Aside from the possibility that the predominantly male investment analyst community might be a tad more focused during Naked Brand Group’s (NASDAQ:NAKD) earnings conferences, there’s not much to get excited about when it comes to NAKD stock.
Yes, Naked Brand owns what should be a compelling mix of undergarment brands. Unfortunately, it seems as if the company is a generation behind fashion trends.
According to the Pew Research Center, millennials represent the largest demographic in the U.S. workforce. Essentially, people in this age bracket are the most relevant generation for business, and will remain so for a long time. Love their quirky ways or hate them, it honestly doesn’t matter. Companies will have to cater to this consumer base or quickly lose relevance.
One look at NAKD stock and you’ll see the devastating consequences of being out of step with this demo. On a year-to-date basis, Naked Brand shares have dropped a staggering 95%.
Most of my InvestorPlace colleagues were bearish on the organization, and for good reason. It was wildly speculative to begin with, and the novel coronavirus pandemic certainly didn’t help.
But the reason for its risky nature came down largely to changes in young consumers’ fashion tastes. For prior generations, acquiring the hottest brands was of great importance. Today, young Americans don’t necessarily want to be walking billboards for corporations. In addition, millennials value their individuality. Therefore, they’re not interested in companies telling them what looks good; they’ll figure that out on their own.
As further evidence, millennials have taken on sustainability concerns to another level. Thus, it’s not just about looking good on the outside but feeling good about the purchases made. This kind of holistic thinking is unprecedented, creating interesting dynamics.
But for NAKD stock, the underlying premium brands are tethered to outdated thinking that just doesn’t resonate with most young consumers. That’s a huge problem and one that Wall Street doesn’t believe Naked Brand Group can resolve.
NAKD Stock Says Something Deeper About the New Normal
In early September, I stated clearly that NAKD stock was a no buy, labeling it as toxic instead. However, I also mentioned that Naked Group is a barometer for the new normal. I still feel that way. Therefore, it’s not a bad idea to watch this otherwise terrible equity unit flounder its way to a potential collapse.
Here’s the deal — if you think about it, NAKD stock should actually enjoy a coronavirus catalyst. As I mentioned last month, people have been cooped up at home. Many have argued that this pent-up demand will cause an explosive spike in retail sales. But there’s another type of explosion that’s being overlooked here.
Beyond the nationwide lockdowns, nearly every aspect of our lives has been disrupted. For instance, not being able to go out for happy hour with your office colleagues is a huge deflator. Not to mention, traditional entertainment venues such as bars, nightclubs, even the library are either closed or have implemented strict mitigation protocols.
If you’re single, it’s not a great time. Beyond the usual butterflies associated with the dating game, people have to worry about a dangerous pandemic on top of it. And while you see folks supposedly putting on a brave face, the hard numbers tell a different story.
For instance, if most Americans were not afraid of Covid-19, you would expect the airline industry to recover more rapidly than it has so far. For the month-to-date, air passenger volume is roughly at 35% capacity relative to the year-ago period.
But it shouldn’t be that low. Right now, many local economies are hurting, not to mention the myriad airliners that are facing a bleak future. All these entities would love your business. If it weren’t for the pandemic, it’d be a great time to travel.
Because of the pandemic though, people are staying home. And it’s the same situation with NAKD stock.
The Undergarment Business Is Badly Exposed
If you look at shares of online dating giant Match Group (NASDAQ:MTCH), you can make a fair assumption that the demand for dating is strong. Since the beginning of the year, MTCH is up nearly 39%.
Really, this is no surprise. Unless there ‘s something madly paradigm altering like a nuclear strike, people will naturally want to get to know each other. Heck, even with the threat of all-out nuclear warfare, people will still be thinking about it.
But what has changed in the new normal is the mechanism to fulfill that need. Right now, folks are in contactless mode. And as ridiculous as it may sound to some, Covid-19 has deeply stricken the American psyche. If it were not so, you would expect NAKD stock to rise higher with MTCH.
Click to EnlargeSource: Chart by Josh Enomoto
As it stands, NAKD did share a reasonably strong correlation with MTCH throughout most of 2020’s first half. But since June 10, the two stocks have an extremely strong inverse correlation. That tells me that while people may want to get together physically, they’re too scared to do so.
In other words, even a shot at sparking romance with that special someone isn’t enough for either gender to buy attractive undergarments. If I look at NAKD stock, it’s almost as if people don’t even care about romance anymore, at least not until we kiss 2020 goodbye.
Of all the companies that could least use a reduction in consumer sentiment, it’s Naked Brand Group. As a result, you basically have just one choice with NAKD stock: stay far away unless of course you’re just observing for sociological research.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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