Is it legal to purchase clothing at retail, modify the clothing, and sell the modified product online?

It might be okay - but you need to review the following IP issues: Patent - is the clothing protected by an active US Design or Utility Patent ? If yes - you may need a license from the patent owner. The patent exhaustion rule says that the patent owner is fully compensated when the item is sold - and you as the new owner can resell the item in its original condition. Changing the item may be patent infringement. Trademark - the clothing likely has a trademark associated with it - and you cannot use that trademark without a license from the owner. Your best option regarding the trademark is to remove original tags from the modified clothing and not mention the original mark in your advertising. Copyright - the first sale of the item is copyright exhaustion - the owner is fully compensated when the item is sold - and you as the new owner can resell the item in its original condition. Changing the item may be copyright infringement - as only the original creator can make a derivative work.

Pretty much anything you buy legally, you can modify and resell on-line. You might want to avoid anything with a name on it, however, such as designer labels or clothes with a famous person's name on it, since that could raise trademark and the right to exploit one's name issues. Also, removing trademark or copyright notations is illegal.