Fashion has come a long way in 20 years, as the rise of online and Asian manufacturing drove significant change. Rebecca Thomson charts the trends that have changed the sector.
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It has been a busy two decades for the UK’s fashion industry. Over the past 20 years, it has become one of the world’s most internationalised and fiercely competitive retail sectors, while structural changes have changed the way fashion retailers do business.
In the early 1990s a few big players, including Marks & Spencer, Next and Littlewoods, offered a relatively straightforward fashion retail choice. Since then, the market has become more crowded. UK and Ireland giants such as Arcadia and Primark jostle for market share with foreign rivals such as Inditex and Forever 21, while online powerhouses such as Asos continue to make strides into new territories and supermarkets weigh in with their own fashion brands, such as George at Asda. The size of the UK market is reflected in the figures – retail sales in the clothing sector reached £37.9bn in 2011, according to Verdict.
The web has revolutionised the sector, the rise of China and other Asian countries has overhauled the supply chain, driving the success of fast fashion, and the recent economic downturn has changed shoppers’ attitude to value.
As Asos founder Nick Robertson says: “It’s phenomenal what the last few years have done. If you loved fashion 10 years ago and you didn’t have easy access to Oxford Street you were presented with a local high street with two to three clothing stores. The same girl living in the same town can now effectively purchase from any brand in any country. It has opened up a whole new world.”
As in every other retail category, the internet posed a challenge to traditional retailers, catching many of them off guard. Asos and other etailers led innovation online, winning market share before many traditional retailers had realised the platform’s potential – sales at Asos, for instance, rose from £42.6m in 2007 to £481m in 2012. The effect of the rise of online pure-plays wasn’t as marked as Amazon’s revolutionising of the entertainment industry, but it certainly made retailers take note. Verdict analyst Honor Westnedge says: “It made retailers that just had physical stores realise that online is a vital channel.”
It was the fast growth of broadband that really revolutionised the way retailers reached customers. Shop Direct chief executive Mark Newton-Jones and Supergroup founder Julian Dunkerton say it was this service that made selling fashion online possible. Newton-Jones says: “The pace of the take-up of broadband revolutionised the selling of fashion online. All the things you can do to make content richer wouldn’t have been possible without this.”
In many ways, however, the fashion sector has emerged from the online shake-up relatively unscathed. It is a sector that suits multichannel retailing particularly well – customers will often choose to research their purchases online before trying things on in a store. “A high street presence is still relevant in fashion,” says Westnedge. “Multichannel shopping is very important.”
A new standard
Fashion retailers of the future will be cross-channel, giving them a vested interest in the development of the UK high street. Dunkerton says stores will continue to thrive in fashion retail, but the pressure is on to create destinations that people want to visit. “The internet hasn’t culled the high street, it’s exposed the lesser high streets,” he says. “They need to be places that people enjoy being. Too many are ugly and badly planned.” Online shopping has forced retail destinations to become “centres of excellence”, he says, and any local high street that wants to survive will need to develop a strategy and invest in its future.
Former Aurora Fashions president Stuart Binnie spoke at the Cloud Retail Week Conference this year about how the company could close half its stores, and Newton-Jones agrees retail space needed by the fashion category will shrink. “40% of all high street stores are up for renewal in the next five years,” he says. “You will see a gradual reduction of high street space.” Stores must get more exciting, he adds, with brands such as Superdry and Hollister creating enticing shops and non-fashion trailblazers such as Apple providing valuable lessons on how to attract consumers. “Stores have changed from being quite bland and quite austere environments. Now, things are being brought to life,” Newton-Jones says.
Fashion retailers have led the way in creating vibrant retail experiences – H&M’s designer collaborations drum up huge interest and Topshop’s Oxford Circus store is considered a textbook example of fashion retailing.
The backbone of every good fashion retailer today is its brand – image has never been more important, and companies such as Superdry wouldn’t have been seen on the high street 20 years ago. Dunkerton says the rise of the brand has been another fundamental change. “When I first started brands were irrelevant. They didn’t exist in any real sense,” he says. He adds that the rise of young clothing brand Bench, which was founded in 1989, changed this and heralded a new era of lifestyle brands.
Today, having a strong brand is crucial – a large part of the reason for Asos’s success was its ability to carve out a niche in a crowded market. “I’m proud of the fact that we’ve created a brand in what was perceived in the UK as quite a busy space,” says Robertson.
At Asos, social media and clever online content drove development of the brand with initiatives such as its Fashion Finder site engaging shoppers. Earlier success stories such as Bench were in great part propelled by the rise of China and other Asian countries as cheap manufacturing bases.
Dunkerton says: “China completely revolutionised the whole industry. For the first time you were getting high-quality goods at an affordable price, and that had never happened before. Because of this change in manufacturing you suddenly had the ability to make a variety of products to create a whole branded experience that you just weren’t able to before.”
The need for speed
China’s role as the world’s manufacturing centre had other consequences too, enabling the development of fast fashion by allowing discount retailers to produce better quality, fashion-led garments at low cost.
Newton-Jones says: “From a supply perspective a deflationary market in clothing and footwear has been prevalent for the last two decades. Cost prices and selling prices have both fallen, and now you can get garments of superb quality for a lower price than 20 years ago.”
But this is not likely to last, he cautions, and the circumstances that enabled fast fashion to thrive may be short lived. The rising cost of labour in developing countries and volatility in raw materials prices are factors, but so too is the rising power of the consumer in countries such as China and India – selling prices may have to rise as global demand increases.
“Labour costs in these markets will continue to rise by between 10% and 20% a year,” Newton-Jones says. “Plus China, India and Bangladesh are becoming strong economies in their own right, and demand for production in their home market has increased.” Even if cotton prices stabilise, higher demand may still put upward pressure on them. “The axis of the world has moved east,” he adds. While prices in Asia rise, some fashion sourcing is moving closer to home to countries such as Turkey, enabling greater flexibility in the supply chain.
All of which might make low-cost fashion a more difficult model to maintain. The business model still works as long as retailers can keep increasing their volume of sales – as Primark is doing by moving into other markets such as Germany, and with UK store openings still continuing – but there might be a limit. “More volume squeezes out inflationary pressure. When they can’t get any bigger, that’s maybe when they’ll come under pressure,” says Newton-Jones.
Primark’s continued dominance depends in part on its expansion into foreign markets, and international expansion is a strategy that has become popular at many fashion retailers. Karen Millen has made in-roads into several countries including Russia, with two-thirds of its sales now coming from international markets, while Topshop has opened a handful of stores in the US.
Foreign growth will be a core part of many UK retailer’s strategies, but they also need to keep on top of accelerated technological developments. Use of mobile technology is growing at a quicker pace than the initial growth of online shopping, Newton-Jones says, and investment in the medium is crucial.
“Mobile is going to be bigger than anything we’ve seen so far to date,” he says. “It’s growing at such a pace, faster than the internet in the early days. There’s a whole generation who are skipping the need to use a PC and go straight to tablet and smartphones. In certain countries you see generations who don’t even bother with the PC.”
The importance of mobile is evident, says Newton-Jones – 27% of Shop Direct’s traffic came from mobile devices during the week beginning May 21 and the retailer is expecting to generate half of its turnover from mobile within three years. “The reality is it will build and build. There’s no option but to go with the tide – you can’t swim against it. If that’s the way consumers want to shop you need to be there.”
It’s not just all about transactional mobile sites either. Burberry, for instance, provides one of the best examples of how to use different kinds of digital technology. Whether it’s streaming catwalk shows or using iPads in-store, fashion retailers have often been at the forefront of the use of new gadgets.
The problem for bricks-and-mortar retailers is that it is difficult to justify investing a large amount in new technologies if they only generate a fraction of sales now. Newton-Jones says: “The difficulty for them of course is that while it’s still a very small part of their turnover it is difficult to put enough investment into the technology to grow that part of the business.”
However, the most innovative of store retailers will work on integrating the separate channels to provide services that etailers cannot, such as personalised offers on a mobile while a customer shops in store.
The fashion sector has produced some innovative retailers over the past 20 years. With the development of digital platforms continuing apace, the rate of change is likely to be just as fast.
The pace of change
- 1990 onwards The pace of industrialisation starts to increase in China, until in 2010 it becomes the world’s biggest manufacturer
- 1998 Zara opens a flagship store on Regent Street
- 2000 Asos launches
- 2003 Superdry brand is created
- 2005 Shop Direct is created through the merger of Littlewoods and GUS’s home shopping operation
- 2007 International sales account for 5% of the total at Karen Millen
- 2010 Aurora launches 90-minute delivery. Marks & Spencer announces it plans to double multichannel sales to £1bn by 2014
- 2011 Retailers including New Look and Ted Baker launch click-and-collect services
- 2012 International sales account for two-thirds of sales at Karen Millen
How fashion retail has changed
- The rise of manufacturing in countries such as China changed how the fashion sector operated, allowing discount clothing retailers to produce high-quality products for low costs. But a few years later, costs in China have crept up and sourcing is moving closer to home as fashion retailers seek to react more quickly to fast-moving trends
- Online clothes shopping has become more popular than many would have predicted. Etailers such as Asos and Net-a-Porter surprised many with their ability to gain consumers’ trust and encourage them to shop online
- Multichannel shopping will be a big part of the future of fashion retailing. However, many consumers still like to try clothes before they buy them
- Mobile will be big in fashion retail, with shoppers happy to browse on smartphones and tablets and with many increasingly happy to purchase on them
- International expansion will continue to be important as retailers seek growth opportunities outside of the stagnant UK market
- Stores must become more exciting, interesting places to attract jaded shoppers who could buy online
- A question mark hangs over the long-term viability of the value fashion business model, with costs rising as consumers gain power in developing countries
- Department Stores
- Forever 21
- George at Asda
- Hennes & Mauritz
- Karen Millen
- Marketing & advertising
- Marks & Spencer
- New Look
- Online retail & ecommerce
- Pure play
- Shop Direct
- Social media
- Ted Baker
- Yoox Net-a-Porter