2024 Apparel Industry Analysis: What Advisors Need to Know

The past few years have been challenging for apparel companies. While stimulus spending and economic recovery brought solid results in 2021, a series of challenges have since led to a downtown. But healthier inventory levels, less discounting, and lower inflation and interest rates have boosted the valuations of several apparel firms. By the end of 2024, the median apparel firm was trading at our median fair value estimate—a big reversal from two years prior.

When financial advisors have a better understanding of the industry, it can be easier to identify the right apparel stocks for clients’ investing strategies. Our latest research takes a closer look at the latest Q4 2024 insights on market trends, industry drivers, supply and demand, and more.

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After being hit by the pandemic in 2020 and then experiencing a boom year in 2021, many apparel retailers began to feel the effects of inflation, supply problems, excess overall inventory, and inconsistent demand by mid-2022. Over the past year, shipping and inventory problems have lessened and average same-store sales growth has been close to the inflation rate. Yet the fact that the industry is struggling to outpace inflation suggests that retailers continue to struggle to draw shoppers.

For most retailers, same-store sales growth is likely to remain in the low single digits in the long run. However, outliers are those catering to wealthier consumers, such as Ralph Lauren and Free People.

The covid-19 outbreak in early 2020 caused a sudden and total collapse in international travel. The recovery has been slow as intermittent restrictions, economic conditions, and other factors have hit normal business and leisure travel patterns. This has affected several domestic apparel firms including Macy's and Nordstrom.

Overall, the rate of recovery in international travel depends on economic conditions in the US and abroad, currency movement, and consumers’ appetite for travel. It’s also possible that travel to the US from China may continue to be soft due to hostilities between the two countries, weakness in China’s economy, and the rise of shopping opportunities within China.

When it comes to US travel, our latest Travel Services Pulse shows value is still found in the industry despite faltering travel demand and a challenging consumer environment. Over the last year, consumers' intent to take vacations has dropped 5% year over year versus a 7% increase in the preceding 12-month period. This trend reveals the increased strain consumers are under, given dwindled savings rates amid high inflation—which could hinder leisure demand for hotel and online travel operators. As a result, while we still see revenue growth within our travel coverage during 2024, we expect it to moderate compared to 2023. 

Although the share prices of most apparel companies under our coverage have rallied over the past year, about 40% are still trading at 4 or 5 stars. Apart from internal problems at some firms, this sizable percentage reflects investors’ concerns about the industry returning to typical patterns of excessive merchandise and discounting.

However, the percentage of apparel stocks in 4- or 5-star territory has dropped a bit over the past year. In our view, investors had punished undervalued after an industry lull following the pandemic. Strong performers (shares up more than 50%) over the past year include Revolve and Dick’s Sporting Goods.

Investment strategies look different for every client. By knowing trends in major industries like apparel, you can initiate more meaningful conversations and guide your clients to make decisions that align with their goals.

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