A Fortune in Fashion: how fads and finery make money

Fashion as a vehicle of investment is often avoided by the faint-hearted. Yes, there has been a rollercoaster ride in the last few years, mainly due to the pandemic. It’s fickle for sure, even in the best of times, but a notable point is that the fashion industry has survived for a long time, and as each generation ushers in their trend preferences for label status, the fashion retail industry continues to present dynamic opportunity for canny investors with their fingers firmly on the pulsebeat of the sector.

On the whole, fashion retail can be largely insulated from the effects of business cycles; consumers may slow their buying during hard times, but clothing along with food, is a staple that generally survives through season to season. Secondly, the developing world presents an evergreen demand for affordable clothing – both in consumption and manufacturing.

Choosing the timing

The trick is to know when to back what may sometimes look like an emaciated horse. In a volatile industry picking worthwhile and profitable investment, is an artform. There are some positive arguments:

  • There is great bounce-back potential once the economic effects of the last two years of pandemic shutdown turn to a more normal future; stocks are may be currently down, but there is a returning appetite for fashion and retail stocks, so there is encouragement to invest at this time as shares are recovering.
  • Retailers who have survived will be able to pick up the trends without too much competition and make considerable profits.
  • Brand names still dominate, and retail therapy in the aftermath of Covid looks set to surge; people have not been able to spend during lockdowns, so there is money available, and when people have money, they tend to go out and enjoy themselves, which brings more buoyancy and confidence to the market.

The golden glimmer of online trade

“I would be looking at ‘blue chip names’ that are primarily in the online space and/or have invested in their e-commerce platforms.” ~ Noel Borg, private investor with over 20 years’ experience.

Those retailers who have managed the shift to online, will certainly capture the market going forward. Those who missed this opportunity to tech-up their potential, will be in trouble. The trend is to look for stocks that have either growth potential in their company, or high quality in product and popularity of brand. Or preferably both. Fashion retailers who build multi-channel operations will be well-placed to seize upturn opportunities. Armed with enough finance, established retailers will always be acquisitive.

Generally, the feeling is that fashion retailing will bounce back once the global economy settles – both post-Covid and eventually during or after the unsettling scenario of the Ukraine war. There is no doubt that the post-pandemic boom has been somewhat tempered by the unexpected events in Europe. Even so, the fact remains that after two years of Covid lockdowns and restrictions, people are eager to enjoy themselves again – and that includes retail therapy. Now may be the best time to buy retail stocks – buying as cheaply as you can, and holding for as long as you can.

Because of the proliferation of e-commerce, an entrepreneur in the fashion world no longer needs a brick-and-mortar store to start a retail business. Competitors can offer goods through the internet that can be shipped globally. However, while online is the fastest growing segment in the industry, profit margins are low. Nevertheless, businesses that ignore the internet do so at their own risk.

Fashion trends and retail risks

The growth of philanthropic investment in fashion
A noticeable trend in investing is the value of social awareness. There has been considerable shift by fashion retailers to meet the new demands of more socially aware customers. Retailers need to be ethically driven by an environmental and social agenda, supported by the supply chains. It’s a trend that is growing in influence daily, along with support for smaller fashion start-ups who offer sustainability solutions across their brands.

Retail investing requires agility investing
Retail in general remains an attractive sector with regard to its propensity for substantial gains when the market is rising, but the market can present volatility – stronger during bull runs, but bigger losses during a bear market. So a canny investor needs to remain alert and have the time to closely monitor this sector, perhaps moving into retail during expansionary phases, and then shifting into more stable sectors when the time is right.

The value of customer service
A profitable retail business must rely on good staff. Well-trained, well-remunerated, and focused on the business strategy, with serviceable returns. Financial discipline remains key. Every store must be profitable for the chain and the brand to survive in the long term – and the strongest retailers know this. There is no justification for fresh financial outlay for new branches if there is a hint of trouble. This sensitivity should reflect in the approach of astute but cautious investors.

Foster Wealth: steering business, driving wealth

At Foster Wealth innovation, agility and in-depth market acumen are our daily fare. The volatility of markets, unexpected events and fluctuating values continually take us to new levels of interest and possibility. Constant re-assessment and evaluation are how we keep ahead of the curve – but our hard work, professionalism, attention to detail and personal attention are the hallmarks of our business and will never change.

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