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Goldman analyst keen on specialty retailers


Specialty brands are the rising star in the retail industry, according to Goldman Sachs analyst Lindsay Drucker Mann.

Mann said in a research note Tuesday that the investment opportunity in specialty retail brands is more favorable today than it has been in decades, with a new generation of stores that are poised to take big market share and force evolution in the retail industry.

Shares of several retailers rose in Tuesday trading amid a broader market rally.

The analyst sees two retail formats as the most attractive: branded accessories stores such as Tumi and Michael Kors and the next-generation of fast-fashion, niche retailers like Tilly's and Francesca's.

"The disruptive force these models bring to bear is not yet well understood; we see them driving lasting change in the specialty sector," she said in a note.

The analyst said the new models offer consumers a niche experience that is different than what is offered in most retail stores. She said this period is akin to 1996 when a new breed of retailers, like Abercrombie & Fitch, American Eagle, Old Navy and Urban Outfitters, did the same thing by establishing brand-centric, unique experiences in their stores and then grew quickly to become household names.

Mann has a conviction list "Buy" rating on clothing and accessories company Michael Kors Holdings Ltd. and high-end luggage maker Tumi Holdings Inc. for their ability to drive home unique "lifestyle" appeal in their stores. She also has a "Buy" on teen clothing retailer Tilly's Inc. and women's clothing and accessories retailer Francesca's Holdings Corp. for combining a boutique setting with the responsiveness of a fast-fashion retailer.

Traditional or established retailers are facing intense competition, fickle consumers and a distance from suppliers that makes it difficult to rapidly respond to changing demands. Mann said that getting behind new opportunities yields better returns over time than investing based on trends at established stores.

"We think disruptive retail is the biggest investment opportunity the sector has seen in decades," the analyst wrote.

Tumi shares rose 97 cents, or 4.6 percent, to $21.90 in afternoon trading. Michael Kors rose $1.41, or 2.8 percent to $51.16. Tilly's picked up 33 cents, or 2.5 percent, to $13.75 and Francesca's added 65 cents, or 2.9 percent, to $23.19.


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