Germans love bargain hunting. That is why the off-price segment has been growing in this country for years and was not hit so hard by the pandemic. In its current study on the off-price market, the management consultancy McKinsey recognizes risks and opportunities at the same time.
The so-called off-price segment, in which high-quality fashion brands offer their collections at lower prices in online and offline outlets, was already growing faster than the entire fashion industry before 2020. As expected, it has also shrunk less during the pandemic.
According to McKinsey’s current analysis “Mastering off-price fashion in an omnichannel world”, the future prospects are similarly good, in which global data was analyzed and 11,000 consumers in ten countries were surveyed. “Between 2025 and 2030, the segment is expected to grow five times faster than the entire fashion industry,” it says. The authors of the study see the reason for this being the high online presence of this market segment, which benefited from the boom in online shopping during the pandemic. “Online accounts for 40 percent of the market in the off-price segment and is growing rapidly at an average of 13 percent per year. Almost all of Offprice’s growth will be online over the next three years,” says Katharina Schumacher, digital expert and author of the study. “This opens up opportunities for fashion companies to reach new consumers with their brand who would not normally consider buying at full price.”
Germany is a bargain country
The pandemic has greatly promoted online trading – also in Germany. In the offprice segment alone, the growth of the online market has tripled: from nine percent compound annual growth rate (CAGR) in 2020 to 27 percent in 2021. By 2025, growth in Germany and Austria could reach 16 percent annually, according to the forecast, while the EU average is 13 percent. Typical online off-price consumers are particularly interested in luxury and premium products and buy on specialized platforms such as dress-for-less, BestSecret, brands4friends or Scarce. They value style and usually start out with no particular brand in mind. They enjoy comparing prices and spend 2.3 times more than other fashion consumers. In Germany, 30 percent of off-price buyers who spend more than 1,000 euros annually account for 70 percent of total fashion spending. “However, these buyers are also generally willing to pay full price for premium and luxury brands,” says Achim Berg, fashion industry expert at McKinsey. “Fashion suppliers should therefore carefully consider which goods they offer off-price.”
Bargain hunters are an important target group
Who are the typical off-price buyers? McKinsey has also found an answer to this. Typical off-price buyers who shop in-store are often younger and make more purchases than other fashion consumers. They like to shop in outlet centers, while often shying away from going to a regular luxury store. “Outlets therefore offer luxury fashion companies the opportunity not only to increase their profitability, but also to reach new groups of buyers without cannibalizing their full-price range and damaging their brand,” says Felix Rölkens, McKinsey expert for the fashion industry and co-author of the study. “However, shoppers are expecting more and more from outlets: comparable shop fittings to regular brick-and-mortar retail, multilingual salespeople, restaurants and a good shopping experience.”