Clothing Retailing Marketing Research

Clothing Retailing - UK - October 2009

Market in Brief

Future

• The economy will contract in 2009, although Q3 is now expected to show marginal growth. But the recovery thereafter will be protracted and fragile.
• Nevertheless, we have revised our 2009 all retail sales forecast up to 2% on the back of stronger than expected figures in the summer and the stabilisation in the consumer confidence index.
• However, we also expect the retail recovery to be modest and gradual over the next 18 months in the light of pending rises in tax, interest rates and unemployment and the ongoing credit restrictions.
• Clothing specialists could match growth in all retail sales in 2009, given a stronger performance in the second half of the year.
• Also in the back half of the year we expect to see some inflation creeping into the market, as certain demographics (notably the ABC1 pre-/no families) start to trade up and/or just spend a bit more.
• Moreover larger purchases may be brought forward before the VAT increase on January 1st 2010, while numbers of Christmas shoppers from continental Europe may be boosted by a more favourable exchange rate.
• Over our five-year forecast, we predict that clothing specialists will marginally outperform all retail spending, but still fall short of their peak retail market share in 2006.
• Competition will remain fierce, particularly from the internet activities not only of pureplayers but also other non-specialists such as the supermarkets and the department stores.

Deflation pervades

• In the period 2004 to 2008, clothing spend has marginally underperformed relative to a collection of other fashion-influenced markets.
• However value growth in spending has been held back by deep deflation, so volume growth was considerably stronger.
• Deflation has been a feature of the clothing market for the last ten years – a function both of a growing emphasis on low priced imports and of the development of chains focusing on ultra low prices, such as Primark.
• Deflation averaged out at around 9% in the first half of 2009, a level that is clearly unsustainable.
• But although the impact of sterling’s weakness is expected to filter through during the second half of 2009, competitive pressures will see many clothing retailers trying to keep a lid on any price increases.

Consumer context

• Mintel’s exclusive consumer research found that only a quarter of adults have not changed their shopping habits for clothes since the recession started.
• The most significant changes that others have made have all been savings-related, ie spending less, shopping around more, not buying at full price, buying more from value or less expensive retailers.
• The hard pressed 25-54s have traded down to value retailers more than other age groups.
• But the under-25s are most likely to actually be spending less than in 2008.
• Twice as many people are pessimistic rather than optimistic about their spending intentions on clothing in the year ahead.
• But the ABC1 pre-/no family lifestage are much more likely to be bullish about the future, and they are a key demographic for fashion retailers.

Competitive landscape

• In market share terms, Primark has been the major winner during the downturn.
• But the value segment as a whole has outperformed the rest of the clothing specialists sector.
• Collectively, youth fashion retailers have also held up quite well with young people continuing to spend.
• But the mid-market, which includes market leaders M&S and Next, has been badly squeezed.
• The top dozen specialists captured an estimated 57.3% of clothing sector sales in 2008, with M&S alone accounting for almost 12% of this.
• There is a long tail of independents and smaller chains, and some of the latter like Fat Face, White Stuff, TM Lewin, Aurora Fashions (Karen Millen, Oasis etc) and Phase Eight, are still growing.
• When the economy starts to recover, life could get tougher for the value retailers and positioning correctly for the upturn will be important. So, while ultra low prices and discounts have helped to drive retail market share, they have had a negative impact on profit margins and ability to invest in a brand for the longer term.
• One of the biggest changes looming on the competitive landscape is the merger between Bhs and Arcadia which could see some Bhs stores gradually evolving into a ‘house of brands’.
• Exactly how this pans out remains to be seen, but there are some tired brands in Philip Green’s empire, most notably Burton and Bhs according to our research, so some culling and reconfiguration of space would lead to a stronger high street overall.
• Philip Green has also talked about introducing new third party brands into the concept. Next, New Look and Dorothy Perkins are all introducing third party labels too to complement their own brand assortment. This could be in response to the huge success of Asos.