There were two announcements in two weeks about traditional consumer direct brands that ‘caved’ and explored a wholesale model:
1) ANF entered an agreement to sell through German-based Zalando, giving it access to 18mm active customers and 15 European markets.
2) J Crew announced that it will be selling through Nordstrom starting on September 12 (this has been rumored, but is now ‘officially’ out there).
The bottom line is that any brand that is stuck in a legacy selling mode in this day and age is toast. Brands need to strengthen, and distribution needs to evolve – especially if the underlying stock is going to trade at 30x+ earnings like LULU.
We doubt LULU will go wholesale, though it needs it desperately if it is going to fish where the fish are. It can deny it for only so long until the company’s results demand it.
We still think next year’s numbers are too high by 10-15% for LULU and would short on near-term strength in the model.
See our note from earlier today (LULU | The Rubber Meets The Road) for more detail on the quarter.