The shake-out in European clothing

It’s been a bad year for European clothing retailers, with many big names disappearing, or appearing to be under severe threat.

It’s only a couple of months since we last wrote about it, but there has been more bad news since then.

The current list looks like this.

France Germany Italy UK Switzerland Netherlands
Failed Mim Sinn Leffers Bhs MS Mode
Wohrl Austin Reed
Strauss Country Casuals
Promod Banana Republic
American Apparel
Rescue deals Stefanel Blue Inc. Charles Vogele

We’ve split the table into two because two major companies have been given another lease of life because they’ve had rescue deals. That does, not, of course, guarantee survival, but it does give them another chance.

To this table we could add the poor performance of other retailers with an older target market, such as C&A, Peek & Cloppenburg and Marks & Spencer. Promod has closed down in Germany, but in France it has had a store closure programme as well.

All these companies, with the exception of Mim, which was sold off by New Look two years ago, have in common that they serve the older end of the market.

Underperformance

In the European Summary of the recent Clothing Retailing – UK, October 2016 report we showed that the downward trend for clothing specialists is evident across Northern Europe, while in southern Europe, the specialists have generally performed better. Spain has seen continued growth from Grupo Inditex and in Italy the general move to multiples, which has been so much slower than in other countries, has continued. But it was not enough to save Stefanel.

Figure 1: Europe: Clothing specialists, percentage point gain in share of clothing spending, 2010-15
[graphic: image 1]
Source: National statistics offices/Mintel

In the European Retail Briefing, September 2016, we showed how the clothing specialists in Germany had been losing share of clothing spending. Spending data is slow to be published, but another useful indicator is to look at clothing specialists sales relative to all retail sales. It’s true that 2016 was tough for European clothing retailers because of unseasonal weather. But the general story of a sector that is underperforming is very clear:

Figure 2: Germany: Clothing specialists relative to all retail sales, 2010-16
[graphic: image 2]
Note: 2016 based on 9 months data
Source: Statistisches Bundesamt/Mintel

The 2016 data is based on sales to September and so the continued decline owes very little to the liquidations during the year which only really impacted the final quarter.

Common themes

The successful retailers at present are much more likely to be those targeting the younger end of the market – H&M, Grupo Inditex, Next, Top Shop, are obvious examples. To those we should add Zalando and Asos which may be classified as Internet pure players, but are still fashion specialists. Those that have failed have done so because they have not understood, or have not adapted to how the market is changing.

We’ve argued often enough, that there was a sea change in attitudes to fashion at the end of the 1960s. Those who had started work then and were, perhaps, less interested in fashion are over 70 now and tend to be much more conservative in the way they dress. Those who welcomed the changes in fashion (flowery t-shirts and flairs) still want to dress younger. They want younger styling engineered to be more forgiving to older bodies.

That is the gulf that the retailers who have failed in 2016 haven’t recognised. Older people spend less on clothes, so they were caught in the trap of trying to service a rapidly dwindling market, rather than adapting to what, say, the over 50s really want to wear.

Not a stores vs online issue

It is true that Zalando and Asos have grown dramatically, but that is not why these retailers failed. Both those companies target younger customers and their core customer base is the same as H&M or Zara. And while these retailers can have their ups and downs, they have been able to trade successfully against their online counterparts, especially if they have a strong complementary online offer of their own.

Where next?

The latest figures from Peek & Cloppenburg showed some growth, no doubt reflecting some relaxation in competitive pressures. But we think that is likely to be short lived, unless the company can reinvigorate its offer.

There is a huge opportunity in Northern Europe in serving these older customers. Too few do it well. M&S made a good start with per una, but with management changes the range is now much the same as the rest of the store. But there is a new management team in place and perhaps it will be able to lead the older end of the fashion market out of its present doldrums. Perhaps M&S will be able to show the way for the rest of the sector.

Someone needs to, or we will see many more failures over the next few years.

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