Companies gone bust, currency devaluations and stay-away shoppers. But is the future of fashion retail all doom and gloom or is there a glimmer of hope on the horizon?
If you weren’t aware there was a recession on, it would be possible to paint a rosy picture of British retail. There’s Debenhams with pre-tax profits up 10.7% for the six months to February 28. Peacocks, Primark and George at Asda have made new advances for the value sector, stealing market share. The luxury end of the market remains robust, with strong sales at Hermès, Mulberry and Burberry.
Unlikely businesses, such as shirt specialist TM Lewin, have reported a boost, as office workers eschew dressing-down for a safer, smarter look. Denim continues to wow: PRPS jeans, which retail at above the £200 mark, are a big seller. Online sales were up 12.5% year on year in April, with Amazon reaping a 24% profit hike for the first three months of 2009. And the fashion industry is still very much alive with excitement, from a revamp at Topshop’s London Oxford Street flagship to a fashion line from world football governing body FIFA. This is an industry where a good business model still succeeds.
The lower value of the pound has also brought benefits. Central London has been hectic with shoppers from foreign climes. They’re over here to hoover up bargains created by the attractive exchange rate. And any British brand selling to the US or Europe should also benefit from having more attractive wholesale prices. It could be the summery spring, but there are distinct signs of optimism. Chancellor Alistair Darling, business minister Baroness Vadera, Martin Sorrell, chief executive of communications group WPP, and Ben Bernanke, chairman of the US Federal Reserve, have all indicated that the green shoots of economic growth are beginning to emerge.
On the other hand, UK economic growth has ground to a halt. The Retail Price Index is down 0.4%, suggesting the country is in deflation. This is more to do with falling interest rates and the resulting mortgage repayments than the cost of a frock (so far). Fashion has been hit hard, with sales down 9.7% in February, according to accountancy firm BDO Stoy Hayward. And UK retailers, according to the Confederation of British Industry (CBI), are cutting jobs faster than at any time since 1983, when records began. The downbeat view is that the UK economy won’t be anything like sorted until at least 2012.
Chancellor Alistair Darling’s assertion that the UK would start to recover by the end of the year has been widely derided. Maureen Hinton, lead analyst at Verdict Research, suggests that Darling “also sees flying pigs”. She expects the beginnings of our collective reversal of fortune in 2010.
In terms of success, then, there is a clear divide. The credit crunch has neither disabled every consumer from spending, nor every business from turning a profit. “The fashion industry was defined by over-capacity, driven by space growth and price deflation,” says Hinton. “Consumers were buying more products because it was cheap. If you’re buying 10 things, you can go to 10 different retailers. But if you only buy one thing, only one retailer benefits.”
Hinton calls the present credit crunch a “catalyst” for an inevitable shake-out of the retail sector. The value end, where profit depends on very high volume, has borne the brunt. “Even before the credit crunch we were starting to see a shift; consumers were becoming more circumspect about buying cheap clothes,” says Hinton.
The two factors wrecking businesses are the changes in spending habits and lack of bank credit. The companies who have fallen victim to the credit crunch have been weaker operators who would have struggled anyway. “It would have happened, just not so quickly,” says Hinton. But credit restriction will cause difficulties for companies whose business models are sound, but who are reliant on friendlier bankers.
“Take action now,” advises business consultant Robert Craven from consultancy firm Directors Centre. “Our experience is that the world divides into those who step up and those who step down.”
Those who step up, says Craven, decide to work even harder. Those who step down tend to whinge and moan. They don’t want to work harder so their first action is to cut costs.
“If one group of businesses is working 20% harder and the other group is working 20% less hard, that creates a huge gap. Those businesses able to step up have a big advantage,” says Craven.
The recession offers an opportunity to steal market share, to focus your business, to go one ahead of the other guy. This has happened in the value sector, which has reorganized around a smaller number of operators. It is now the state of play throughout the industry.
“There’s an opportunity for stores who can put collections together in a very cohesive way; strong ranges that say, this is what our brand is about,” says Hinton. “If boutiques can put together a customer-led selection of merchandise, if they keep communicating, if they focus on personal service, they can be among the winners. People aren’t ‘going shopping’, and they’re more likely to get what they want locally.”
Middle-market operators can also succeed in the changing economic climate. “The mid-market can pull in customers trading down from premium and those trading up from value. Sub-branding is important - Debenhams has done a good job with its Designers At Debenhams, but too often sub-brands are poorly presented on the shop floor. You’ve got to grab the consumer. The likes of Zara, Hobbs or White Stuff immediately communicate what their brands are all about.”
Nevertheless, Craven expects to see as many businesses fail after the recession as during it. “It’s a long game, not a sprint,” he says. Craven says business owners need to ask themselves, clearly and honestly, if their business is viable in the short term. And if it is viable in the short term, is it viable in the long term? “If it’s not, then you’re beating your head against a brick wall. Hope is not a method,” he insists.
No easy ride
Business will not get any easier. Taxes are on the up, including a 5% increase in business rates that will hit retailers in increments across 2009, 2010, 2011. Retail accounts for more than 22% of the government’s business rate haul, despite making up only 8% of gross domestic product. Retail executives including Debenhams chief executive Rob Templeman and Arcadia Group boss Sir Philip Green are protesting this and other measures, which the British Retail Consortium has estimated will cost the industry £1.6 billion.
Clothing prices are also expected to rise. Simon Wolfson, chief executive of high street chain Next, has predicted a rise by as much as 5%. Maureen Hinton expects price rises to start with this year’s autumn stock. The VAT cut has not helped one jot.
If you do choose to stay in business, Craven believes you must focus on the basics. Put prices up if possible. Instigate clear marketing. Deliver jaw-dropping service and product. Go the extra mile. Get rid of clients that don’t pay or are just time-wasters. Fix credit terms and a system for collecting the money you’ve earned. Make it easier for people to buy. Talk to clients. Step up sales initiatives. Keep the business moving, keep it alive.
“People’s spending habits are changing,” says men’s and women’s wear designer Oliver Spencer. “They want less throwaway trash. Instead, they want products that are well made, have a good culture and are honest. It’s why ‘made in England’ is coming into play. People actually want to buy that and appreciate that.”
In April, Spencer took his Oliver Spencer brand into ecommerce. “Our first four sales were from LA, Tokyo, Copenhagen and Bradford. Online is quite easy to do and it picks up people we couldn’t reach before.”
Spencer says men especially want clothing that will last more than a few seasons. But women are beginning to embrace the idea of shopping less often but buying better clothes. “A recession is a time when people change their habits,” he says.
There is still money out there. But the high street remains glum where fashion is concerned. Beauty, luxury and gift stores are faring better, for example. What consumers want will direct the future of fashion stores. Department store chain John Lewis has launched an initiative called Fash-Efficiency. A twist on the personal shopper, the punter’s existing wardrobe is assessed and perhaps rethought, then suggestions made on items that could update the existing garments.
Expect more pop-up stores, too, in unoccupied units. Examples include the PPQ store in London’s Burlington Arcade or luxury indie The Convenience Store, which has taken up temporary residence in London’s St Martins Lane Hotel. It’s also a really good time to push landlords for better deals.
“People are now very selective about what they’re spending money on,” says Hinton. “There’s less carefree shopping. It’s not about price and commodity, it’s about value and differentiation. Women still want to buy clothing. They’re just getting more demanding. The winners will be companies making products that consumers must have.”
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ILLUSTRATION BY: TOM GAULD
WRITTEN BY: OLIVER HORTON