Value clothing retailers shine amid recession

22 September 2009 | Source: just-style.com

In a year that is likely to go down as one of the worst on record for the pan-European apparel industry, one sector continues to shine bright: value clothing. And one retailer that truly stands out here is Primark, a new report says. If the value players can continue to see off competitive pressures and ethical concerns, then they will continue to outperform. 

Despite attempts to react to the recession with understated fashion ranges, cut-backs on inventory and a reliance on sales, the pan-European clothing sector is likely to decline by 5.2% to EUR274bn (US$404.5bn) in 2009, new research says.

But there's one major exception to this trend. The value segment, which achieved sales of around EUR50bn in 2008, is the growing segment in a declining sector.

According to a new strategic report by retail analyst Verdict Research, great times are expected for the majority of European value players - including H&M, Primark and Kiabi - over the next five years.

And there is currently a massive opportunity on high streets right across the EU as department stores retrench.  

Value clothing is also a sector where foreign expansion is very much on the cards says the report 'Value Clothing in European Retail 2009,' in contrast to other sectors where entrenchment is currently the name of the game.

On the one hand, Central and Eastern European countries are an enticing proposition as purchasing power remains low, meaning low price points for clothing products and growth is expected to pick up post recession.

On the other, in value clothing terms the more mature markets of the West are also quite underdeveloped.

Hence, the UK apart (even though it has just attracted another player, Italy's OVS), the rest of Europe is still all to play for, despite the non-specialist grocers and discounters already active there. 

Primark stands out
"As Tesco's halo has slipped somewhat in the recession, Ireland's Primark is set to take up the torch of sharpest and most feared retailer from the British Isles," comments Daniel Lucht, Verdict Research senior analyst and co-author of the report.

Its superb business model, strong growth, outstanding benchmarks and sales densities have trampled its European rivals from C&A to Kiabi and ultimately to H&M.

Fashionability and a focus on a young demographic are Primark's unique selling points and something much of the competition obviously lacks - with perhaps the exception of H&M.

Furthermore, this focus is exactly what EU consumers are demanding, as Primark's going from strength to strength on the continent and the situation in the UK clothing market has amply demonstrated in recent years.  

The harsh lesson UK fashion multiples had to learn in recent years stands to be repeated across the continent; Spain is already taking to the Primark concept by storm, even though the country is in a dire mess economically with the sharpest GDP decline in years.

Anecdotal evidence from the Netherlands and Portugal is hugely encouraging, and the store opening in Bremen has led to C&A throwing in the towel and giving up on Avanti in its core German market. 

Verdict believes that Kik and Takko can evolve into the most interesting competitors to Primark for the young value fashion crown, if they rise to the occasion and exploit the opportunity to the hilt.

"Their store estates will need an urgent overhaul and ranges need to be refreshed and made more fashionable to move the offer from a pure discount proposition to something more sophisticated along the lines of Primark and H&M," Lucht says. 

Competitive pressures...
However in recessionary times the value players will have to contend with strong discounting from middle market players such as Cortefiel and Inditex's Zara for example, who never used to rely on sales historically.

A resurgent Gap could also impact, and the competition in the online arena will also be fierce.

Simon Chinn, Verdict Research analyst and co-author of the report points out: "If value clothing keeps outperforming on the levels currently witnessed, then we expect many of the specialists in the sector to close the open flank in their range propositions and offer more price-led value clothing too, to rob the value players of their unique selling point."  

Mango, the Spanish specialist, has already reacted and launched a brand new low cost line called 'think up', which offers dresses for as low as EUR9. 

More competitive pressure at the value end of the market will come from the hypermarkets and grocery discounters.

While struggling with their non-food sales at the moment, the non-specialists will address this situation with renewed vigour to engineer a turnaround.

Hard discounters, grocers of the calibre of Tesco and Asda with its George range or the French hypermarket players, will also want to grab a larger share of the growing value pie.

That said, their route to growth will be blocked by an obstacle in the form of the value fashion players.

Indeed with their specialist and operational know-how, the value players are in a prime position to make the most of the macro-economic environment impacting the European clothing market. 

...and ethical concerns  
However it won't be all plain sailing.

Primark and the value fashion retailers in general need to focus their efforts on ethical issues as clothing retailing in consumers' perception has become holistic.

The ethical arena has become a large battlefield for low cost retailers as allegations of exploitation in the supply chain are regularly levelled against the market players.

"The protagonists also react by focusing on organic cotton ranges and other CSR initiatives," Chinn says.

"That said, as long as concerns over throwaway societies in the West do not become more entrenched in consumers' minds, the business model will continue to outperform."

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