German investment bank Berenberg has initiated coverage of three fashion retailers, Joules Group PLC (LON:JOUL), Quiz PLC (LON:QUIZ), and N Brown Group PLC (LON:BWNG), as it assessed their ability to compete in the “challenging” UK retail environment as it continued its shift online.
The bank’s analysts said that due to the struggles faced by bricks and mortar retailers, companies with “nimble, omni-channel” business models that were not burdened by legacy store costs could thrive in the new market environment.
READ: Joules expects profits to be slightly ahead of expectations
However, they added that as consumers were increasingly able to compare prices and products across multiple categories “from the palm of their hand”, a retailer’s ability to differentiate itself was becoming paramount to maintaining a competitive advantage.
Joules, which Berenberg initiated with a ‘buy’ rating and 360p price target, had a differentiated product offering and omni-channel business model that “should allow it to continue capturing share”, with strong cash conversion and a “healthy balance sheet” paving the way for further investment and surplus returns for shareholders, analysts said.
Berenberg was less optimistic about Quiz and N Brown, which were both initiated with ‘hold’ ratings and price targets of 80p and 130p respectively.
READ: QUIZ shares plummet as House of Fraser collapse prompts profit warning
For Quiz, the bank said its business model “clearly had benefits with regards to adaptability”, however after online sales through third-party websites missed expectations in the first half of the year, there were signs that the space had become “exceptionally competitive, which may limit Quiz’s growth potential in the UK”.
Analysts also cited the overhanging risk from Quiz’s offering through struggling department store chain Debenhams PLC (LON:DEB) which could be “detrimental to earnings”.
On N Brown, Berenberg said the retailer, which focuses on the ‘plus-size’ market, could see top-line growth “slow materially” in the medium term as the shift to online retailing reduced the opportunity cost of stocking plus-size clothing.
READ: Jacamo and Simply Be owner N Brown mulls store closures
As a result, the bank said the material increase in competition in the space was expected to continue, with N Brown at risk of falling behind in differentiation.
In mid-morning trading Tuesday, Joules shares were up 0.8% at 295p, while Quiz shares were down 7.7% at 57p and N Brown shares were down 2% at 130.1p.