consumer sector 1 - presentation (final round)
TRANSCRIPT
Investment Research PresentationMonth Day, 20XX
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Sector Presentation – Fast Fashion
Finance and Investment ClubConsumer SectorSenior Analyst: Justin BartenbachJAs: Emil Kilman, Sid Vardhamanan, Sijia Zhang, Sajal Karki, Dora Xu
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aIndustry Overview
Why Fast Fashion?
Trends
Risk Factors
Valuation – Comparable Companies
Summary
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Industry Definition Industry: Fashion Designers in the U.S. Companies in this industry provide professional design services for products and segments such as fashion,
clothing, shoes, textile, fur, and jewelry. – These services occasionally represent the design branch of a large retail chain. – Retailers with expedited processes between the fashion design segment and the clothing retail segment is
coined a fast fashion retailer.
NYSE: GPSMkt Cap: 10.15 B
NASDAQ: URBNMkt Cap: 4.69 B
STO: HM-B Mkt Cap: 357.31 B
(SEK)
NYSE: AEOMkt Cap: 3.48 B
BME: ITXMkt Cap: 20.9 B
(EUR)
NYSE: EXPR Mkt Cap: 1.10 B
NYSE: GESMkt Cap: 1.33 B
Sources: IBISWorld, Bloomberg
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Why “Fast Fashion?”
Fast fashion is described as low cost clothing collections that mimic current fashion trends.
These trends change incredibly fast, often causing new styles and trends to become obsolete in a matter of weeks.
The number of garments produced annually has doubled since 2000 and exceeded 100 billion for the first time in 2014: nearly 14 items of clothing for every person on earth.
Year Revenue (million)Revenue Growth %
2017 $2,677.60 8.92018 $2,879.80 7.62019 $3,042.50 5.62020 $3,213.60 5.62021 $3,403.10 5.92022 $3,635.50 6.8 2017 2018 2019 2020 2021 2022
$500.00
$1,000.00
$1,500.00
$2,000.00
$2,500.00
$3,000.00
$3,500.00
Fast Fashion Revenue
Revenue (million)
6.31% CAGR
Low clothing manufacturing
costs
Decrease in price of clothing
More clothing
purchased per person
Increased revenue for
fashion retailers
Brazil
China
Germany
India
South Africa
United Kingdom
United States
-75 -50 -25 0 25 50 75 100 125 150 175 200 225 250 275 300
247
53
33
272
187
49
55
133
38
10
156
33
-53
-3
Change in Consumer Prices (2000-2014), %
Clothing All goods
Sources: IBISWorld, Mckinsey & Company
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Revenue Generation
Cotton
Other materials (i.e. synthetic)
Clothing Material Manufacturing
Clothing Designers
Consumers
Large Retailers
Small, medium sized retailers
Goal: to expedite the process between the clothing designers and the large retailers so that consumers can get the newest clothes faster
How to increase efficiency?
Sources: IBISWorld
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Technological Advances Efficiency
e-Commerce Presence
High Designer Collaboration
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Efficiency Increase to Supply Chain Due to Technological Advances Unique trait of fast fashion = quick
distribution from runway retail store With ever-changing seasons and constant
shipments of inventory, fast fashion retailers must reduce their costs of inventory management and labor
Reduction of lead time (the time between the initiation and completion of a production process) Increased efficiency in shipping processes
retailer clients have boosted sales between 2% and 30% after installing tracking devices
Zara– Decreased labor hours and costs
40 employees in 5 hours to 9 employees in 2 hours
– Increased inventory tracking and asset control
Radiofrequency identification (RFID) - uses electromagnetic fields to automatically identify and track tags attached to objects. The tags contain electronically stored information.• retailers can identify approximately 12,000
articles per hour – that’s 20 times faster than using a normal barcoding system.
Vision picking - (using smart glasses to scan boxes in warehouses instead of paper and a handheld scanners) has allowed for time efficiency and error reduction.• Fully automatic tracking of lots and serial
numbers
RFID has potential of
increasing turnover 3-10%
Vision picking = more than 25%
performance increase from
handheld
Sources: DHL, Images: ibtimes.com,, WSJ, IBISWorld
Traditional retailers Retailers with RFID0%
10%20%30%40%50%60%70%80%90%
100%
60%
95%
Percentage of Inventory TrackedFF Inventory
turnover average = 6.05 vs. regular retailers = 2.61
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Technological Advances Efficiency
e-Commerce Presence
High Designer Collaboration
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Surge in US Retail e-Commerce As the transition from Brick and Mortar stores to
online presence increases, fast fashion retailers are focusing greatly on their e-Commerce presence.
Goal of fast fashion: to expedite the process between the fashion designer segment and the retail segment so consumers can receive the styles that they want faster– By utilizing e-Commerce, consumers can
browse clothing options even faster, without having to leave their homes
– Firms can also cut out the transportation from warehouse B&M portion of supply chain less SG&A expense
In order to achieve this goal:– Firm must be incredibly agile– Many local manufacturers– Rapid marketing– Responsive supply chain
Beneficial for fast fashion in particular because consumers are more comfortable purchasing cheaper clothes without trying them on
2012 2013 2014 2015 2016 2017 20180
50
100
150
200
250
183.8 191.1 196.6 201.7 206.2 210.8 215.1
149.4157.1 163.2 169.1 174.8 180.4 185.5
US Digital Shoppers and Buyers, 2012-2018
Digital Shoppers Digital Buyers
Num
ber o
f Sho
pper
s (m
illio
ns)
Sources: IBISWorld, eMarketing, Yieldify
While digital shopping does not always directly lead to purchase, retail execs. claim that it
does translate into an influence throughout the path to purchasing the clothes
Webrooming- bought in store after
browsing digitally- 78% made purchase
Showrooming- Bought digitally after
browsing in store- 72% made purchase
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Technological Advances Efficiency
e-Commerce Presence
High Designer Collaboration
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Collaborations consisting of high-end retailers with lower-price companies surge demand for marked-down luxury items
Lilly at Target = Lilly Pulitzer clothes sold at immense discounts through partnership with Target (Sold in April 2015)
Very popular with consumers – clothes sold out within minutes online and in stores
Collaboration collections are expected to become periodic over the next 5 years (i.e. Balmain at H&M)
High Collaboration Brings Consumers High-end Names at Low Prices
Income for low-price
retailers
Key takeaways:- Collaborations of high-end designers and low-
price retailers appeal to young and low-income consumers
- Collaborations expected to yield periodic lines that will increase consumer retention
Sources: IBISWorld, Target 2015 10-Q, Business of Fashion, Oxford Industries 10-Q
Allow consumers to spend $200 when they feel like they are getting
something that is worth $20,000
Retailers like H&M have paid $1 mill. in direct cash injections to designers
in the past
Q1 2014 Q1 2015$0.00
$2,500.00
$5,000.00
$7,500.00
$10,000.00
$12,500.00
$15,000.00
$17,500.00
$20,000.00
$14,800.00 $17,742.00
Lilly Pulitzer (Oxford Industries NYSE: OXM) Net Earnings (Thousands)
19.9% Growth
Q1 2014 Q1 2015$0.00
$100.00
$200.00
$300.00
$400.00
$500.00
$600.00
$700.00
$418.00
$635.00
Target (NYSE: TGT) Net Earnings (Millions)
52% Growth
Recognition of high-
end designers
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Risk Factors
• Higher production in low income countries (outsourcing)• Sacrifice safety of employees for lower costs• Underpay of employees and factory mishaps
Need to maintain low prices
• Constant addition of new designs to product line and removal of “old products” from shelves
• Increases waste of clothing• Negative effects on the environment
Need to keep clothing line constantly
changing
• Due to this low quality, the color fades after few washes• Nonylphenol –chemical in clothing dye that is exposed to the
body• Nonylphenol is linked to allergic reactions and cancer
Low quality products
Many firms have noticed these risks and have taken measures to mitigate them:- Urban Outfitters’ Urban Renewal Program making clothes from recycled materials- The Better Cotton Initiative involving over 50 retailers- H&M partnered with I:CO to recycle clothing and footwear- Established higher labor and environmental standards for suppliers and made supply
chains more transparent.Sources: IBISWorld, McKinsey&Company
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Comparable Valuation
Ticker Name Price 52 Week Low
52 Week High
Market Cap. EV
Adj. EPS Est.
Current Yr.
Adj. EPS Est. Next
Yr.P/E Inventory
TurnoverPrice
to Sales
EV/EBITDA SG&A/Revenue
GPS GAP 25.61 17.00 30.74 10183.00 10427.00 2.43 2.02 12.28 5.36 0.66 5.07 25.70%
URBN Urban Outfitters 37.51 20.06 40.80 4397.17 4118.82 1.78 2.06 18.80 6.52 0.89 7.98 24.55%
EXPR Express 13.64 11.28 21.57 1070.00 1069.42 1.45 1.05 9.80 6.26 0.48 3.55 24.97%
AEO American Eagle Outfitters 18.08 12.78 19.55 3286.28 3038.35 1.09 1.31 14.82 7.60 0.94 5.99 23.7%
GES Guess? 15.61 13.19 22.84 1320.00 942.92 0.96 0.65 26.04 4.49 1.28 6.33 30.17%
*in millions of USD, expect per share data
High 2.43 2.06 26.04 7.60 1.28 7.98 30.17%
Mean 1.54 1.42 16.35 6.05 0.85 5.78 25.82%
Median 1.45 1.31 14.82 6.26 0.89 5.99 24.97%
Low 0.96 0.65 9.80 4.49 0.48 3.55 23.7%
Sources: Bloomberg, MarketWatch, Google Finance, Morning Star
Margins 5-Year CAGR
Ticker Gross Net Income EBITDA Revenue EBITDA
GPS 36.21% 5.82% 13.39% 1.50% (3.51%)
URBN 34.89% 6.52% 14.41% 8.66% (0.75%)
EXPR 33.3% 4.96% 11.6% 4.28% 1.05%
AEO 36.99% 6.19% 13.31% 7.28% 0.25%
GES 35.72% 3.71% 8.71% (2.39%) (16.47%) Average Inv. Turnover of non fast-fashion clothing retailers = 2.61
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Industry Recommendation
High collaboration
Slow change in prices
Technological advances to
increase turnover
Increasing e-Commerce
Industry Rating: Positive
Highly lucrative industry• 6.31% Revenue CAGR for next 6 years • Strong demand for quick and cheap
clothing
Expectations for higher efficiency in future• e-Commerce instead of B&M
• Lower SG&A expenses• Technological advances
• Strong rates for inventory turnover• Higher average than regular retailers
• Strong gross margins efficiency
Companies to look at for next semester:
NASDAQ: URBNMkt Cap: 4.69B
NYSE: EXPR Mkt Cap: 1.10B
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THANK YOU
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Appendix Industry Definition Why “Fast Fashion?” Revenue Generation Trend 1 – Technological Advances Trend 2 – e-Commerce Trend 3 – Collaboration Risk Factors CompCo Industry Recommendation