Given its large spectrum, the fashion industry is constantly changing to keep up with myriad trends and forms of style. This year, however, the industry is offering both local and global brand experiences coupled with tailored customer services through unified omnichannel integration to boost revenues.
In fact, the industry is well positioned to expand at a steady clip this year, while consumers are looking to spend a portion of their income on well-being and experience, thanks to rise in economic growth and upbeat consumer confidence. This calls for investing in some of the best fashion brands in the retail space.
Apparel Sector to See Steady Growth
The apparel industry in the U.S. is expected to expand at a steady pace this year, according to Moody’s Investor Service. Thanks to direct-to-consumer selling and exposure in overseas markets, apparel sales are positioned to increase by 6–8%. The sector’s operating profit is also likely to rise 5–7%, courtesy of foreign exchange and excess inventory.
Substantial exposure to international markets, in fact, will compel majority of apparel sellers to lay further emphasis on the top line, organic growth with the help of direct-to-consumer channels. The broader retail sector will continue to be tempered by apparel and footwear sellers, with major fashion brands themselves forecasting improvement across the industry this year.
Fashion Industry Poised to Expand
About40% of the executives interviewed in the State of Fashion 2017 report said that conditions for the fashion industry are expected to get better this year, while only 19% believe that the scenario has improved in 2016, according to McKinsey & Company.
Value and affordable luxury are likely to be a big time winner, with both the segments projected to grow at 3-4% and 3.5-4.5%, respectively. The affordable luxury segment seems to benefit from consumers investing less in luxury while the value segment is likely to expand on the back of international exposure of large global players.
Athletic wear, on the other hand, is expected to be the absolute category winner, maintaining a 6.5–7.5% growth rate, while almost all the market segments expected to see sales growth of 0.5–1.5%. Overall, the fashion industry is likely to grow 2.5–3.5% this year, up from 2–2.5% recorded last year.
Further, a solid economic backdrop and strong consumer confidence bode well for the industry. The upbeat sentiments of consumers make it more likely for them to raise their spending levels. GDP is expected to grow 3.4% this year, compared to 3.1% last year.
According to the Conference Board, the Consumer Confidence Index increased from 109.4 in Nov 2016 to 113.7 this month, the highest since 2001. The gauge of consumer expectations for the six months to follow also rose from 94.4 to 105.5. This is the highest reading recorded in 13 years (read more: 5 Stocks to Buy on 15-Year High Consumer Confidence).
Big Trends to Dominate Fashion
The fashion industry now has the opportunity to stabilize and grow, and many of the companies have already started planning for this year. Stores have begun to enhance customer experience and do a better job at driving traffic, while retailers look to differentiate themselves from e-commerce giants and in the process improve their business models.
Athletic brands are going to get more sportswear-like while focusing on hybrid and innovative products to improve margins. As part of marketing the products, many domestic firms will have the country of origin along with the nameplate of a brand on the product.
5 Best Fashion Stocks
With the fashion industry gearing up this year, it will be prudent to invest in the best publicly traded fashion stocks for grand returns. We have thus selected five such stocks that have a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Francesca's Holdings Corp. FRAN is a specialty retailer of women’s apparel products. The company operates a chain of retail boutiques in the U.S. Francesca's Holdings sports a Zacks Rank #1. The Zacks Consensus Estimate for its current year earnings increased 7% over the last 60 days. The company’s expected growth rate for the current year is 15.8%, way ahead of the industry’s return of 1.5%.
Caleres, Inc. CAL is a footwear retailer and wholesaler. The company is involved in the operation of retail shoe stores and e-commerce Websites as well as the design, sourcing and marketing of footwear for women and men. Caleres has a Zacks Rank #2. The Zacks Consensus Estimate for its current year earnings advanced 2.9% over the last 60 days. The company’s expected growth rate for the current year is 4.1%, more than the industry’s return of 1.5%.
Adidas AG ADDYY develops, produces and markets athletic and sports lifestyle products worldwide. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current year earnings improved 1.1% over the last 60 days. The company’s expected growth rate for the current year is 12.7%, more than the industry’s return of 11.9%.
Burlington Stores, Inc. BURL operates as a retailer of branded apparel products in the U.S. The company offers fashion-focused merchandise, including women’s ready-to-wear apparel, menswear, baby products and footwear. The Zacks Consensus Estimate for its current year earnings rose 6% over the last 60 days. The company’s expected growth rate for the current year is 37.6%, higher than the industry’s return of 19.8%. Burlington Stores has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Target Corporation TGT operates as a general merchandise retailer. It offers household essentials, including apparel for women, men, boys, girls, toddlers, infants and newborn. Target has a Zacks Rank #2. The Zacks Consensus Estimate for its current year earnings increased 5% over the last 60 days. The company’s expected growth rate for the current year is a solid 11.2%.
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