Brands and Retailers: What is the state of the marketing landscape

Deutsche Bank says rising customer acquisition costs are forcing retail and apparel brands to increase or reallocate marketing budgets, likely pressuring margins across the sector. Birkenstock, Burlington, and Ross Stores are seen as potential beneficiaries, while Bath & Body Works, Lululemon, Nike, and Ulta Beauty may need to spend more to defend share. The article is more of a sector commentary than a company-specific catalyst, but it highlights a clear headwind for profitability in 2026.

Analysis

This is less a generic “marketing spend goes up” story than a margin re-rating event across discretionary retail. The key second-order effect is that customer acquisition inflation tends to punish brands with weak first-party data, fragmented loyalty, or low repeat purchase frequency because they must keep paying the open market for demand, while omnichannel/value chains can amortize spend over higher purchase cadence and better conversion. That creates a widening operating leverage gap: the losers do not just spend more, they spend less efficiently, so EBITDA pressure can compound over several quarters even if revenue looks fine.

The market is likely underestimating how asymmetric this is for incumbent “defenders” versus growth brands. For premium names, higher CAC can force either lower promo discipline or higher marketing intensity, which usually bleeds gross margin into SG&A within 1-2 quarters; for off-price and broad value players, incremental spend can be more accretive because store traffic and basket conversion are easier to harvest once a shopper is in the ecosystem. That supports the relative setup in TJX/ROST/FIVE/RL versus names that already need heavy brand maintenance to keep share, where every extra dollar spent has diminishing returns.

The contrarian risk is that consensus may be too quick to extrapolate a multi-year spend escalation when some of the pressure is cyclical and easily reversed by softer consumer demand. If household budgets tighten further, brands often slash experimental spend first and protect only performance channels, which can temporarily lower CAC inflation and reward the strongest balance sheets. Also, a broad AI-driven shift in ad targeting could compress acquisition costs faster than expected, leaving the most aggressive spenders with little durable advantage after a few quarters.

For positioning, the cleaner expression is relative value: long the names with data-rich customer loops and short the brands forced into catch-up spending. The trade works best over the next 1-3 quarters, before management teams either reset guidance or are forced into margin-guidance cuts. Volatility should rise into earnings as investors focus less on revenue growth and more on the quality and payback of that growth.

Key Decisions for Investors

• Long TJX / short BBWI on a 1-2 quarter horizon: TJX can turn incremental marketing into traffic more efficiently, while BBWI is more likely to fund spend with margin compression; target 1.5-2.0x spread capture if execution divergence shows up in next earnings cycle.
• Long ROST / short ULTA as a relative-margin pair: off-price traffic should remain more resilient to CAC inflation, while ULTA faces a higher burden to defend engagement; use into earnings with a stop if ULTA shows unexpected spend leverage improvement.
• Buy call spreads in FIVE over the next 2-4 weeks: higher wallet-share sensitivity and younger customer behavior create more upside if management leans into marketing without a sharp margin reset; structure for limited downside and 2:1+ upside if comp traffic improves.
• Fade NKE on rallies via put spreads for the next 1-2 quarters: brand defense spending is likely to stay elevated, and any miss on marketing efficiency can hit operating margin before top-line softness is visible.
• Stay neutral-to-long RL as the cleaner quality-growth beneficiary: if marketing inflation persists, heritage brands with pricing power and clearer customer segmentation should hold up better than fashion-led peers; use pullbacks rather than chasing momentum.