Fashion IPOs fail, but retail potential remains on Wall Street – WWD

The IPO is complete.

But even with inbound shares falling sharply and the market disrupted by war, inflation and the pandemic, investors might have rediscovered their love of fashion, retail and consumer stocks.

Fashion and businesses from nearly every walk of life benefited from the epic pandemic rally on Wall Street last year, when investors rejoiced at strong consumer spending, government stimulus measures and the way the he economy was generally able to adjust to the strains of the pandemic once the first lockdowns and panic began. finished.

“There was this long run-up,” said consultant Matthew Katz, managing partner of SSA & Company. “Everything seemed to be going well everywhere. Wherever you looked, the market was rising.

This bull market is not only recovering, but it is plagued by a host of worries: Russia’s war in Ukraine is scrambling the economy and the global geopolitical order; the Federal Reserve raised interest rates to bring inflation back from 40-year highs, and the COVID-19 pandemic persists, entering a new phase that is still uncertain.

On Friday, the Dow Jones Industrial Average fell 981.36 points, or 2.8%, to 33,811.40 on signs of further interest rate hikes underway.

The steadily rising market that fueled IPOs last year is now awash in volatility.

Katz described it as “a market for traders, not a market for short-term investors”.

“You don’t want to be in the IPO market with day-to-day uncertainty about how the market is going to react,” he said.

The slowdown in IPOs perhaps says more about Wall Street right now than it does about the retail and fashion industry, where over the past two years weaker players have gone bankrupt and the strongest players cut excessive costs and focused on digital – and communicated this direction to consumers.

“I don’t think COVID[-19] created the opportunity,” Katz said. “COVID[-19] demanded this story. It was a total shock event. It was perhaps the lifeline of retail. It was an opportunity for healthy companies to analyze unhealthy stores. It was an opportunity for real estate to reset itself.

The fashion industry has become refined and toned.

And while inflation is a concern and is expected to bite more into consumer spending on fashion, retailers have other aces going for them.

Hemant Kalbag, managing director of Alvarez & Marsal’s retail group, said the companies have upped the retail game. Many, for example, have focused on delivering faster and better e-commerce orders while improving operations.

“Companies that have solved their fundamental problems over the past two years … will be in an excellent position to benefit from the economy as it opens up,” Kalbag said. “Just like in 2021 when we saw all this acceleration in demand on all things home and home improvement, I anticipate we’re going to see some tailwinds for demand on fashion as travel, offices and social events open.”

This will help retail IPOs when the market opens.

And there are companies that seem to be preparing to move. Private equity giant L Catterton is reportedly considering an IPO once the market calms down, as is one of its investments, Rihanna’s Savage x Fenty.

But for now, the offers are more or less on hiatus. Of course, a break is in order.

In the past year, Allbirds Inc., Rent the Runway Inc., On Holding, ThredUp Inc., Poshmark Inc., Olaplex Holdings Inc., and many more IPOs have emerged. (Some others took a slightly different route to the public market, including Zegna, which entered into a SPAC deal, and Warby Parker Inc., which arranged a direct listing).

And that was just the tip of the iceberg. In total, there were a record 1,035 U.S. IPOs last year, a 120.4% jump from 2020, another record year, according to Stockanalysis.com. By contrast, there have been only 89 IPOs so far this year, a 79.6% year-over-year decline.

“The market was expected to experience a downturn through 2022,” said Lear Beyer, co-head of equity capital markets at corporate and investment bank Wells Fargo. “Maintaining this level of activity was almost impossible.”

Many of last year’s darlings have already fallen out of favor.

Beyer said shares of companies that went public last year are now collectively down 28% since their offering date. And three-quarters of last year’s IPOs are trading below their issue price.

“It’s a pretty brutal number,” he said.

There are distinctions to be made in the declines, Beyer said, noting that companies that posted earnings before interest, taxes, depreciation and amortization saw their shares fall about 13% since their offering, while those that lost saw their shares drop 50%.

“You have this macro environment which is challenging, but we had a market last year which was all about growth at all costs,” he said. “Now growth is taking precedence over profitability.”

So when the IPO market reopens – as it invariably will – it will be the strongest players lining up and ready to go.

“Companies that are clearly profitable will clearly lead the resurgence of the IPO market,” Beyer said, adding that the strongest candidates will also be mature, scale and operate in industries where barriers to entry are high.

While another rush like the one seen in 2021 isn’t expected, Beyer said the retail IPO market isn’t returning to the slump seen before the pandemic either.

“We’re going to see a pretty healthy pipeline of retail IPOs,” he predicted. “It will be higher than it had been historically.”

Meanwhile, a group of companies have jumped at the chance to raise money and raise awareness in a boiling IPO market and are now looking to grow in their new roles.

Rent the Runway, for example, raised $357 million in its October IPO, but saw its stock drop from $21 to less than $6 per share.

While this signals a marked change in the tone of the market, chief executive Jennifer Hyman told WWD this month that “2022 is going to be our year” and the rental company now has the cash it needs. to become cash flow positive – which would be a big milestone for the company.

“There’s a lot more education we need to do about this model, how different it is, the unique competitive moats we’ve built,” Hyman said of going public.

James Reinhart, CEO of resale market ThredUp, is also looking to change hearts and minds on Wall Street, having raised $175 million in its March 2021 IPO but saw the company’s shares tumble at less than 8 dollars against 14 dollars when it was offered.

“Investors have moved away from what were very compelling growth stories for a while,” Reinhart said in a recent interview. “Investors say, ‘Hey, maybe I want to change my view on some of these growth companies.’ I think investors, however, are also a group that really respects companies that build great companies, great [total addressable markets] with large ditches. And so I think part of my job is to help investors understand that.

Big losses follow big debut in IPO game

Most of 2021’s high-profile retail and fashion offerings are now caught in a down market.

IPO date IPO price 04/22/22 Switch
Poshmark Inc. January 14, 2021 $42.00 $12.08 -71.2%
Mytheresa January 21, 2021 $26.00 $11.76 -54.8%
Thred Up Inc. March 26, 2021 $14.00 $7.34 -47.6%
The Honest Company Inc. May 5, 2021 $16.00 $4.18 -73.9%
Figs Inc. May 27, 2021 $22.00 $15.85 -28%
About Holding SA Sep 15, 2021 $24.00 $26.01 8.4%
Aka Brands Holding Corp. Sep 22, 2021 $11.00 $3.79 -65.6%
Warby Parker Inc. September 29, 2021 $40.00 $23.26 -41.9%
Olaplex Management Inc. Sep 30, 2021 $21.00 $14.09 -32.9%
Rent the track inc. October 27, 2021 $21.00 $5.55 -73.6%
Allbirds Inc. November 3, 2021 $15.00 $5.13 -65.8%
Lulu’s Fashion Lounge Holdings Inc. November 11, 2021 $16.00 $9.39 -41.3%
Source: Stockanalysis.com

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