There are opportunities for retailers to capitalise on the growth of UK manufacturing

There are opportunities for retailers to capitalise on the growth of UK manufacturing

With the value of the UK clothing market set to soar over the next five years, and consumers taking more of an interest in the origin and quality of the garments they buy, new opportunities are opening up for retailers to  play up to the strengths of sourcing closer to consumers. 

Over the last five years the UK clothing market has grown by 16.5% to GBP44bn (US$63.3bn) in value terms, according to the latest figures from consultancy firm Verdict Retail. Total retail growth is currently at 17.3%, but the clothing sector is expected to massively outperform this over the next five years by nearly ten percentage points to reach GBP56bn by 2021.

This growth, according to Verdict Retail analyst Nivindya Sharma, is being driven by a number of factors, including improved consumer confidence, employment and real wage growth, innovation and growth in men's wear, and shoppers trading up. 

"We know that retailers themselves have gotten a lot more proficient with their multi-channel operations, they are driving a lot more desire from consumers [through] design, innovation, quality…and also the improved economy in itself has given consumers a bit of a boost," Sharma explained at a recent ASBCI (Association of Suppliers to the British Clothing Industry) conference.

Over the last ten years, the clothing retail market in the UK has been driven primarily by women's wear, with female shoppers the main spenders. However, while women's wear will remain the biggest segment of the clothing market over the next five years, this pattern is set to change with increasing expenditure expected from male shoppers, according to Verdict. 

"We know that fashion has become a bit more imperative for male shoppers," Sharma explained. "One of the key reasons is that there has been a lot of investment from the retailers themselves, so we've seen retailers like Whistles, New Look and Asos investing a lot in the choice they offer male shoppers. And they're targeting a very key demographic – 25 to 44 year olds – who happen to be some of the highest spenders. This is something we expect will gain momentum over the next five years and it's going to be driving the clothing market over that period."

Investment in innovation, quality and differentiation has also ramped up as retailers place more emphasis on trying to be leaders in their category. 

"River Island is a great example because they have a very strong design signature and that results in a very loyal consumer base," Sharma said. "More retailers are going to follow that model and that's going to drive a little bit more growth in the clothing market. 

"A lot of the time [shoppers] have just been going for volume or just buying cheaper clothing. Now, because of that design investment by retailers, they feel a lot more comfortable about buying investment pieces or trading up to the bigger market retailers such as John Lewis, rather than just relying on the lower players."

Growth restrictors

But while UK retail growth is forecast, Sharma said it is likely to be limited, not least from a slowdown in spending by consumers visiting from markets such as China, Russia and the Middle East; particularly in the luxury sector. 

Security issues are also having an effect on consumer spend, as people restrict their travel; while Brexit and the uncertainty over whether Britain will remain in the EU or leave means shoppers are more cautious about what they buy. 

"What that translates into for consumers who have come through a period of seven to eight years of an uncertain economic environment, is that they don't want to be in that position again," Sharma said. "And people are a lot more cautious than they ever were, so it's an instinctive reaction to them to stop spending. Consumer confidence has been impacted by Brexit, and spend per head has gone down quite a lot over the last two to three months." 

Sharma also pointed to the rise of online giants such as Amazon and Ebay as putting pressure on high street retailers, particularly since Amazon is ramping up its fashion offering. The introduction of the UK living wage, deflation and price competition will also add to the pressure over the next few years. 

In terms of production costs, a lot of traditionally low labour cost countries like China no longer have this advantage. But she highlighted fulfilment costs, in particular, as a massively pertinent issue. Again, the rise of players like Amazon means consumers are primed to expect quick delivery; and they are not willing to pay for it. This cost ultimately falls on the retailer, which has become a big issue for some. 

"Some players do it really well. Next is brilliant with their fulfilment, but there are some players that don't do it so well and they are the ones that suffer. It just means that fulfilment is a big cost that retailers have to figure out how to incorporate into their price." However, retailers need to justify any increase in price with the quality, fit and performance credentials of the clothes. 

"Price was always the number one reason why consumers were shopping. However, value for money is now inching forward. It really shows the change in consumer's spending patterns. It means there's an opportunity for retailers to raise their price architecture, particularly for the mid-market and luxury players."

Opportunities

According to Verdict data, consumers will be spending an average of nearly GBP200 more per year on clothing by 2021, opening up new opportunities for retailers if they can justify their price architecture. One example of this is the increasing trend for activewear, an area where some retailers have benefited as they respond to lifestyle changes amongst consumers. 

A further survey carried out by Verdict asked 2,000 customers what factors were important to them when choosing clothing. Made in Britain came out top.

However: "It doesn't necessarily meant they are willing to buy Made in Britain clothing as opposed to clothing made anywhere else. What it means is that as long as it is communicated to them, it's justified to them. They will be able to spend a little bit more on clothing that is made in the UK. There is a huge amount of consumer awareness about this." 

In terms of gender, male shoppers came out on top as caring more about clothing made in the UK, which Sharma pinpointed as a great opportunity for retailers to invest in higher value items such as tailoring. In terms of age groups, the men aged 45+ were found to care a lot more about clothing made in the UK as opposed to younger age groups. 

"What this means is that retailers have to try and figure out a way to get the younger shoppers, 18-44s, interested in clothing made in the UK. It's not as hard as it sounds. It's about value for money; you have to try and bend it into what people care about – design, fashion, clothes that appeal to them and their lifestyle. It does mean retailers have to get those shoppers interested in their clothes and made in the UK is almost like a secondary part."

Manufacturing in the UK 

With value for money and quality moving up the priority list for consumers, there is a growing business case for manufacturing to be closer to home. However, in order for this to happen retailers will need to reassess their supply chains – which is no mean feat. 

In the luxury sector in articular there is a growing movement for a buying pattern that is very quick: "see now, buy now". Burberry, for example, has adopted this pattern, wanting consumers to be able to buy clothes the instant they are shown on the catwalk. 

"This is something that comes back to social media. Consumers are very engaged with fashion now and there is a growing need for clothing to be very quick for consumers to purchase. Retailers need to respond to this. And if that means that the manufacturing does need to come back closer so that retailers are more reactive to consumer needs, then it's a great opportunity."

Hand in hand with this is increased responsibility from retailers and brands to be more transparent, Sharma said. With a 'Made in Britain' tag, consumer trust the product and know what it means.

Consumers are becoming "more aware of [sustainability]; they do care more about their clothing. It has not yet reached the level where consumers are saying 'I will only buy clothing which is eco-friendly'. But it does mean there is growing awareness and retailers should capitalise on it," she explained.

And "all of these factors do contribute to a need for manufacturing to be a bit closer to consumers, so retailers need to be more aware of it and capitalise on it a bit more."