The apparel industry is constantly changing, so tracking the stocks with the best returns can be challenging. But by the time you finish reading, you'll have a good idea of which apparel stocks to include in your portfolio.
Overview of Apparel Stocks
The fashion industry changes quickly. As we all know, what's in style one day can be out the next. That's why it's highly competitive and requires strategic investments to maximize returns. While some clothing companies have been around for decades, new contenders have emerged in recent years to compete for a market share worth almost $400 billion annually in the United States.
The industry is crowded with household names, including Nike Inc. (NYSE: NKE), Adidas AG (FRA: ADS), Urban Outfitters (NASDAQ: URBN), Gap Inc. (NYSE: GPS), American Eagle Outfitters (NYSE: AEO) and Lululemon Athletica (NASDAQ: LULU). Each company has a long history of success and brings something different to the apparel scene, from luxury brands to fast fashion and activewear.
Nike is arguably the most recognizable name in apparel stocks today. Founded as Blue Ribbon Sports in 1964 by Bill Bowerman and Phil Knight, Nike has grown into one of the world's most valuable brands, with an estimated $190 billion market cap as of April 2023.
With its iconic swoosh logo, the company specializes in sneakers and athletic apparel but also offers a healthy selection of lifestyle products. Over the years, Nike has acquired dozens of smaller brands, such as Converse, and launched brands like the Jordan Brand to expand its product offerings even further. In the process, it's become one of the most recognizable companies on the planet and has grown into a global powerhouse, with over $12 billion in revenues.
Another giant in the space is LVMH Moët Hennessy Louis Vuitton SE (EPA: MC), established as an investment firm in 1987. As of 2023, it owned 75 luxury brands, including Fendi and Christian Dior. With a market cap in the billions as of April 2023, LVMH is one of the largest fashion companies in the world. Its focus on luxury fashion and accessories has enabled it to maintain a strong presence in the high-fashion market, with products ranging from high-end handbags and watches to jewelry and cosmetics.
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. 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.
3 Ways to Invest in the Apparel Industry
There are numerous ways to invest in the apparel industry. Here are a few of the most popular.
Publicly Traded Apparel Companies
Countless apparel companies trade on major exchanges like the New York Stock Exchange (NYSE) and NASDAQ. Many of these companies have been around for decades and have built significant market share in their respective industries.
Investing in publicly traded apparel companies can give you access to safe and reliable sources of income and potential upside opportunities should share prices rise due to changes in consumer trends, product innovation or other external factors.
Private Equity and Venture Capital
Another option for investing in the apparel industry is through private equity and venture capital firms. These firms specialize in providing capital investments to smaller companies which may be too small or too risky for traditional stock exchanges. This gives access to unique growth opportunities as you get a stake in early-stage startups or help finance more established businesses looking for additional financing options.
ETFs
Exchange-traded funds (ETFs) and mutual funds are two other great options for investors looking to diversify their apparel industry portfolio without purchasing individual stocks.
ETFs track a basket of stocks within a specific sector, ETFs are collections of securities that track a specific index or sector. These funds make it easy to gain exposure to various stocks within one basket without researching each company's fundamentals individually. While mutual funds pool money from multiple investors to invest in companies across different sectors. Both options diversify while limiting your downside risk compared to purchasing individual stocks.
Features to Look for in Clothing Stocks
Investing in apparel stocks can be a great way to diversify your portfolio. Before investing, you should look for specific features in the company, such as:
- Strong financials: A company should have strong past and current financials. To determine this, analyze a company's income statement and balance sheet to assess its current and past profit margins or whether its revenue exceeded its costs. Look at cash flow, meaning how much money moves in and out. Analyze its debt-to-equity ratio; in other words, how much debt it has compared to its assets. Read through its annual reports and other filings to gain insight into operations, plans for growth and any risks it faces. Look at senior management and which strategies management has implemented to stay competitive.
- Brand recognition and loyalty: Customers should recognize and positively associate with the brand and seek out the company's products over its competitors regardless of price.
- Quality products: Seek out a company with the potential for growth due to a track record of creating new and innovative products, setting trends and expanding into new markets or specialized techniques or processes that its competitors don't have.
- Diversified product lines: Products should appeal to a wide variety of customers so the company doesn't rely on a narrow demographic to make sales.
- Ethical and sustainable: Look for a commitment to ethical practices, such as paying factory workers fairly, and sustainable production processes, such as manufacturing techniques that don't create greenhouse gases.
- Paying dividends: A company that rewards its investors with regular dividends can help provide you with a steady income even as the stock price increases.
How to Invest in Clothing Stocks
Investing in clothing stocks has become increasingly popular in recent years as companies in the fashion sphere continue to offer lucrative opportunities. Before starting, research the companies and determine their financial stability, growth potential and other key factors. Here are some steps for how to invest in clothing stocks.
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 with a financial advisor to better understand the company's fundamentals and prospects.
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 exchange-traded funds (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. 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 demand and adjust your strategy accordingly.
Pros and Cons of Investing in Apparel Stocks
Here are the advantages and disadvantages of investing in apparel stocks.
Pros
The fashion industry is dynamic and ever-changing, with some distinct advantages for you as an investor:
- Potential for long-term growth: Apparel stocks can benefit from long-term growth, as many apparel companies are well-established and have a track record of success.
- Access to luxury brands: You can own a piece of luxury fashion and accessories brands with strong recognition and a wide customer base, which leads to resilience in tough markets.
- Diversification: Apparel stocks can help diversify your portfolio, reducing risk by adding exposure to different industries or sectors.
- Accessibility: With the rise of online investment platforms, it's easier than ever to buy and sell apparel stocks without needing to be a stock market expert. You can invest through public markets, private equity firms or venture capital funds.
- Dividends: Potential for dividend payments with some stocks, which can provide you with regular income, even as the stock increases in price over time.
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.
Investing for Success
The apparel industry is a constantly changing and evolving one, with new trends emerging all the time. Investing in apparel stocks can be both challenging and rewarding. In the future, more and more companies will explore using artificial intelligence (AI) to improve and speed up their product design processes, which can result in faster turnaround times for new products.
Online shopping platforms will provide consumers with greater access to global markets. Blockchain technology may increase supply chain transparency, ensuring they're ethical and sustainable. It will make the industry more appealing if, like many investors, you align your portfolio with your values.
Apparel stocks can provide a compelling mix of potential returns and diversification. While the stock market is inherently volatile, apparel stocks generally offer attractive dividend payments and have shown resilience in tough markets. Apparel companies have also demonstrated an ability to adapt to changing consumer tastes, giving you more opportunities to capitalize on the vibrant and high-energy fashion world.
FAQs
Now that you know how to invest in apparel stocks, you may still have some questions about capitalizing on the fashion industry as an investor. Here are answers to some of the most frequently asked.
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 Corporation (NYSE: VFC) and Gap. Each of these 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.
