During the recent London Fashion Week, the world's fashionistas eagerly anticipated the unveiling of the latest trends destined to define autumn and winter 2024. Yet, as I observed the shows of haute couture and avant-garde designs, a subtle but significant question arose: Who stands behind these iconic runways, and how does investing in fashion translate into financial gain?
Fashion is undeniably one of the world’s most influential industries. McKinsey[1] famously stated that if you ranked the global fashion industry alongside individual countries' GDP, it would represent the seventh-largest economy in the world. In 2022 alone, the global fashion market generated a total revenue of $1.53 trillion[2].
Each year, Forbes announces the World’s Most Valuable Brands[3]. Louis Vuitton (LVMH) consistently ranks among the top performers, boasting a brand value of $47.2 billion. Other notable brands include Nike, Gucci, Hermes, and Zara, each contributing significantly to the industry's growth and profitability.
Luxury pieces – such as the iconic Hermes Birkin - have proven to have incredible pricing power over multiple cycles. The much sought-after bag has gone up in price numerous times since its launch in 1984 and still has a 2-year waiting list[4]. The latter is to blame for the distortion of the secondary market, where the bag is generally much more expensive. This phenomenon is well known by watch enthusiasts, with pieces like the Rolex Submariner experiencing similar demand.
However, it’s not all about luxury. For example, Shein, China’s fast fashion brand, is one of the leading apparel brands in 2023[5], highlighting the evolving landscape of fashion commerce. Although the low cost of apparel can be appealing, especially in the current high inflationary and low growth environment we are in, there is a shadow of concern: sustainability. While fast fashion giants churn out cheap, low-quality clothing at an unprecedented rate, the environmental and social costs are staggering. Studies[6] show that people often wear only a fraction of their wardrobes, prompting a revaluation of consumption habits and the true value of material possessions.
Indeed, the fashion industry is a great representation of financial markets; portfolio construction is not dissimilar to a carefully curated capsule wardrobe. Drawing on this parallel, I have a few guiding principles for those contemplating a wardrobe (or portfolio) overhaul:
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