Sneaker maker Nike (NKE 1.72%) has been at the top of its game for decades, outpacing all other apparel makers in recent years. The athleisure trend shows no sign of letting up as a driving force in clothing -- and Nike is enjoying its status as the leader.

However, it's definitely feeling the pressure of this moment, and other apparel companies are staging strong sales campaigns. Nike has a solid moat with which to fend off rivals, but over the next few years emerging companies may still challenge it and perhaps even overtake it in terms of market capitalization.

Let's consider Lululemon Athletica (LULU 2.25%) and Revolve Group (RVLV -1.49%), which are both showing a good amount of resilience in this market and have the potential to become monster stocks in the coming decade.

1. Challenging Nike's dominance

It's hard to believe that niche activewear vendor Lululemon has been able to reach heights that bring it into direct competition with Nike. But this relatively young company has many qualities that have made it a star so far and provide it with potential for much more.

First of all, Lululemon is an efficient company. Consider both its gross margin and its operating margin as compared to Nike's.

NKE Gross Profit Margin (Quarterly) Chart

NKE Gross Profit Margin (Quarterly) data by YCharts.

Lululemon performs so well in these areas for a few reasons.

  • It charges premium prices for both its name and its patented, high-quality fabrics.
  • It has forged strong connections with its upscale, fitness-minded clientele, who are willing to pay what the products are worth.
  • Because many of its products are basic and non-seasonal, it doesn't feel pressure to put older items on sale to make way for new merchandise.

In its fiscal 2022 second quarter (ended July 31), sales increased 29% over last year, as if there were no such thing as inflation or a spending slowdown. The gross margin and operating margin both expanded. Earnings per share (EPS) increased from $1.59 to $2.26. Compare that with Nike's 4% sales increase in the 2023 first fiscal quarter (ended Aug. 31) and decrease in gross margin and EPS, and you can see why investors are so excited about Lululemon's future.

Lululemon's management recently launched a new growth strategy to double men's and direct-to-consumer sales and quadruple international sales -- thus, doubling overall revenue by 2026.

Lululemon stock is down a little over 5% in 2022, and the company has a total market capitalization of $46 billion. Nike stock is down 37% this year, and has a market cap of $164 billion. If Lululemon continues to demonstrate impressive growth and executes on its plans to dominate its market, it could outpace Nike in the coming years.

2. Not your mother's fashion boutique

Revolve Group operates two sister websites that target millennial and Gen Z shoppers, and these sites are thriving in a tech-savvy world. Revolve offers cutting-edge fashion with thousands of products, while FWRD offers ultra-high fashion with matching price tags. Both of these sites are completely online and rely heavily on artificial intelligence and social media influencers -- and the result is that they are resonating strongly with their desired customer bases.

Growth experienced a big slowdown in the third quarter, but it was still just in the double digits at 10%. The company has also maintained profitability, although that declined to $12 million in net income from $16.7 million last year.

While those are impressive stats considering the economic environment, the real excitement about Revolve is in its future potential. Even in the third quarter, Revolve added more than 84,000 new active customers, or a 34% increase year over year. Average order value increased 16%. These signs point to an engaged and satisfied customer base that should continue to increase over time, especially when the economy begins to shape up.

Revolve Group's infrastructure was built to adapt to trends, which means it can easily handle changes in fashion, technology, and shopping behavior. CEO Mike Karanikolas said, "Nearly 20 years of experience operating Revolve has shown us that companies capable of generating profitability and cash flow during periods of economic volatility can become even stronger relative to the competition." That should serve Revolve well in the next 10 years.

Revolve stock is down 55% this year, and the company has a market cap of less than $2 billion. While it might look like a stretch for the market cap to get anywhere near Nike's, this company is growing sales faster than Nike and is climbing the ranks of popular fashion retailers. Its stock could skyrocket over the next decade.