Skip to Content

3 min read

2024 Apparel Industry Pulse Study: What Advisors Need to Know

The industry has struggled to find consistency, but there are attractive long-term opportunities.


Key Takeaways

  • Same-store sales growth is likely to be in the low single digits in the long run.

  • Apparel firms could benefit from a stronger recovery in tourism to the US.

  • Many apparel stocks are undervalued as investors focus on near-term stress.

The past few years have been challenging for apparel companies. While stimulus spending and a sharp economic recovery brought strong results in 2021, a series of challenges have since led to inconsistent results and compressed valuations. Still, the industry is expected to experience a turnaround in 2025—signaling the emergence of long-term opportunities.

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 Q1 2024 insights on market trends, industry drivers, supply and demand, and more.

To read the full research report, download a copy.

Consistent Same-Store Sales Growth Has Been Elusive

Many apparel retailers posted exceptional 2021 same-store sales growth numbers, but began to feel the effects of inflation, supply problems, and inconsistent demand by mid-2022. There was significant discounting to move excess inventory in first-half 2023, but comparable sales remained disappointing throughout the year.

But comparisons are easier in 2024 and some issues—such as elevated inventory—have begun to lessen. Still, same-store sales growth is likely to be in the low single digits in the long run. However, recent outliers are those catering to wealthier consumers, such as Lululemon and Free People.

Bar graph showing selected retailers’ sales from Q1 2021 to Q4 2023.

The apparel industry has continued to struggle over the past two years.

A Stronger Recovery in Tourism Would Benefit Some Firms

The covid-19 outbreak in early 2020 caused a sudden and total collapse in international travel. The recovery has been quite slow as intermittent restrictions, economic conditions, and other factors have hit normal business and leisure travel patterns. Several domestic apparel firms that partially rely on tourist shoppers have been affected, including Macy's, Nordstrom, and Ralph Lauren.

Overall, the pace of a recovery in international travel will be hit by economic conditions in the US and abroad—as well as 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 and the rise of shopping opportunities within China.

Still, our latest travel industry trends show that value persists in the industry as consumer demand for trips stays strong.

Bar graphs showing foreign visits and travel spending to and in the US from 2019 to 2024.

Foreign visits to the US from all countries (except Canada and Mexico) are gradually approaching prepandemic levels while monthly spending by tourists to the US has nearly recovered.

Apparel Stocks Remain Undervalued in Relation to Our Fair Value Estimates

Although the share prices of most apparel companies under our coverage have rallied over the past year, about half of them are presently trading at 4- or 5 stars. This high percentage has changed little over the past year—and reflects investors’ concerns about the industry returning to typical patterns of excessive merchandise and discounting.

However, the percentage of very undervalued stocks has consistently been above 45%. In our view, investors have punished these stocks too severely due to weakening results since 2021. Strong performers over the past year (with share prices at least 30% higher) include Urban Outfitters and Inditex. Some of these were trading at very large discounts to our fair value estimates a year ago and have since rallied due to improving results or enthusiasm about a new strategy.

Graphs showing Morningstar star rating for apparel stocks and the proportion of 4- and 5-Star apparel stocks.

About half of apparel stocks are presently trading at 4- or 5- stars and the percentage of apparel stocks in 4- or 5-star territory has changed little over the past year.

Deliver Better Advice to Clients

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.

Work smarter with Pitchbook. Our award-winning software gives you access to the data and tools you need to get answers fast and discover meaningful insights into different markets.

Request a free trial today.

You might also be interested in...