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The Reddit Effect Is Coming for Fashion Stocks

Reddit’s WallStreetBets forum pulled off a viral campaign to catapult shares of GameStop up nearly 650 percent. Now, small investors are targeting other struggling brick-and-mortar retailers – including fashion brands.
Reddit logo. Getty.
Reddit logo. Getty. (SOPA Images)

The Reddit stock craze began with GameStop, but it’s coming for fashion.

Denizens of the site’s WallStreetBets forum are behind a campaign that helped catapult shares of the struggling video game retailer nearly 650 percent higher in the last two weeks. Their plan was simple: small investors piled into an unloved stock, causing billions of dollars in paper losses for hedge funds and other large investors that had bet its value would sink lower.

The short sellers haven’t backed off their bets on GameStop so far. But Wall Street analysts predict that Redditors will try the tactic on a number of other struggling retailers. Already, Express, a mall mainstay, has seen its share price more than double this week. J.Jill and Chico’s are also ripe targets, analysts say.

The payoff for the Reddit crew remains elusive: in theory, short sellers will have to buy stock to exit their money-losing positions. So far, few have done so, no doubt betting they can outlast their assailants. Some new shareholders in GameStop, Express and other much-shorted stocks say they have a genuine belief in the future of brick-and-mortar retail, or that these companies can pull off a digital transformation that revives sales.


We’ve just never seen anything like this before.

For fashion brands caught up in the chaos, share price fluctuations will have little immediate impact on operations. But in many respects, the dynamic of small investors taking on market giants – and possibly winning – is uncharted territory.

“We’ve just never seen anything like this before,” said Jen Redding, a retail analyst at Wedbush Securities. “It’s historic because you’ve never had a retail investment platform that could move shares like that in such a big way.”

Express shares spiked after Twitter personality Will Meade drew parallels between the apparel chain and GameStop. He speculated that Express could pull off an e-commerce turnaround and cited a recent $140 million cash injection from Sycamore Partners and Wells Fargo. Express shares jumped from $1.79 at the end of last week to as high as $4.44 on Monday – the stock’s highest value since the start of the pandemic – before giving up some of those gains to end Tuesday at $3.04.

Express did not immediately respond to requests for comment.

For brands, an artificial jump in stock price does not affect the health of the business, nor is it an accurate reflection of their market value. But institutional investors must pay attention to what’s going on via Reddit and other social media platforms because their stakes can be significantly altered when thousands of ordinary people decide to band together, Redding said. Corporations too must be transparent in explaining to shareholders why their stock is seeing sudden movement.

The trend of amateur investors organising stock stampedes on social media will likely persist as GameStop continues to surge, said B. Riley FBR analyst Susan Anderson.

“Until these guys get burned, they’ll continue these tactics,” she said. She said certain fashion retailers are attracting attention from Reddit because they have low market capitalisations, and it therefore takes less money moving into the stock to raise their value. J.Jill, which avoided bankruptcy in September after agreeing to restructure its debt, is valued at $40 million, for example.

One WallStreetBets user told BoF they were betting that brick-and-mortar chains could boost digital sales and that the market would someday value them like e-commerce stocks.


That’s an optimistic scenario to put it generously, analysts say. Express, for one, is “haemorrhaging cash” as the pandemic saps demand for work apparel, Redding said in a recent research note.

“Some of these companies aren’t even targeting [e-commerce] at that level,” she said. “At the end of the day, it’s a speculative thesis.”

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