Belt tightening of a different kind
Here’s an investment theme worth watching, especially if weight loss drugs such as Ozempic start to experience mass adoption in Australia.
In the U.S., apparel retailers are capitalising on the weight loss trend in what is perhaps an unexpected way.
While blockbuster weight loss drugs like Ozempic have already reduced the need for diet plans and affected food consumption patterns, the clothing industry is witnessing a different impact – millions of Americans are now slimmer than they have previously been, and the consequent celebration and confidence are resulting in a wave of wardrobe refreshing. This is also no doubt accelerated by the interconnectedness through social media.
According to some reports, many newly slender consumers aren’t merely replacing old clothes in smaller sizes; they are shifting to more form-fitting and daring designs such as outfits featuring adjustable corsets instead of zippers and incorporating more sheer materials to highlight their new figures.
Clothing retailers are beginning to quantify the shift with some suggesting five per cent of customers are purchasing new outfits due to weight loss, resulting in margin improvement because the smaller sized outfits require less fabric, reducing fabric costs. Other retailers are reporting a significant rise in sales of sizes 0-8 and a decline in the plus-size range of 18-24.
White label Polo shirt supplier, AllStar Logo, which supplies polo shirts to large corporations, has reported a halving of demand for its largest sizes over the past year, and a rapid shift to at least one size down.
Elsewhere, Impact Analytics reported a 10.9 per cent decrease in sales of the largest women’s button-down shirts in the first quarter of 2024 compared two years earlier. Conversely, sales of the smallest sizes increased by 12.1 per cent. The company’s CEO noted the magnitude of this change in sizes is unprecedented and therefore unusual.
With individuals losing as much as 30 kilograms, their buying behaviours not only reflect the shift in size, but also a shift in attitude. This is something Australian apparel retailers might need to be prepared for.
A Gallup survey in March revealed more than 15 million U.S. adults, have now tried injectable weight loss drugs and 75 per cent of them said they were highly effective for weight loss.
We have previously noted here at the blog that despite their efficacy, weight-loss drugs are not universally successful, and they can be frightfully expensive. Moreover, most consumers regain significant weight when the weight loss treatment is paused or concluded.
But sales of the drugs could continue to expand with Nestlé launching a new food line for those on weight-loss medication, and WW International, formerly Weight Watchers (NASDAQ:WW), reportedly acquiring a telehealth service that facilitates prescriptions for drugs like Ozempic.
For every positive of course, there’s a negative and this time it could be on the sales of plus-size clothing sales. Companies with ‘big & tall” collections may have to rethink their strategies.
The shift in sizes might have gone unnoticed but for its magnitude. As Ozempic and its competing drugs gain more adoption, we may yet see positive and negative impacts on Australian listed retailers, and it may yet require wholesale shifts on market strategies and product lines for many others.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
