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John Engle
John Engle
Articles (570) 

Online Fashion Companies Aim to Do What Amazon Could Not

Several companies are moving into a market the e-commerce giant has failed to dominate

October 29, 2018 | About:

While Amazon.com Inc. (NASDAQ:AMZN) has risen to dominance in virtually all aspects of online retail and e-commerce, there has been one persistent nut it has failed to crack: luxury. Especially luxury resale.

Let’s take a look at the players trying to succeed where Amazon has failed.

Stitch Fix: Personalization through algos and experts

Stitch Fix Inc. (NASDAQ:SFIX), a fashion technology e-commerce company, exploded onto the stock market in late 2017 and quickly won over an eager market. The company is carving a particular niche through a specialized fashion-forward business model that focuses on delivering customers packaged collections customized to their tastes and looks. This is achieved through an ever-improving algorithmic program, as well as a bevy of talented experts.

An initial public offering valuation of $1.6 billion quickly ballooned thanks to rapid revenue growth. High costs remained a concern, which we discussed in a fairly positive research note published in July.


At that time, shares had already nearly doubled from their IPO. Since then, the share price doubled again by the start of October. But, when Stitch Fix reported fourth-quarter earnings on Oct. 3, shares tumbled more than 50% before leveling off. Despite the disappointing results, Stitch Fix recorded its highest quarterly gross margin in fiscal year 2018, topping fourth-quarter 2017’s mark by 90 basis points.


While revised guidance pushed the price down, the online fashion revolution has started and Stitch Fix continues to look like an attractive play on a growing sector.

Farfetch: Fashion marketplace

Farfetch Ltd. (NYSE:FTCH), a London-based online luxury fashion marketplace, recently joined Stitch Fix in the public market. The company held its IPO on Sept. 21. The market reacted enthusiastically to its debut: Farfetch priced its shares at $17-19, but they opened the day at $27 and hit an intraday high of $30.60. On a revenue basis, Farfetch claimed a higher relative valuation than Amazon.


The ebullience did not last, however, and shares have since fallen back to their IPO level. Some retracing is to be expected from the aftermath of hot IPOs. Its price undoubtedly suffered some contagion at the hands of the Stitch Fix drop. But, unlike Stitch Fix, Farfetch still commands a quite eye-watering valuation.

Now the question is whether the stock can retain its valuation, or even see a pop, when it starts formally reporting financials as a public company. But it is indicative of the immense hunger for this kind of online fashion marketplace.

The next big thing?

With two recent IPOs in the online fashion space, it is worth thinking about what might come next. We have been doing extensive research into a number of fashion strartups that could present similar opportunities. One that caught our eye is Luxury Garage Sale, an omnichannel retailer specializing in luxury designer consignment. It has defined this new market as “luxury re-commerce.”

While still a very new enterprise, Luxury Garage Sale offers an unusual take on the online fashion experience. First is its focus on the niche of luxury re-commerce. Resale of luxury products, and fashion in particular, has proven to be a hard nut to crack for many online retailers. Luxury Garage Sale is pioneering the concept of luxury re-commerce as a way to bring the experiential aspects of the luxury shopping experience to an online platform.

Whether this model will be proven out over time remains to be seen, but it is working to bridge an essential gulf for luxury shoppers. While there is no plan for this upstart to go public anytime soon, it is certainly one for investors and industry watchers to keep an eye on.

Disclosure: No positions.

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About the author:

John Engle
John Engle is president of Almington Capital Merchant Bankers and chief investment officer of the Cannabis Capital Group. John specializes in value and special situation strategies. He holds a bachelor's degree in economics from Trinity College Dublin, a diploma in finance from the London School of Economics and an MBA from the University of Oxford.

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