Two fashion behemoths on the British High Street yesterday released their first-half results, with both revealing substantial profit declines.
As retailers that have, in recent years, enjoyed considerable success, this paints a pessimistic picture for the future of the fashion market in the UK.
Earlier this year, Next chief executive Lord Wolfson already anticipated that 2016 would be the retailer’s most challenging year since 2008.
For John Lewis, the decline in profit has been more disappointing than expected. Yet the underlying issues causing these declines spell challenges for the whole industry.
It is hard to address this turn of events without defaulting to the Brexit debate which, far from being the elephant in the room, is top of everyone’s list of concerns.
But let’s put that aside for a minute and turn first to an endemic issue that fashion retailer have battled since the dawn of time: the British weather.
Next reported (not for the first time) that unseasonable weather – a weirdly warm winter and a questionably cool spring – had seen clothing and footwear sales fall dramatically below normal trends.
This led to high levels of end-of-season discounting, taking a big bite out of profits. Next is not unique in experiencing this, but it does expose one of the pitfalls of the market that, so far, few fashion players have been able to successfully combat.
Earlier this year, Marks and Spencer highlighted the ‘seasonless’ qualities of its upcoming AW16 range. This speaks logic, as our restless weather patterns are never going to be stymied.
This is also a more practical answer for large-scale fashion players with long lead times for range orders.
Even fast-fashion players like Topshop, which speed through range refreshment as often as every six weeks, cannot react in real time to the whims of the British weather.
While Next has moved to a shorter season model, introducing smaller ranges closer to launches, this does have additional costs attached when one considers the demands placed on manufacturers to supply products with a much faster turnaround.
This was a cost price that Next was well prepared for when it accelerated its range refreshment in 2014. Yet the significant damage to the pound since the referendum has palpably reducing retailers’ buying power.
Next has already admitted that anticipated price hikes will have to be passed on to the customer, bringing an end to the long spell of deflation enjoyed by fashion consumers. John Lewis has said much the same.
This could happen sooner than later at some retailers if, like Sports Direct, they are not hedged against currency fluctuations. It will also be a hard truth for a number of small and independent fashion retailers.
John Lewis, which imports over half of its goods, is hedged against currency fluctuations for the rest of the year.
Yet while the prospect of Brexit may not have an immediate impact on the supply chain for bigger players, it has already damaged consumer confidence, resulting in reduced footfall and a reluctance to splash out on non-essentials.
With sales already hampered by the immediate aftermath of the referendum, a sterling crisis could only see things go further downhill.
In a context where retailers like John Lewis are compelled by competition and consumer expectations to continue investing in expansion, IT and infrastructure, this puts an increasing pressure on profit.
This means that the UK’s fiscal ability to deal with foreign suppliers is becoming more imperative, especially when we consider our increasing reliance on Chinese and Indian manufacturers, because the power balance is changing.
As these economies continue to thrive, their bargaining power to get a better price for their goods will rise as British buyers seek to forge stronger relationships with them in the wake of our departure from the EU.
Should Brexit make it more difficult (and expensive) to trade with important mass fashion producers like Hungary and Romania, retailers will have no choice but to develop more friendly relationships with global suppliers in order to make their margins.