Apparel stocks hurting in ’17

You’ve probably noticed that many apparel retailers are dumping their merchandise at steep discounts, shuttering their stores or simply disappearing. Several retailers — including Aeropostale, The Limited and American Apparel — all filed for bankruptcy in 2016.

To understand what happened, let’s look at the comparable-store sales (or “comps”) growth in 2016. Comps growth measures year-over-year sales growth of stores open at least a year, which gives us an idea of how well mature stores are holding up.

Many apparel retailers are struggling to post single-digit comps growth related to two key factors. First, fast-fashion retailers such as H&M, Zara and Forever 21 are rotating their products faster and selling them at lower prices. Second, stiff competition from etailers is causing mall traffic to plummet.

Apparel retailers are trying to counter those declines by closing stores, mimicking fast-fashion strategies and investing heavily in e-commerce channels.

Many apparel stocks now have low valuations and high dividend yields due to the industrywide sell-off, but investors should exercise caution.