It can be a luxurious venture, but you need to be a savvy investor. Here’s what you should know about the benefits and risks of investing in fashion stocks.
What are fashion stocks?
The fashion industry generally includes all companies that sell clothing, apparel, accessories, body products and anything you wear to presumably enhance your appearance. Apparel includes online and offline wholesalers and retailers that sell clothing, footwear and accessories.
Fashion has existed as a commodity for centuries. Think of kings and queens, and you’d conjure up images of luxurious robes, jewel-studded crowns and material objects that would make heads turn. The same may be said about today’s celebrities and other trendsetters, so some investors may find it lucrative to seek fashion stocks.
Why invest in fashion stocks?
The fashion industry involves many well-known brands. You hear these names on TV, the internet and across social media. They’re promoted by the biggest names in entertainment.
But the fashion industry isn’t limited to designer handbags and dresses. Think about how many clothing and apparel stores you walk by daily. How many have you been to either in person or online in the last year? After all, people need clothes.
In fact, a report by Statista projects the global apparel market to grow from $1.3 trillion in 2015 to about $1.5 trillion by 2020’s end.
But fashion stocks aren’t limited to clothing and accessories. They also include stocks of makeup companies. According to a report by Grand View Research, the global skincare products market was valued at $134.8 billion in 2018 and is projected to keep growing at a compound annual growth rate (CAGR) of 4.4% up until 2025. The study attributed most of this to the expanding cosmetics industry.
But you can also look at the smaller picture when considering investing in fashion stocks. It may give you an opportunity to invest in the products you buy or the brands you like. This isn’t necessarily a bad idea, but you have to carefully study those brands to make sure they’re performing consistently well. And here is where it can get tricky.
Risks of investing in fashion stocks
One of the biggest fashion stock risks may be volatility. Much of the fashion industry is driven by consumer tastes at any given time, which can be very unpredictable. A trend could be “in” today and “out” tomorrow. If companies can’t pivot and adapt quickly, profits will suffer.
Additionally, the fashion industry relies on outside factors. A celebrity seen wearing a particular brand can make sales skyrocket — which works if you’ve invested in that brand, but not if you’ve invested in its competitors. And political tensions between countries could impact the exports of raw materials used to make clothing and footwear (like cotton, wool, silk and other fabrics).
Consumer backlash is yet another highly volatile factor. While the fashion industry has many devotees, it also has plenty of criticism for the ethically questionable practices of certain brands and companies. Controversies that catch widespread attention include the use of real fur, animal testing in the cosmetic industry and fashion marketing tactics that appear to discriminate against certain body types or ethnic groups.
Too much controversy or a company’s failure to effectively handle criticism can hurt its reputation and sink its profits.
Because the fashion industry is so vast, there are several companies you can invest in. Here is a list of fashion stocks that may interest you:
- Lululemon Athletica Inc. (TSX: LLL)
- Reitmans (Canada) Limited (TSXV: RET-A)
- Canada Goose Holdings Inc (TSX: GOOS)
- Nordstrom, Inc. (TSX: JWN)
- LVMH Moët Hennessy – Louis Vuitton, Société Européenne (OTC Markets, Pink Sheets: LVMUY)
- Compagnie Financière Richemont SA (OTC Markets, Pink Sheets: CFRUY)
- Aritzia Inc. (TSX: ATZ)
- The Gap, Inc. (NYSE: GPS)
- NIKE, Inc. (NYSE: NKE)
- Under Armour, Inc. (NYSE: UA)
ETFs that track the fashion industry
Individual fashion stocks aren’t your only options. You can also buy shares of exchange-traded funds (ETFs) that invest in various fashion companies. ETFs are diversified and professionally managed portfolios of various securities like stocks and bonds. Here are some examples of ETFs that track both luxury and non-luxury fashion companies as well as other consumer discretionary stocks.
- Amplify Online Retail ETF (NYSEARCA: IBUY)
- SPDR S&P Retail ETF (NYSEARCA: XRT)
- Direxion Daily Retail Bull 3X Shares (NYSEARCA: RETL)
- Emles Luxury Goods ETF (BATS: LUXE)
Compare trading platforms
Regardless of which fashion stock you might invest in, you need a brokerage account. You can easily open one online, but make sure to compare your options.
Fashion stocks can be lucrative investments. But watch out for risks like volatility, consumer criticism, external markets and more. Before you start investing, compare stock trading platforms to see which one fits.
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