Ten years on, Drapers reflects on the impact the global financial crisis had on fashion retail and how it reshaped the sector.
Nowadays, hearing that consumer confidence is declining, and that retailers are tightening their belts by scaling back their store footprints and cutting staff numbers is common.
The new retail reality began 10 years ago this week when French bank BNP Paribas stopped withdrawals from three of its investment funds as concerns about liquidity grew.
Although the crisis would not enter its bleakest period until 2008, the bank’s decision has been pinpointed as the first sign that the trouble brewing in the global markets was having a domino effect on the UK economy that would transform the high street.
As the a credit-fuelled boom rapidly turned to bust, many retailers found themselves with cashflow problems as credit taps were turned off. This was compounded by rents associated with rapid retail expansion and the pressing matter of advancing technology.
Derek Lovelock, non-executive chairman at British brand Jack Wills and etailer Joe Browns, says the financial crisis “coincided with the culmination of a frantic period of growth in retail real estate”.
“Accompanied as it was by the increasing strength of ecommerce, this created the perfect storm, especially for fashion retailers,” he adds.
In the face of the ongoing austerity that is the legacy of the downturn, Drapers considers the lessons that have been learned.
1 The power of the consumer
The sharp drop in consumer confidence over the past decade has humbled retailers, observes John Stevenson, retail analyst at broker Peel Hunt: “Consumers were under pressure to retreat to necessity, causing the power balance to shift away from retailers – where there was a sense of complacency – towards the consumers, whose response to the crisis was to begin shopping by need. It has now become paramount for retailers to understand whether they are giving consumers what they want and engage with them on as many levels as possible.”
2 The sharing economy
To share costs, Wendy Hallett, founder and managing director at concessions and logistics business Hallett Retail, notes that retailers became “significantly more interested” in having concessions at their stores, as well as their brands going into other stores after the crisis: “Retailers needed to become more entrepreneurial, and look at different options where they could offset risk against having overall control of their [spaces]. They’ve now become more open to trying new things.”
3 Property priorities
Tougher trading conditions prompted numerous retailers to scale back store numbers, while lease lengths for commercial properties have been driven down. Meanwhile, out-of-town store openings grew more popular.
“Fashion was one of the sectors that felt the impact of the financial crisis the most, in terms of physical retail presence,” says Ed Cooke, chief executive at retail property body Revo. “It had a catalytic impact on the economy that is still being felt, as a growing number of retailers continue to look to consolidate their stores where they had over-extended in previous years, and fewer are signing up for lengthy 15- or 20-year leases.”
4 Foreign policy
Many retailers reacted to the crisis by looking away from the UK to international growth opportunities. While this has paid off for some, others found certain regions more challenging after failing to adjust marketing strategies to vastly different regions.
Lovelock notes that while the Middle East was “an excellent avenue for growth” for some businesses, China “proved somewhat more problematic”.
5 The flight online
The downturn arguably sped up an eager shift to ecommerce, as the web was seen as a rent-free marketplace that cut back on business rates and staff costs, giving retailers more control. Moreover, ecommerce proved vital in meeting a shift in consumer expectations.
“The crisis caused a significant change in consumer psyche and buying habits. Conspicuous consumption was out and parsimony replaced it,” says Lovelock. “Customers wanted value and ecommerce ensured that they could find the best prices available at any time and all for next day delivery.”
The Drapers verdict
The financial crisis ushered in a new era for fashion retail: businesses were compelled to shift from being solely bricks and mortar to online and multichannel. Commercial space took on a different meaning, while the power balance between retailers and shoppers tipped towards the latter as consumer confidence collapsed. The next few years do not look easy for retailers, but those that have learned the lessons of the financial crisis, and budget flexibly and responsively are best placed to succeed in the decade to come.