Beanie Babies, Tamagotchis, fidget spinners, heelys, silly bandz, pogs, pet rocks, mood rings, cabbage patch kids… Every generation has its share of fad products, fashion statements, and hairstyles. But what separates a fad from a sustainable trend? Understanding the difference between the two can be challenging. Emerging brands are difficult to analyse. But there lies a great opportunity for those willing to wade through swill. It’s not as easy as one might think. Once upon a time, there were individuals who branded the internet as a fad. Paul Krugman, a Nobel Prize-winning economist, once said the following about the internet, in 1998:
“The growth of the Internet will slow drastically, as the flaw in ‘Metcalfe’s law’—which states that the number of potential connections in a network is proportional to the square of the number of participants—becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s”.
He couldn’t have been more wrong if he tried. But it’s not just the internet; smartphones were once thought to be an unnecessary luxury suited only to working environments. Social media, streaming services, e-commerce, credit cards. There is a long list of revolutionary trends initially mistaken as fads. The consumer, regardless of their foresight, ultimately benefits from sustaining trends that improve the quality of their lives. Meanwhile, the investor, through error of omission, can suffer the consequences of opportunity cost. They may equally fall victim to a perceived trend which is in fact, a fad.
I want to pause and define a few things.
Fads arrive quickly and dissipate: A fad is a fidget spinner. We can define a fad as an object or behaviour that achieves short-lived popularity and then fades away. Often catalysed by excitement, emotion, or social influence, fads are seldom born from functionality or necessity. More style, less substance.
Trends stick around: Trends tend to get strong over time, persist longer, and solve problems. Contrary to a fad, trends are not a “moment” they are a “movement”. Trends are born on the foundation of functionality. They are not perpetual, however. While they stick around longer than fads, they are susceptible to obscurity.
Sustainable trends have a second act: Trends can dissipate too, but what separates a trend that persists for 3 years from one that lasts 3 decades? How does one feel comfortable investing in a trend without knowing if it has legs?
Todd Wenning once put it to me in this way. He said, “The best angle I’ve heard on the topic is to wait until they establish a successful second front - [a] successful second product line. Most fads are one-trick ponies who can’t build upon the success”. Both fads and trends at their inception are somewhat speculative; unproven, relatively untested, and with scant history. A successful second act might act as a safeguard to the investor; a litmus test of sorts, which implies a company has evolved from one riding a trend to one which is building a sustainable business.
Second acts
This discussion has been percolating in my head since late last year when someone posed the question of whether or not Lululemon, the Canadian technical apparel brand, was a fad. I thought to myself; “It’s been a fad long in the making, if that were to be true”. Punch in “Lululemon fad” with any year from 2008 to 2020 and you are bound to find a repetitive stream of articles with headlines reading something along the lines of:
“Lululemon: a newer Nike ... or Heelys?” - The Street, 2010
“Are the Better Days Behind for Lululemon?” - Forbes, 2012
“Great Company, Terrible Investment” - Nasdaq, 2012
“Has Lululemon reached its peak?” - FT, 2020
Back in circa 2010-2012, hedge fund manager, Whitney Tilson, was short Lululemon, remarking that “it looks like a fad to me--It's yoga clothing! We think the fad could pass and are quite certain that the valuation is extreme”. Lululemon has had an interesting past. The former founder and CEO was an unsavoury character who garnered notoriety for his exclusionary comments towards women. Despite being ousted more than a decade ago, he still occasionally circulates in the news lambasting his former company. Nonetheless, even during Chip Wilson’s reign, when the stock went nowhere for several years, the fundamental picture of the company never faltered.

The company, once cast off as a yoga-centric fad, discovered its second act. The business transformed from one which primarily sold women’s leggings and yoga mats, to one which catered to the entirety of what is now called “athleisure”; although current CEO, Calvin McDonald, prefers the term “technical apparel”. Lululemon began to capture the attention of men through their flagship ABC (anti-ball crushing) pants which served as a comfortable, yet formal, attire to introduce them to the brand. As well as widening their SKUs to cover all manner of sports, they now sell a wide range of jackets, casual wear, accessories, and more recently, shoes. This transformation coincided with an international expansion which saw the number of stores outside of North America expand from just 11 in 2010 to 255 today (the total store count expanded from 133 to 686 over the same period). Some other examples of successful second acts include:
Nike: Originally in the business of shoes, Nike would branch out to cover sports clothing and equipment more broadly.
Lego: After flirting with bankruptcy in the early 2000s, Lego began to leverage its brand power around licensing deals, creating theme Lego sets with hot IP such as Star Wars and Harry Potter, and branching out into video games, movies, and theme parks.
Netflix: While Netflix started life delivering DVDs by mail, its early pivot into streaming cemented its history. But it wasn’t all plain sailing. Sometime in the mid-2010s, Netflix began to fund and create its own unique, and critically acclaimed, content.
Amazon: Once a humble online bookseller, Amazon would prove its formula worked when becoming the mall of the internet later in its maturation. Today, they have since branched out into cloud services, streaming, and more.
Crocs: Originally marketed as a lightweight, grippy, and comfortable boating shoe, Crocs were somewhat of a late bloomer. Often ridiculed for their ugly appearance, Crocs would persist and lean into the comfortable fashion trend that took place in the mid-late 2000s. With some strategic collaborations and expanded designs, the shoe began to crop up in fashion circles and is now seeing a resurgence in popularity.
No trend lasts forever, and while some of the companies I share in these examples may eventually fade away, they have proven themselves to be capable of surviving more than a handful of years. They capitalised on a growing movement and built a company around it.
Durability of trends
The question of durability is an important one. Some trends appear to be more predictable than others. Put differently, the dispersion of outcomes appears to be narrower. For example, it might be more difficult to identify whether or not the yoga trend that Lululemon initially rode upon would persist long enough for them to evolve into their second act, where brand power took over. Any trend related to fashion can be as fickle as their consumers. Health and fitness is another notoriously fad-ish industry. Environmental, regulatory, or technological trends, such as the succession of ICE vehicles by EVs might appear to be more intuitive; governments are mandating that ICE vehicles are to lose support in the coming decades. Naturally, such as the nature of the industry, a small group of companies are set to capitalise.
Trends may fall into any one of, or a collection, of the following: technological, economic, social, cultural, political, regulatory, environmental, demographic, health, fashion, communication, workplace, and I am sure there are more. It’s important to identify what bucket a trend falls into, ascertain if it’s structural or a matter of changing tastes, and so on. Understanding the fundamentals in this way will enlighten you as to how durable it may or may not be. Technological trends can be violent in adoption, but can just as easily be made redundant within a decade. The evolution of the form factor in which music is sold is a great case study on that point. One technology which I believe is right at the precipice of that line between fad and trend is augmented reality. The arguments for and against are certainly polarising today; much like they were in the early years of the internet. Such potential, yet such criticism. Time will tell.
Distinguishing between fads and sustainable trends
Some strategies and caveats I feel are worth thinking about when it comes to this question.
Duration & Stability: Fads often spike in popularity and fade away just as fast. Sustainable trends develop gradually over a longer period and exhibit stronger staying power over time.
Underlying Value: Sustainable trends typically address a real need. They provide value and function. Fads are often popular for reasons that do not have lasting appeal.
Adoption: Depending on the nature of the trend, what does adoption look like? More importantly, who is adopting it? Industry adoption can be particularly telling, as fads don’t often lead to widespread changes in industry practices. Be wary, however, as even the powers that be are susceptible to fads. One need only look at the “adoption” of NFTs during the 2021-22 era. Visa, Starbucks, Pepsi, they all got in on the action.
Cultural or Social Foundation: Sustainable trends are commonly rooted in broader cultural or social shifts. Fads tend to be driven more by novelty.
Scalability and Adaptability: Plain and simple, fads lack adaptability. They are one-trick ponies.
Second Act: I am not suggesting an investor has to wait for a successful second act, but it does seem like an appropriate safety harness in a relatively uncertain environment.
Expert Opinions: I am sceptical of expert opinions in the field of finance and investing. Something I learned early is that 95% of investors and commentators simply talk their book. Read them, sure. But take them with a big heap of salt. They are just as clueless as you.
Historic Examples: Not a perfect method of analysis by any means, but a search for similar situations has played out in the past. Find out what makes this business or trend different. Find out what makes it similar to previous flashes in the pan. Understanding why similar trends have lasted or faded can provide insights into the current situation.
In closing
They say that businesses ignore trends at their peril. While circumnavigating the odd fad is perfectly fine, failure to adapt to changing trends can cause businesses to fall behind. Blockbuster failed to recognise the world was moving to streaming. Sears failed to identify the rising tide of e-commerce. Kodak, despite inventing the first digital camera, missed out on the digital photography revolution through fear of cannibalising its film business. Blackberry, once a leader in corporate-orientated mobile devices failed to see where the puck was going concerning consumer demand for smartphones. Fads permeate everything and the full extent of perspective this topic deserves is outside the scope of this article. They impact consumers, businesses, and product decisions. I once worked in a company that was run by an individual who appeared to be infatuated with succumbing to fads, particularly those in the financial space. Several times the product direction would shift, and several times the fad would die suddenly; wasting time and resources.
It’s important not to dismiss every trend as a fad. It’s equally important not to confuse every fad as a sustainable trend through extrapolation. It’s considerably more important to keep a level head and take the time to ponder the difference between the two; identifying to the best of your ability which you may have stumbled across.
Thanks for reading,
Conor
Conor, I often skim/skip substack articles but this was a fantastic read. Well thought out. Thanks for sharing.
Conor. I was using this as a post to think about careers and individuals as opposed to brands. E.g. Many people reinvent themselves later in their career so they can "ease into a new field". It has some of the same things you mentioned. Good post.