Premium segment to become new battleground in UK clothing market
The trend for ever lower prices and higher volumes is unsustainable as consumer attitudes to high consumption and waste change and price inflation returns.
“Demographic and social trends favour distinctive fashion and brands, while the demand for better service and quality is increasing. This provides a major opportunity for middle market retailers such as Marks & Spencer and Next” says Maureen Hinton, lead retail analyst at Verdict.
Price inflation is returning to the UK clothing market as costs continue to rise and the return to 17.5% VAT has upped prices. Furthermore consolidation in the value segment leaves little opportunity for growth there as the low price model needs scale to survive. Retail casualties have proved that only a few big players can operate successfully in this segment such as the supermarkets, and the likes of Primark, Matalan and Peacocks.
Retailers can no longer rely on rising volume and opening more space to grow clothing sales. Consumers are being far more considerate in their spending, especially the 35+ age groups, and moving away from buying large quantities of cheap garments. As they become more selective, volumes are falling. This means retailers have fewer opportunities to sell to shoppers and have to find ways of justifying higher prices by adding value.
This has created more opportunities for strong brands offering distinctive fashion propositions backed up by high service levels at the premium end of the market. It is also where we are witnessing greater activity from the likes of Superdry, All Saints and greater interest from new entrants such as Banana Republic, J Crew, Anthropologie, McGregor and Abercrombie & Fitch.
Meanwhile the midmarket, which accounted for just over half the clothing market in 2009, (50.6%, worth £17.9bn), continues to see its share shrinking each year as it is squeezed at both ends by the value and premium segments.
Hinton says: “Rather than be squeezed further, midmarket retailers should take this opportunity to offer consumers value by replicating premium ranges and experiences at lower price points – in effect challenging the premium segment. By stretching their price architecture upwards midmarket retailers can offer a premium value offer – affordable luxury. This will move them away from value retailers who will continue to chip away at the bottom end of the midmarket as they in turn find new ways to stretch their own price architecture to compensate for falling volumes and higher sourcing costs. That said they will have to produce credible sub brands and enhance the premium experience with good customer service”
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