Children's wear has emerged as the major battleground of the UK clothing market. Fewer consumers, a slowdown in spending growth, downward price pressure from grocers and range extension from adult clothing retailers are combining to squeeze children's wear specialists out of the market and driving consolidation according to new research.

Facing lower growth in their core clothing market, adults' clothing specialists in the UK are adopting predatory tactics, pushing forward with their range extension into children's wear says the latest report from Verdict Research on 'Childrenswear Retailers 2005.'

Tuning into consumers' desire for convenience, fashionability and range credibility, children's wear is proving the final piece of the jigsaw in the achievement of a full lifestyle proposition.

There is no better example of such success than market leader Next. Despite some chinks in its armour in the first half of 2005, Verdict predicts the retailer will increase its share of the children's wear market in 2005 to commandeer 11.3 per cent of all expenditure.

Having overtaken Marks & Spencer only in 2002, Next now controls well over double M&S' market share (5.2 per cent) further highlighting the immense divergence in performance of the two largest clothing retailers.

Figure 1: Winners & losers in the children's wear market 2005e on 2004

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Substantial gains
But Next is just one of many non-specialists making substantial gains and contributing to a major shift in the channels through which consumers choose to spend.

On the back of space expansion and range development Verdict predicts Tesco will gain 1.0 percentage point of share in 2005, closing the gap on George at Asda, while Primark's quiet progression is narrowing the gap significantly on M&S.

As a collective group they are decimating the children's wear market. The clothing specialists, excluding children's wear specialists, emerge as clear winners over the past five years, increasing their share from 39.5 per cent to 48.1 per cent.

Next, Primark and the like have proved unstoppable in grabbing an increasing share of consumers' children's wear expenditure, with only Marks & Spencer and JJB Sports suffering any decline.

Grocers - primarily Asda and Tesco - have also made substantial headway. By dovetailing their offers with consumer demand, they have increased their share by 5.2 percentage points over five years to 15.9 per cent of the market in 2005.

In stark contrast, children's wear specialists' share has ebbed away, losing the equivalent of £221 million sales at 2005 market values, as they have battled to compete with the fashionability, credibility and convenience of competitor offers.

Figure 2: Children's wear channels of distribution 2000 & 2005e

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The strong have got stronger
The outcome therefore is that the strong have got stronger. The Top 10 retailers comprise 55.4 per cent of the children's wear market in 2005, up from 44.6 per cent in 2000 - an increase worth £780 million additional sales against a market which has increased by only £699 million in value terms.

So, while the likes of Next, George and Tesco have been stealing a larger and larger share, the market itself has not expanded to compensate for this growth.

Figure 3: Top 10 children's wear retailers market shares 2005e on 2000

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The situation is only going to get tougher. Not only is the market experiencing its lowest rate of growth in 2005 (2.6 per cent) since the turn of the century, but the consumer base is also set to contract.

 

Figure 4: Projected child numbers 2005 & 2010

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Projections to 2010 show a declining number of 5+ children, resulting in a further narrowing market. While 5-9 year olds are projected to fall 3.7 per cent over the period, 10-14s will fall at the far higher rate of 6.3 per cent.

Compounding this issue 10-14s are increasingly being drawn into the young adult market, meaning a smaller children's wear market will be targeted by increasing numbers of retailers. So, despite the natural protection afforded to the market by a high element of needs-based purchasing, retailers will be challenged to encourage higher spend from a smaller consumer base.

Diversification into related categories such as equipment and accessories will be essential for children's wear specialists because non-specialists have greater freedom to flex their space and exposure between adults and children's wear.

However, Verdict expects to see continued pressure on the market from retailers seeking new areas of growth when faced with slowing growth in their core markets. The outlook for specialists therefore remains very tough.