As a truly global industry, it’s perhaps not surprising that the fashion sector took a major hit during the coronavirus crisis.
What was different about this economic shock was that much of the world was confined to their homes, meaning nobody felt the need to go out and splash large sums of money on new clothes and so the industry suffered.
However, now many of the fashion world’s key markets have emerged from lockdown, the outlook for many of the sector’s biggest names is looking significantly better.
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That said, this crisis has affected firms in different ways, with the online-focused firms emerging the clear winners. Whether that remains true a few years from now really depends on whether Covid-19 has permanently changed consumers’ shopping habits.
As we noted in our coverage on the Chinese fashion market in the early stages of the pandemic, digital sales are becoming an increasingly important part of the luxury goods investing game.
But which are the big fashion stocks to watch as we move towards the end of the pandemic?
Asos: e-commerce boom during lockdown
The expansion troubles that dogged ASOS (LSE:ASC) for much of last year are now firmly behind it and it has shown during this crisis why it was once considered a stock market darling among investors. Being an online business only, it has been able to capitalise on the e-commerce boom during lockdown without being weighed down by an extensive and costly store network like fast fashion rival Zara.
“The online channel has been gaining popularity for years, but it feels as though it has made a huge leap during this crisis,” says Adam Vettese, analyst with eToro. “If it can maintain that momentum, firms such as Asos will surely benefit.”
Burberry: exposure to the Asian market
The fact Burberry (LSE:BRBY) produces luxury goods and is so reliant on Asia meant that is has suffered a double whammy hit from the pandemic. We went into this in some detail earlier this year when we identified Burberry as a key benchmark of the health of the East Asia fashion market.
“When times get tough, luxury items are the first to be cut from household spending, which causes revenues to dive at firms such as Burberry,” observes Vettese. “And with China being a key market and the first country to go into lockdown, Burberry was one of the first British firms to show signs of strain because of the pandemic.”
However, in the past month or so, things have begun to look more positive for Burberry shares, with the Chinese economy and consumer spending both on the rebound. Of course, Burberry’s immediate prospects will depend on whether there is a second coronavirus wave, but the same can be said of nearly all firms.
LVMH: massive collection of luxury brands
Much of the recent talk around LVMH (EPA:MC) has been around its decision to pull out of a $16 billion deal to buy New York-based luxury jeweler and retailer Tiffany & Co. In all honesty, that is hardly surprising given the current climate, with firms from all sectors unwilling to commit to major acquisitions such as this one.
“The hope for investors now is that LVMH does not get sucked into a bitter and expensive legal battle with Tiffany’s,” says Vettese. “Even if it does, LVMH makes a compelling investment case.”
Not only have LVMH shares recovered well since March’s sell-off, but the strengthening Chinese economy should stoke demand for its luxury goods among the country’s burgeoning middle classes. On top of that, it houses one of, if not the most impressive collection of luxury brands in the entire world, meaning it should profit when demand for these items fully returns.