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Brand market report: Survival of the fittest

As the market struggles with administrations and depressed spending, Drapers finds out how the branded fashion sector is shaping up.

We’re just a few months into 2013, but some of the most established names in the branded fashion market have already hit troubled waters. The first was young fashion brand Gio-Goi, which went into administration two weeks into the new year. It was rescued by JD Sports Fashion in February, which in turn caused consternation among weary independents worried the sportswear giant would flood the market with the brand in a similar way to how rival Sports Direct had done following the acquisition of Firetrap the year before. Just a month later, Republic, a retailer built on its branded young fashion offer, also collapsed into administration, leaving Sports Direct to buy the majority of the business, with many suppliers losing out on stock. The message is loud and clear - it’s a tough market and only the strongest brands, in terms of financials, strategy and, most importantly, product are going to survive.

Despite this, our survey found that the majority (80.6%) of brands across all sectors - menswear, womenswear, footwear, accessories and lingerie - reported an increase in year-on-year turnover for 2012, while nearly 82.5% had a profit increase. These positive findings are supported by data from market research firm Kantar, which reports that the branded fashion sector grew 1.4% to £3.65bn in the 24 weeks to January 20 2013, driven by a 0.9% increase in purchases of discounted branded items. Womenswear and kidswear, in particular, rose 2% and 1.9% respectively. Menswear moved at a slower rate, with a 0.9% increase. The year-on-year average price of menswear declined 3.6% in the same period. However, menswear still accounts for the majority of spend in the branded market, at 48.7%. Footwear, meanwhile, continues to be a key category, with an increase in spend of 6.2%.

Brands continue to be outstripped by own label, which experienced growth of 2.6% during the same period, but this could be about to change.

Honor Westnedge, senior retail analyst at market research firm Verdict Research, says while consumers had traded down to more affordable own-label lines in the wake of the recession, the past year has seen a shift in buying habits back towards brands. “Brands have had a resurgence in sales because consumers have started to trade back up and look for that differentiation in terms of product and shopping experience. So brands are actually trading quite well this year, and while it will remain tough out there, consumers will start turning back to the brands for that added value and for a treat as a special product,” she says.

“So brands will benefit from that and the fact that inflation has started to ease. And while costs in the supply chain - such as manufacturing and freight charges - remain high, cotton prices have eased, so that pressure on brands would have released slightly,” she adds.

This cautiously optimistic message was echoed by the brands Drapers spoke to.

At the premium end of the market, brands are benefiting from consumers trading up for quality. Thomas Herter, head of distribution, UK at Marc Cain, says the premium womenswear brand has seen a double-digit increase in sales for autumn 13 globally and in the UK, which he says is “down to the strength of the product”.

Premium brand Hugo Boss has also had a strong sales performance. “What we see at the moment is that our retail [business] performs very well. Like-for-like figures in most of the stores are up, and we also see that our key [wholesale] accounts outperform the market with very good sell-throughs, across all our brand ‘gender’ lines,” says Hugo Boss UK managing director Bernd Hake. However, he adds that the brand’s smaller accounts seem to be struggling, an issue he puts down to a lack of focus on customer service among some stockists.

Occasionwear brand Bernshaw has also borne the brunt of independents - its key wholesale customer group - struggling against competition from etailers and multiples. It comes at a time when consumer spend is reduced and when they are finding it increasingly difficult to obtain funding from banks. “The market is extremely challenging and obviously things have really changed in the last few years,” says Bernshaw director Alex Bernstein. “We’re only stocked in independents, and their buys are much smaller and unfortunately it’s really reflected on our sales.”

Paul Lorraine, managing director for the UK at German womenswear brand Basler, agrees the market remains tough. “It’s challenging. I don’t think it’s changed that much over the last 12 months. Customers are definitely spreading out their spend, and they want newness,” he says.

“On our side where we’ve had some good successes in certain locations they haven’t been replicated across all locations.

It’s very hard to get any kind of consistency in performance. I’m not sure if that’s the economy, what’s going on with heavy discounts elsewhere, or whether it’s to do with a dip in disposable income. There are so many different factors influencing what people spend at the moment. Our business starts in November and we’ve had some fantastic months but equally we’ve had a couple of tricky ones as well,” says Lorraine.

Looking ahead he is equally cautious: “I’m hoping for the rest of the year it becomes a bit more steady - it’s very hard to forecast in the current times.”

However, in contrast, the brands we surveyed are feeling a great deal more positive, with almost 87% forecasting an increase in turnover in the year ahead.

More from the Brand Market report

Industry View

‘It would be prudent to take a cautious approach to growth expectations’

Miles Gray

Miles Gray

The survey shows some surprisingly positive results in terms of turnover and profit increases between 2012 and 2011. However, what’s also significant is that respondents are forecasting an average growth of 23% in turnover and 15.7% bottom line for the current year.

Clearly, those questioned must know their own businesses. However, my own experience working with several established SMEs [small to medium-sized enterprises] recently is that the extremely tough business climate shows limited signs of improvement, at least not to the levels indicated in the survey.

A combination of increased production and transport costs, deflationary price pressure and declining consumer confidence is taking its toll. Add to this the growth of competition from the aggressively expanding and very successful value sector, rapid decrease in the number of independents and the fact that the high street banks are extremely unwilling to support SMEs in particular, and you have a pretty toxic cocktail.

As always there will be ‘shooting stars’ that buck all of these trends and companies that develop solid omnichannel propositions with a significant international component. For most though, it would be prudent to take a cautious approach to growth expectations over the next 12 months.

  • Miles Gray, Owner of Miles Gray Associates and former chief executive of Ben Sherman

 

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