If we’ve learned anything from the last few months, it’s that you should never underestimate the power of the internet. That goes for fundamentally flawed companies like Naked Brand Group (NASDAQ:NAKD). Indeed, in the topsy-turvy world of social media, the more flawed, the likelier it is to spark coordinated bullish momentum. Such is the craziness behind NAKD stock.
Still, it’s fair to wonder how sustainable this dynamic really is for Naked Brand. Prior to the pandemic, bearish traders heavily targeted NAKD stock for the underlying company’s loss of relevance with younger consumers. Unlike other generations of youthful consumers, millennials and Generation Z care less about branded fashion and more about price. Further, social responsibility guides their purchasing behavior, an area which is neither Naked’s strength nor weakness.
Plus, we’re talking about skivvies. If it looks good, who really cares about the label?
NAKD Stock Gets a Catalyst
As our own Brenden Rearick reported, NAKD stock may finally have a catalyst that isn’t all about egging other traders on through aggressively bullish posts and threads. Naked revealed that Ault Global Holdings (NYSEMKT:DPW) was the significant stakeholder that earlier caused much excitement among NAKD supporters. Ault Global has a 6.4% stake in the apparel company.
As well, early this year, Naked announced a “transformative” business restructuring plan, which involves transitioning to e-commerce. And that also entails “Divesting unprofitable brick-and-mortar operations through the sale of Bendon subsidiary to deliver a strong balance sheet and access to capital markets to execute e-commerce growth strategy.”
On paper, it seems like a good move, considering that e-commerce took a greater share of total retail sales during the pandemic last year.
With the disclosure of Ault’s stake, it lends credibility to Naked’s ambitions. Nevertheless, prospective buyers should remain on guard.
Still Facing Serious Hurdles
Due to lockdowns and other limitations on non-essential activities, online channels represented a lifeline for struggling retailers that had the ability to pivot. I understand why companies find e-commerce appealing today. But there’s also a risk that investments like NAKD stock are banking too heavily on this retail method.
For one thing, while e-commerce saw a huge spike in engagement because of the pandemic, it’s also come down from its peak. Back in the second quarter of 2020, 16% of total retail sales were conducted online. In Q3, it dipped to 14.2% and in Q4, down to 14%.
On a year-over-year comparison, the number of people buying stuff online represents a dramatic increase. But the decline from the peak also suggests that online shopping isn’t for everyone. On the whole, they’re more expensive and inconvenient — i.e., shipping time vs. gratification — than running to the store and getting whatever you want on the spot.
Specific to NAKD stock, the underlying products, especially lingerie, don’t lend themselves well to online purchases. Also, with so many businesses transitioning to e-commerce, it puts pressure on the broader product return mechanism.
In other words, it’s great that Naked is moving to e-commerce. But this likely won’t be a wholly accretive move. By shifting to e-commerce, you must accept the sector’s pros and cons, and one of the toughest cons of e-commerce is dealing with product returns in a quick, efficient manner.
Personally, I think it’s dicey for Naked because it’s under the gun. But we’ll see what happens.
Another challenges rests with shifting consumer trends. Because of the novel coronavirus, young people have incorporated additional steps to their dating lives for protection. Car-to-car meetups and virtual dating are becoming the norm in courtship but it also lengthens the time to where intimacy happens.
And that means, without getting into graphic details, that there’s not much of an urgency to buy attractive undergarments.
Speculators Could Scalp Some Profits
Despite the reservations that I listed above, I go back to my original point. You can’t underestimate the power of the internet. If you have a system that can exploit sentiment on social media as buying signals, you may be able to scalp some quick profits off NAKD stock.
But if you’re a buy-and-hold investor, there’s not much here for you. A modest bet on the basis of you-never-know-what-happens might work out but I doubt it.
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.
