Industry: Definition in Business and Investing

What is an industry?

An industry is a classification that groups companies with similar primary business activities or products. Firms are typically assigned to an industry based on their main source of revenue. Industries are often grouped into broader categories called sectors.

Key takeaways

• Industries group companies with comparable products, services, or production processes.
• Classification is usually based on a firm’s primary revenue source or core activity.
• Industries are organized into broader sectors.
• Two common classification systems are the North American Industry Classification System (NAICS) and the Global Industry Classification Standard (GICS).
• Companies in the same industry often show similar performance and stock movements, though company-specific events can cause divergence.

How industries are defined

Companies are grouped into industries by the primary business activity they perform or the main products they produce or sell. This grouping helps separate businesses with different operations and enables meaningful comparisons across similar firms.

Classification systems

NAICS (North American Industry Classification System)
* NAICS is the standard used by U.S., Canadian, and Mexican government agencies for statistical reporting.
* It classifies businesses by similar production processes into a hierarchical structure of sectors, subsectors, and detailed industry codes (six-digit NAICS codes).
* NAICS is revised every five years; the most recent update was released in 2022.

GICS (Global Industry Classification Standard)
* Developed by MSCI and S&P Global to provide a consistent, investment-focused classification.
* GICS is a four-tier hierarchy: sectors, industry groups, industries, and sub-industries.
* It defines 11 economic sectors, which are subdivided into industry groups, industries, and sub-industries for use by investors, analysts, and indexes.

Industries vs. sectors

Sectors are broader categories that contain multiple related industries. For example:
* “Retail trade” is a sector; within it are industries such as pharmacies and drugstores, clothing stores, and shoe stores.
* Two companies can be in the same sector but different industries (e.g., a pharmacy vs. a clothing retailer).
* A single company can be assigned multiple industry codes if it conducts materially different activities (e.g., a retailer that also provides photo-developing services).

How investors use industry classification

Investors and analysts study industries to:
* Compare companies with similar business models and market exposure.
* Identify trends, risks, and growth drivers common to an industry.
* Screen for top-performing industries or allocate capital across sectors and industry-specific ETFs.
Because industry members face similar macroeconomic influences, their stocks often move together—helpful for relative valuation and portfolio diversification decisions.

Special considerations

• Macroeconomic factors—such as regulation changes, commodity price shifts, or broad market sentiment—tend to affect all companies within an industry.
• Company-specific events (product launches, scandals, leadership changes) can cause a single firm to outperform or underperform its industry peers.
• Industry classifications can change over time as technologies and business models evolve, so classification systems are periodically updated.

Examples

• Commercial banking is an example of a specific NAICS industry (NAICS code 522110) within the finance and insurance sector.
• A retailer like Rite Aid and an apparel company like Gap can sit in the same consumer-oriented sector while belonging to different industries (pharmacies vs. clothing stores). A company may also hold multiple NAICS codes if it operates distinct businesses.

Bottom line

An industry groups businesses with similar outputs or production processes and helps investors, economists, and policymakers analyze corporate performance and market dynamics. Industries are nested within broader sectors and are classified using systems such as NAICS and GICS, both designed to reflect evolving economic activity and aid comparison across firms and markets.

Further reading

• North American Industry Classification System (NAICS) — U.S. Census Bureau
• Global Industry Classification Standard (GICS) — MSCI / S&P Global