Brands are Dead!

What kind of Ads do you see on Facebook/Instagram?

Over the past few years Facebook has exploded with advertisements from upstart companies that offer monthly deliveries of consumer goods (think dollar shave club) or clothing and other consumer/household goods. They tend to specialize in one or two products and all claim to be of premium quality. The retail industry calls them called "Direct to Consumer" brands. Over the last few months I've been wondering if most of these "boutique" companies will burn through their cash and go out of business or if they are actually taking market share away from brand name retailers. I came across this article today: http://ift.tt/2cL7ftt

Companies like Facebook, Twitter, Amazon and Google are creating ever more effective ways to gauge advertising effectiveness and consumer engagement - which is great for both the advertisers and their customers - the upstart retailers. This results in an environment where it is easier than ever for new companies to reach their target audience and project sales to maximize their use of cash while minimizing lead time.

Branding was important in the pre-internet era as the consumer looked for products they could trust. Before the internet, news and information spread more slowly which was an advantage to companies that had built up a trusted brand. As the internet and targeted advertisements allows for new companies to gain credibility and reach their target audience more cheaply, quickly and effectively than ever before, it will be harder and harder for the big brands to justify their higher price points. This will lead to a reduction in margins and weaken the value of building a brand. New upstarts with no physical footprint and low costs will outperform.

Lululemon is a company that has started at an interesting time in this shift in retail. They hit the nail on the head succeeding in the retail environment through branding a lifestyle over a product branding to gain an edge - They preach "Mindfulness". I don't think it will last simply because of the speed at which new companies can match quality and beat on price.

Maybe I'm nuts, but this is how I see the future 10-15 years from now.

There are too many companies to name, but I think many of the high p/e brand name companies are in trouble. I'm especially bearish on the first two companies on the list and companies like them.

In order of my opinion from most to least affected companies:

1) VFC: (The North Face, Vans, Timberland, Kipling, Napapijri, Jansport, Reef, Smartwool, Eastpak, lucy, and Eagle Creek brands) Forward P/E 22

2) LB (L Brands - Victoria’s Secret, Pink, Bath & Body Works, La Senza, Henri Bendel, C.O. Bigelow, White Barn Candle ): Forward P/E 17.3

3) GPS (Gap - Gap, Banana Republic, Old Navy, Athleta, and Intermix brands.) Forward PE 12.43

4) KORS (Michael Kor's) Forward P/E 10

5) JWN (Nordstrom): Forward P/E 17.2

6) COH (Coach): Forward P/E 14.83

7) RL (Ralph Lauren): Forward P/E 16.63

8) LULU (LuluLemon): Forward P/E 25.3

9) UA (Under Armor): Forward P/E 50.49

10) NKE (Nike) Forward P/E 19.36

Not saying you can short them now, but I think this is a huge macro-trend in retail that is here. I wouldn't hold for the long term. Obviously people have picked up on this because most of these companies have been crushed recently. Making this connection with the trend I've seen in advertising solidifies the trend for me. The main counter argument to this thesis is that these companies under the right management could use their cash to minimize their physical footprint and succeed in online retailing, but it would be at a much slower rate than new companies can pop up.

I'd love to hear counterarguments because I see some of these companies going to zero in the next decade!

tl;dr Your loss!

Submitted September 28, 2016 at 09:52PM by BriSny_Science_Guy http://ift.tt/2d65KFZ