Nasdaq+ Exclusive

You may have heard of the hemline index—a bit of whimsy from hard-nosed investors who are more superstitious than they care to admit. The premise? That the length of women’s skirts is a reliable market indicator. If minis are making a comeback, expect the bull to come charging. If hems take a downward plunge, stocks are bound to follow.

Wondering what the word is on hemlines for fall 2023? According to one fashion website, skirts that are long on one side and short on the other are the season’s trendy new look. So maybe the hemline index is on to something. Asymmetry is a pretty apt description of today’s economy. It’s buffeted by inflation, global conflict and supply chain issues—the downside. But it’s ticking along surprisingly well nonetheless—the upside.

Steady as she goes

Certainly the fashion business itself—valued globally at $1.7 trillion—appears to be doing just fine, thank you. In the U.S. alone, revenue in the fashion market should reach over $760 billion this year. And the middle-distance outlook is pretty solid, too, with an expected compound annual growth rate (CAGR) of 9.45 percent through to 2027.

Investors might want to consider two factors driving the industry. The first: Fashions change. Cool young people with disposable income love to renew their wardrobes regularly—and today, manufacturers are turning out very affordable versions of the latest designs.

The second: Elegance is forever—and well-heeled consumers are drawn to high-priced luxury styles that have long shelf lives. Companies successfully delivering the goods in either of these categories tend to make shareholders smile.

Quick change artists

At one end of the spectrum are firms that make the reasonably priced apparel known as fast fashion. These manufacturers quickly figure out what’s in vogue, replicate it, and ship it in the blink of an eye, repeating the cycle continuously. Their target Millennial and Gen Z consumers have a complicated relationship with the process: They appreciate the prices yet despair over the throwaway culture it encourages and the workers it is said to exploit.

One such company they love to hate is H&M (HM.B), which sells shares over the counter. The Swedish clothing giant had a rough 2022, when net profit plunged by 68 percent following its decision to pull out of Russia—an act that got a nod of approval from activists.

But even as I write, the business is investigating 20 alleged cases of labor abuses at its factories in Myanmar. Still, many analysts have rated the stock as undervalued and the company rebounded significantly by the second quarter of this year after profit proved far better than expected.

Other major fast-fashion contenders include Inditex (ITX), owner of the Spanish retail chain Zara, which saw its global net revenue increase by 15 percent last quarter. Meanwhile, Forbes predicts that Japan-based Uniqlo, a subsidiary of Fast Retailing Co. (FRCOY) could become the next Gap.

But all eyes are now on the private retailer Shein, headquartered in Singapore and currently said to be worth $66 billion. Known for perfecting the fast-fashion concept, it has expanded big time in Mexico, Italy, Spain and Brazil and is planning an IPO in the near future. But it will first have to prove to U.S. authorities that it doesn’t tolerate forced labor.

The titans of timeless fashion

While fast-fashion enterprises battle it out in the cheap seats, the dowager companies in haute couture are maintaining their dignity. It’s easy to do so since their clients, by and large, are safely weathering the effects of inflation.

Leading the pack is LVMH Moet Hennessy Louis Vuitton (LVMUY), which had revenue of nearly 90 billion last year and saw a 20 percent growth in its fashion and leather divisions. And despite its mixed performance, the venerable house of Christian Dior (CHDRF) represents another interesting investment possibility. According to one analyst its stock could go up by over 27 percent this year, based on its eight-year historical performance.

Finally, there’s one more interesting IPO in the offing. The shoemaker Birkenstock is planning a September IPO that could value the company as high as $8 billion.

But does it look good on you?

Now, here come the caveats. Low-priced fashion manufacturers face stiff competition, with scores of brands vying for the same market. Plus, despite some effort to change their ways, they’ve acquired a lingering rep for treating their global workers badly.

As for the high-priced fashion houses, their customers seem to be flouting conspicuous consumption at a time of high inflation—not a good look. What’s more, the big names in the field are among the least transparent about their supply chains and labor policies.

The best advice? As always, do your due diligence. And follow your conscience before you put your money down.