Revolve Group Inc., a popular fashion hub among young influencer-obsessed shoppers during the pandemic, is seeing its shares tumble as sales dry up. So, in an attempt to juice the brand, the company is trying something itâs never done before â run an actual store.
The luxury-adjacent retailer uses a marketing strategy thatâs largely about latching onto social media influencers with substantial followings and throwing glitzy parties that they can attend to create an aura of celebrity aspiration among customers. The whole process takes place online, something that had worked beautifully for Revolve, which carries more than 120 brands that are popular with Millennials and Gen-Z, including Golden Goose, Free People and Steve Madden.
But retail trends are changing. Shoppers increasingly want to physically see and try on clothes, creating demand for old fashioned brick-and-mortar stores and forcing online brands to evolve or stagnate.
In response, Revolve launched a limited-time pop-up store in ritzy Aspen, Colorado, in December. In June, the company opened its first permanent physical location at that exact spot. The question now is: Where does it go from here?
â[Revolve has been] reticent to acknowledge the need for stores because they are such an online, tech-forward company,â Dylan Carden, an analyst at William Blair, said in an interview. âNow here they are saying they are going to do it. The risk is that they donât do it wholeheartedly.â
The companyâs issues are reflected in its market capitalisation. Revolveâs valuation peaked in late 2021 during the Covid-19 pandemic, but it has lost roughly 80 percent since then, plunging from $6.4 billion on Nov. 18, 2021, to $1.3 billion, as the shares tumbled from a high of $87.79 to around $19.
That said, Revolve remains a financially attractive business. It has lots of cash and its earnings projections are rising.
Pop-Up Success
Whatâs more, the Aspen pop-up store experiment was a success, chief financial officer Jesse Timmerman said in an interview. Revolve chose the location because it fits with the retailerâs aspirational branding targeting 18- to 35-year-old women. The results exceeded expectations, making a permanent store logical, Timmerman said.
Now the company is looking at locations in luxury destinations like the Hamptons beach towns outside New York or Montecito near Santa Barbara, California. The company also could shoot for a flagship location in a wealthy urban area such as Manhattan or Beverly Hills.
However, investors shouldnât expect Revolve to follow Aritzia Inc., a popular retail brand that started as a brick-and-mortar chain but turned to e-commerce. Its stock has held up better than Revolveâs, dropping around 33 percent from its January 2022 peak, and the company now has more than 100 stores around the world.
âThatâs not our style,â Timmerman said. âWhen opportunities arise, weâll take advantage.â
Wall Street isnât totally sold on Revolveâs plans. Of the 19 analysts covering the company, only eight have buy ratings, whereas nine have holds and two have sells. Aritzia has nine analysts tracking it, with eight buy ratings and one hold.
Revolveâs issue is revenue growth, which started to show signs of life at the start of the second quarter, Barclays analyst Trevor Young wrote in a July 18 note. The company will report its second-quarter earnings on Aug. 6 after the market closes. Young has an underweight recommendation on the stock and a Street-low price target of $14.
The companyâs biggest strength is a solid cash position that gives it the ability to pivot. For the past 20 years, retail has been about âbricks and clicks, and the integration of the physical and digital,â said TD Cowen analyst Oliver Chen, who has a buy rating on the stock. He said physical stores are a ânatural progressionâ for the company.
Another positive is Revolveâs âdata-driven product curation, expansion into menâs and beauty, along with an influencer-led and events-based social-media strategy,â Bloomberg Intelligence analyst Poonam Goyal wrote in a May 7 note.
Indeed, Revolveâs biggest strength may be influencer marketing. For example, the company hosts its own invite-only âRevolve Festivalâ at the annual Coachella music festival and holds attention-grabbing parties made for media publicity.
Social Media Mavens
The company has a knack for building awareness through social media, said Vanessa Flaherty, president of Digital Brand Architects. She said Revolveâs relationship with influencers is symbiotic: Revolve benefits from the influencersâ reach when they promote their clothes, and influencers gain access to the companyâs six million Instagram followers and exclusive events.
For example, Revolve co-hosted a party at the 2022 Super Bowl in Los Angeles with Justin Bieber and Drake performing. It also holds iconic brand trips, where the company sends influencers to luxurious locations for promotions and visibility.
âWe went to Turks and Caicos, which for me was the most exciting thing Iâve probably ever done in my career,â Ella Rose, digital creator and founder of Skin by Ella, said in an interview. A 27-year-old New Yorker who has over 230,000 followers on Instagram, Rose said Revolve was âthe coolest brand I could think of to work withâ when she was first starting out.
Rose described her job as âalmost like an online friend that you have a connection to.â Her followers often send direct messages asking for advice like, âIâm going out on a date this Friday, do you think I should wear this?â she said.
All of which points to the retailerâs growth potential and has investors wondering if Revolveâs stock price has fallen to a âreally attractive point,â said Jordan McNamee, founder of Optimist Fund, which owns Revolve shares.
In light of the companyâs long-term upside, McNamee doesnât believe Revolve necessarily needs physical stores to keep growing. However, he thinks theyâll be key to the companyâs future.
âRevolve will be a big brick-and-mortar retailer over the next 10 to 20 years,â McNamee said. âThat is something Iâm absolutely certain of just because of the ambition of the two founders running the company.â
By Emily Forgash