Fast-fashion stores still feeling the heat as people increasingly shop online


FILE PHOTO: A Zara clothing store on the Bahnhofstrasse shopping street in Zurich, Switzerland November 27, 2017. REUTERS/Arnd Wiegmann/File Photo

London: Europe’s fast-fashion retail stocks are back in the spotlight.

After a disastrous 2018, hurt by the summer heatwave and increased discounting, the shares are beating the benchmark Stoxx 600 Index this year.

Yet, not all are doing well in equal measure. Inditex, owner of the Zara chain, has fallen out of favour with investors, according to Citigroup analyst Adam Cochrane, and today’s quarterly results will be a chance for the Spanish retailer to show whether its sales target for the year is on track.

Swedish fashion giant H&M reports revenue next week and the strength of its recovery will be key.

Shares for both companies, which have an extensive high-street presence, lag behind the performance of their online-only peers.

Zalando shares, for instance, are up 61% this year, making them the third-best performer in the Stoxx 600.

Investors have been attracted to the growth profiles of online retailers as people increasingly shop via smartphones and tablets.

In the United States, online fashion retailer Revolve Group has been making a splash with investors after pricing shares in its initial public offering at the top end of a marketed range last week. The stock has nearly doubled since it began trading on Friday.

“Online retail is still relatively underpenetrated,” says Gavin Launder, a fund manager at Legal & General Investment Management.

“Barriers to entry are pretty low – it’s a bit of tech spending, really, and given the size of the market, there isn’t really any barrier to growing either.”

When investors support companies such as Asos, Boohoo or Zalando, they’re backing the management team’s ability to carry the right product, Launder says.

The valuation ratios of the three are well above those of Inditex and H&M. — Bloomberg

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