Jun 01 2012
From smartphone shopping to aspiring consumers, the fashion retail sector is facing a slew of changes that will reshape the landscape for good. Operators embracing the shift are set to thrive, while those that do not risk losing significant ground.
Fashion retailers have experienced a tough economic environment over the past five years. Unemployment skyrocketed as the housing bubble burst. Consumers tightened their purse strings, and per capita disposable income fell 3.2% in 2009 – the first decline in almost two decades. Moreover, consumer sentiment (the measure of Americans’ feelings about their current and future financial standing) has declined at an average annual rate of 4.6% from 2007 to 2012. As shoppers quickly turned into savers, some of the US economy’s discretionary industries suffered. The eight retail industries identified in the table represent the fashion retailing sector – a portion of the economy that faces a slow recovery. Together, these retailers have experienced an expected average annual revenue decline of 2.0% to $482.8 billion over the five years to 2012.
To win their way back into consumers’ lives, companies within these industries must jump on board with key trends within the sector. Some of these are obvious, while others are still flying below the radar of many major operators. IBISWorld has compiled a list of the top trends within apparel and accessory retailing and outlined how industries can benefit from their adoption. It is important to note that, first and foremost, successful companies do not solely exist in the brick-and-mortar space, but they also have a strong presence on the internet. With the number of broadband connections growing at an annualized rate of 12.9% from 2007 to 2012 and the E-Commerce and Online Auction industry (IBISWorld report 45411a) enjoying average revenue growth of 10.4% per year over the same period, ignoring a move to the virtual marketplace would severely hurt fashion retailers.
Personalization and customization
Online shoppers are increasingly finding products they actually want to buy because forward-thinking retailers like ShoeMint.com, JustFab.com and SoleSociety.com are tailoring their selections to the consumer’s preferences. These sites, which sell clothing, accessories and even home furnishings, use style quizzes (user-input modules) to generate personalized shopping sites. As such, shoppers do not have to sift through unwanted products, but can hone in on the ones they are most likely to purchase.
In the online advertising space, behavior-defined ad content is popping up left and right; in fact, a report by eMarketer suggests that behavioral marketing accounts for 6.0% of total online ad spending in 2012, up from 3.3% in 2008. Behavioral targeting is based on data collected through online shoppers’ page and website visits. The type of website, the length of each visit and the number of times each page is viewed are all tracked and compiled by advertisers. With this data, marketers create a user profile, which signals to the user’s internet browser what type of content to feature. Companies that engage in this type of promotional activity are more likely to reach a more targeted consumer base, increasing the possibility of a sale.
Shopping online from a stationary location is quickly becoming a thing of the past. With the rise in smartphone usage, consumers are increasingly making their fashion purchases on the go. From 2007 to 2012, the number of mobile internet connections has skyrocketed an average of 57.6% per year, totaling 155.6 million by the end of this year. The upward trend is forecast to continue, with the number of mobile connections growing to an astounding 275.0 million by 2017. A recent study by Nielsen indicates that 29.0% of smartphone owners engage in mobile shopping activities, including price comparisons and product research; 22.0% of smartphone owners actually made a purchase via their mobile devices.
For retailers, this trend is a call to action. Traditional websites are not enough these days; to stay in the consumer’s line of sight, companies must also be present in the mobile environment. Many of fashion’s largest retailers, including Tiffany & Co. and Forever 21, have both a mobile-specific website and a smartphone application (app) to make their internet content easier to consume on mobile devices. Mobile websites can be accessed through (and are typically the default destination of) smartphone browsers; by contrast, apps must be downloaded and installed by the user onto their smartphone. Retailing giant Walmart has taken it a step further. Seeing mobile commerce as a solid venture, the company bought mobile app developer Small Society in January 2012. Retailers without a mobile presence will quickly be outperformed.
Just as an online presence is not enough for a retailer to thrive in today’s environment, branded apparel is not enough for a company to engage its audience. A retailer must be much more than a store; it must interact with its shoppers and potential consumers. How does it go about doing that? Viral advertising, social networking, blogging and event planning are all examples of how stores have successfully integrated into the more interactive facets of the internet.
Operators like cosmetic specialty retailer Sephora communicate with customers through a range of outlets, including Twitter, Facebook, YouTube and proprietary blogs and forums. Unique content is created for each channel, reeling people in for conversations. Viral advertising is part of this social content, showcasing products (and services) without telling people why and how they should use said product. Instead, viral content is created with the intention to be shared in much the same way any social content would be. When consumers trust and identify with a brand, they are more likely to turn to it in search of a product, even if the price point is slightly above others.
Flash sales (which offer deep discounts for a very limited period of time) are covered in the Online Fashion Sample Sales industry (IBISWorld report OD5438) and will remain a mainstay for apparel, footwear and accessories companies. Since their inception in the mid-2000s, these sites have offered consumers an increasingly wide range of clothing options. And these retail outlets are not going anywhere. In fact, opportunities lie on the horizon for brands engaging in online sample sales.
Internet shopping is trending upward with the mounting ease of access through smartphones and tablet computers. This factor, along with growing disposable incomes and a decrease in leisure time, will continue to create a flock of savvy shoppers for the Online Fashion Sample Sale industry. More niche sites and targeted product selections will start to define the industry, giving consumers more tailored options and making them more inclined to make a purchase.
Catering to a changing consumer demographic
Women, established in their careers and boasting solid disposable incomes, have long been the major market for clothing and footwear companies. However, over the past few years, new consumer demographics have emerged as target markets, and brands have responded. Aspirational shoppers, defined as Generation Y consumers that make purchases priced at or below $300, are spending their hard-earned cash on designer labels. A February 2012 report by fashion trend publication WWD tracked the most popular designer items purchased. Among the top ranked were trinkets and accessories retailing for $100 to $300. To capture this growing demographic (also dubbed Echo Boomers because they echo the population growth in their parents’ generation, the Baby Boomers), companies like Coach Inc. have launched budget-friendly products especially designed for younger shoppers. Not only are these consumers comfortable spending today, but they will likely remain a main source of revenue for many labels as they earn higher salaries once established in the workforce and start expanding their families.
Organic, sustainable and locally made
Price is not always the determining factor behind apparel, shoe and accessories purchases. A growing portion of consumers (especially those in metropolitan areas, where retail options abound) is seeking out products with other attributes, such as organic fabrics and domestic craftsmanship. Emerging apparel brands tout their commitment to eco-friendly and animal-friendly materials, including Canadian handbag company Matt & Nat. The brand’s vegan leather bags are sold in boutiques and create competition for genuine leather products. Established brands are also diversifying their products and including organic options. Fast-fashion giant H&M, for example, debuts a selection of eco-conscious Conscious Collection pieces each season.
“Made in the USA” is another highly sought-after fashion trait. Over the past five years, domestically produced denim has changed the landscape for apparel manufacturers. Within the upstream Men’s and Boys’ Apparel Manufacturing industry (IBISWorld report 31522), premium denim has generated a growing amount of revenue; in 2007, the pants segment brought in only 7.0% of revenue, while in 2012, this category has grown to nearly 20.0% of revenue. IBISWorld attributes this to the mounting demand for US-made premium denim and expects jeans to represent the fastest-growing segment over the five years to 2017.
Are retailers insourcing?
Does this shift of focus to US-manufactured fashion signal the end of outsourcing production to China? Not quite. Due to the country’s established infrastructure and its relatively low labor costs, China is expected to continue producing high volumes of apparel, footwear and accessories. In fact, over the past 10 years, China’s share of production imports from upstream clothing manufacturers has grown from 24.4% to 48.3%. Domestic brands focus on high-value activities like design and marketing while sending low-value processes like manufacturing to low-wage countries. Despite recent reports of China’s rising minimum wage and appreciating currency, which would make exports from the country more costly to its trading partners, IBISWorld forecasts that the country will remain the top fashion manufacturer. The average wage in China has increased over the past five years; according to the Wall Street Journal and the Associated Press, wages increased from $0.80 per hour in 2008 to $1.17 in 2010. This is still well below the United States’ federal minimum wage of $7.25 per hour.
Insourcing, as the trend of bringing production back home has been called, will not be a defining feature of the fashion industry in the next five years. Chinese manufacturers may face the threat of US brands sending production to other low-cost countries. Vietnam and Indonesia are quickly gaining speed as producers of apparel and footwear. Over the past 10 years, Vietnam’s share of fashion imports has increased from 0.2% to 7.8%; meanwhile, Indonesia’s share of imports has grown from 3.8% to 5.1% of total import values. Brands looking to establish long-standing supply chain contracts may consider locating in these two countries as uncertainty over China’s economy and wages continues to mount.
Hurting from one of the biggest economic downturns in the United States and at the whim of fast-paced technological changes and consumer preferences, fashion retailers are facing an ever-changing landscape. Increasing saturation among players and products is intensifying competition; so to stand out and come out on top, retailers must be aware of and adapt to ongoing and upcoming trends. Movements like mobile commerce, social interactions and organically made apparel will reshape the way American retailers operate; anyone not on board with these changes stands to lose their space in the retail landscape.