Polarisation picks up pace in difficult mass-market clothing market
For many years clothing retailers have relied on a volume-driven business model but this is broken and is leading to a greater drive by merchants to encourage their customers to spend more money on less products.
Polarisation picks up pace in difficult mass-market clothing market
For many years clothing retailers have relied on a volume-driven business model but this is broken and is leading to a greater drive by merchants to encourage their customers to spend more money on less products.
This was a key conclusion of the Barclays Corporate report on ‘Current trends and future opportunities for the UK Clothing Industry’ produced by Verdict Consulting that comes at a time when even the mighty Primark has been suffering from a deterioration in trading.
Neil Saunders, consulting director at Verdict, says, “The volume business model that’s been used [by many retailers] is not sustainable. What now counts is added value. Getting people to spend more on less product.”
There are many drivers of this, with disposable income being a key factor. Verdict calculates it will continue to drop over the next few years – by 0.5% in 2010, 1.5% in 2011 and 0.4% in 2012. This equates to a drop in spending power for each family in the UK of £296, which if all were to have been spent in the retail sector would represent a fall in total retail sales of £5.49 billion.
“It’s a significant amount of money that will impact on the demand environment. It changes the mindset if people have less money available to spend and do not have the facility to get debt. But it’s not just these people as the affluent with money to spend also start to question whether they’ll lose their jobs,” says Saunders.
Another key factor is the rising price of clothing. Before the recession prices had gone down and volumes naturally went up but now we are in an inflationary environment and the volumes are falling.
This is a global problem and is affected by increases in cotton prices, wage increases in China, the rise in the price of oil. In addition, specifically in the UK, there has been the increase in VAT. This cocktail of woe is likely to continue to have its effects on the market at both ends of the pricing spectrum – value and premium.
The value end will have to continue to notch up its prices, which will be interesting to see how it affects overall sales and profitability of the key players at this end of the market– notably Primark, Peacocks, H&M and New Look.
They have certainly had a good time to date with the number of clothing shoppers using their stores on a regular basis having increased from 53.7% at the start of 2008 to 57.3% at the end of 2010. “The growth was from affluent consumers, whereas it had previously been C2D shoppers. A lot of snobbery has gone out of it and people are savvy and seen as clever, there is no stigma attached to them [shopping there],” says Saunders.
It has interestingly been the same story at the premium end of the high street clothing market – including the likes of Hobbs, White Stuff, and Crew Clothing – which has also enjoyed growth. The percentage of clothing shoppers regularly using these retailers stood at 16.2% the start of 2008 compared with 22.4% at the end of 2010.
But despite the pricing pressures on the industry Verdict is still predicting growth continuing at both ends of the market – a trend that highlights the growing polarisation in the marketplace.
Between 2010 and 2014 Verdict calculates the value category will grow its share of the total clothing market by 21.2% to £12 billion and the premium end will increase its share by 28.6% to £8.6 billion.
Meanwhile, the area being squeezed is the middle ground with predicted growth of a more pedestrian 11% growth in its share to £52.4 billion – that will largely be accounted for by higher inflation.
“This is okay growth but there is an opportunity to trade-up into premium,” says Saunders, who cites John Lewis as an example of an operator that has taken its offer from a more staid proposition to one that is more fashionable and in so doing has tapped into the premium end of the market.
The middle market has to stretch into other areas if it is to succeed in the future, and Marks & Spencer highlights how this can be done. It has stretched into different demographics over recent years as it has fought for market share. But it must do more if it is to hold market share in the future.
The polarisation trend is certainly proving a harsh one for the likes of M&S and others like them that have seen their market shares drop. And they could suffer further as the market continues to polarise further.
Such stretching into other demographics has been possible through the introduction of sub-brands, which has been a feature of many retailers.
But Saunders warns of spreading the offer too broadly across too many brands, which can be confusing to shoppers and damage the brand.
Other areas for growth are diversification into beauty, accessories and footwear, as well as targeting older consumers. “Although fashion is focused on younger people, the older consumers are much more fashionable. They have more disposable incomes and are more avid consumers compared to previous older generations. The 65-plus year-old market is where most of spending comes from,” suggests Saunders.
