Bombed Out Fashion

Wartime comments in the media are hardly an auspicious backdrop for big volumes of discretionary spending. Zalando and Zara’s share prices are suffering from the same worries - i.e. fear about tomorrow (let's hoard cash) and spending arbitrages (from Gucci down to Zara down to Shein). In short, the money going into war bonds will not be burned on the latest fashion items.

It takes a brave Shein to continue to work on a London listing when Inditex has shed 17% over the last month, thereby confirming that going downhill is easier. Oh and Asos has shed 35% over the same period and will soon test the patience of its bond holders.

Back in 2024 the fashion side of Non Food Retail was supported by a belief that, were genuine luxury to slow down, cheap luxury would take over. And it did for a while as US pockets/credit card limits could accommodate ever more discretionary spending. That window seems to be closing as the Trump creed is facing a harsher reality, including dearer foreign goods. Other parts of Non Food Retail such as Travel have also been hurt. 

For sentiment to become more positive, it will take a while. The Ukraine war may be getting closer to a ceasefire but the reality of Europe being alone in facing the Russian bear is only starting to sink in. It is now likely that spending on security and defence will be a protracted effort with higher taxes/lower social spending to pay for the bill.

Trading at more than 20x 2025 earnings that now look set be trimmed, the sector is too expensive and this observation is not limited to Inditex.

The sector afforded a level of protection at a time when Europe was starting to tighten the noose on Shein and Temu for their impact on the environment but this is no longer likely to be high on the Brussels agenda. In other words even that sort of protection may turn out to be missing.