Unless you happen to be smitten with wearing your lucky shirt
every single day, you're going to need clothing. The apparel
retail industry is there to provide fashionable solutions.
Whether it's a matter of catering to basic garment needs --
especially in areas where seasonal weather changes mandate
different types of clothing at different times of year -- or to
the nature of fickle fashion that drives consumers to update
their wardrobe to keep up with trendy styles, clothing retailers
are armed with racks and shelves of solutions.
What is the apparel retail industry?
There is no shortage of apparel retailers at malls, shopping
centers, and even stand-alone storefront locations. There also
seems to be no shortage of customers. Clothes get worn out, torn,
or stained beyond reasonable repair. But more often than not,
shoppers are drawn just by the sense of getting something new as
they tire of wearing the same thing or give in to new fashion
Plenty of department stores, drugstores, and discount
retailers sell a high volume of apparel alongside their other
merchandise. Even a local museum gift shop or convenience store
may offer clothing items. However, for the sake of narrowing the
niche's focus, let's concentrate only on the chains that rely
primarily on clothing and related wearable accessories to earn a
How big is the apparel retail industry?
The apparel retail market appears likely this year to
ringup nearly $1.3 trillion in revenue worldwide, according to
sector researcher MarketLine. It probably isn't a surprise to see
women's wear account for 51% of the sales, with menswear and
clothing for children making up the balance of the market.
The largest publicly traded apparel retailers tend to be
chains that specialize in selling recognized brands at discounts.
-- the parent company of T.J. Maxx and Marshalls --
rang up $27.4 billion in sales in fiscal 2014.
also tops $10 billion in annual sales. However, these large
chains also sell some general merchanidse including housewares
and even toys.
However, many of the popular mall chains are also publicly
traded. Some of those larger retailers include
Abercrombie & Fitch
American Eagle Outfitters
How does the apparel retail industry work?
The basics of apparel retailing are pretty easy to grasp.
Chains have buyers who reach out to the textiles industry,
stocking up on either proprietary fashions or brand-name designs.
As investors, separating the winners from the losers isn't as
simple as checking out what's working at the local mall.
A popular metric used in evaluating apparel retail chains is
same-store sales, or comps. Measuring the average year-over-year
growth or decline in sales at established locations is a way to
gauge a concept's popularity.
There usually isn't a positive when a company reports negative
same-store sales, but let's not assume that positive comps can't
be a negative. Many public chains release comps on a monthly
basis, but investors can't rely on same-store sales growth
figures alone. A spike in comps can be the handiwork of a chain
marking down its older inventory. The registers will be ringing,
but margins will contract and earnings will be challenged.
Another thing for investors to watch is inventory. You don't
want to see inventory levels growing substantially faster than
sales. It's a sign that the racks are starting to fill up with
aging merchandise, and inventory-clearing markdowns may be in
One final metric that is often used in weighing retailer
stocks is sales per square foot. As the term implies, this gauge
divides sales by a chain's square footage to determine the
average sales generated during the course of a year for every
square foot of space. Higher is better, naturally, and makes a
concept more attractive to a potential landlord.
What drives the apparel retail industry?
Fashion is fickle, and it's no surprise to see storefronts at
the local mall change over the years. Chains falter, and
sometimes they don't bounce back.
The growing popularity of online retail has also been a threat
and an opportunity. Most brick-and-mortar chains sell their wares
through the Internet, but it's hard to compete with the cost
advantages of Web-exclusive merchants. This leaves the majority
of apparel retailers relying on product exclusivity, the social
nature of mall outings, and the allure of instant
Despite the whims of trendiness and the dot-com challenges, a
sufficient number of leading retail apparel chains are growing
their comps and expanding their reach to make this a viable
industry for investors.
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originally appeared on Fool.com.
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