How is the market developing? The question of whether the financial outlook is positive or negative has never been more difficult to answer than it is today. A fact that was rightly recorded in the executive survey by the consulting firm McKinsey and the trade magazine Business of Fashion (BoF). According to the report, executives’ assessment of the industry’s prospects given the difficult economic environment is more divided than in any year since the study began in 2017. While 26 percent of respondents expect conditions to improve compared to last year, 37 percent believe that the situation will remain unchanged, and 38 percent predict it will get worse.
Perhaps Christian Pimont, President of the Trade Alliance, summed up the situation best when he declared: “The bad news keeps coming, but we must and will recover.” Geopolitics, rent prices and wage inflation have affected the financial results of the sector has been severely affected in the last three years. Nevertheless, there are opportunities that actors can prepare for and seize.
Outlook for 2024
McKinsey’s analysis of fashion forecasts shows that the industry is forecast to see global sales growth of two to four percent in 2024, although there are differences depending on region and country. As expected, the luxury segment will continue to generate the largest share of economic profit. However, companies operating in this sector will face major obstacles due to the difficult economic conditions. The segment is expected to grow by three to five percent globally, compared to the five to seven percent forecast for 2023, as consumers restrain spending following a pandemic wave. Uncertainty within the industry reflects the overall economic climate, with regional differences, heading into 2024. Expected pressure on household incomes is likely to dampen demand for apparel, leading to a decline in trade across all categories.
When low prices take over supermarkets’ market share
Amid a gradual decline in Europeans’ purchasing power, retailing affordable fashion items in physical stores has undergone significant change over the last 25 years. Supermarkets that once dominated the market for low-priced items have seen their sales decline by 50 percent, according to FashionNetwork. This decline is partly due to the rise of new key players in the low-price sector such as Primark, Zeeman, Shein and Vinted. Over the last decade, the volumes sold by these brands have tripled.
Explosive growth of the second-hand segment in Europe
While the changing purchasing habits of European consumers are having a negative impact on the outlook for brick-and-mortar retail, new opportunities are emerging in other sectors, particularly online. The second-hand segment particularly stands out in this online market. Forecasts from the Cross-Border Commerce study on the European online fashion market indicate that the European online fashion market will grow by 50 percent by 2025. The study’s forecasts see Europe with an estimated value of 175 billion euros by 2025. Statista predicts that the continent will maintain its dominant position in terms of sales until at least 2027. Online fashion sales in the region are largely driven by the growth of second-hand sales platforms such as Vinted and Depop. Vinted currently has a market share of 2.7 percent and aims to capture 25 percent of the second-hand market by 2025. Ebay Europe also saw significant growth last year, particularly in the fashion industry, which accounted for a quarter of gross sales.
Future spending by Europeans and their development
While French fashion spending appears to be at an all-time low and the trend towards de-consumerism appears to have taken hold in Europe, a closer look at the numbers reveals a different picture. The average French online shopping basket grew by 10.1 percent in 2023, corresponding to 2.664 million fashion items purchased, according to Statista. This corresponds to 53 items purchased for a budget of 800 euros per person. An increase since 2021, but still below pre-crisis spending levels. With its position as one of Europe’s largest and fastest-growing e-commerce markets, online sales in the UK accounted for 26.5 percent of total retail sales in 2022, according to Statista, and forecasts for 2023 suggest a sizeable e-commerce user base The consumer base is almost 60 million, leaving only a minority of the population as non-digital consumers.
Kantar explained that Europeans have never been more bargain-hunting amid the inflation crisis, and the internet is a powerful ally in helping them compare prices and find the best deals. The world’s leading consumer analytics firm shows that French fashion purchases online rose 1.7 percent in the first half of the year, while in-store purchases fell 4.8 percent. This trend is shared by neighboring Italy and Spain, where the Iberian acceleration in the digital sector is the most notable in five years (+13.5 points since 2019).
Analysis of “fan communities” and their impact on fashion retail
These figures are confirmed by the Trade Alliance in its brand transformation study, which shows the extent to which second-hand fashion plays a role in consumer preferences. “Vinted ranks second when it comes to the number of fans of children’s and adult fashion. The website appeals to 20 percent of customers, which is a real success,” says Pimont. This puts the site in fourth place, behind Zalando (22 percent of fans out of the total number of customers), Shein (18 percent) and Galeries Lafayette (17 percent). It’s interesting to compare these numbers with consumer penetration rates. This time Vinted is at the top, attracting almost half of the sector’s customers (47 percent), followed by the pure players Zalando (41 percent) and Shein (33 percent), then Galeries Lafayette (32 percent). However, the traditional retailers present in city centers and malls have a low penetration rate and are also showing a declining trend.
The continued dominance of digitally native brands
As a result, the industry’s major players, namely Zalando, Amazon, Shein, Inditex (Zara) and H&M, continue to dominate the market. According to the “Cross-Border Commerce Europe” study, Zalando has an online market share of 11.7 percent and wants to double this share by 2025. If successful, the platform will soon hold 5 percent of the entire fashion market – both online and offline. This puts the Germans on a par with Inditex (5.6 percent market share) and H&M (4 percent). Among the “digitally native brands”, Allbirds, Gymshark, Na-kd, Qwertee and Stitch Fix stand out as the most prominent in Europe. Cross-Border Commerce Europe estimates that the fashion industry accounts for 18 percent of the total e-commerce market, with online clothing purchases currently accounting for 25 percent, expected to rise to 33 percent by 2025.
Given the decline in purchasing power, global pure players such as Vinted and Shein will influence purchasing trends in the short term. In stores too, the ranks are now led by low-cost specialists. To cope with the rising costs of cotton prices, rents, wage inflation and declining sales, retail stores must adapt and confront. According to Pimont, an average price increase of 9 percent is required to maintain the value of a brand’s EBITDA. It will be interesting to see what methods retail companies will use to absorb this increase and maintain sales volume.
This article originally appeared on FashionUnited.uk. Translated and edited by Simone Preuss.