In-depth reports | Fashion IPO funding wave cooled down, but Wall Street is still full of confidence

Since last year, the continuation of the epidemic and geopolitical conflicts have exposed global economic development to downside risks.

But even so, the global capital market has always maintained a high degree of activity. The IPO and merger boom within the big fashion industry has made the market realize that even if the shadow of risk lingers, capital is still full of optimism about the fashion field. Although fashion products are not a necessity in a broad sense, it is precisely because of this that as many countries have successively cancelled epidemic prevention and control measures and introduced consumption stimulus plans, consumers have enough reasons to spend more on non-necessities, and "retaliatory consumption" has also promoted the recovery of the global fashion consumer market.

It is precisely because the capital market has seen the resilience of the fashion sector to deal with risks and the strong momentum of recovery that it has always maintained confidence in it. However, entering this year, financing and mergers and acquisitions in the fashion sector have cooled down. Some analysts pointed out that the reason is the high inflation in the European and American markets and the intensification of geopolitical conflicts between Russia and Ukraine. Against this backdrop, the Fed's constant signals of interest rate hikes have made the market worry about whether the US economy will fall into recession as a result, and the Russian-Ukrainian conflict has disrupted the energy market, and many stock markets around the world have recently entered bear markets. As a result, IPOs in the fashion sector have slowed down.

However, Matthew Katz, managing partner and consultant of SSA & Company, told WWD that although IPOs in the fashion sector are currently slowing down, they will become more and more IPO projects in the future as the market environment improves.

Hemant Kalbag, managing director of Alvarez & Marsal Consumer Retail Group, believes that while inflation is a concern and it is expected that this phenomenon will dampen spending on fashion consumption by European and American consumers, retailers are also actively adjusting their strategies and strengthening their ability to cope with the crisis, so that they can once again seize the opportunity when the environment improves.

"Many companies have increased their investments in the retail channel. For example, many businesses focus on delivering e-commerce orders faster and better when improving their operations. Over the past few years, companies that have been able to address core issues will be in a better position to benefit from a stronger economic recovery. I expect consumer demand for fashion products to rise further as travel, offline office and social events resume. ”

The recovery of the fashion consumer market will also increase the willingness of capital to flow into the fashion sector. For example, in the near future, some insiders said that once the market environment stabilizes, L Catterton, a private equity firm under the LVMH Group, will consider an IPO, one of its investments is the pop female singer Rihanna's personal brand Savage x Fenty.

Rihanna's personal brand Savage x Fenty

Since last year, the market has not only witnessed the IPO of well-known fashion brands and retailers such as Allbirds, Rent the Runway, On Angpao, ThredUp, Poshmark, Olaplex Holdings, etc., but also seen some Zegna Groups that have gone public with SPAC. However, this is just the tip of the iceberg in last year's IPO boom, according to Stockanalysis.com data, last year's IPO in the United States alone reached a record 1035, an increase of 120.4% over 2020. In contrast, there are only 89 IPOs so far this year, down 79.6% year-on-year.

On Ang Run

Lear Beyer, Co-Head of Equity Capital Markets at Wells Fargo, told WWD: "The market will slow down in 2022. It is almost impossible for the market to sustain last year's high-frequency IPOs. Shares of companies listed last year are now collectively down about 28 percent from when they were issued, and three-quarters of all IPOs last year traded below the issue price. ”

However, Lear Beyer also stressed that in this challenging macro environment, although the market focused on growth at all costs last year, in the face of increased uncertainties, the market's ability to focus on growth is giving way to profitability. "So when the market recovers, IPOs will pick up again."

While there won't be another boom like 2021, Lear Beyer said the retail IPO market won't return to the pre-pandemic slump.

On the other hand, according to a survey by wealth management group Charles Schwab, about 16% of new retail investors during the epidemic were Gen Z. In addition, in the past year, many venture capital firms have grown significantly, with thousands of Gen Z members joining.

Along with the strong rise of Gen Z investors, capital is gradually optimistic about the fashion industry.

In fact, the fashion circle has never lacked entrepreneurs, from independent brands, to buyers, to fashion e-commerce, etc., each segment has a steady stream of fresh blood. However, fashion is rarely regarded as a mainstream business trend by the outside world because of its high-end attributes, so it is difficult to be hyped up and sought after as a huge venture capital outlet. Among them, the apparel industry has been rated as "the industry forgotten by capital". Under the background of the financial industry and the Internet industry with hundreds of millions of financing scales, the situation of the apparel industry is even more bleak to the naked eye, and the difficulty of financing and the small amount of money have become a tacit fact in the industry.

Allbirds

Some analysts pointed out that the reason why the apparel industry has not been favored by capital for a long time is mainly because clothing is essentially a traditional industry, the technical content is low, and the market is relatively stable. In contrast, high-tech industries with clear profit prospects are more likely to be favored by investors. But with the change of consumption pattern, the east wind of the times has slowly blown to the fashion industry, and now even investors in the non-fashion field have begun to enter the fashion industry.

Taken together, although the market is full of uncertainty, capital is still full of confidence in the resilience of the fashion industry to resist risks. As the market environment gradually improves, ipos in the fashion retail sector will increase again, even if they will not return to the peak of the previous year, but they are bound to develop in a healthier and more stable direction. WWD

Written by Jason

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