Athleisure Popularity has Legs, Leaving High Fashion in the Dust

Athleisure Popularity has Legs, Leaving High Fashion in the Dust

PR Newswire

NEW YORK, October 16, 2018

NEW YORK, October 16, 2018 /PRNewswire/ --

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Makers of urban athletic wear or 'athleisure' are winning market share and growing profits as consumers dump major fast fashion brands. Companies such as Respect Your Universe, or RYU Apparel Inc. (TSX-V: RYU) (OTC: RYPPF) are serving a growing desire among Gen X and Millennials to wear athletic-inspired clothing that crosses over into the casual wear category. Under Armour (NYSE:UA) has been adapting its product lines to the growing athleisure trend by featuring star athletes such as Steph Curry to promote the company's new Threadborne line, although the move was not appreciated by the market and the stock price reflected it pretty clearly. The death of fast fashion is a major challenge to the survival of established retail players such as Foot Locker Inc. (NYSE: FL) and Skechers (NYSE: SKX) who have previously thrived on fast fashion models. Conglomerate PVH Corp. (NYSE: PVH) is trying to keep up with these sweeping changes through its designer labels such as Calvin Klein and Tommy Hilfiger.  

Major retail brands such as Hennes & Mauritz AB (H&M) and Macy's Inc. have been forced to shut down stores and cut prices this year to shift unsold inventory reaching into the billions of dollars. The industry has labelled the trend the "death of retail", spelling the end of a profitable spell for companies that embraced fashion trends with high-volume, low-cost products and high inventory turns.

The Death Of Fast Fashion  

Major fashion retailers are losing customers to nimble athleisure brands such as RYU Apparel Inc. (TSX.V:RYU) (OTCQB:RYPPF) who are winning over consumers with high-quality sports apparel that can also be worn as casual wear even at the office. RYU, short for Respect Your Universe, charges fair prices for its models and achieves higher margins, resulting in fewer inventory issues than fast fashion brands like H&M or Zara. RYU prices are highly competitive when compared to established brands like Lululemon or the top lines of Nike, such as NikeLab, Nike Tech Pack, and Adidas Originals.

The company's entire product line is under 100 items, compared to the many thousands offered at any one time by fast fashion retailers. This high volume approach has backfired on retailers like H&M, who is reportedly sitting on more than $4 billion of unsold inventory according to Bloomberg.

The athleisure boom has not been lost on the major brands in the industry. Nike has captured part of this market through its Off White x Nike label endorsed by tennis star Serena Williams. The label gained notoriety earlier this year when the French Open banned Williams from wearing a black catsuit that helped the athlete prevent blood clots. Under Armour Inc. has captured market share from both Adidas and Nike by straddling the space between conventional athletics apparel and urban athletics trends.  

An athleisure-led strategy has helped RYU Apparel Inc. (TSXV:RYU.V) (OTCQB:RYPPF) achieve sustainable growth at an early stage in its development. The company reported a gross profit margin of 46%, or $3.01 million in 2017, versus C$1.4 million in 2016. That trend continued into 2018, with a Q1 gross profit of C$907,815, or an annualized rate of C$3.6 million. These numbers are generally unheard of in the sportswear space, where retailers often require years to establish a brand and build a customer base.

RYU Apparel's (TSX.V:RYU) (OTCQB:RYPPF) business model leverages experiential retail hubs to promote its products and increase brand awareness. The company plans to open between 4-6 stores per year moving forward, expanding beyond its eight retail hubs currently in operation across North America. RYU's stores enhance its experiential connection with customers through in-store classes, seminars, and workshops, all of which demonstrate the store's quality products.

A New Challenger In Athleisure  

RYU CEO Marcello Leone is leveraging a life in fashion to capitalize on this new trend. He hired several former executives of Lululemon, a highly successful yoga wear brand, to help transform the company into something special. RYU has since evolved to create products that define athleisure, including the company's iconic backpacks and signature apparel. Leone personally involves himself in each design RYU makes. The company won a 'best workout and training gear of fall 2017' award from Men's Fitness.

RYU boasts an impressive line of core products, including the company's patent-protected TriLayr waistband training pants that never need to be adjusted during a workout. RYU's proprietary OutLayr fabrics ensure its outerwear performs well in the rainy climate of Vancouver, a standard that will perform excellently in urban environment, such as Toronto or New York. RYU is also known for its iconic backpacks, including the Locker Pack, which is patented and designed to keep its shape while at the gym or in a locker. The company's innovations earned RYU a nomination for the Retail Startup of The Year by the World Retail Awards.

Some of RYU's main competitors in the athleisure space are beginning to take notice of the company's encroachment on its main market. Lululemon, one of the most established brands in the category, recently fought RYU's attempt to trademark their own products. Lululemon eventually rescinded all objections after RYU was able to prove first use of the trademark.

As a leader in the athleisure space, RYU has the potential to grab a significant market share of a rapidly growing fashion sector. After posting revenue of $3-million in 2017, the company plans to accelerate growth by expanding product lines within the athleisure sector. As more and more competitors cater to the athleisure trend, first-movers such as RYU Apparel Inc. (TSX.V:RYU) (OTC:RYPPF) have the potential to benefit from the significant market expansion.

Major Brands Catching Up To Athleisure  

Under Armour (NYSE:UA): Under Armour has reacted to the sweeping athleisure trend by creating their own athleisure line, Threadborne, to cater to the new segment. The company signed NBA Star Steph Curry, tennis star Andy Roddick, and ballet dancer Misty Copeland to promote the line. While Under Armour CEO Kevin Plank has kept the company's athleisure sales numbers private, he has addressed the trend by stating Under Armour is hitting their internal benchmarks for the segment.

Foot Locker Inc. (NYSE:FL): Foot Locker is a New York-based sports footwear retailer that has expanded to 28 countries. The company, the successor corporation to retailer F. W. Woolworth, sells a collection of footwear from major brands including Adidas and Nike. The company recently announced a strategic investment of $15-million USD into women's activewear maker Carbon38 in order to serve the growing athleisure space. Foot Locker's second quarter revenue rose 3.9% to $1.78 billion, much of which was driven by online sales.

Skechers U.S.A. Inc (NYSE:SKX): Skechers is a global lifestyle and performance brand specializing in footwear. The company has begun targeting the athleisure market through their signature 'YOU by Skechers' collection which offers functional performance wear for women on the go. Skechers has responded well to the athleisure trend, posting $1.25 billion in sales in Q1 of 2018.

PVH Corp. (NYSE:PVH): PVH is one of the world's largest apparel companies with almost $9 billion in revenue last year. PVH holds Calvin Klein, Tommy Hilfiger, Van Heusen, Izod, Arrow, Speedo, Warner's, Olga, Geoffrey Beene and True&Co. in its portfolio. PVH boosted its second quarter by 13%, driven by strong demand for the company's designer lifestyle brands including Calvin Klein, which has targeted the trend through its athleisure-inspired 'Calvin Klein Jeans Established 1987' line.  

For a FREE research report on RYU Apparel Inc. (TSX.V:RYU) (OTCQB:RYPPF), visit Microsmallcap.com.

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