Top fashion stocks to invest in 2020
With the global fashion industry being worth around $600bn, we take a closer look at the top fashion stocks to invest in for 2020
It’s fair to say that 2019 wasn’t the best year for fashion retailers. Not only has the industry suffered from the demise of well-known department stores and closing of many high street shops, but it’s also faced criticism for the enormous amount of waste produced by the industry as a whole.
Invest in fashion
But, according to Statista, the global fashion industry in 2019 was worth around $600bn, and it’s poised to grow by around 11.5 per cent each year. By 2023 it is reckoned to be worth around $900bn, making it an interesting area that investors shouldn’t forget.
Fashion stocks to invest in
Think of high-end fashion and luxury stocks such as Louis Vuitton owner LVMH (IT:LVMH) spring to mind. The French multinational conglomerate, which acquired Tiffany & Co in November 2019, enjoyed impressive stock market gains in 2019 and the shares show no sign of slowing.
Fellow French luxury goods group Kering (FR:KER) too, which counts popular high-end labels Gucci, Yves Saint Laurent, Alexander McQueen and Balenciaga within its empire, has also had an impressive 2019. Gucci, in particular has become extremely popular with teens and millennials and the conglomerate has relished a share price gain of 49 per cent; rising from $397 (£305.65, €356.48) per share in January 2019 to $593 (£456.49, €532.47) today, with the good times set to continue.
Fitness and athleisure is a growing area and in the UK, sportswear retailer JD Sports (LON:JD) is being celebrated as the best performing FTSE 100 retailer of 2019, gaining 140 per cent. Its shares have risen an impressive 3,336 per cent since 2010, from £0.25 ($0.32, €0.29) to £8.3440 ($10.84, €9.73) today.
Luxury fitness apparel brand Lululemon Athletica (NASDAQ:LULU) is widely tipped as one of the best growth stocks for 2020, showing steady growth with a solid earnings report. It has also announced plans to expand outside of its predominantly North America/Canada sales base.
What’s more, the company announced today that it will be lifting its earnings and revenue guidance for the fourth quarter. It is now forecasting earnings between $2.22 and $2.25 a share on revenue of $1.37bn to $1.38bn (up from $2.10 and $2.13 on revenue of $1.315bn to $1.33bn).
With climate change monopolizing the news on a daily basis, fingers are pointing at all industries to cut down their carbon dioxide emissions and fashion is no exception.
According to Quantis’ Measuring Fashion Report, the fashion sector accounts for more than 8 per cent of all global climate impacts; that’s more than all international flights and shopping trips combined. The industry also uses 104m tonnes of non-renewable resources every year.
Incredibly, a truckload of textiles is dumped in landfill or burned every secon. Even washing our clothes releases half a million tonnes of plastic microfibres into the ocean, every year, which is equivalent to 50bn plastic bottles.
German athletics brand Adidas (ETR:ADS) has taken steps to tackle waste by creating the Futurecraft.Loop sneaker; trainers made of 100 per cent recycled material that they say is “made to be remade”. Simply return the worn-out shoes to Adidas and they will recycle them into an entirely new pair.
The rise of resale
Another solution in the fight against waste in the fashion industry is to promote re-using items, which is exactly what The RealReal (NAS:REAL) is supporting. The San Francisco based tech firm is a bit like an upmarket ebay; connecting buyers hunting for second-hand luxury designer goods with sellers whose wardrobes are bursting with items they never wear.
Market Insider believes that despite posting a weak second quarter report in August 2019, dipping below its $20 IPO price and fighting reports that claim “fakes” are sold on its site, things could look up for The RealReal in 2020. With an enormous addressable market, which could be worth as much as $200bn, this could be a stock to watch in 2020.
Europe and the US are certainly suffering a demise of “bricks and mortar” retailers. The UK has seen department store Debenhams and fashion retailer LK Bennet going into administration in the past year. Vacancies in US shopping malls hit an eight-year-high in September 2019, with Victoria’s Secret, Sears and Charlotte Russe among those closing stores. Fashion chain Forever 21 was just one of the many retailers that filed for bankruptcy.
Fifth Avenue department store icon Barneys New York is another well-known name that closed its doors in 2019, citing the 72 per cent hike in rent on its Madison Avenue headquarters and costs of maintaining a huge inventory of seasonal goods from suppliers as major contributors to its downfall. However, importantly, it observed the effect that the changing habits of consumers had had on the department store.
Failure to modernize
Many believe that department stores such as Barneys and Debenhams were doomed as they failed to move with the times.
While customers do still enjoy being able to view and try on clothes in store, with busier lifestyles the ability to shop online and try on at home (with free returns) becomes more compelling, particularly with younger shoppers. What’s more, retail sites such as Net-a-Porter, that show you how to create a whole look, from jacket to scarf and even phone case, rather than a single item, give customers an easy shopping experience.
Top fashion stocks to buy in 2020
So which fashion companies are worth investing in?
Goldman Sachs has highlighted womenswear and lingerie specialist Victoria’s Secret’s parent company L Brands (NYSE:LB) as one to watch in 2020.
Although the group has suffered falling sales in 2019 and saw its stock tumble by almost 34 per cent, partly due to competition from online retailers, analysts at Goldman Sachs believe we could see its stock rising by more than 65 per cent by April 2020. The company also includes the hugely successful Bath & Body Works beauty brand.
Wells Fargo analyst Ike Boruchow told MarketWatch he also believes L Brands is one to watch. What’s more, he also recommends The RealReal, commenting “resale will be the next big disruptor in the retail industry.”
Wells Fargo estimates the luxury resale market to be currently worth about $7bn. However, it believes there is “almost $200bn of inventory sitting in consumers’ closets but only 3 per cent gets consigned annually.” If The RealReal can help unlock this inventory it could mean an exciting future for the luxury resale company.
Finance publication Kiplinger highlights lifestyle apparel company Kontoor Brands (NYSE:KTB) to be a 2020 best buy. The company, with a market value of $2.2bn was spun-off from apparel conglomerate VF Corp (NYSE:VFC) in 2019 and contains classic jeans brands such as Wrangler and Lee as well as Rock & Republic. The company plans to expand into China and the Far East and offers a dividend yield of 5.8 per cent.
Fashion could thus be a great area in which to consider investment. But as always, aim to maintain a well-diversified portfolio and we can hopefully ride out any volatility in the market.
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