Tomorrow s clothing retail: sectors, markets and routes forecasts to edition

Transcription

1 Tomorrow s clothing retail: sectors, markets and routes forecasts to edition

2 Page i Tomorrow s clothing retail: sectors, markets and routes forecasts to edition By Malcolm Newbery and Karlynne ter Meulen June 2010 Published by Aroq Limited Seneca House Buntsford Park Road Bromsgrove Worcestershire B60 3DX United Kingdom Tel: +44 (0) Fax: +44 (0) Web: Registered in England no:

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5 Page iv Table of contents Table of contents Single-user licence edition... ii Copyright statement... ii Incredible ROI for your budget single and multi-user licences... ii just-style.com membership... iii Table of contents... iv List of figures... vi List of tables... vii Chapter 1 Executive summary... 1 Report scope... 1 Luxury, mass market and value: An explanation and market shares... 1 The current apparel market... 3 Hotspots... 5 Chapter 2 Introduction... 6 Chapter 3 Luxury, mass market and value: an explanation... 7 A very subjective market segmentation... 7 Valuing the price-fashion matrix... 9 Chapter 4 The economics of the apparel market Margins Costs Profits Chapter 5 Segmenting the apparel market by value Overall segmentation by merchandise category Segmentation by fashionability within merchandise category Segmentation by price, within fashionability, within merchandise category Chapter 6 The future clothing hypothesis The veracity and robustness of economic forecasts The depth of the problem The effect on labour in developing countries The plus side: Online sales are growing Chapter 7 Polarisation between the luxury, mass-market and value segments The current situation The fickle versus the loyal customer Increased choice on the High Street E-commerce and shopping around Increased fashion sense together with price deflation as parallel trends... 29

6 Page v Table of contents Conclusion: Which segment is the winner in polarisation Chapter 8 Online retailing in the UK: Which is the winning segment? Introduction The online value segment The online mass-market segment The online luxury segment Conclusion: Which segment is the winner online? Chapter 9 Green, ethical and sustainable issues for both the retailer and the clothing supplier Can green be profitable? The green position in the UK market in the value segment The green position in the UK market in the mass segment The green position in the UK market in the luxury segment Conclusion: Which segment is the winner on green? Chapter 10 Supply chain influences on the consumer Nature of the apparel industry supply chain Supply chain nomenclature Traditional collections (luxury, mass market and value) Fast fashion (some mass market and some budget) The consumers reaction Chapter 11 The future of clothing retail Historic, current and forecast percentage share by price level, all merchandise segments Historic, current and forecast percentage share by price level, women s outerwear Historic, current and forecast percentage share by price level, women s underwear Historic, current and forecast percentage share by price level, menswear Historic, current and forecast percentage share by price level, childrenswear Historic, current and forecast percentage share by price level, acessories... 55

7 Page vi List of figures List of figures Figure 1: The price-fashion matrix... 8 Figure 2: The price-fashion segmentation model, valued with price points and value percentages Figure 3: Where people buy their clothes online, June Figure 4: The supply chain Figure 5: Traditional supply chain calendar Figure 6: Fast fashion supply chain calendar... 47

8 Page vii List of tables List of tables Table 1: Profit and loss cost structures of clothing retail for luxury, mass and value segments Table 2: Merchandise category shares of apparel and accessories, 2010 (%) Table 3: Merchandise category segments by fashionability Table 4: Merchandise category segments by fashionability and price level, all segments.. 18 Table 5: Merchandise category segments by fashionability and price level, women s outerwear Table 6: Merchandise category segments by fashionability and price level, women s underwear Table 7: Merchandise category segments by fashionability and price level, menswear Table 8: Merchandise category segments by fashionability and price level, childrenswear 20 Table 9: Merchandise category segments by fashionability and price level, accessories Table 10: Percentage share of world clothing retail market by clothing price band, all segments, (% and growth) Table 11: Percentage share of world clothing retail market by clothing price band, women's outerwear, (% and growth) Table 12: Percentage share of world clothing retail market by clothing price band, women's underwear, (% and growth) Table 13: Percentage share of world clothing retail market by clothing price band, menswear, (% and growth) Table 14: Percentage share of world clothing retail market by clothing price band, childrenswear, (% and growth) Table 15: Percentage share of world clothing retail market by clothing price band, accessories, (% and growth)... 55

9 Page 1 Chapter 1 Executive summary Chapter 1 Executive summary Report scope This think-piece report is about the whole of clothing retail, now and in the future. It is a wide-sweeping analysis of where the consumers money will be spent. Accordingly, it has been split into broad price, merchandise and geography segments. These are: o price: o luxury (high price); o mass (medium price); o value (budget price). o merchandise: o women s outerwear; o women s underwear; o menswear; o childrenswear; o accessories. o regional geography: o North America; o Western Europe; o Japan; o Middle East; o BRICs (Brazil, Russia, India, China). The main question that the report poses is whether the financial crises of have created a paradigm shift in the behaviour of consumers, retailers and brands, in what is now a differently constructed business and political world. Luxury, mass market and value: An explanation and market shares All industries, including fashion apparel, have a luxury, mass-market and value segment. All industries also struggle to explain the segments in a satisfactory manner. This is because one man or woman s luxury is another s basic. Over time, economists have used the concept of how many minutes work will it require to buy the XYZ. Using that measure, for a lot of the clothing industry where retail prices, until very recently, have been virtually unchanged for 15

10 Page 6 Chapter 2 Introduction Chapter 2 Introduction The scope of this think-piece report has already been established in the Executive summary, which is Chapter 1. The main question that the report poses is whether the financial crises of have created a paradigm shift in the behaviour of consumers, retailers and brands, in what is now a differently constructed business and political world. It does this by addressing: o the nature of the luxury, mass and value markets in Chapter 3, with the use of price-fashion matrices (Figures 1 and 2); o the economics of the apparel market in Chapter 4, with the use of luxury, mass and value cost structures (Table 1); o the segments of the apparel market in Chapter 5, with the use of merchandise categories, fashionability and price points (Tables 4-9); o a hypothesis for the future and an analysis of four major issues, polarisation, e-commerce, green and supply chain in Chapters 6-10; o a forecast of future hotspots by merchandise categories, fashionability, price points and regions in Chapter 11 in the form of winning and losing segments by market share, given as Tables My thanks are extended to Karlynne ter Meulen for her input into this report. Karlynne is currently taking an MA in Strategic Fashion Marketing at London College of Fashion. She already has an MA in International Relations from King s College, London. Within the fashion industry she has worked for the Dutch Fashion Foundation in Amsterdam, and the management consultants Booz & Company.

11 Page 7 Chapter 3 Luxury, mass market and value: An explanation Chapter 3 Luxury, mass market and value: An explanation A very subjective market segmentation Most industries have a luxury, mass market and value segment. Most industries also struggle to explain the segments in a satisfactory manner. This is because one man or woman s luxury is another s basic. A sportsperson earning US$xxxxxxx a week m ay regard a Rolls Royce or Mas erati car as an everyday vehicle. Most of us would classify it clearly as a luxury product. For a person on much more modest means, a meal of steak or salmon might be a luxury treat. Many people on more average incomes may regard the steak as a luxury, but salmon is now so competitively priced, that it is cheaper than the humble cod, from which basic fish and chips were created. Over time, economists have used the concept of how many minutes work will it require to buy the XYZ. Using that measure, for a lot of the clothing industry, whose retail prices have been virtuall y unchanged for xx years, apparel has been getting cheaper. Moving to lower-cost countries has exacerbated that effect. Much of the retail fashion clothing market is cheaper in money terms in 2010 than it was in In the fashion retail industry, the market is frequently explained by using a price-fashion market segmentation model. The model is given as Figure 1 below.

12 Page 12 Chapter 4 The economics of the apparel market Chapter 4 The economics of the apparel market Margins In the apparel industry, margin is defined as the difference between what the m erchandise is sold for and what it is bought for. So a style bought for US$xx and sold for US$xxx is sold for a m argin of US$xx, which is xx% of the selling value. However, because of the fact that in virtually every country of the world, governments impose a sales tax on apparel retailers, part of that price on the tick et of US$xxx does not belong to the retailer. It belongs to the governm ent. The true margin is therefore: o price on the tick et (US$xxx), less sales tax (us ing xx% as an exam ple, although it varies from country to country and also from time to time) = US$xxxxx; o purchase price US$xx. o m argin US$xxxxx-US$xx = US$xxxxx; o m argin % = US$xxxxx divided b y US$xxxxx as a percentage = xx%. This would be a very acceptable after sales tax margin for a large mass market apparel operator. Costs Retailers operating at the luxury, mass-market, and value ends of the market, will have different cost structures: o A Fifth Avenue, New York, luxury brand will have high property costs, staff costs, advertising costs, and general overheads. This could be as m uch as xx% of the retailer s sales (see Table 1). o A mass-market retailer will have medium property and staff costs, maybe high advertising costs, and low central overheads, because of the econom ies of scale. This could t ypicall y average xx% of th e retailer s sales.

13 Page 16 Chapter 5 Segmenting the apparel market by value Chapter 5 Segmenting the apparel market by value In order to look at the potential sector winners and losers between luxury, mass and value, it is first essential to quantify the share of the apparel fashion retail market taken by different product groups (merchandise categories). Globally, this can only be an educated and experienced estimate, expressed in percentage terms. Overall segmentation by merchandise category As mentioned earlier, there are five merchandise categories. Normally in industry reports these would be purely composed of wearing apparel (clothing). However, in this report, accessories have been included, because they are so important to the luxury sector. An estimate of the share taken by each category is given in Table 2. Table 2: Merchandise category shares of apparel and accessories, 2010 (%) Merchandise category W omen s outerwear W omen s underwear Menswear Childrenswear Accessories % share xx xx xx xx xx Source: just-style In most national markets the proportionality of shares between the merchandise categories is of the order of: o wom enswear in total at xx% is a bit over twice m enswear at xx% ; o chidrenswear is about two-thirds of menswear (not because of the volumes, but because of the prices); o accessories are about xx% of clothing.

14 Page 21 Chapter 6 The future clothing hypothesis Chapter 6 The future clothing hypothesis The author would like to acknowledge the contribution here of ideas for parts of this chapter to Lee Adendorff, a writer for International News Services who has written extensively on the clothing and textile industry. The veracity and robustness of economic forecasts If there was a year when long-term textile and clothing market forecasters missed by a mile, 2008 was it. Forecasts made in 2007 were dominated by looming concerns about trade restrictions, investments in technology, a potential slow-down of production and a consolidation of business investment, but no one predicted what devastating effects an unexpected recession would have on the textiles and apparel sector. The closure of hundreds of operations around the world and the loss of thousands of jobs, with the future of thousands more uncertain, just simply was not on the radar screens of many industry experts. The global recession that unfolded in 2008 and the macroeconomic trends it produced affected each and every sector of the apparel and textiles industry, and have led to fundamental and widespread change in the economic landscape for the clothing and textile sector. Labour markets worldwide were affected by large-scale unemployment, with particular effects on developing countries and migrant worker populations. Although there has been a great effort by all countries to work through their common problems, trade barriers, and especially protectionist policies, remain at the top of industrial agendas. Other important trends already identified, continue in the areas of online sales, product safety, corporate social responsibility and the incorporation of environmental politics into the business process. These will be considered for luxury, mass and value in subsequent chapters. The major macro trends for the apparel and textiles industry in 2008 can be summed up as:

15 Page 27 Chapter 7 Polarisation between the luxury, mass-market and value segments Chapter 7 Polarisation between the luxury, mass-market and value segments The current situation There is no dispute that consumer loyalty levels are at an absolute low. Consumers have more choice than ever and base their decisions on different reasons than before. Mintel and Verdict research indicates that over the last few years in the UK, increasing prosperity and an enhanced fashion sense have led to new (super) premium fashion brands entering the market, whilst on the other hand there is the powerful trend of price deflation and hence the growth of the budget segment. These parallel trends are the result of the increasingly fickle consumer, who mixes and matches his/her style between budget value and luxury items. It is becoming a familiar sight to see students dressing in River Island, Primark and H&M, while carrying around a Mulberry Ba ys water leather bag, which sells at GBPxxx. The fickle versus the loyal customer In 2008, a joint report by Barclays and Verdict Consulting reported that consum er loyalt y was at its lowest in ten years. A reported xxxx% of consum ers, or xxxxm people in total, said they felt no loyalt y towards the retailer they shopped at. The success of new clothing lines launched in supermarket chains also indicated low barriers deterring consumers switching from their traditional clothing retailer to a new store. A 2006 Verdict research paper on menswear in the UK had already emphasised that consumer loyalty, and consumer loyalty programmes would be a vital element for a successful fashion retail organisation. A 2009 Booz & Company customer survey in the US found that a staggering xx% of US consum ers indicated that they would spend less in total on clothing in the recession. Moreover, xx% of consum ers were said to be willing to shop at different stores if that enabled them to save m oney and x% of US consum ers had alread y s witched t o different apparel brands to save money.

16 Page 32 Chapter 8 Online retailing in the UK: Which is the winning segment? Chapter 8 Online retailing in the UK: Which is the winning segment? Introduction Despite the recent economic recession, the online fashion retail channel, the only successful segment in the industry, continued to grow impressively. The size of the UK online fashion m ark et grew to an estim ated GBPxxxxbn in 2009, representing xxx% of total UK fashion sales. Verdict research estim ates the online wom enswear m ark et at around GBPxxxbn in The online fashion industry in the UK is currently dominated by multi-channel retailers that besides e-commerce still have physical stores and often a catalogue- or phone-ordering services. However, there has also been a large increase in the sales of online-only fashion retailers, including Asos, Nêt-a-Porter, Amazon s Zappos and ebay s specialised fashion channel. The various fashion segments are adopting different e-commerce strategies as value, mass and luxury segments face different challenges and opportunities. The online value segment Out of the larger value players in the UK market, three large retailers, Zara, Sainsbury s TU and Primark, do not operate online shops. Tesco s clothing line is available online at the moment, but also had a shaky start in 2008, when they shut down their initial online venture. The value segment is faced with various challenges, particularly dealing with the costs involved in online retailing. There are significant costs for online retailers in logistics and the costs of handling returns. These increased costs will have a high impact on the retailer s low margin, high quantity business model. Also, the average delivery costs, to be paid by the consumer, can easily be as high as, or even higher, as the price of a single piece of budget clothing. Obviously this inhibits sales. Moreover, in the recent recession and coinciding with the rise of online retail in the UK, property prices have come down. Value retailers benefit greatly from this and there is no cost-related reason not to operate physical stores at the moment. E-commerce also provides opportunities for value retailers. Online fashion has had a budget reputation from the beginning. Consumers are expecting to find

17 Page 38 Chapter 9 Green, ethical and sustainable issues for both the retailer and the clothing supplier Chapter 9 Green, ethical and sustainable issues for both the retailer and the clothing supplier Can green be profitable? The sustainable fashion market in the UK was estimated to be worth GBPxxxm in 2009, an impressive increase from 2004/5, when its size was estim ated to be GBPxxm. That is over xxx% growth in the m oney value of the segment over five years. That growth is attributable to the rise in consumer awareness of green on the one hand and the increase of new sustainable brands and lines by large High Street retailers. In 2006, an estim ated x m people bo ycotted retailers bec ause of their unsustainable policies. Additionally, The Sunday Times magazine held a poll in 2008 which m ade clear that xx% of UK consum ers still believe retailers are not putting enough effort into sustainable issues. The sustainable fashion segment has also developed successfully from a hippie style to mainstream styles. The size of the sustainable market and the strong consumer feelings on the topic would make the segment that adopts a green strategy move ahead of others. In this chapter, green, sustainable and ethical topics will be dealt with under the one heading of green. The green position in the UK market in the value segment Mintel reported in 2009 that basics, underwear and childrenswear are the most important product segments for ethical fashion, thus benefitting the budget end of the market. This is reflected in the success of budget fashion retailers, including Sainsbury s, whose t-shirts are now all made from organic cotton. New Look and Primark both introduced an organic cotton range in 2007 and Tesco introduced an additional clothing line made from recycled materials. Tesco is the leading player in sustainable clothing in the budget segment. Tesco s clothing boss Terry Green put forward in March 2010 the idea that fashion retailers have to think of a valuable business in ethical terms, instead of in mere financial value. The retailer also introduced a new supply chain monitoring system in 2008 and is the world s second-largest buyer of organic

18 Page 42 Chapter 10 Supply chain influences on the consumer Chapter 10 Supply chain influences on the consumer Nature of the apparel industry supply chain The nature of the apparel industry supply chain has an important push element which affects the behaviour of the consumer. What the consumer sees at retail inevitably influences the consumer s buying behaviour. That push can and will be different depending on whether the garment in question is luxury, mass or value. The supply chain is shown schematically in Figure 4. Figure 4: The supply chain Source: just-style

19 Page 50 Chapter 11 The future of clothing retail Chapter 11 The future of clothing retail In this chapter we forecast tomorrow s clothing retail industry by merchandise category, fashionability, across price points and by geographic regions. Historic, current and forecast percentage share by price level, all merchandise segments Overall, it is just-style s contention that whilst fashion will always change (it is a tautology, after all), fashionability will not. The sum of all merchandise segments will still be composed of roughly the same proportions of: o basic; o traditional; o contemporary; o fashion; o high fashion. What will change will be the share of these held by different price point segments, within which the winners will be luxury and value, and the loser, the mass market. The just-style overall forecast for all segments is given as Table 10. All segments Table 10: Percentage share of world clothing retail market by clothing price band, all segments, (% and growth) Price band US$ History, 2005 % share Current, 2010 % share Forecast, 2016 % share Growth %, 2016 over 2010 Luxury and affordable luxury xxxxxxx xxx xxx xxx xxx Better and middle brands xxxxxxx xxxx xxxx xxxx xx Mass market xxx xxxx xxxx xxxx xxx Value fashion and basics xxxxx xxxx xxxx xxxx xx Totals by price band xxxxx xxxxx xxxxx Source: just-style