Days of ever cheaper clothing are numbered
Clothing deflation set to ease off: some products will become more expensive
Over the past five years, British consumers have enjoyed the benefits of rapid clothing deflation which has brought them, year on year, cheaper apparel products from skirts, to T-shirts. However, according to analysis from Verdict Consulting, this trend is now coming to a close and while prices will remain relatively low over the next five years, shoppers should not expect to continue seeing the dramatic falls in price they have witnessed in the past. Indeed, in some categories apparel prices are likely to increase.
Verdicts analysis shows that between 2003 and 2007 deflation has been a constant feature of the clothing market and, over this period, prices have fallen by an average of 10%. Such reductions have been brought about by a number of factors. The growth of value clothing players like Primark and the expansion of the grocery multiples into clothing has reshaped the competitive landscape and provided consumers with cheaper offerings than were traditionally available at many high street stores. Traditional clothing specialists have sharpened their own prices in response, which has driven down prices still further. All of this has been underpinned by the ability of retailers to cheaply source products from overseas.
Verdict is forecasting that by 2010 price inflation will have crept back into the clothing market, bringing to an end a 12 year period of continuous price deflation. Over the next five years apparel prices will increase by slightly less than 1%. According to Verdict there are three main factors behind the reverse of the deflationary trend.
First, having already secured many of the financial benefits of international sourcing, it will be very difficult for retailers to extract significant extra savings from moving production to ever cheaper locations. Over the past five years, reducing manufacturing and production costs has been instrumental in allowing retailers to cut prices without seriously damaging their margins. Going forward, retailers will not have this ability and, therefore, will be much more constrained in terms of reducing their prices. Moreover, a greater focus on ethical sourcing by consumers will mean retailers need to be far more careful in terms of their sourcing policies: something that could also constrain their ability to reduce production costs.
Second, the cost of doing business is increasing rapidly. Verdict estimates that in 2006 alone, collectively retailers faced an additional 9.5bn of additional costs from a variety of sources including rent increases, higher energy prices and increased staff costs. This trend is likely to continue, and as it does it will make it progressively more difficult for clothing retailers to cut prices without harming their margins.
Third, UK consumers are saturated with clothing: the average woman, for example, buys twice as many clothing items per year today as she did back in 1995. The effect of this is that reducing clothing prices is unlikely to stimulate demand and result in retailers selling more volume, as has been the case in the past. As a consequence, many retailers have started to focus on adding value to their clothing ranges and encouraging consumers to trade up to more expensive products. This focus on more expensive products will push up average prices.
Were starting to emerge from the low price, high volume business model which has characterised large segments of the clothing market for the past five or so years. Low prices are no longer the differentiator they once were the new model is much more about adding value and providing clothing that is aspirational or different. To an extent people are bored with clothing shopping: they do like low prices, but they also want to be inspired and they re prepared to pay for the privilege.
The main implication of this repositioning and the price increases is that retailers will need to work much harder to convince consumers to buy. Over the next five years, retailers are going to have to justify their prices a lot more and that means investing in things like product design, store environment and the whole customer service experience The days when clothing retailers could simply reduce their prices and expect to sell more as a result are drawing to a close, It s now much more challenging and generating increased market share will be dependent on successfully balancing price and many other aspects of the proposition.
