# Industry: Definition in Business and Investing

## What Is an Industry?

The term “industry” is a classification for a group of companies that have similar business activities. In modern economies, there are dozens of industry classifications. Industries typically are grouped into larger categories called sectors.

Individual companies are generally assigned to an industry based on their largest sources of [revenue](https://www.investopedia.com/terms/r/revenue.asp). For example, while an automobile manufacturer might have a financing division that contributes 10% to the firm’s overall revenues, the company would be classified in the automaker industry by most classification systems rather than in the financial services industry.

### Key Takeaways

*   Similar companies, such as department stores and automakers, are grouped into classifications called industries.
*   Industry grouping is based on the primary product that a company makes or sells. Industries are further grouped into [sectors](https://www.investopedia.com/terms/s/sector.asp).
*   The North American Industry Classification System (NAICS) is the standard classification system used by government agencies to organize companies into industries and sectors.
*   The Global Industry Classification Standard (GICS) also assigns every company an industry group and economic sector.
*   Companies within an industry often perform similarly due to macroeconomic conditions that help or hurt all companies with similar customer bases or products.

![Industry](https://www.investopedia.com/thmb/cgn_0C6Oj9onWfwL4NC_PApzsFE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/industry-a8f79a77cad44384811d727d23e12a70.jpg)

*— Zoe Hansen / Investopedia*

## Understanding an Industry

Similar businesses are grouped into industries based on the primary [business activities](https://www.investopedia.com/terms/b/business-activities.asp) or the primary product that they produce or sell. This creates industry groups, which can then be used to separate businesses from those that participate in different activities.

### How Investors Use Industries

[Investors](https://www.investopedia.com/terms/i/investor.asp) and [economists](https://www.investopedia.com/terms/e/economist.asp) often study industries to better understand the factors and limitations of corporate profit growth. Investors often compare companies operating in the same industry to evaluate their relative attractiveness as an investment.

Investors seeking better-performing stocks and exchange-traded funds (ETFs) often study the best-performing industries as well as watch industry rankings for changes. For example, investors might see a red flag where an investment is concerned when they see an industry that has declined in rank.

> **Fast Fact**
>
> Stocks of companies operating within the same industry tend to have similar stock price movements. This is because companies within a given industry face the same headwinds, challenges, and broad triumphs.

## Special Considerations

### Stocks

Stocks within the same industry often rise and fall as a group because the same [macroeconomic factors](https://www.investopedia.com/terms/m/macroeconomic-factor.asp) are likely to impact all members of an industry.

These macroeconomic factors can be changes in [market sentiment](https://www.investopedia.com/terms/m/marketsentiment.asp) on the part of investors, such as a response to a particular event or piece of news. They can also be changes involving the industry itself, such as new regulations or increased raw material costs.

However, events related to one business in particular can cause the associated stock to rise or fall separately from others within the same industry. This can be the result of events such as a differentiating product release, a corporate scandal in the news, or a change in leadership structures.

## Industries vs. Sectors

Sectors and industries are classifications used to group similar types of business operations. However, sectors are broader than industries.

For example, retail trade is a sector as defined by the [North American Industry Classification System (NAICS)](https://www.investopedia.com/terms/n/naics.asp). Within that sector are industries such as health and personal care stores, clothing and clothing accessories stores, and shoe stores.

Rite Aid Corp. and Gap Inc. are members of the same consumer goods sector, but each is listed in a different industry based on the products that they produce or sell. Rite Aid Corp. is classified within the pharmacies and drugstores industry (NAICS Code 456110), while Gap Inc. is classified within the clothing and clothing accessories stores industry (NAICS Code 458110).

It’s important to note that a single company can reside in two different industries or two different sectors. In addition to being within the consumer goods sector, Rite Aid is considered part of the personal services sector as well, within the photofinishing laboratories industry. Because this business develops photographs in addition to selling consumer goods, it is assigned multiple NAICS codes (NAICS Code 812921 for its photo department).

The NAICS, developed by the United States, Canada, and Mexico, is the standard by which government agencies classify businesses when compiling statistical data. In the NAICS hierarchy, companies that use similar production processes are categorized in the same industry.

> **Important**
>
> The NAICS is reviewed and revised every five years, and the latest edition of the system was released in 2022. This updated version of industry codes best reflects company classifications, especially in industries that have undergone large changes since 2017.

### Global Industry Classification Standard (GICS)

The [Global Industry Classification Standard (GICS)](https://www.investopedia.com/terms/g/gics.asp) is also a commonly referenced classification system. The GICS assigns every public company to an industry group and an economic sector that best define its business.

The GICS was developed jointly by [MSCI (formerly Morgan Stanley Capital International)](https://www.investopedia.com/terms/m/msci.asp) and [S&P Global (formerly Standard & Poor’s)](https://www.investopedia.com/terms/s/sp.asp) in 1999. It was created to be an efficient investment tool to capture the breadth, depth, and evolution of industry sectors. The GICS methodology is used by the MSCI indexes, investors, analysts, and economists to compare and contrast competing companies.

The GICS is a four-tiered, hierarchical industry classification system. According to the GICS hierarchy, there are 11 economic sectors. These sectors are further divided into 25 industry groups, 74 industries, and 163 sub-industries. Each stock has a code to identify it at all four of these levels.

For example, “materials” is an economic sector. Within materials, there are different industries: chemicals; construction materials; forest products; glass, paper, and related packaging products; and metals, minerals, and mining companies.

## What Is an Example of an Industry?

A specific NAICS industry is commercial banking, and it is assigned its own classification code (522110). It is found in the finance and insurance sector, which contains other industries such as credit intermediaries, financial investment companies, insurance carriers, funds, trusts, and other financial vehicles.

## What Is the Difference Between an Industry and a Sector?

“Sector” is a broader term than “industry.” Industries are contained within sectors, but not vice versa. For example, consumer goods is a sector. This sector can then be broken into different consumables industries, such as clothes or personal health.

## What Is the Difference Between an Industry and a Business?

An industry is a classification that refers to a group of businesses. A [business](https://www.investopedia.com/terms/b/business.asp) is an entity that is operated to achieve particular business goals. When a collection of individual businesses operate in a similar manner and produce similar output, they may be grouped together and classified as part of the same industry.

## How Many Different Industries Are There?

Different classification systems will group and report industries differently. The NAICS has historically grouped companies into roughly 20 sectors, 100 subsectors, and over 1,000 six-digit NAICS industry codes.

## The Bottom Line

In business and investing, industry is a classification that is used to group similar companies. These companies have comparable products and services, and will often respond in similar ways to macroeconomic trends. Because of this, their stock prices often move up or down at the same time.

Industries can be further grouped into sectors, which is a broader classification that includes multiple industries. Businesses within the same sector may respond similarly to some macroeconomic trends but not others.

Two common classification systems for industries are the North American Industry Classification System (NAICS) and the Global Industry Classification Standard (GICS).

> **Article Sources**
>
> 1.  North American Industry Classification System Association. “[NAICS Profile Page: Rite Aid Corporation](https://www.naics.com/company-profile-page/?co=12672).”
>     
> 2.  North American Industry Classification System Association. “[NAICS Profile Page: Gap Inc](https://www.naics.com/company-profile-page/?co=9395).”
>     
> 3.  U.S. Census Bureau. “[North American Industry Classification System](https://www.census.gov/naics/).”
>     
> 4.  U.S. Office of Management and Budget, via U.S. Census Bureau. “[North American Industry Classification System](https://www.census.gov/naics/reference_files_tools/2022_NAICS_Manual.pdf).”
>     
> 5.  MSCI. “[Frequently Asked Questions About GICS](https://www.msci.com/documents/10199/5973a128-47f0-4317-b083-716a10207b50).” Page 1.
>     
> 6.  MSCI. “[The Global Industry Classification Standard (GICS®)](https://www.msci.com/gics).”