Figuring out how just how much a company is worth or how it should be positioned for the future is tough in the best of times — and only harder with a pandemic scrambling the market.
But even in the midst of crisis there is something fashion companies can do to strengthen both — understand and smooth out variability in their operations.
So said Greg Petro, chief executive officer of retail analytics firm First Insight, and Jonathan Duskin, ceo of activist investor Macellum Capital Management, in a discussion that also touched on the nature of shareholder activism and what investors want.
“Variability is the biggest risk factor to valuation,” Petro said. “The concept of not having visibility and decreasing variability represent an enormous challenge for many companies and many executives.”
Understanding consumer behavior — especially as it’s changing so quickly during the pandemic — can help companies plan better, making for happier shoppers and fatter margins.
“It’s important for companies to understand [consumer behavior] and to constantly keep a pulse as to where they’re headed” to build a smoother business, Petro said.
“A company could look to decreasing variability or at a minimum understanding that volatility and where the risk factors are,” he said.
By way of example, he pointed to First Insight data showing the disconnect between shopper intentions and the expectations of executives running fashion companies.
“We found that customers in two product categories expect to buy online at two times higher than executives and that happens to be apparel and footwear in the coming weeks and months,” Petro said.
And he said there are more opportunities for retailers to use technology — in stores, online, in their planning and more — to move from reacting to consumer trends to anticipating them and being prepared ahead of time.
A steadier business is certainly rewarded by investors, who are willing to pay up for predictability, driving higher valuations.
“It’s clearly about consistently executing your plan and delivery results,” Duskin said. “Investors want to see stability and low volatility, they want to see consistency and…transparency.
“They want to know the details around how you’re delivering [on your business plan], what you’re delivering because they want to know it’s replicable, that it can happen year in and year out and that you can continue to do this,” he said. “If they don’t, they tend to discount future cash flow.”
Wall Street is looking beyond the next quarter or two and looking for signs of who will win post pandemic.
“As we emerge from the COVID-19 crisis and start to look out to the horizon a little more, the most important thing that the board and executives can do is build that long-term plan,” Duskin said. “Share that vision with your investors, the investors want to come on this journey with you, they want to know how we’re going to get from Point A to Point B to Point C.”
Duskin, whose company has pursued activist campaigns on Perry Ellis, CitiTrends, Christopher & Banks and more, said investors can also help steer companies in the right direction.
He acknowledged the at-times controversial role of “activist” investors.
“For some, it can be a four-letter word, but there’s a lot of brands of activism,” Duskin said. “We like to think of ourselves as the private equity approach to public markets. We’re really constructivists. We’re really attempting to fix businesses that are struggling. When we approach activism, we really do think of it as trying to create shareholder value by improving operations in a company.”
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