For many years, retailers response to falling demand has been to simply slash prices

For many years, retailers' response to falling demand has been to simply slash prices

What's wrong with retail these days? asks Robert Antoshak, managing director at Olah Inc. Like some slow-motion car wreck, global apparel retail stumbles into the middle of 2017 with little to cheer.

In many countries, particularly in the US and Europe, retail sales are anaemic. And to make matters worse, the market is undergoing significant change. It's not easy to sell clothing these days; consumers have lots of other things to buy besides clothes. On top of that, many consumers have less disposable income to purchase things than was the case even just ten years ago. It's a problem of demand – and demographics.

So what happened? Simply put, long-term trends have conspired with relatively recent market developments to upset the retail apparel cart. Population growth has slowed, as has GDP, while at the same time, consumers have so many more products upon which to spend their money (think smartphones). But, to underscore my point: they have less money at their disposal to spend in the first place.

So what does this add up to for clothing retailers? Falling prices, unsold product, poor sales. Up until now, the business model for many stores – in particular the big chains – was predicated on the exact opposite, which assumed ever-expanding levels of consumption.

I'll use the US market to illustrate the situation. In fact, four graphs sum up the US retail market for apparel:

Consumers are getting older...

Source: US Census Bureau

So they buy less clothing...

Source: US Census Bureau

While there are more things to buy...

Source: US Census Bureau

So what happens? Prices stall

Source: US Bureau of Labor Statistics

Indeed, demographics play a significant role. Today's problems with demand and, in turn, the problems faced by the retail industry, have been building for some time – pre-dating global recessions, trade restrictions, and protectionist politics. In fact, the problem is bigger than all of those. Say what you will about the benefits or costs of globalisation, when viewed through the prism of growth, globalisation started out promisingly with the formation of the World Trade Organization (WTO) in 1995, but has lost steam over the ensuing decades.

The WTO was formed to eliminate barriers to trade and promote a system of broad-based global economic growth – and it succeeded at first, beginning with the elimination of the Multifibre Arrangement (MFA), an antiquated system of quotas that only held down the potential for the global expansion of textile and apparel production.

However, global growth, which had soared for so many countries since the end of World War II, began to wane in the 1980s, which was why so many jumped on the free trade bandwagon. They saw it as a way of returning the world to sustained growth, only that more fundamental economics and simple demographics overcame all of the hype and promises of free trade: resulting in where we find ourselves today with economic growth once again pallid.

For sure our politics has taken a hit as a result. In the wake of globalisation, many people in developing countries exited poverty, but many others in the developed world witnessed a decline in their standard of living. So it's not too surprising to see the rise of the vociferous nationalist movement throughout much of the developed world as a reaction to the very forces of globalisation typified by the formation of the WTO.

But politics, from this perspective, is less of a cause of the current global economic predicament, but rather it's more of a symptom of larger problems. Which brings us back to economic growth and demographic change. Here are three more charts to consider:

Of course, other important factors affect the retail business besides demographics. For instance, woe to the store suffering from poor management or lousy product design. And for sure, online sales continue to wreak havoc with traditional brick and mortar retailers.

But it's fundamental economics and overarching demographics that worries me most about the retail business. There's less global economic growth, which translates into less spending on things such as clothing over the long haul. The global society is ageing; that means there are new consumer trends to consider; do older consumers buy products like they did when they were younger?

Perhaps most interestingly, population growth has slowed, so no wonder GDP growth has slowed at the same time. There's a strong correlation between population growth and economic activity.

Unless someone comes up with a magical economic mechanism to boost global demand, while the growth of the relative size of the population continues to decline – a la Star Trek – sales of products such as clothing will remain problematic.

For so many years now we've seen retailers' response to falling demand: slash prices. The big question is how much longer will lower prices work to stem weakening sales. At some point, the textile supply chain will push back. After all, prices can only go so low, as supply and demand will eventually hit equilibrium. In the meantime, though, the retail apparel business will remain as challenging as ever.   

About the author: Robert P Antoshak is managing director at Olah Inc, a New York-based global textile and apparel development and marketing firm that supplies US companies with denim, corduroy and piece-dyed fabrics. It is also producer of the Kingpins denim shows.