After a tough year for the fashion industry, strong updates from Primark and H&M show that the category is beginning to emerge from the Covid doldrums. 

Fashion’s fortunes have been downtrodden over the past year as shoppers moved discretionary spend away from clothing to other categories, such as home and DIY and electronics, throughout the pandemic.

Sales of lockdown-friendly categories such as activewear and leisurewear soared, while pre-pandemic staples such as footwear and formalwear fell by the wayside.

However, the sector can take heart from the strong results from both Primark and H&M. The sense of an upward trajectory is also supported by new research from McKinsey & Company, which highlights that consumers have both the pent-up cash and the desire to splurge on discretionary items. 

McKinsey found that 47% of consumers plan to spend more and treat themselves post-Covid, with 16% already reporting that they’d been on a shopping trip to bricks-and-mortar stores.

Here are the charts that showcase how fashion has fared over the past year and what its future may hold.

The urge to splurge

According to McKinsey’s Consumer Pulse Survey, in which 2,076 people were surveyed, many have found themselves making greater savings during the pandemic and, with more freedoms such as travel and hospitality becoming available, are now looking to add a new wardrobe.

UK consumers, in particular, have managed to save 2.6 times more in 2020 than in the previous year, while US and French shoppers have saved 2.3 times and 1.6 times respectively as a ratio against 2019.

German and Chinese consumers made fewer savings, registering an average ratio of 1.5 times and 1.1 times that of 2019.

“When you look at the data around intention to splurge, you see all age groups intending to. There is an element of wanting to treat themselves”

Anita Balchandani, McKinsey 

The impetus to spend does not necessarily correlate with the savings made, however, with US consumers being the most likely to spend big in the coming months.

“When you look at the data around intention to splurge, you see all age groups intending to – higher in the younger cohorts clearly, but because their savings rates are generally lower they expect to either economise in other parts of their life or borrow in order to fund their needs,” says McKinsey partner Anita Balchandani.

 

“I think the motivators are that people are looking for an antidote to the restricted life that we’ve led,” adds Balchandani.

“Fundamentally, this is a return to the things that we missed and the things we enjoy. It is interesting that seeing friends and family, travel, fashion, beauty – all of those things we missed in the last 18 months – are the things that consumers are now seeking out. 

“There is an element of wanting to treat themselves, especially after the savings they have made.”

Category demand

The lockdown category-winners for fashion were activewear and loungewear as consumers kept themselves fit and sought comfort while stuck indoors. 

McKinsey data indicates that activewear is a category that will stay popular as consumers spend more post-pandemic, with consistent sold-out rates, while formalwear is beginning to increase in popularity despite lower inventory rates.

 

Primark finance boss John Bason told Retail Week that “fashion is back” with consumers looking to refresh their wardrobes as restrictions lift and more occasions for new clothes present themselves.

“Are we in the new normal? Not yet,” he says. “If you look at your life at the moment, you’re able to go out and shop and socialise, but there are still restrictions on it. If clothing reflects anything, it reflects the occasions in our lives that we need clothing for. 

“To devise what the new norm is in this quarter is too premature, but fashion is absolutely back”

John Bason, Primark 

“Most consumers aren’t going to go on a foreign holiday this year, so are less likely to be buying swimwear or luggage, and they’re also not buying formal clothes to go into the office.

“To devise what the new norm is in this quarter is too premature, but what has changed is that fashion is absolutely back.”

Compared to when Primark reopened following the previous two lockdowns, Bason says that clothing for a home-based lifestyle, such as loungewear and nightwear, has decreased in sales, whereas trend collections have grown – especially summer-themed garments in pastel colours and casual dresses for garden parties.

While occasions for new clothes are fewer and further between with restrictions still in place, it’s clear that consumers are still looking for some newness.

 

McKinsey data also shows that consumers will be looking to splash out in the near future, whether that is after they have been fully vaccinated or once all restrictions are lifted, while Primark’s experience is that the weather is also playing a part in the volatility of the fashion sector’s fortunes.

The online winners

With stores closed, online has soared across all retail sectors – and fashion is no different.

Gap is the latest fashion retailer to shutter its doors and go online-only, while household names such as Debenhams, Oasis, Warehouse and Topshop have also made the switch after falling into administration due to the impact of the pandemic.

H&M also hailed its online business in its results – up 40% in local currencies in the six months to May 31, even as stores began to reopen.

“We’re building up our responsiveness so we can be where our customers want to buy with us as it moves quicker and quicker between the channels”

Helena Helmersson, H&M

The fashion retailer has begun to invest in better inventory management systems to cater to consumer demand across channels, like its competitor Inditex. The integrated sales channels will mean H&M’s stock is spread more evenly across online and in store, wherever consumers require.

Chief executive Helena Helmersson said: “We’re building up our responsiveness so we can be where our customers want to buy with us as it moves quicker and quicker between the channels.

”We are also integrating tech and AI into supply-chain processes to make them faster and more efficient, through product development and the end-to-end process.”

McKinsey’s Balchandani believes fashion will stablise into its “new normal” in terms of online penetration at around 28% in the next couple of years.

 

“We’re seeing three practical things,” she says.

“Exposure to Asia has been key to driving the fashion superwinners and increasingly North America – we think these two will be the engines of recovery.

“That’s followed by exposure to digital – whether it’s through direct-to-consumer or through platforms, it has been a very important ingredient for the playbook of winners.

“And, finally, as we look ahead, we’re seeing the rise of M&A to reinforce market positions and access new segments.”

McKinsey’s Balchandani says that 71% of fashion executives expect their online business to grow by 20% or more in 2021.

Salesfire data shows that, while online orders for fashion and luxury peaked during the golden quarter as would be expected, the figures have normalised higher than a year ago, against strong comparables in the first lockdown.

 

The ecommerce boom is here to stay, fuelled by retailers’ new investments in the digital channels, according to McKinsey. 

As restrictions ease and more occasions for dressing up present themselves, fashion will see its situation turned around.

While its category mix may have changed, those who are quick to respond to new trends and have a strong online offer will benefit from the consumer urge to splurge. 

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