DEB Broadline Retailers
 13% 3.75
Investment case: Debenhams has announced that its results are below expectations and the profitability of its online segment is poor.

    

Company Ticker Sector Upside Potential Sharpe (FY01)
Marks & Spencer
 MKS Broadline Retailers
 12% 5.19
Investment case: Marks & Spencer has tried to adopt a multi-channel provider model; however, the results generated so far are well below the expected volumes. The company appears to have been unable to find a key USP to generate visitors and sales volume.

    

Company Ticker Sector Upside Potential Sharpe (FY01)
Adidas
 ADS Footwear
 22% 6.40
Investment case: Adidas is implementing a consolidated production and sales system. Alongside this, its reinforced online presence should increase its visibility. This strategy appears valid as consumers generally tend to buy more at the online stores of suppliers rather than retailers. The marketing opportunity for Adidas consists in correctly addressing the cross- and up-selling potential of its foot and sportswear offerings.

    

Company Ticker Sector Upside Potential Sharpe (FY01)
VF Corporation
 VFC Clothing & Accessories
 10% 6.25
Investment case: VF owns a large portfolio of leading lifestyle brands including The North Face, Timberland, Vans, Lee, and Wrangler. The company has an attractive 3-layer offering for each of its brands, which makes it extremely well-positioned in the business. Its operating margins are expected to increase to 18% by 2018, which should be possible with the growth in outdoor and action activities. The rate of growth is expected to be 24% annually.

    

Company Ticker Sector Upside Potential Sharpe (FY01)
Nike
 NKE Footwear
 6% 3.11
Investment case: Nike is present in about 170 countries and is the world's largest designer, producer and wholesaler of sports apparel. The firm’s products are available in more than 50,000 retail outlets and through a network of more than 750 company-owned stores. Nike was the first sportswear company to implement an automated production and sales process with the aim of shortening the time to market and adding customization potential to certain categories of products.

    
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