Looking to invest in fashion? Questions you might get asked include things like, ‘are you mad’? Why on earth would you want to do that? These are the kind of comments you’re likely to get if you have the temerity to indicate that you are thinking of putting your money into clothing, footwear or accessories.
What’s the deal with fashion?
Fashion businesses are deemed inherently risky to back financially due to the fact that establishing a brand in this sector takes considerable investment to design and launch the first and subsequent ranges. What’s more, the market is particularly trend-led and therefore can be notoriously fickle.
Why would you take such a risk?
Well, first because not many other investors will, which means you could potentially get more for your money. Second, like high growth technology companies, if you back a winner, your investment is likely to soar. Therein lies the problem; how will you know a winner when you see one?
The simple answer is that you won’t. But there are some key traits to look for to help minimise the risk and maximise your likelihood of a decent return when investing in a fashion startup.
The benefit of choosing a premium brand to invest in is that it is likely to be less affected by economic fluctuations than one of its value counterparts. This is because wealthy audiences are the least affected by downturns or uncertainty in the marketplace. Quality If you’re going to back a luxury fashion brand, make sure it has the quality to warrant its premium claims.
A recent study by Nielsen revealed that 49% of consumers are happy to pay extra for high-quality products. In fact, this was found to be the top reason behind people being prepared to spend more.
Looking after the planet is rapidly rising up the consumer agenda, particularly among Millennials and Centennials. Nielsen’s survey also reveals that 81% of consumers feel strongly that companies should help to improve the environment, with 73% of millennials saying they’re changing their buying habits to benefit the planet.
This is particularly important in a sector like fashion which has been criticised for the huge amount of water it takes to make a pair of jeans and is responsible for 10% of all global warming.
This means that investing in a truly sustainable fashion business re-risks your investment significantly. A point of difference With every product seemingly like everything else these days, originality is hard to come by.
This is no more the case than in fashion. If you can find a brand that is truly offering something unique, such as a gender-neutral clothing line, then it’s another box ticked in lowering investment risk.
Rajeev Saxena is Managing Director at Velocity Capital Advisors, which has a portfolio of 21 innovative high-growth tech businesses, including sustainable gender-neutral fashion brand Zilver, now stocked at Machine A, Gallery Lafayette, Bom The Shop and Farfetch.