From iconic fashion houses to innovative streetwear startups, fashion stocks offer a runway of opportunities for those with an eye for style and a penchant for profit. However, successfully investing in the apparel industry requires more than just a good eye for fashion. Keep reading as we discuss what apparel stocks are and how to position your portfolio best to capitalize on the next big trend.
Overview of apparel stocks
Apparel stocks are companies' shares in the design, manufacturing, marketing and distribution of clothing and accessories. This large, diverse sector ranges from mass-market retailers to high-end brands and boasts a wide range of products, including athleisure, footwear, fast fashion, luxury, business, sleepwear and more. According to the Census Bureau's 2022 Annual Retail Trade Survey (ARTS), United States retail sales were $7,041 billion in 2022, up 8% from 2021.
In this saturated market segment, retailers find themselves in serious competition with the consumers. In addition, they are battling economic forces such as rising minimum wage requirements and cyclical gift buying. As such, clothing companies are constantly evolving, and it’s no surprise that the apparel industry has undergone significant transformations throughout the years as consumer preferences changed, technology advanced, and the global economy evolved.
Brooks Brothers, founded in 1818, is one of the earliest pioneers in modern fashion, helping to shape the menswear industry and establishing the concept of ready-to-wear clothing. In the 1920s, Coco Chanel took women's fashion by storm with her timeless designs (like the little black dress and iconic Chanel suit). The mid-20th century witnessed the rise of mass-market retailers like The Gap Inc. NYSE: GPS and H&M Hennes & Mauritz AB OTCMKTS: HNNMY. These companies focused on delivering affordable fashion to a broader market by utilizing efficient supply chains and economies of scale.
Furthering this trend, the late 20th and early 21st centuries saw the emergence of fast fashion giants like Zara, Uniqlo, Forever 21 and Shein. These companies rapidly produce trendy and affordable clothing, capitalizing on agile supply chains and quick response to consumer demands — but not without controversy as concerns over resource-intensive production and exploitative labor practices surface. In recent years, e-commerce has reshaped the apparel retail landscape, with companies like Amazon.com Inc. NASDAQ: AMZN gaining prominence as online fashion destinations.
In 2022, shortly after the market recovered from the effects of the COVID-19 pandemic, the apparel industry again faced more challenges. This time, it suffered from rising production costs and falling consumer confidence due to high inflation.
Today, the apparel industry continues to evolve quickly, driven by factors like the growing influence of social media. Major players like Nike Inc. NYSE: NKE, Adidas AG OTC: ADDYY, LVMH Moët Hennessy - Louis Vuitton, Société Européenne OTCMKTS: LVMUY and H&M dominate the global market, while smaller niche brands and direct-to-consumer startups disrupt traditional retail models with innovative approaches to design, marketing and distribution.
Sustainability and ethical sourcing have also become increasingly important to consumers and investors, leading many apparel companies to adopt environmentally friendly practices and transparency in their supply chains.
Why invest in apparel stocks?
Investing in apparel stocks can be a wise choice for many reasons. For starters, the sector is relatively resilient. People will always need to buy clothes, regardless of the state of the economy or any other external factors. This means that apparel stocks perform relatively well even during tough market conditions. Furthermore, the sector has grown tremendously due to changing trends and consumer preferences.
Another benefit is diversification. The retail industry includes multiple segments, such as luxury fashion retailers, department stores, activewear brands and fast fashion retailers. You can spread your risk by investing in apparel stocks across various segments. With many apparel companies operating on a global scale, investors can access diverse markets and benefit from international expansion opportunities.
Additionally, apparel companies often have strong brand recognition and wide customer bases that can provide cushions against economic downturns. They also often offer dividend payments. These provide additional income on top of any capital gains you receive when stock prices rise over time.
7 ways to invest in the apparel industry
Whether you're drawn to luxury fashion houses, retail giants or the suppliers behind the scenes, there's a way to tailor your investments to suit your interests and financial goals. Let's take a look at your options:
Individual stocks
Investors can purchase shares of individual apparel manufacturers, retailers and fashion brands listed on stock exchanges. Examples of top apparel stocks include Lululemon Lululemon Athletica Inc. NASDAQ: LULU, Burlington Stores, Inc. NYSE: BURL, Chico's FAS, Inc. NYSE: CHS and Express, Inc. NYSE: EXPR.
Direct investment in brands
Investors looking to support emerging fashion brands may have the opportunity to directly invest in private apparel brands through equity crowdfunding platforms or private placements, potentially benefiting from their growth and success.
Rothys, best known for its popular, sustainable footwear made from recycled plastic bottles, is a great example of a crowdfunding success story. In 2017, Rothys launched a crowdfunding campaign on the platform SeedInvest, allowing individual investors to participate in the company's growth. This approach helped Rothys raise capital to expand its product line and scale its operations while engaging with its community of supporters.
In addition to SeedInvest, some of the top crowdfunding platforms to access apparel companies are AngelList, Fundable, Indiegogo, Kickstarter and Patreon.
Private equity and venture capital
Accredited investors (meaning you meet specific income or net worth requirements) seeking exposure to early-stage or private apparel companies can look to private equity and venture capital funds as these funds invest in privately held companies with growth potential, providing capital and strategic support to help them scale their businesses.
The history of Levi Strauss & Co. NYSE: LEVI shows how private equity ownership can provide strategic direction and support for apparel companies to achieve long-term success. In 1985, The Haas family (descendants of the company's founder, Levi Strauss) and private equity firm Kohlberg Kravis Roberts & Co. (KKR), took the company private in a transaction valued at $1.7 billion. During this time, Levi Strauss & Co. focused on strengthening its brand, expanding its product offerings and investing in global growth initiatives. In 2019, the company returned to the public markets with an initial public offering (IPO), raising approximately $623 million.
Investment in suppliers
Another way to get exposure to the stock clothing sector is by investing in the companies that supply materials and services to the apparel industry, like textile manufacturers, fabric suppliers and logistics companies. These companies play a crucial role in the apparel supply chain and can benefit from the industry's growth.
An example of an investment supplier is Avery Dennison Corp. NYSE: AVY, which provides RFID tags, labels and packaging materials for apparel brands and retailers.
Exchange-traded funds (ETFs)
ETFs offer exposure to a basket of apparel stocks, providing diversification within the industry. Investors can choose from ETFs that track specific segments, such as retail, luxury brands or textile manufacturers. Examples include the SPDR S&P Retail ETF NYSEARCA: XRT and the VanEck Vectors Retail ETF NASDAQ: RTH.
When deciding on an apparel ETF, you should pay close attention to the fund’s assets under management (AUM), holdings, performance and expense ratio.
Mutual funds
Mutual funds are another avenue to add clothing stocks to your portfolio, consisting of a diversified portfolio of stocks that includes apparel companies.
Real estate investment trusts (REITs)
REITs indirectly provide exposure to apparel stocks through their investments in retail properties, including shopping malls, outlet centers and freestanding retail stores.
Features to look for in apparel stocks
When considering investing in apparel stocks, here are some key features to look for:
- Brand strength: Strong, recognizable brands with a loyal customer base tend to have pricing power and can withstand competition better.
- Financial health: Choose companies with consistent and sustainable earnings growth and manageable debt.
- Innovation and adaptability: Companies anticipating and responding quickly to changing consumer preferences and market trends are more likely to thrive.
- Global presence: Companies with a strong international presence can benefit from diversification across various markets and economies.
- E-commerce capabilities: Companies with a robust e-commerce strategy and online presence are often easier for consumers to access than physical stores.
- Supply chain efficiency: Companies with efficient and transparent supply chains — sourcing, manufacturing and distribution — are better positioned to control costs and respond to market demands.
- Sustainability initiatives: Consumers increasingly prioritize sustainability and ethical practices when making purchasing decisions.
- Dividend policy: If you're seeking income from your investments, look for companies with a history of paying dividends consistently and with a sustainable payout ratio.
- Valuation: Choose stocks trading at a reasonable price compared to their intrinsic value.
How to invest in apparel stocks
Investing in clothing stocks has become increasingly popular in recent years as companies in the fashion sphere continue to offer lucrative opportunities. If you consider adding clothing stocks to your portfolio, follow our step-by-step guide below.
Step 1: Research the company.
The first step toward investing in clothing stocks is researching the company. Consider factors such as financial stability, competitive advantages and customer loyalty. Look at historical performance, management team experience and expected future growth. Additionally, read analyst reports or consult a financial advisor to understand the company's fundamentals and prospects better.
Step 2: Decide on a stock strategy.
Once you've researched the company you want to invest in, decide on a stock strategy. This could include buying shares directly from the company itself or investing through a third-party broker. You can also buy ETFs, which can provide exposure to many different companies within one basket without having to study each stock.
Step 3: Calculate risk vs. reward.
Before investing in any stock, carefully consider the risk vs. reward of that particular investment. Analyze historical trends, understand competitors within your target market, analyze margins and forecast future performance. Review any past trades you have made to understand better what investments may be more profitable than others.
Step 4: Set a stop-loss and monitor your investments.
Once you have decided on your stock strategy and executed your investments, regularly monitor them over time using tools such as a stock market tracker or app (like Yahoo Finance). It's also a good idea to set a stop-loss, a predetermined price at which you will sell your shares if the price drops too low. This can help limit your potential losses and protect your investment.
Step 5: Stay up-to-date on industry trends.
To make informed decisions about your apparel stock investments, stay up-to-date on industry trends and news. Doing so can be easy and fun: watch fashion shows, read industry publications or follow the latest social media trends. By staying informed, you can better anticipate changes in consumer spending and adjust your strategy accordingly.
Pros and cons of investing in apparel stocks
Investing in apparel stocks can offer various opportunities and challenges. Here are some pros and cons to consider:
Pros
The fashion industry is dynamic and ever-changing, with some distinct advantages for you as an investor:
- Stability: Clothing stock tends to be resilient even during economic downturns, as people continue to purchase clothing for basic needs. Strong apparel brands can command premium prices and maintain customer loyalty even in competitive markets.
- Growth potential: With changing fashion trends and global consumer demand, successful apparel companies have significant growth potential, particularly those with strong brands and innovative strategies. And with the rise of online shopping, apparel stocks benefit from the increasing popularity of e-commerce, offering opportunities for growth and expansion in digital markets.
- Diversification: Apparel stocks often have low correlation with other sectors, which can help reduce overall portfolio risk. In addition, many apparel companies have a global presence, providing exposure to different markets and economies and helping mitigate risks associated with regional economic fluctuations.
- Accessibility: It's easier than ever to buy and sell apparel stocks through online investment platforms, public markets, private equity firms or venture capital funds.
- Dividend income: Some apparel companies pay dividends to shareholders, providing a steady stream of income in addition to potential capital appreciation.
- Innovation opportunities: Apparel companies often innovate in design, materials and manufacturing processes, positioning them to capitalize on changing consumer preferences and market trends.
- Economic correlations: When consumer confidence is high and disposable income increases, people are more likely to spend on clothing and accessories, benefiting apparel stocks.
Cons
Like any investment, the fashion industry comes with its own set of risks and drawbacks. They include:
- Volatility: The stock market is inherently volatile, and apparel stocks are no different. Prices may fluctuate rapidly, creating both opportunities and risks.
- Lack of liquidity: Because apparel stocks are generally not high-volume investments, they may be difficult to buy or sell quickly or at competitive prices.
- Unpredictability: Fashion trends come and go, making it difficult to anticipate how consumers will respond to new designs or products. Trends can lead to unpredictable stock performance and, in some cases, losses.
- Competition: Companies must continually innovate, differentiate, and market their products to stand out in a crowded marketplace, and intense competition can pressure profit margins and limit growth prospects.
- Supply chain challenges: Disruptions in the supply chain, such as raw material shortages, labor issues or transportation delays, can disrupt production and increase costs.
- Environmental and ethical concerns: The apparel industry faces scrutiny over environmental sustainability, labor practices and ethical sourcing. Companies that fail to address these concerns may face reputational damage, regulatory scrutiny and consumer backlash, impacting their financial performance and stock prices.
Future of apparel stock investing
The future of apparel investing looks promising, with several exciting trends shaping the industry's trajectory in the coming years. E-commerce is set to continue its upward trajectory, transforming how consumers shop for clothing and driving growth opportunities for online-focused apparel companies.
Sustainability is becoming a non-negotiable factor, with consumers increasingly favoring brands that prioritize eco-friendly practices and ethical sourcing. Technological innovation, from AI-driven design to personalized shopping experiences, is on track to revolutionize the apparel industry, offering new avenues for growth and customer engagement. Additionally, the growing shift towards slow fashion and the emphasis on quality over quantity could reshape consumer preferences, favoring companies that embrace sustainable practices and transparency in their supply chains.
With globalization opening doors to emerging markets and regulatory changes shaping trade dynamics, staying informed and adaptable will be crucial to successfully navigate the industry’s future landscape.
Dress your portfolio for success
Investing in apparel stocks can be both challenging and rewarding as the industry is constantly changing and evolving, with new trends always emerging.
By carefully researching individual companies, diversifying portfolios and staying on top of market trends, investors can capitalize on the growth potential of apparel stocks while managing associated risks effectively. Whether through individual stock selection, ETFs or mutual funds, the key lies in making informed decisions aligned with one's investment objectives and risk tolerance.
With the right approach and diligence, apparel stocks can be a valuable addition to an investment portfolio, offering potential for long-term growth and financial success.
FAQs
Here are answers to some of the most frequently asked questions about how to capitalize on the fashion industry as an investor.
Are apparel stocks a good buy?
Apparel stocks can be a good buy because they offer attractive returns and diversification. They also tend to be resilient even in challenging markets, as consumers will still buy clothing regardless of economic conditions. Additionally, apparel companies may offer dividend payments that can provide a regular income stream.
What are the top apparel stocks?
The top apparel stocks depend on your investing goals and risk tolerance. The most popular apparel stocks include Nike, Lululemon Athletica, VF Corp. NYSE: VFC and The Gap. Each has unique strengths and weaknesses that may or may not make it a good choice for you. Research each company thoroughly, and consider opting for various investments to diversify your portfolio.
Who has the largest market share in the apparel industry?
The apparel industry is highly competitive, with various companies trying to capture the most market share. According to some estimates, Nike has the largest single market share in the apparel sector, accounting for around 3% as of 2019. Adidas and Puma SE ETR: PUM generally rank close behind. Other big names in the apparel industry include Gap, VF Corp. and Abercrombie & Fitch Co. NYSE: ANF. These companies have become major industry players thanks to their different strategies and product offerings.
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