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How You Should Be Thinking About The Health Of A Retail Business

At the outset, 2020 was shaping up to be a good year for retail, buoyed by low unemployment and a strong consumer base. However, the COVID-19 coronavirus became a global pandemic, forcing thousands of businesses to close and endangering the existence of high d

Benzinga · 05/15/2020 23:58

At the outset, 2020 was shaping up to be a good year for retail, buoyed by low unemployment and a strong consumer base.

However, the COVID-19 coronavirus became a global pandemic, forcing thousands of businesses to close and endangering the existence of high debt, low profitability retailers.

As part of the development, Trendalytics CEO Cecile Lee, alongside COO Jennifer Chang, spoke with Benzinga regarding the use of alternative data in reducing investment portfolio risk amid prolonged retail sector turmoil.

About Trendalytics

Trendalytics is a subscription-based, product intelligence company that empowers decision making with data and analytics.

Think of the company’s insights as a crystal ball for retailers to know exactly which trends to buy more of and which ones are on their way out.

“We’re mainly focused on the fashion and apparel space,” Lee said. “You would use our platform as a buyer, a product developer, or merchandiser, to understand what are your whitespace opportunities, what are your competitors doing, and what are consumer interests.”

The Trendalytics platform demystifies consumer insights, increasing transparency over the supply and demand dynamics of the retail market.

Investing On Data-Driven Insights

With markets in turmoil, the opportunity for restructurings and growth post-coronavirus is an expectation amongst many long-term investors.

Neiman Marcus and J.Crew are two retail chains that recently fell victim to their heavy debt and outdated business models.

“Neiman Marcus just declared bankruptcy,” Lee said. “It is, however, an opportunity to get rid of some of those stores that they’ve probably been wanting to get rid of for a long time.”

Lee’s perspective is in line with recent reports; rating agency Fitch suggested the bankruptcies could result in helpful liquidations, with brands utilizing “the tools in a chapter 11 process to shed less profitable locations and deleverage its balance sheet of billions of dollars in debt, through a form of recapitalization, leaving it a much stronger company when it emerges from bankruptcy.”

Trendalytics comes into the picture as a holistic solution to forward-looking retail decision-making.

The firm pools data from alternative sources, such as social media and search engines, triangulates engagement, identifies emerging trends, and predicts the performance of product offerings.

“Consumers are leading trends as opposed to the retailers,” Chang said. “Social media makes everything more immediate. It’s really the consumer telling you what they’re interested in.”

Trendalytics data not only supports retailers in identifying emerging trends, but that same insight can be used to make educated investment decisions.

“Say some big public brand said their new growth strategy for next year is predicated on relating to the millennial audience,” said Lee. “You can use social media as a proxy to determine how effective those strategies are. You can also look at the pricing models to determine whether Macy Inc’s (NYSE: M) discounts have succeeded.”

“These are the types of metrics we can supply.”

‘Innovate Or Die’: Economics, Long-Term Trajectory

After stay-at-home orders are lifted, organizations will need to change business models and trim personnel.

“I had a prospect tell me his organization just fundamentally didn’t understand the word prediction when it comes to data and trends,” Lee said. “And so, I think there’s going to be a necessary kind of paring down. There’s just no way that they can keep those levels of personnel."

With the recent downturn increasing the probability of bankruptcies and permanent closures within the retail sector, investors too must learn of the emerging trends in the industry, and properly position their portfolios for sustained growth in a two-sided market decoupled from fundamentals.

“Organizations have to get more nimble in order to survive,” Lee added. “The name of the game for fashion is innovate or die.”

To access a holistic portfolio of actionable, data-driven retail insights, please visit www.trendalytics.co.

Photo by Shan Patel from Pexels.