Is It Any Surprise These Are the Top 2 Clothing Retailer Brands in the World?

By Rich Duprey Markets Fool.com

When it comes to top fashion names, there are probably a few that immediately spring to mind: Armani, Chanel, Dolce & Gabbana, Versace. But from a retail perspective, those high-end luxury names surprisingly don't translate as readily into a valuable brand. Despite being synonymous with fashion, those houses didn't even make the list of the most valuable global brands.

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Image source: Louis Vuitton.

Even a diversified fashion conglomerate like LVMH Moet Hennessey Louis Vitton (NASDAQOTH: LVMHF) that has over 1,500 stores representing 15 different houses was only able to make the list through its Dior house. Sure, many of its brands are leather goods, accessories, or fragrances, but with haute couture names like Emilio Pucci, Givenchy, and Marc Jacobs in its portfolio, you'd think it would have cracked the list more than once.

Yet those luxury names didn't even make the more general list of top global brands, let alone the one for fashion retailers. In fact, you need to go a little down market to find any of the top names in style.

Ruling the runway

According to brand consultancy Interbrand, there's a lot that goes into determining a brand's value. It uses an ISO-certified methodology that looks at how a business delivers on customer expectations compared with what it does to drive economic value, with the rankings based on a brand's cumulative value in three key areas:

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  • The financial performance of the branded products and services.
  • The role the brand plays in influencing customer choice.
  • The strength the brand has to command a premium price or secure earnings for the company.

From that assessment, it organizes the list of top 100 companies. I examined Interbrand's list of the best global companies and sifted out only those that ranked for retail fashion. In the 2016 survey, the Dior brand made its first appearance on the list and came in 89th with a global brand valued at $4.9 billion.

So, which fashion retailers ranked better than Dior, or any of the other LVMH houses, for that matter?

Rank

Brand

Brand Value

Overall Brand Rank

6

Ralph Lauren

$4.09 billion

98

5

Dior

$4.91 billion

89

4

Burberry

$5.36 billion

83

3

Gucci

$9.39 billion

53

2

Zara

$16.77 billion

27

1

H&M

$22.68 billion

20

Data source: Interbrands Best Global Brands 2016.

Make no mistake, there were other fashion labels on the list. LVMH's Louis Vuitton, for example, actually placed 19th with a global brand value of almost $24 billion, while Nike (NYSE: NKE) was 18th with a better than $25 billion valuation. While both are retailers, the former, though it offers luxury couture, is known primarily for its accessories, and the latter its footwear. What we were looking for here were primarily clothing retailers regardless of whether they were high end or the more pedestrian variety.

Fast-forwarding to the front of fashion

What's especially notable about the list is that H&M Hennes & Mauritz (NASDAQOTH: HNNMY) and Zara ranked first and second, respectively. They are the two largest retailers in the world, with Inditex, the Spanish owner of Zara, generating $23.3 billion in global annual sales, up% 15% year over year, and H&M generating $21.2 billion, some 19% higher.

Image source: H&M.

Moreover, they're both the leaders in the fast-fashion trend that has upended retail and taken the American mall by storm by pulling clothes from the runways of Milan and Paris and putting them on shelves at discounted prices in a matter of weeks rather than months. Of course, filling rolling racks with cheap fashion comes at a cost, because although they're very popular, they're not made to last very long, either, and have given rise to the term "disposable clothing."

Regardless, H&M and Zara have reimagined fashion and induced otherwise mainstream retailers like Abercrombie & Fitch and Gap to mimic the style, as well as pushed stodgy department-store chains such as J.C. Penney and Sears Holdings to have a go at introducing fast fashion into their lineups.

A two-horse race

Might these two fashion-forward leaders switch places in the coming year? Quite possibly. Zara owner Inditiex saw quarterly sales growth rise 14.5% in local currencies because it used its short turnaround time frames for fashion to get clothes onto the market that matched changing weather patterns.

Image source: Zara.

H&M, on the other hand, though it saw sales rise 9% for the quarter, missed analyst projections, and its stock took a hit, suggesting Zara will widen its leadership position in retail over H&M and perhaps push it ahead on theInterbreeds list this year as well.

Both H&M and Zara have already improved their position on theInterbreedslist from prior showings, with their brand values rising 2% and 19%, respectively, from 2015. There doesn't appear to be any indication they won't continue to better their placements, and there doesn't seem any other fashion house on the horizon ready to displace them.

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Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Nike. The Motley Fool has a disclosure policy.