Luxury online retail is turning up the heat this year, so how will these competing stocks fare in the race to be the best of the best?
Jan. 14, 2021
Two of the most impressive stocks in retail are likely to go head to head this year as the luxury e-commerce industry made a rather impressive comeback in 2020. This year expects to see both Stitch Fix (NASDAQ: SFIX) and Farfetch (NYSE: FTCH) mark gains as 2021 will continue the trend of digitalized services. These conditions create the perfect opportunity for these two innovative companies to expand their businesses over the next 12 months.
Stitch Fix and monster growth
For Stitch Fix, 2021 should see further high growth as the brand becomes more and more popular amongst the retail community. Established in CEO Katrina Lake’s apartment in 2011, it went public in 2017, with Lake becoming the youngest-ever female tech CEO to take a company public.
But what Stitch Fix offers is a personalized service that uses a clever algorithm to hone in on the best styles to suit each user personally. Over the last year, it has seen patches of slow revenue growth as many of its users cut back on spending in 2020, followed by a booming 10% growth in sales for its fiscal quarter ending October 31, 2020.
Despite having a slow first half of the year, this did not stop it from using the pandemic as an opportunity to implement new and innovative changes to its service. Currently, Stitch Fix has implemented new features such as ‘Shop Your Looks’, ‘Trending For You’, and ‘Fix Preview’. These features have the potential to appeal to millions of customers who would enjoy the familiarity of the features from other platforms, but also the control that they would have over the items that the stylist picks out for them.
This is paying off as the company added over 240’000 clients last quarter. Add this to the fact that around 80% of all its customers bought at least one item last year and Stitch Fix looks like a good option for investors looking to invest in a small company with lots of potential.
This personal shopping retailer’s stock is currently up more than 170% year-over-year (YoY). Its strength lies in its ability to build a strong client base and utilizing data science to enhance each user’s experience. Furthermore, Stitch Fix is generating momentum within the industry as many analysts are taking note of its impressive business.
How will Farfetch compete
Farfetch is a front runner in the luxury fashion digitization trend. Indeed, the company reported over 70% in revenue growth last year and its stock surged in December in response to the news. There are 4 reasons why Farfetch will be in direct competition with Stitch Fix:
1. A niche market
Whilst luxury retail has digitized much slower than the wider apparel industry, Farfetch and Stitch Fix both offer high-end brands at lower prices than through the original retailer. Stitch Fix might personalize its offering, but Farfetch allows the browser to dive straight into specific brands that they like.
2. Never underestimate Gen Z
In a social-media-dominated world of new-age entrepreneurship, young consumers are heavily reliant on image, and one way to boost one’s image is through luxury items. As the leading e-retailer in luxury fashion, Fetch and Stitch-Fix will be a popular destination for these shoppers.
3. First-mover advantages
Today, Farfetch is the largest luxury fashion online marketplace in the world, with 1,200-plus luxury sellers and more than 2.5 million active consumers. If anyone is going to become the ‘Amazon of luxury fashion’, it’s Farfetch. On the other hand, if Stitch Fix continue on their trajectory, Fetch will be hard-pressed to keep up with the science that fuels Stitch Fix’s growth.
4. It’s got a big backer
The ‘Amazon of China’ is backing the ‘Amazon of luxury fashion’ now, after Farfetch recently announced a big partnership with Chinese e-commerce juggernaut Alibaba. With Chinese consumers accounting for 35% of global luxury spending in 2019, exposure in the world’s fastest-growing economy is a massive boost. In this respect, I believe Farfetch has the upper hand when it comes to global expansion.
So, what does this mean for investors?
Currently, it means that luxury retail in the investment space is a hot topic and likely to stick around for a while. Investors should watch this market as companies like Amazon attempt to move into the retail space. However, Stitch Fix and Farfetch both have their own niche which the likes of a big retailer will not be able to compete in.
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.