In Fashion: The Late Holiday Sell-off

Investors seem to be playing the Grinch.

Shares of key fashion retailers and brands slumped their way through the last full week before Christmas, with companies as diverse as Real Real Inc., Mytheresa, Rent the Runway Inc., American Eagle Outfitters and Revolve Group all logging declines of more than 10 percent. (See chart on the week’s top decliners below).

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The industry has held up amazingly well despite the pandemic, proving itself to be fleet of foot as it pivoted to e-commerce, adapted its in-store approach and raced to compensate for the global supply chain backups.

But the official November sales report disappointed this week — total retail and food service sales rose just 0.3 percent compared with October, lagging the 0.8 percent increase economists projected.

And next year is still a big question mark, with the Omicron variant threatening another big wave of COVID-19 infections and more social distancing.

Add in that consumers will have less government stimulus to lean on and it seems like some investors are taking a holiday break from retail that could stretch well into the New Year.

“The stellar growth in 2021 will be that much more difficult to match because of mounting challenges, including supply constraints, labor shortages, increasing input costs and new emerging coronavirus variants,” said debt watchdog Moody’s Investors Service in a recent outlook. “The pent-up demand we have seen for goods this year is also at risk of reversing to the extent consumers return to pre-pandemic spending patterns on categories such as commuting expenses and leisure activities.”

A lot of companies in fashion spent 2020 reinventing and planning to first survive and then thrive post-pandemic. The pandemic didn’t end in 2021, but consumers did spend enough to make it look like those plans to capture them were working.

Turns out, 2022 could be the real test.

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