Drapers looks ahead to the big issues that are likely to affect retailers and brands in 2019.
With only a few short months until the UK is due to depart from the European Union on 29 March 2019, the industry is still lacking a clear sense of what life will be like after Brexit. Tough trading conditions in 2018 were compounded by the ongoing uncertainty, and this is set to increase as the clock ticks closer to B-day.
Retailers need clarity on import and export duties, any changes to employment law and immigration, and how ports are going to cope with any backlog or delays. The lack of information has left businesses unable to prepare properly and make the best decisions for future growth. Meanwhile, the pound, and consumer sentiment, remain very volatile.
Action: The industry needs clarity – and fast.
The future of the high street was a hotly debated topic in 2018, and it is set to rage on in 2019 as retailers seek to consolidate their store portfolios while online sales continue to grow. It was the unofficial “year of the CVA” (company voluntary arrangement) as retailers including New Look and Mothercare sought to break leases on unprofitable stores and reduce rents on others to create a fairer playing field with pureplay giants.
Action: In the coming year we are sure to see further store closures across UK high streets – the challenge will be to repurpose those units to drive footfall and create community hubs to keep town centres vibrant.
Credit insurance clampdown
Further Brexit uncertainty, rising costs and subdued customer spend in clothing will undoubtedly lead lacklustre trade to continue into 2019 and with it will come a continued increase in prudence from credit insurers. A raft of high-profile retail administrations and company voluntary arrangements (CVAs) in 2018 caused trade credit insurers to take a more cautious approach.
The Association of British Insurers (ABI) says trade credit insurers have paid out a record £1m a day to help UK firms stay afloat in the second quarter of 2018 – the highest quarterly figure since 2007.
Household names such as Debenhams, House of Fraser and Arcadia Group, owner of Topshop and Topman, were affected by a reduction or withdrawal in cover over the last 12 months as they battled slumping sales and profits. A lack of credit insurance leaves suppliers exposed and retailers without stock.
Action: The industry needs to adapt to the risk-averse environment or it could kill fashion retailers’ ability to do business.
In 2018, the industry was rocked by reports of abuse and inappropriate behaviour by fashion bosses. Allegations that Arcadia Group boss Sir Philip Green bullied, racially abused and sexually harassed some of his employees sent ripples through the industry. An investigation over “forced hugging”, and other alleged improprieties by Ted Baker CEO and founder Ray Kelvin is ongoing.
Action: In 2019, businesses must put in place business practices to ensure staff are supported and can voice concerns without fear of repercussion. The industry must stand up to bullying and inappropriate behaviour to protect its employees.
The discounting drug
As tough trading conditions continue, so does retail’s addiction to the discounting drug. Fashion retailers are increasingly reliant on discounting to drive sales. A total of 72% more UK retailers took part in Black Friday in 2018 than in 2017, and price cuts were deeper – an average discount of 37%, compared with 33% in 2017 and 30% in 2016, Sales aggregator LovetheSales.com reported.
Many retailers stretched discounts over a full week or more and some retailers that usually abstain from Black Friday discounting – including Jigsaw and Whistles – took part for the first time in order to tempt shoppers to spend. Many retailers have kept the promotions rolling into December with some – including Debenhams, Topshop and Miss Selfridge, offering up to 50% off. As competition online and in stores become cut-throat in 2019, many will find it difficult to wean themselves off the discounting drug this year.
Action: Retailers will have to weigh up the costs of discounting, both in terms of the message it sends to consumers and the effect on margins.
The sustainable imperative
No longer just a buzzword, sustainability will be a core business focus for brands and retailers in 2019. For many years, sustainable fashion was dismissed as a fad. However, consumers are driving a change in approach. Generation Z – those born since 1995 – are the all-important next generation of consumers, and they say that a brand’s ethical principles would motivate them to spend. The government is also waking up to the topic and held several fact-finding parliamentary hearings in 2018 to learn more about the issues and challenges of driving sustainability in fashion.
Action: Becoming more sustainable may come at a financial cost, but retailers must prioritise putting a sustainability strategy in place to support long-term growth and their appeal to the global consumer. If they do not, they risk getting left behind.