Ralph Lauren Corporation (NYSE:RL) and Capri Holdings, owner of iconic brands that include Versace, Jimmy Choo and Michael Kors, are in the top quartile of the clothing and textile industry when it comes to marketing spend, analysts at UBS said in The 2023 Market Spend Report.
Not only that, but their marketing spend as a percentage of sales has increased by an average of 245 basis points since 2019.
That’s important in a ‘softlines’ marketing environment where digital marketing return-on-investment is under pressure, the report said, referring to goods such as clothing, linen and jewelry.
The UBS analysts maintain that companies with the greatest resources are best positioned to adapt with future marketing strategies, investment in membership and loyalty programs, and utilisation of generative artificial intelligence (AI).
“Plus, taking a step back, for most Softline companies, their brand names are their most important asset,” the analysts wrote.
“Therefore, it is critical, in our view, that Softline companies invest in their brands. Thus even though higher marketing spend doesn't always correlate to high sales/profit growth rates, we generally prefer to see companies invest more in their brands rather than less.”
The analysts say they look for companies where marketing as a percentage of sales is not only high relative to peers but also has increased significantly over the past few years.
Ralph Lauren and Capri — which UBS rates as Buys — tick those boxes.
“We believe the market doesn’t realize how large these companies' marketing budgets have become and underestimates the impact the incremental marketing investment will have on each company's top line,” the analysts said.
Other Buy-rated stocks that screen well in the UBS analysis include Deckers Outdoor Corporation (dba Deckers Brands), ON Holding and Signet Jewelers.
Contact the author at stephen.gunnion@proactiveinvestors.com