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Investing in fashion stocks
Eye-catching but subject to volatility
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 taste at any given time. Taste can be immensely unpredictable. A clothing trend, for example, may be “in” today and “out” tomorrow. And if the companies that promote this image don’t adapt, they could be in big trouble. So could their investors.
To add another layer of risk, the fashion space indirectly relies on other complex industries. Think about the market for gold, platinum and other precious metals needed to make luxury goods. You also must consider the markets involved in making fashion products. Foreign tensions could impact the exports of raw materials used to make items like clothing and footwear. This includes cotton, wool, silk and other fabrics. For instance, China in October 2020 demanded that its mills stop buying Australian cotton due to speculation that Australia was about to place a hefty tariff on Chinese cotton. This could affect the production of cotton-based products made in China and exported around the world.
Another factor that can contribute to volatility is consumer backlash. While the fashion industry has devout followers, it also has its share of people who aren’t their biggest fans. We’ve all seen “Fur is murder” somewhere. And you’ve probably seen a social media post about why your friend wants you to boycott a certain cosmetics brand over animal testing. If these sentiments were to grip the public consciousness on a massive scale, some fashion industry companies may suffer losses.
It’s important to keep a keen eye on the status of the fashion stocks you’re considering.
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. Select a company to learn more about what they do and how their stock performs, including market capitalization, the price-to-earnings (P/E) ratio, price/earnings-to-growth (PEG) ratio and dividend yield. While this list includes a selection of the most well-known and popular stocks, it doesn't include every stock available.
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 fashion stock ETFs.
- Amplify Online Retail ETF (IBUY)
- SPDR S&P Retail ETF (XRT)
- VanEck Vectors Retail ETF (RTH)
- Direxion Daily Retail Bull 3X Shares (RETL)
- Amundi ETF S&P Global Luxury (GLUX)
- Amundi ETF S&P Global Luxury UCITS ETF (LUXU)
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, changing consumer consciousness, external markets like precious metals and more. Before you start investing, compare stock trading platforms to see which one fits.
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