Drapers looks ahead to the big issues that are likely to affect retailers and brands in 2020 and how to combat them.
No end to Brexit uncertainty
Ten months after the original Brexit date and two extensions later, the UK is finally looking with certainty at a departure from the European Union on 31 January.
However, this is only the start of meaningful trade negotiations, and, despite prime minister Boris Johnson’s insistence that a deal can be secured by the end of the year, EU officials have warned that this is unlikely.
As a result the ongoing political and economic uncertainty that dominated 2019 will continue.
The fashion retail industry is still calling out for clarity on pertinent issues, including import and export duties, changes to employment and migration law, and potential delays at ports.
Many businesses have been unable to prepare properly or have been left counting the cost of stock imported ahead of the previous missed deadlines.
Sterling has regained some of the value lost since the 2016 referendum, but consumer confidence remains fragile and tough trading conditions show no signs of abating.
Action: Businesses need clarity on the Brexit deal – and fast
More store closures
The death of the UK high street was hotly debated in 2019 as vacancy rates reached a four-year high in July. Throughout the year retailers including Marks & Spencer closed stores to right-size their store portfolios to reflect growing online sales.
The issue is set to continue in 2020 as online market share grows. (More than half of retail sales will take place online in less than 10 years’ time, up from 19.2% currently).
Several businesses are readying further store closures amid continued tough trading. Mothercare’s UK business will be wound down by February and all 79 stores are expected to close, resulting in 2,500 redundancies.
Debenhams is closing 22 stores in early 2020, putting 1,200 jobs at risk. Meanwhile, around 100 of struggling value retailer Bonmarché’s 318 UK stores have been earmarked for possible closure if the business cannot be sold following its fall into administration in October.
In 2019 the government launched the Future High Streets Fund, which will provide towns and cities across the UK with a total of £1bn to invest in digital, transport and parking solutions to transform and future-proof high streets The first recipients will be named this spring.
Action: While some store closures are to be expected as shoppers move online, the sheer volume expected in 2020 could devastate some town centres. The Future High Streets Fund will help support some areas of the country but further action to reduce business rates is needed. Mixed-use planning to repurpose town centres as community hubs to drive footfall will also help to keep UK high streets vibrant.
The sustainable imperative
There has been a gear-shift in the fashion retail industry’s approach to sustainability and this will continue in 2020. Reducing waste, carbon emissions and plastic use, while improving working conditions in the supply chain, increasing the use of sustainable materials and investing in recycling programmes will be a core business focuses across the industry over the next 12 months.
The changing mindset is being driven by a more conscious Generation Z consumer, who demands more ethical practices by brands and retailers. However, that same consumer is not willing to pay more for that product, so retailers face the challenge of ramping up their sustainability practices while keeping the end price for consumers consistent.
In the Drapers’ Sustainability Survey, published in June 2019, 60.3% of respondents said the main barrier to becoming more sustainable was that it drives up costs.
At the same time 85% of those surveyed said the government is not doing enough to the help the fashion industry to become more sustainable. However, in June the government rejected all recommendations made by the environmental audit committee’s report on the sustainability of the fashion industry. The report, published in February, called on the government to “end the era of throwaway fashion” with a series of recommendations covering environmental and labour market practices, including a 1p levy on each item of clothing to pay for better clothing collection and recycling.
Action: Despite the costs involved, retailers must increase their sustainability efforts in 2020 or risk getting left behind. While the industry is making progress, there is still a long way to go. Businesses need to collaborate with each other, NGOs, experts in the field and the government to find solutions to the fashion industry’s environmental and social impact – together.
Find out about Drapers Sustainable Fashion 2020 here.
Discounting drug addiction
Retail’s obsession with discounting looks set to continue in 2020. As tough trading conditions intensify, retailers are finding it increasingly difficult to wean themselves off the discounting drug.
More UK retailers than ever before participated in Black Friday in 2019 in the face of tought trade. The number of retailers promoting Black Friday deals was up 6% year on year, reported Lovethesales.com, which monitors online discounting across more than 1,000 retailers. They also offered slightly deeper discounts, slashing prices by 32% on average, compared with 31% in 2018.
A cautious consumer, ongoing political and economic uncertainty and a sluggish market has meant intense competition on the high street and online. Many resorted to promotions to boost traffic.
Action: While a necessary method of shifting old season stock, relying on discounting to boost traffic and sales is a dangerous game as it trains shoppers never to pay full price and puts added pressure on already squeezed margins.
Online cost pressures
As more than half of retail sales will take place online in less than 10 years’ time, up from 19.2% currently, the true cost of trading online will be at the forefront of retailers’ minds in 2020.
While digital businesses forgo the cost of store rents and business rates, websites require heavy investment in customer acquisition, fulfilment and returns. In its 2018/19 results, Next estimated that every pound that moved from stores to online last year cost an additional 6p in overheads such as warehouse picking and delivery.
Shoppers are more demanding than ever and have become accustomed to next-day or same-day delivery free of charge, which can quickly eat into retailers’ margins.
Action: As online continues to increase its market share retailers need to make sure it is profitable to survive. To reduce costs of home delivery retailers should invest in click-and-collect and drop-box locations. To mitigate returns detailed product descriptions, photography, video and size guides are essential.