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Tomorrow’s clothing retail: sectors, markets and routes – forecasts to 2016

2010 edition

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© 2010 All content copyright Aroq Ltd. All rights reserved.

Tomorrow’s clothing retail: sectors,

markets and routes – forecasts to

2016

2010 edition

By Malcolm Newbery and Karlynne ter Meulen

June 2010

Published by

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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 ..................................................................... 12

Margins ................................................................................................................................ 12 Costs ................................................................................................................................... 12

Profits .................................................................................................................................. 13

Chapter 5 Segmenting the apparel market by value ................................................................ 16

Overall segmentation by merchandise category ................................................................... 16

Segmentation by fashionability within merchandise category ............................................... 17

Segmentation by price, within fashionability, within merchandise category ........................... 18

Chapter 6 The future clothing hypothesis ................................................................................ 21

The veracity and robustness of economic forecasts ............................................................. 21

The depth of the problem ..................................................................................................... 22 The effect on labour in developing countries ........................................................................ 23 The plus side: Online sales are growing ............................................................................... 24

Chapter 7 Polarisation between the luxury, mass-market and value segments .................... 27

The current situation ............................................................................................................ 27

The fickle versus the loyal customer .................................................................................... 27 Increased choice on the High Street .................................................................................... 28

E-commerce and ‘shopping around’ ..................................................................................... 29 Increased fashion sense together with price deflation as parallel trends ............................... 29

Page v Table of contents


Conclusion: Which segment is the winner in polarisation ..................................................... 31

Chapter 8 Online retailing in the UK: Which is the winning segment? .................................. 32

Introduction .......................................................................................................................... 32

The online value segment .................................................................................................... 32 The online mass-market segment ........................................................................................ 33 The online luxury segment ................................................................................................... 34 Conclusion: Which segment is the winner online? ................................................................ 36

Chapter 9 Green, ethical and sustainable issues for both the retailer and the clothing

supplier ...................................................................................................................................... 38

Can green be profitable? ...................................................................................................... 38

The green position in the UK market in the value segment ................................................... 38

The green position in the UK market in the ‘mass’ segment ................................................. 39 The green position in the UK market in the luxury segment .................................................. 40 Conclusion: Which segment is the winner on green? ........................................................... 41

Chapter 10 Supply chain influences on the consumer ............................................................ 42

Nature of the apparel industry supply chain.......................................................................... 42 Supply chain nomenclature .................................................................................................. 43

Traditional collections (luxury, mass market and value) ........................................................ 44 Fast fashion (some mass market and some budget) ............................................................ 46 The consumers’ reaction ...................................................................................................... 48

Chapter 11 The future of clothing retail.................................................................................... 50

Historic, current and forecast percentage share by price level, all merchandise segments ... 50 Historic, current and forecast percentage share by price level, women’s outerwear ............. 51 Historic, current and forecast percentage share by price level, women’s underwear ............ 52

Historic, current and forecast percentage share by price level, menswear ........................... 53 Historic, current and forecast percentage share by price level, childrenswear ...................... 54 Historic, current and forecast percentage share by price level, acessories ........................... 55

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 ............................................................................................................................... 10

Figure 3: Where people buy their clothes online, June 2009 .................................................. 35

Figure 4: The supply chain ........................................................................................................ 42

Figure 5: Traditional supply chain calendar............................................................................. 45

Figure 6: Fast fashion supply chain calendar .......................................................................... 47

Page vii List of tables


List of tables

Table 1: Profit and loss cost structures of clothing retail for luxury, mass and value

segments .................................................................................................................................... 14

Table 2: Merchandise category shares of apparel and accessories, 2010 (%) ...................... 16

Table 3: Merchandise category segments by fashionability ................................................... 17

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 ................................................................................................................................... 18

Table 6: Merchandise category segments by fashionability and price level, women’s

underwear .................................................................................................................................. 19

Table 7: Merchandise category segments by fashionability and price level, menswear ...... 19

Table 8: Merchandise category segments by fashionability and price level, childrenswear 20

Table 9: Merchandise category segments by fashionability and price level, accessories ... 20

Table 10: Percentage share of world clothing retail market by clothing price band, all

segments, 2005-2016 (% and growth) ....................................................................................... 50

Table 11: Percentage share of world clothing retail market by clothing price band, women's

outerwear, 2005-2016 (% and growth) ...................................................................................... 51

Table 12: Percentage share of world clothing retail market by clothing price band, women's

underwear, 2005-2016 (% and growth) ..................................................................................... 52

Table 13: Percentage share of world clothing retail market by clothing price band,

menswear, 2005-2016 (% and growth) ...................................................................................... 53


childrenswear, 2005-2016 (% and growth) ............................................................................... 54


accessories, 2005-2016 (% and growth) ................................................................................... 55

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

2008-2010 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

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

2008-2010 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 10-15.

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.

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 1995.

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.

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.

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 % share

W omen’s outerwear xx

W omen’s underwear xx

Menswear xx

Childrenswear xx

Accessories 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.

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:

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.

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 2009. 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

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

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

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.

Table 10: Percentage share of world clothing retail market by clothing price band, all

segments, 2005-2016 (% and growth)

All segments 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

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