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'Lost decade' of wage growth hitting fashion retail hard

Fashion retailers are facing a “challenging time” ahead with “winners and losers” likely to emerge from a period of continued sluggish wage growth combined with increasing overhead costs, according to a report out this week.

The report on future consumer spending, published jointly by EY (formerly Ernst & Young) and Item Club, says that while overall consumer spending has increased, this is likely to slow as a two-tier recovery takes place, which could jeopardise the benefits to high street and independent fashion retailers.

The research raises concerns over the gap between employment figures and real take-home pay figures. It says workers are facing a “lost decade”, with wage growth and consumer spending growth still unlikely to have reached pre-crisis levels by 2017.

EY head of retail Julie Carlyle said there would be increased polarisation in the wealth of the nation over the next two years, with the “squeezed middle” suffering most from discrepancies in real term recovery.

She added that this could be particularly hard on fashion retailers, already facing new pressures due to shifts in shopper culture.

The report predicts real-term consumer spending growth per household, which is forecast to stand at 2.8% this year, will slow to 2.25% next year, and 2% in 2016. Carlyle said this would present many challenges for the fashion sector, which is facing its own pressures due to changing patterns.

“Fashion retailers’ competitive landscape has completely changed,” she said. “Retailers are competing with so many more costs now such as telecoms and leisure. The culture of shoppers focusing on value and expecting promotions that has arisen during austerity will not turn back.

“This is combined with the added pressure on margins from more expensive fulfilment processes; it’s harder and harder to make money. There are a lot of challenges out there.”

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