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Fashion Industry's Strategic Shift Puts 4 Stocks on Top

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The fashion industry is home to fast-moving and ground-breaking trends, most of which set the pace for years to come. In the current cut-throat market where fast-fashion, resales and rented fashion items have found widespread popularity, investors can take a look at a few strong trends that are poised to raise big waves ahead.

Trends Driving the Fashion Industry in 2020

Speaking of trends that are shaping the fashion industry at present, widespread adoption of AI in fashion is a profound step toward transformation.

According to a Markets and Markets report, the size of global AI in the fashion market is expected to be $1,260 million by 2024 from $228 million in 2019, at a CAGR of 40.8%.

Major factors driving this transition are demand for a personalized experience (demand of exclusive products, unique designs, customization etc), increasing need for inventory management and the rising dominance of social media.

As more customers migrate to online shopping, supply chain and inventory management become paramount. This is where AI helps to streamline business processes, thus resulting in the fast processing of orders and delivery, leading to a growing customer base for retailers.

Changing customer preferences is pushing companies to meet these demands, thus setting trends in the process. Among these, first is growing demand for exclusivity and quality products with an average price tag. For example, Walmart Inc’s (WMT - Free Report) approach to apparel was a hit among customers because the company focused more on style, upscale offerings and the inclusiveness of plus sizes.

Secondly, rise of health consciousness has given in to demand for form-fitting, often pricey activewear among customers. The United States’ activewear market is the largest in the world, according to Global Industry Analysts, Inc. It accounts for more than a 36% of activewear sales globally. The market is expected to grow to $69.2 billion in 2020 from $54.3 billion in 2015.

Finally, inventive marketing strategies have also contributed to the sale of apparel, footwear and accessories sales. For example, the 1980s consumerism boasted by Stranger Things Season 3 witnessed a rise in show-specific fashion offered by Levi Strauss & Co. (LEVI - Free Report) and H & M Hennes & Mauritz AB (HNNMY - Free Report) .

4 Stocks to Buy

Rise in consumers’ spending capability is also a notable factor, the best of which was witnessed in this holiday season’s record retail sales. Per the latest job report by the Bureau of Labor Statistics, the U.S. economy added a considerable number of new jobs in November (266,000).November’s numbers were also the best since January’s 312,000 new job additions.

In addition, average hourly earnings increased by 3.1% from a year ago and the unemployment rate dropped from October’s 3.6% to 3.5% in November. All these are indicative of a healthy economy.

We have, therefore, chosen four stocks from the retail industry (apparel and shoes). All these stocks carry a Zacks Rank #2 (Buy). We believe that these stocks have good potential for growth ahead, based on the factors that propel them.

Steven Madden, Ltd. (SHOO - Free Report) is a designer and marketer of private label footwear for women, men and children. The trendy, reliable footwear maker has managed to consistently enjoy a strong customer base owing to its clever products, marketing strategies and pricing-fashion combination.

For example, the company brought back two of its iconic '90s platform sandals for Summer 2019, which brilliantly banked on the ‘90s nostalgia and witnessed customers paying above-average price to own a pair.

The Zacks Consensus Estimate for the company’s current-year earnings rose 6.6% over the past 90 days. Shares of the company have risen 41.9%, outperforming the Zacks Shoes and Retail Apparel industry’s rise of 37.2% over a one-year period. You can see the complete list of today’s Zacks #1 Rank stocks here.

H & M Hennes & Mauritz AB is a global retailer of clothing, accessories, footwear and cosmetics. The brick-and-mortar business has outdone itself with its tactics of reinvention. The company not only spent significantly on its online platform but also optimized its physical outlets. In fact, H & M successfully managed to hold onto its customers by offering them an integration of an in-store experience with an online experience.

For example, its "Scan and Buy" app allows customers in a store to scan a product's QR code and find other sizes and colors on the company’s online platform. Its "Find in Store" app allows customers to use their phones to find an item they've seen online at an H & M physical outlet.

H&M is testing its "Perfect Fit" app in Sweden, which lets a customer create a selfie-based digital avatar on his or her cell phone. The customer can then use that avatar on clothing, thus zeroing on the perfect fit when shopping online.

The Zacks Consensus Estimate for the company’s current-year earnings increased 6.3% over the past 60 days. Shares of the company have risen 47.5%, outperforming the Zacks Retail - Apparel and Shoes industry’s decline of 20.3% over a one-year period.

Lululemon Athletica Inc. (LULU - Free Report) is a retailer of athletic apparel and accessories for women, men and female youth. The company’s “trend-setting” technique is rather psychological, and quite a relevant one at that. The company banks on what is known as “enclothed cognition,” which refers to the mental changes that people experience when they wear certain clothing, according to The Atlantic.

With the rise in fitness awareness among consumers, wearing activewear outside the gym has become a norm. It gives others the idea that the person wearing it works out. Secondly, the person sporting activewear is more likely to hit a gym and work out, because he or she might be “inclined” to do so because of the clothes they wear.

The Zacks Consensus Estimate for the company’s current-year earnings increased 2.5% over the past 60 days. Shares of the company have risen 89.9%, outperforming the Zacks Textile - Apparel industry’s rise of 32.7% over a one-year period.

Stitch Fix, Inc. (SFIX - Free Report) markets a wide range of apparel, shoes and accessories via its online platform and mobile app. The company’s innovative business model has been a clear hit among customers. Stitch Fix offers personal styling services for men, women and children, wherein one can choose to buy the clothes when they are delivered to customers’ homes.

The Zacks Consensus Estimate for the company’s current-year earnings rose more than 100% over the past 60 days. Shares of the company have risen 49.8%, outperforming the Zacks Retail - Apparel and Shoes industry’s decline of 20.3% over a one-year period.

Zacks Top 10 Stocks for 2020

In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2020?

These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. 

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