Abstract
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environment
Executive summary
2008 and the first effects of the crisis
After positive results in 2007 with combined clothing and footwear sales
rising by 1.5% in volume and 2% in value, 2008 was a difficult year. The
economic crisis impacted negatively the sales of most consumer goods including
clothing and footwear which decreased by 2.6% in volume and 3.3% in value. The
reduction of household purchasing power and its influence on their morale
affected sales of all clothing and footwear subsectors as consumers preferred
to invest in other goods such as mobile phones, internet or IT equipment. The
importance of clothing and footwear in total household consumption expenditure
has progressively decreased over the past 10 years and the deterioration of
the economic environment should amplify this trend.
The increase of sales and promotions
The importance of special offers and sales on total household clothing and
footwear purchases has been increasing progressively. Sales and promotions
accounted for one-third of total spending in 2008 versus 29% in 2007 and 20%
in 1998.
Consumers are increasingly looking for cheap prices both in physical stores
and through online shopping and this tendency should keep on intensifying in
the future due to negative economic prospects. According to a TNS Worldpanel
survey carried out in June 2008, 57% of households stated that they would wait
for sales to buy clothing articles which represents a rise from 53% in 2007.
Special offers and sales periods are currently the only growth engine of the
clothing industry and this phenomenon is also visible in the luxury sector.
This trend could have negative consequences on manufacturers and retailer
margins as well as on their brand image.
Towards a more ethical fashion
The fashion industry remains one of the most exploitative in the world, both
to people and the environment. Poor working conditions, low wages and
environmental damage are widespread. Hence, consumers are increasingly
interested in contributing to creating a more sustainable future for fashion
and they now gladly invest in ethical and organic products. Ethical fashion is
currently the fair trade business highest growth subsector among non-food
segments and sales are expected to continue rising in the coming years. The
ethical fashion products' universe is increasing and diversifying itself and
many young designers are very creative in this segment.
A concentrated distribution
Clothing and footwear distribution tends to become more and more concentrated.
In the clothing sector, the market share of specialised chains keeps growing
to the detriment of independents, hypermarkets/supermarkets and home shopping
traditional brands. In the footwear sector, distribution is led by two main
groups, Vivarte and Eram, which are both very dynamic. A group like Vivarte is
present in both segments and continued to grow in 2007 and 2008 through the
acquisition of new brands. Nowadays, there are fewer frontiers between
clothing and footwear since consumers have a global fashion budget. As a
result, new concepts are emerging and clothing retailers are selling
increasing numbers of footwear articles.
Back to growth from 2010 onwards
2009 is going to be a difficult year for both clothing and footwear as
combined sales are forecasted to decline by 2.1% in volume and 2.7% in value.
However, from 2010 onwards, the situation is expected to improve and in the
2013 horizon total value sales are estimated to reach €34.907 million. In the
clothing sector, the growth rate will be relatively limited: 2.0% in volume
and 2.1% in value between 2008 and 2013. Tomorrow' s consumers may reorient
their purchases towards higher-quality products that cost more but last longer
(the "slow-fashion" trend). The coexistence of two rhythms, "fast-fashion" and
"slow-fashion", could become more common.
In the footwear sector, between 2008 and 2013, total volumes are expected to
increase by 11.2% and value sales to drop by 3.6% under the pressure of
purchase power constraints and the growth of imports from Asia.
The impact of the crisis on clothing and footwear sales
Trend
French consumer confidence is deteriorating as the global financial crisis is
hitting the economy. October 2008 saw the government acknowledge that the
country was in recession -- two consecutive quarters of negative real GDP
growth. GDP contracted by 1.2% in 2008Q4, taking annual growth down to -1%,
its worst performance since 1992. Confidence is declining as a result of the
global economic slowdown, rising job losses and a realisation that the
downturn will be more severe than initially believed.
Current impact
The current crisis is contributing to lower spending, widespread
dissatisfaction and negative business sentiment which directly impacts the
retail sector. Clothing and footwear sales fell by 2.6% in volume and 3.3% in
value in 2008.
The importance of clothing and footwear in total household consumption
expenditure has been decreasing progressively over the past 10 years and the
deterioration of the economic environment has amplified this trend. In fact,
consumers prefer to invest in other goods such as mobile phones, internet or
IT equipment.
Most retailers and manufacturers were impacted by the crisis in 2008. Large
companies such as H&M and Zara put emphasis on prices and reduced their
margins in order to limit their sales decrease. However, the consequences were
more direct for smaller companies that were already weak. For instance, Morgan
was put into receivership and brands such as Promod and Naf-Naf were reported
to have high debts at the end of the year.
Outlook
Western Europe is among the regions worst hit by the 2008 global financial
crisis, with almost all major economies facing recession in 2008-2009.
Unemployment, consumption and exports are set to deteriorate. Inflation is
easing to the benefit of consumers as the world economy slows, yet the risk of
deflation (a decrease in price levels) is a growing concern. A positive sign
has been governments' ability to coordinate monetary and fiscal policies in
response to the crisis, despite the region' s political and economic diversity.
Western Europe is expected to return to growth in 2010.
GDP contracted by 1.2% in 2008Q4, taking annual growth down to -1%, its worst
performance since 1992. And with recent indicators confirming that the economy
is deteriorating rapidly, we expect further falls in GDP over the next few
quarters. For the short-term period, the European Commission forecasts a real
GDP growth of 1.8% in 2009 and -0.4% in 2010 in France.
Consumer spending held up better than expected in 2008Q4, rising by 0.5% on
the quarter. However, household confidence remains at low levels and fell in
February 2009 after improving in January. And despite lower inflation,
consumer spending is likely to weaken over the next few quarters, as the
unemployment rate is expected to rise well above 10% by 2010.
In fact, independent economists expect French unemployment to cross the
threshold of 10% at the beginning of 2010, up from its current rate of just
over 8.2%. French youth are the hardest hit, with unemployment among the
under-25 age group hitting 21.2% at the end of last year. But Employment
Minister Laurent Wauquiez at the weekend said France was showing more
resilience than its European neighbours, especially Spain which is on track to
hit 20% unemployment this year.
Future impact
In 2009, clothing and footwear manufacturers and retailers will increasingly
experience the full impact of the downturn in the French economy. Consumer
confidence in France fell sharply in late 2008 and early 2009 as a result of
the global economic slowdown, rising job losses and a realisation that the
downturn will be more severe than initially believed. This sentiment is
contributing to lower spending, popular dissatisfaction and negative business
sentiment, which threatens more business failures and job losses throughout
2009. More frugal spending may benefit budget retailers but will generally be
damaging for most retailers and manufacturers
Clothing and footwear sales are expected to decrease both in value and volume
in 2009. According to a November 2008 survey carried out by TNS Sofres (a
French leader in market studies and opinion polls), two- thirds of French
consumers declared they would reduce or modify their purchasing behaviour on
clothing articles in the coming months due to the economic crisis (20% will
reduce their purchases, 23% will buy cheaper products, 11% will postpone their
purchases and wait for better times, 9% will simply give up buying new
clothes).
The French Government expects the economy to shrink by 2.%5 in 2009 but is
banking on a turnaround in 2010. From 2010 onwards, France is expected to
return to growth and clothing and footwear volume sales are expected to follow
this trend and to increase.
The growing share of sales and promotions
Trend
More French consumers are now looking for the next opportunity to shop at
discounted prices all year round.
According to a TNS Worldpanel survey carried out in June 2008, 57% of
households stated that they would wait for special offers or sales to buy
clothing articles compared to 53% in 2007. The proportion even reached two-
thirds of households with children. Last Christmas, more than one-third of
people interviewed declared that they were planning to wait for winter sales
to purchase their presents.
Special offers and sales periods are currently the only growth engine of the
clothing industry and this phenomenon is also visible in the luxury sector.
Current impact
The importance of special offers and sales has been increasing progressively
and accounted for 32% of total clothing sales in 2008 and 29% in 2007
according to the Institut Français de la Mode (IFM). This trend was visible
for all categories. Indeed, special offers and sales represented 28% of
women' s outwear, 29% of men' s outwear, 32% of children' s outwear and even 25%
of infant clothing sales. In 1999, the percentage of clothing sales made under
special offers or sales periods was only 21% for women' s outwear and 20% for
men' s outwear.
Clothing sales are increasingly concentrated, with two months generating close
to a quarter of total sales. In fact, in 2007, January accounted for 13% and
December for 11% of total purchases. This phenomenon is especially marked for
men' s outwear, for small articles (35% of total turnover realized in December
and January) and underwear (27%).
When there were only two sales period per year, the fashion shopper could not
imagine waiting several months before wearing new clothing articles. However,
recently the opportunities to buy at reduced prices have multiplied. In fact,
discount stores such as Gifi or la Foirefouille, factory outlets (Marques
Avenue, Quai des Marques) and "private sales" for privileged customers have
become more common. In addition, three years ago, the internet emerged as a
new distribution channel and many well-known brands sell an increasing part of
their surplus via internet sites such as Vente-privée.com.
Outlook
With the economic crisis, we can estimate that the current trends will
amplify. Consumers will tend to increasingly wait for special offers and sales
to make their purchases. Retailers will be likely to offer very high discounts
as it was the case during the 2008 winter sales with discounts reaching up to
70% and even 90% on certain internet sites right from the beginning of the
sales period. As a consequence, clothing and footwear consumption prices
decreased by 7.2% in January 2009 (INSEE figures).
Beyond that, a lot of specialist internet sites such as Ventes Privées or
Spartoo (footwear) are very successful and will continue to grow.
According to the economy modernisation law voted last summer, retailers can
now organise two additional weeks of "floating sales" during the year.
Department stores are targeting the following weeks: 22nd to 28th of April and
4th to 10th of November. Specialised chains opted for the following ones: 25th
to 31rst of March and the same one in autumn. Independent stores are not
expected to follow this trend. Fast fashion retailers are expected to take
more risks since they know they will have the possibility to destock. For the
others, these two additional weeks of sales will represent an additional
opportunity to boost sales in times of economic uncertainty.
Future Impact
The current trend towards an increase of special offers and sales may have
negative consequences for common brands such as Kiabi or Zara since it may
reduce their margins and have an impact on their brand image. However, it may
even be more dangerous for luxury brands which have critical stock that they
need to sell off. Before, sales were happening in separate places. Now, they
more often take place directly in the stores; discounts are also higher and
cover a wider range of products. As a consequence, important purchases will
tend to be postponed.
In order to find a way out, manufacturers will have to either innovate or
limit surplus. Internet has become the new kingdom for sales and promotions
with 79% of online purchases made at discounted prices. 21% of the people
interviewed decided to use the internet for the first day of the 2008 winter
sales. We can therefore forecast that the development of online sales will
push the trend towards increased sales and promotions.
The potential of sportswear
Trend
Sport is now an integral part of the French lifestyle: it is the eighth most
popular leisure activity and more than 54% of the population practice a sport
on a regular basis. The most popular activities are walking, followed by
swimming, biking, jogging, skiing and playing bowls, football and tennis.
French are very polyvalent and usually play 4 different sports on average.
They are mostly looking to spend time with family and friends through their
activities. For instance, 51% of the people who go swimming do it with their
family while only 13% adhere to a club and only 2.5% practice it at a
competition level.
There are many reasons that can explain this success. The practice of sports
is a good way to enjoy oneself and socialise. However, before everything,
sports is a good way to exercise and stay healthy and fit and the French are
increasingly concerned about wellness, health and physical appearance.
Current impact
As a result, we can notice a shift towards a more informal type of clothing
and footwear (casual and sportswear especially). The most popular clothes are
comfortable, easy-to-use and easy-to-clean. Sportswear style shoes represent a
total market of approximately 24.8 million pairs per year. Sales of sportswear
shoes have increased in the first two quarters of 2008 but they declined in
the third one due to the effects of the economic crisis.
High quality and design are important factors when selling sportswear in
France as consumers are becoming increasingly aware of body support during
exercise.
Retail distribution is dominated by specialist shops (60% of the market),
which include integrated shops (Decathlon, Go Sport, Courir), associated shops
(Intersport) and independent shops. Hypermarkets are the next distribution
channel and they are followed by supermarkets, department stores (Citadium)
and mail order.
Outlook
People are increasingly concerned about health and weight control and the
practice of sports to achieve this. As a result, more people will be
encouraged to practise sports. Demographics may also be a positive factor for
the development of sportswear fashion. In fact, the number of seniors as a
proportion of the overall population will increase and they will try to stay
healthy as long as possible. They will represent a perfect target for
sportswear brands since they have a lot of leisure time and a high purchasing
power.
Finally, the emergence of new sports such as Pilates may also create new needs
and demands in the sector.
Future impact
We can forecast that the demand for sportswear products will continue rising
in the coming years. The multiple uses of sportswear articles and the
creativity of designers are expected to boost sales in the medium to long-term.
Sportswear is no longer exclusively designed to be worn for sport but also as
fashion wear although there has been a rising interest in fitness and an
increase in leisure time. Women are a very interesting target market. Indeed,
the number of women practising sports keeps increasing and they are often more
interested by the brand than by the product in itself. Retailers will make
increasing efforts to seduce them by offering more fashion products and
several different collections a year, thus boosting the whole market.
American and German sports brands are expected to continue leading the market
but smaller players such as Airness could also develop themselves as a niche
segment.
Towards a more ethical fashion
Trend
The French are becoming more interested in fair trade. According to a study
carried out by Ipsos, citizens are now consuming in a different way. They have
new values and their purchases are linked with a political dimension. As a
result, products labelled as fair trade are now found in many sectors ranging
from food products to tourism and textile. The turnover of fair trade products
was multiplied by three between 2004 and 2007 to reach €241 million in 2007.
Fair trade products are widely distributed. In recent years, we saw the
multiplication of e-commerce websites although they only account for 3% of the
market. There are also 300 specialised selling points (Alter Mundi, Artisans
du Monde, Biocoop...). However, 93% of these products are still bought in the
10,000 large and medium retailers.
Although eight people out of 10 say that they have heard of fair trade, only
44% declare that they have bought fair trade products. Consumers of fair trade
products usually have a higher socio-economic profile even though the target
is expanding. We can also underline that a lot of new start-ups were created
in this sector in the past year which shows the industry dynamism.
Current impact
According to a study carried out by the international solidarity and
cooperation association and TNS Secodip panels, the fair trade business
turnover increased by 37% overall between 2004 and 2007, reaching €41 million.
Sales of non-food products grew more rapidly than those of food products, with
increases of 256% and 134% respectively. Non-food products accounted for 26%
of the fair trade business in 2007 (€63 million) compared to 17% in 2004 (€17
million).
The textile segment is currently acting as a driving force for the whole
sector. The textile turnover (clothing and home) reached €16.7 million in
2007, representing an increase of 745% compared to 2004. With 39% of sales,
the clothing market came in first position among non-food segments, before
tourism (30%).
The fair trade sector is a very dynamic one with 54% of the structure less
than five years established and many start ups are found in the clothing
sector.
Outlook
This trend towards sustainable development and ecology is not expected to fade
out in the long term. In fact, it is reflected in all sectors of the economy
and not just the clothing and footwear ones. Actions will be taken at all
levels of society to promote a more ethical and greener planet. The tendency
today is towards changes in behaviour.
The fair trade business now has a large notoriety being known by 82% of the
French. Fair trade is perceived positively by 78% of the interviewed people
and is clearly considered as useful for small producers for 54% of them.
Future impact
Ethical fashion can be described a niche market with a high growth potential,
as demand is expected to keep growing. The success of the annual ethical
fashion show is proof of this trend.
The TNS Secodip study showed that there were 960,000 new buyers between 2005
and 2006 and 230,000 the following year. In addition, average spending is
increasing. The fair trade business will probably not suffer as much as other
segments from the effects of the consumption crisis. First of all, typical
buyers of ethical products have a higher disposable income than the average.
In addition, parts of the reasons of purchase are linked with political and
personal beliefs.
However, we can underline that there is a need to improve the transparency
around the concept. In fact, consumers feel they are lacking some information
regarding products, processes and pricing structures. There are also some
difficulties linked with the definition of fair trade; in fact, many different
labels and independent associations granting those labels coexist on the
market. The capacity of the different sectors to reassure customers on these
issues will be key to ensure the development of fair products sales in the
medium-long term.
The fashion industry remains one of the most exploitative in the world, both
to people and the environment. As a result, customers are increasingly
interested in contributing to creating a more sustainable future for fashion.
Ethical fashion is currently the fair trade business' highest growth subsector
among non-food segments and sales are expected to keep rising in the coming
years. The ethical fashion products' universe is increasing and diversifying
itself and many young designers are expected to position themselves in this
niche segment.
Growth of online clothing and footwear sales
Trend
The proliferation of the internet within French households is increasing at
pace and are using it on a daily basis. In February 2008, France had 16.3
million broadband connections, of which 94% are ADSL subscribers. This makes
France the second largest ADSL market in Europe.
E-commerce has also become increasingly popular amongst the French population.
The price factor (especially for sportswear articles) and the convenience of
shopping online are the main reasons for its continuing success.
Current impact
According to the online shopping federation, e-commerce is growing fast in
France. In 2008, 21 million people had already made online purchases. The
clothing industry is one of the fastest growth subsectors online. Indeed,
according to the Benchmark Group, online clothing sales are increasing more
rapidly than the average of all sectors (+33% for clothing and footwear in
2007 vs. +25% for the total). According to the IFM, online clothing sales
increased by 31% in value between July 2007 and June 2008 and the internet
accounted for 6.3% of total clothing and footwear sales in 2008, up from 2.9%
in 2003. Traditionally catalogue based companies, La Redoute and Les 3 Suisses
now make 60% and 40% of their turnover via the internet respectively.
However, they are facing increasing competition from "pure players" which only
sell online and from specialised brands that have opened their own e-commerce
site.
Private sales sites are also becoming more and more popular and they are
growing very fast. A good example of this success would be Vente-privée.com
which made a turnover of €250 million in 2006 with 14 million orders. Last
December, they registered an average of 90,000 orders daily. We can also
underline the good performance of multi-brands footwear online sites such as
Spartoo and Sarenza which sold a combined total of 340,000 pairs in 2007. The
inability to try items on and not being able to feel the quality and texture
of a fabric were surprisingly not major deterrents to sales. Rich media has
enabled many e-retailers to employ features such as zoom and rotation.
Outlook
Longer term growth is set to be driven by an ageing population. As today' s
younger shoppers get older and their income and spending power increases, the
amount they spend online is likely to increase. The internet will be seen as a
normal way to buy goods, as this generation replaces one that is more
predisposed to make purchases from physical shops.
However, this does not necessarily signal a death knell for physical stores.
In fact, in many cases online and in-store sales channels will simply blur
into one, becoming fully integrated. There is still a need for physical
locations, but the number of stores required will vary according to sector.
Having an internet presence is now vital and the combination of an in-store
and online presence with strong links between the two is essential, giving the
consumer choice by becoming multi-channelled is the key to success.
Future impact
All indications tell us the positive trend in online apparel sales will
continue. Indeed, with internet access growing and users purchasing more
frequently online, this strong growth is set to persist. The internet is
widely perceived as a cheaper and easier way of finding lower prices and
bargains in most sectors.
As the cost of broadband falls, consumers become accustomed to internet
shopping and retailers continue to enhance online propositions, the channel
will find itself extremely well placed to capitalise on falling consumer
confidence and lower levels of disposable income currently impacting the
retail market. Having an internet presence will be essential for retailers. In
fact, they will have to give the consumer choice by establishing strong links
between the in-store and the online offers as seen above. Sales are expected
to continue rising regularly until 2013 (+0.5% points per year approximately).
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