Disappointed in Clothing Retailers

As a little shopping bug gnawed away at my wallet last weekend, I decided to dig in to a few of my favorite clothing retailers' annual reports when I got home and see what excitement lay hidden within.

I'm not sure what I was expecting when I started delving into my stack of 10-Ks. I think I had imagined gripping psychological twists of brand power and innovation funded by the stack of cash missing from my bank account.

Unfortunately, all I found was a really boring way to spend a weekend.

All of these things are just like the others
I mean, it all started out well enough. The Gap (NYSE: GPS  ) has been expanding internationally? Neat! Oh, but so has American Eagle (NYSE: AEO  ) , and both companies are also focusing on integrating mobile commerce, the new phenomenon of consumers shopping via cellphone, both to help them decide what they want and to make the actual transactions (this doesn't include tablets).

While mobile commerce may spur sales for these companies, it isn't indicative of a sustainable competitive advantage since it can be easily replicated by any competitor.

Moving on, I read that both Chico's FAS (NYSE: CHS  ) and Ann Taylor (NYSE: ANN  ) are opening up more outlet stores and focusing on e-commerce (online sales made through computers and tablets -- very popular in the U.S.). Those are smart strategies to keep up with new consumer spending habits, but again, both strategies are easily replicated.

Well, Ann Taylor also redesigned its stores' interiors to stay fresh and exciting!

Ah, but so did Gap...

And so it went on, an endless circle of monotony.

Well, how were the numbers?
Gap, Ann Taylor, and Chico's all boosted their earnings per share last year by purchasing, or authorizing the purchase of, common stock. This looked promising for the industry as a whole, and hey, both Ann Taylor and Chico's had great timing, snagging back stock at low prices. A glimmer of hope!

Next I moved on to the comparable store sales to see if any of these brands was seeing more strength than others. Unfortunately, I found nothing to write home about. Most of the numbers are respectable but within range of one another. The standout here is Gap, finishing with negative same-store sales growth.

Company

Q3 Comparable Store Sales

Ann Taylor 5.5%
American Eagle 5.0%
Chico's 3.1%
Gap (5.0%)

Source: Companies' quarterly press releases.

Finally, in a Foolish effort to be thorough, I took a look at how the stock of each company had performed over the last year when compared to the S&P 500. Not terribly inspiring:

Leaving empty-handed
And that's how I spent my weekend, Fools. I wanted desperately to find the company with a strong competitive advantage among these companies but could not identify one. With these companies, innovation overlaps and easily mimicked strategies create a highly competitive landscape with little distinction between this group.

However
Innovation overlaps between companies, and brand power ends up being volatile based on trends in the fashion industry. Lululemon (Nasdaq: LULU  ) , for example, blows all of the above companies off the charts. It's experienced monumental growth over the last few years and currently enjoys pretty strong brand power. But how long will yoga and loungewear be popular? And what's to stop another company from coming in and doing the exact same thing?

My takeaway from all of this, though, is a true understanding of just how competitive this industry is from company to company. No single company can get the sustainable competitive advantage necessary to really take off.

Add to that the rise in cotton and fuel prices that hit these companies hard over the summer, and I just don't feel safe putting my money there for the long term.

Outside of clothiers in the sector, though, the retail industry has plenty to offer. If you want to check out a more promising retail play with a company poised for explosive global growth, then click here to read a special free report about The Motley Fool's Top Stock for 2012.

Fool contributor Amanda Buchanan holds no position in any company mentioned and is still mourning the loss of her weekend. Click here to see her holdings. The Motley Fool owns shares of Gap and lululemon athletica. Motley Fool newsletter services have recommended buying shares of lululemon athletica. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1736215, ~/Articles/ArticleHandler.aspx, 10/23/2014 10:51:43 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement