Athleisure Remains The Best “Fit” In Fashion Stocks

Investing in fashion stocks will perennially be a risky venture. Due to the fickle nature of the industry, accurately predicting the direction of its market continuously proves to be very difficult. A trendy fashion statement today was likely unthinkable just a few years ago, and probably will become obsolete not too far in the future. 

Because fashion trends run through this seemingly perpetual in-and-out cycle and depend on human taste as much as they do the economy’s standing, it is essential to maintain high levels of vigilance when investing in the fashion market and understand the current moment’s styles with a relatively short leash at the ready.

For the same reasons, however, there is always value somewhere to be found in the fashion sector of the stock market. Of the publicly traded department store brands and clothing retailers, you can capitalize on the fashion crazes of the moment and turn huge profits if you can accurately identify what styles are on the rise.

2017 is no different than other years, with certain areas of the fashion world trending up, while other segments are quickly plunging. 

Over the past year, major department stores have watched their stocks continually diminish in value, save for the annual spike of holiday shopping which remained reasonably lucrative. 

Prominent department stores, such as Macy’s (M) and Nordstrom (JWN), have seen their stocks plummet 12.5% and 9.8% respectively over the past year. Macy’s and J.C. Penny (JCP) have been aggressively shutting down stores to cut their losses. The S&P 500 Department Store Index has dropped a colossal 35% since the December of 2016, conveying the poor state these stocks are in. While a natural drop is expected after the holiday season, many analysts are concerned if department stores can recover.

Other analysts, however, believe now is the time to buy low and invest in these faltering companies. According to this perspective, investors’ current view on department stores is almost too pessimistic, therefore creating value from facing their easiest first quarter comparisons since the recession almost a decade ago. 

In most other areas of the fashion sector, a sure-bet stock remains hard to find. Many retailers are having a difficult time transitioning their business strategies into well-executed e-commerce plans, which seem almost imperative given the diminished in-store traffic nowadays and the continuing trend of consumers shopping online. 

According to a recent study from Pew Research, a remarkable 79% of Americans now shop on the internet. A gigantic leap from the mere 22% of online consumers in 2000, people are simply ditching brick-and-mortar stores for the various benefits that shopping online brings about. 

Though women’s clothing chain Bebe (BEBE) has lost about $200 million over the past four years, it may have a newfound life with a bold strategy in this regard. The brand recently announced it was closing all its stores nationwide and will be exclusively selling merchandise on the internet going forward, an effort inspired by the exponential growth the online marketplace experiences every year. 

Whether or not Bebe, or any company shutting down stores to a lesser degree, will increase profitability from abandoning physical stores is yet to be seen, especially considering the majority of sales do in fact still take place in person.

But while fickleness seems to be permeating every nook and cranny of the current fashion market, there appears to be one exception. Perhaps the hottest, most consistent trend in the fashion world is still active-wear or “athleisure” as many have dubbed it. 

Gym clothing being worn causally is by no means a new trend, but it remains a growing one. With a recently estimated market size of $44 billion in the U.S. alone, the obsession over workout apparel seems to be far from waning. More importantly, Morgan Stanley projects that the industry will be worth a whopping $83 billion in 2020. The industry grew almost 7% last year, making it the third consecutive year that sportswear has been on the rise.

Among the major players in the athleisure market worth investigating are Nike (NKE), Under Armor (UA), Adidas (ADDYY), and Lululemon (LULU). These stocks still look to be some of the best investments in clothing for the foreseeable future. 

Brands not even known for active-wear, like American Eagle Outfitters (AEO), Gap (GPS), and even Beyoncé, have established product lines in the fitness department to appeal to the craze. Other celebrities, too, have endorsed similar health-oriented products, and have lent to the industry’s recent sustained success.

There are a variety of reasons why this type of sporty clothing has remained so lucrative in recent history. 

For one, athleisure represents the current trend that consumers are turning to “basics” when shopping for clothing. Fashion Designer and CEO of cbobaby.com, Sharon Rosenger, whose brand produces large size onesies and bodysuits for special needs children, sees this growing trend amongst customers shopping for all kinds of clothing.

“Across the industry, people are increasingly choosing more basic clothing products that provide excellent function and comfort, rather than showy styles that are often cumbersome to wear,” she says. “This helps explain why you see people wearing athleisure for everyday activities like errands and get-togethers, in addition to its primary athletic utility.”

Drifting away from outfits based on flashy accessories and excessive embellishments, consumers are showing that they value functionality and quality in a dress more than flamboyance and glamor. 

Another major indicator of active-wear’s sustained success in the market is how it accurately reflects the shifting values that people are starting to care more about. Clothes associated with exercise and health draw positive perceptions of leading an active lifestyle that people want others to have of them. 

Finally, this type of clothing tends to be on the more expensive end, with a pair of leggings regularly selling for over $100. In turn, the wealthier faction of society, especially older millennials, have displayed willingness to spend big money on this brand of clothing, even at a time when other kinds of fashion have seen decreased sales. The association of high social status and modern sportswear is undeniable and is a legitimate contributor to its rising value.

At a time when uncertainty has cast a shadow on the investing prospects of the fashion industry, companies producing athleisure items have been a consistent mainstay for turning profits. Searching for the right brands in the industry may take time, but there is currently no better segment to look in when it comes to fashion investments.

***Nathan Feifel contributed to this article

Disclosure: The author of this article does not own any shares mentioned in this article. 

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Bindi Dhaduk 5 years ago Member's comment

I think #BEBE is on the right track. By closing their stores and focusing online, they'll be better positioned to compete with #Amazon, cut costs, and increase efficiencies. Time are changing and the brick and morter stores need to evolve. $AMZN $BEBE

Howie Sandberg 5 years ago Member's comment

While I agree that this strategy could pay off for $BEBE, where does it end? People need brick and morter stores also. And isn't #Amazon heading in the other directions? I heard they were planning to open physical stores in every state. $AMZN

Kurt Benson 5 years ago Member's comment

It is a tough time for department stores. I just don't see how they can compete with #Amazon and others like it. Not to mention, if #Trump can push through his new tax plan, it will kill stores especially, #Walmart and #Target. $AMZN $WMT $TGT

Alexis Renault 5 years ago Member's comment

Why is that?

Kurt Benson 5 years ago Member's comment

American has one of the highest corporate tax rates at 35%. But they rarely pay anywhere near that since there are so many loopholes. Worse, many are "moving" to other countries to avoid the taxes all together.

#Trump's plan has some merits. It doesn't matter where a company is located, it only matters where they sell their products. So if they sell them here, they pay 20% taxes on that. If they sell them overseas they pay no taxes on it at all. So that helps to spur exports.

It also encourages manufacturing in the US, since they can deduct the cost of those goods if sourced from within the US. If they purchase the products from abroad they can't.

But stores like Walmart and Target buy the majority of their products overseas and sell them here in the US. So they'll pay higher taxes than a company which exports a lot of their goods, and sources at least some of their products for the US.

Currency Trader 5 years ago Member's comment

Sounds pretty good to me. What's the downside? Sounds like we'll get a much strong dollar this way.

Kurt Benson 5 years ago Member's comment

The downside is that these big stores like $WMT will go out of business unless they raise prices which help the consumer. It should help the dollar, but it will take time. When that does happen though, #Walmart will get more bang for their buck so it could even out. But it's a big change and there are likely a lot of unforeseen issues which could arise.

Dick Kaplan 5 years ago Member's comment

Don't forget that #Trump is assuming that no other country will react negatively to these aggressive moves. Many could view this as the beginning of a trade war and could react accordingly. While I believe some tax reform is necessary, I view Trump's plan as rather short-sighted, too optimistic and even reckless.

Bruce Powers 5 years ago Member's comment

#Trump wants to lower corporate taxes. Won't that help them?