FASHION CONVERSION BENCHMARKING REPORT: 2015

FASHION CONVERSION BENCHMARKING REPORT: 2015

Introduction 2015 was a predominantly economically stable, prosperous year for many regions, but competition in the retail market was still incredibly tough. Fashion retailers faced an ongoing battle to lure online shoppers to the high street, and to keep innovating their bricks-and-mortar presence in line with digitally-led customer expectations. This report will explore how the global fashion industry performed during the previous year. Using original FootFall data, we will analyse performances across 23 different countries to benchmark fashion conversion rates by region, category and sector.

Overall performance Feeling good but not necessarily feeling flush Globally, consumer confidence increased throughout 2015, reaching its highest levels since 2006 by quarter 3. Sentiment regarding employment prospects, personal finances and spending intentions increased by 48% compared to earlier part of the year. However instability in key regions particularly China s stock market volatility impacted growth in emerging markets. 1 But a buoyant mood did not necessarily translate into fashion related sales in 2015. Euromonitor International notes that improving economies are yet to provide a significant growth boost to apparel and footwear sales. 2 This can be seen in our fashion conversion figures; overall, results for North America and APAC were slightly lower than 2014, while in Europe it increased by just half a percent. It s worth noting that ecommerce continues to take share of sale from bricks-and-mortar fashion, which has affected Year-on-Year performance. International online spending increased by more than $150 billion between 2014 and 2015, and is forecast to surpass $1,500 billion by 2018. 3 Region APAC EUROPE NORTH AMERICA International online spending increased by more than Total % 8.4% 13.2% 14.9% $150 billion YOY % -0.3% +0.5% -1.3% between 2014 and 2015 1 http://www.nielsen.com/us/en/insights/reports/2015/q3-2015-consumer-confidence-report.html 2 http://www.euromonitor.com/apparel-and-footwear-in-2015-trends-developments-and-prospects/report 3 AT Kearney, The 2015 Global Retail E-Commerce Index Fashion conversion benchmarking report: 2015 3

4 Globally, consumer confidence increased throughout 2015, reaching its highest levels since 2006 by quarter 3.

Sector performance Womenswear led the way in 2015, both in terms of average conversion rate and Year-on-Year performance In fact, it was the only sector to improve on 2014. Although mens fashion recorded a solid 11.6% conversion score, this marked a -0.7% decline on the previous year, and mixed fashion also suffered a half percent drop. However, the story is not the same across all regions. For example, in the UK, sales of men s clothing have risen by 22% over the past five years a faster rate than womenswear. The industry is now worth more than 13.5 billion and many formerly female-only retailers have diversified into menswear to profit from the trend. 4 Meanwhile, several markets including Austria, Australia, Belgium, Malaysia, Germany, Poland and the USA increased their mixed fashion conversion rates. Australia and Poland were very much the leaders in terms of average conversion rate, scoring 22.3% and 21.1% respectively. The UK menswear industry $13.5 billion is now worth more than Sector FASHION - MENS FASHION - MIXED FASHION - WOMENS Total % 11.6% 9.6% 16.1% YOY % -0.7% -0.5% +0.8% 4 http://www.londoncollections.co.uk/news/733/new-statistics--ambassadors-f Fashion conversion benchmarking report: 2015 5

Category performance There were conversion improvements across the board in 2015 Although it was the value fashion market that experienced a significantly higher success rate than other categories at 21.8%. The appetite for affordable trends is evident in the global expansion of fast fashion retailers throughout the year; Primark debuted in the USA, while Zara now has 1,923 stores in 88 countries. Mid-market fashion stood at 13.2%, while premium recorded at a more modest 7.1% average conversion rate. However, premium did see the highest yearly growth rate of the three, at +0.2%. This may surprise many, as the designer fashion market struggled in key regions such as China, where sales grew by 3% in 2015 well behind the 11% average. 5 In fact, China now has 87% market penetration for luxury retailers, the highest level in the world, and this intense competition combined with slowing sales has led to premium brands such as Armani, Hermes, Louis Vuitton and Prada downscaling their store presence in the country. 6 Value fashion market conversions increased by 21.8% Categorisation MID MARKET PREMIUM VALUE Total % 13.2% 7.1% 21.8% YOY % +0.1% +0.2% +0.1% 5 http://www.scmp.com/news/china/money-wealth/article/1886443/high-end-retailers-china-no-longer-have-luxury-time 6 http://jingdaily.com/luxury-retailers-adapt-to-oversaturated-china-market/#.vssaxpmlsuk 6

Conversion rate by country APAC Australia very much led the way in the Asia-Pacific region during 2015 The region recorded an average fashion conversion rate of 18.2%. Low unemployment levels and a steady annual fashion industry growth rate of 3.3% underly this result. The sharp rise in the fast fashion market is also promoting sales; even relatively new entrants like Zara struggled in the wake of even cheaper international labels including H&M, Forever 21 and Uniqlo catching the eye of Australian fashionistas. Malaysia, Singapore, Macau and Japan followed Australia in the 2015 conversion rate table, all recording a relatively similar performance. As neighbours of China, this is a solid result, considering voliatility in the Chinese stockmarket had a widespread impact on Asian economic stability. On the subject of China, the region was unsurprisingly bottom of the conversion table, behind India, Taiwan and the Republic of Korea. As mentioned earlier in this report, a slowdown in the premium retail market is a major contributor to the country s performance, with many seeking cheaper designer purchases from overseas. Andrew Roth, chief strategy officer at Bomoda, notes that Chinese consumers continued their preference for shopping at more advantageous international destinations, and on more advantageous platforms versus local, offline retail. 7 REGION COUNTRY CODE TOTAL AUSTRALIA 18.2% CHINA 4.3% HONG KONG 8.1% INDIA 7.2% JAPAN 8.4% APAC KOREA, REPUBLIC OF 6.0% MACAU 8.7% MALAYSIA 9.7% SINGAPORE 8.8% TAIWAN, PROVINCE OF CHINA 6.9% 7 http://wwd.com/retail-news/forecasts-analysis/china-consumer-market-trends-10329053/ Fashion conversion benchmarking report: 2015 7

Conversion rate by country Europe Compared to Asia-Pacific, European fashion conversion rates were generally higher in 2015, with the majority of regions recording double digit figures. Portugal was the most successful, averaging a 19.7% conversion rate, while Poland and Germany followed close behind at 16.5% and 16.0% respectively. This is an encouraging result for Poland in particular, which has managed to turn around a sustained period of consumer cautiousness to reinvigorate the fashion market. Anna Wysocka, Head of Retail Agency at JLL, observes that 2015 was a good year for Polish fashion retail, as the level of purchasing power and increasing awareness among Polish people regarding the significance of brands is influencing decisions regarding market debuts and expansions. The most notable example of this is Superdry, which launched in Poland last year, along with sportswear brands Decimas and Courir. Also performing strongly in 2015 were Ireland which was the top market globally in terms of overall retail footfall growth the United Kingdom, Switzerland, Austria, Belgium and France. In fact, there were only two regions that recorded single digit average conversion rates: Italy and Spain, at 8.3% and 7.8% respectively. This result is surprising for Spain, which experienced its fastest economic growth since the recession last year. Despite international fashion retailers like Primark opening huge flagship stores in the country, evidently Spanish consumers are still feeling cautious when it comes to spending. REGION COUNTRY CODE TOTAL AUSTRIA 14.5% BELGIUM 15.5% FRANCE 11.6% GERMANY 16.0% IRELAND 14.0% ITALY 8.3% EUROPE POLAND 16.5% PORTUGAL 19.7% SPAIN 7.8% SWITZERLAND 11.4% UNITED KINGDOM 13.4% 8

Conversion rate by country North America Average conversion rates in the USA were almost double that of Canada in 2015. This proves the National Retail Federation s predictions that U.S. retail would experience its most robust annual growth in four years. However, it hasn t all been plain sailing for fashion brands in the USA. The increasing allure of online shopping and declining shopping centre footfall has forced many retailers to become more inventive in their bricks-and-mortar output. Even stalwarts like Gap and Abercrombie & Fitch were forced to close stores in 2015 in the wake of disappointing sales, while J. Crew made 10% of employees at its corporate headquarters redundant following a fall in profits. 8 Over in Canada, average conversion rates were a more modest 8.6%, and retail consultant Trendex has warned that this could fall again in 2016. Clothing sales growth averaged 3.8% during 2015, but Trendex predicts this will fall to 1.7% over the next 12 months. Premium fashion could prove the guiding light in the Canadian retail sector, though; Nordstrom, Saks, Holt Renfrew and Harry Rosen have all increased their footprint in the country over the past two years, with further expansion plans afoot in 2016. 9 REGION COUNTRY CODE PREMIUM North America CANADA 8.8% UNITED STATES 16.6% Clothing sales growth averaged 3.8% during 2015 8 http://uk.businessinsider.com/gap-closing-stores-as-abercrombie-and-j-crew-struggle-2015-6?r=us&ir=t 9 http://www.cbc.ca/news/business/canada-retail-fashion-1.3438364 Fashion conversion benchmarking report: 2015 9

Explore more retail insights in your region How are economic, social, cultural and political events impacting retail traffic? FootFall s market-leading Global Retail Traffic Index can provide the answer. Relied upon by retailers, shopping centres, media outlets and expert commentators internationally, it is a consistent and trusted barometer of shopper confidence. Through our index, you can understand and benchmark performance or determine best practice for each location, based on profile. You can also analyse the impact of factors such as the weather, public holidays, sporting and cultural events, economic issues and political changes on your business. Visit www.footfall.com/trends for the latest footfall statistics and to sign up for Global Retail Traffic Index updates via email. 10

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FootFall : know your customers inside and out to increase profitability FootFall, the retail intelligence company, works with retailers and shopping centres around the world to provide actionable insight into customer behaviour, which delivers increased revenue and improved profitability. Part of Tyco corporation, we provide 3D data for clear cut decisions. By analysing the most relevant mix of metrics from both store and online behaviour - including customer numbers, queues, sales, marketing and other key performance data - we can identify the widest range of profit drivers. More than 1200 retail businesses across 64 countries partner with FootFall for long-term retail intelligence, including adidas, Hugo Boss, Lacoste, Mango, Tesco and Marks & Spencer. www.footfall.com The information contained within this report is not intended to be used as the basis for any business decision, and is based upon data which is provided by third parties, the accuracy and/or completeness of which it would not be possible and/or economically viable for Footfall to guarantee. This report is prepared using models and techniques based on statistical analysis, probability and predictive behaviour and, accordingly, Footfall is not able to accept any liability for any inaccuracy, incompleteness or other error in it. 2014 Tyco Retail Solutions All rights reserved. TYCO and the product names listed in this document are marks and/or registered marks. Unauthorized use is strictly prohibited. FootFall Head Office Yorke House, Arleston Way, Solihull B90 4LH www.footfall.com @footfallinsight +44 (0) 121 711 4652