The Clothes Business: Luxury Labels Shine, Mass Market Faces Challenges.

 

 

Fashion companies are facing a storm of challenges, like trying to swim against the tide. Meanwhile, luxury brands are like superheroes, unaffected by economic troubles.

Last year, people in the United States had a lot of money to spend. The Commerce Department announced on February of 2022,  that shoppers in the country spent 3.8% more in January compared to December. They didn't seem worried about the rising prices and the uncertainty caused by COVID-19. This increase in spending is the fastest it has been in one year. Some of the money is being spent on new clothes. Clothing stores in other places are also doing well. In Britain, fashion was the only type of product that had an increase in online sales last year. The fashion industry is very happy and hopeful right now.

Expensive fashion brands like Christian Dior and Gucci are not affected much by economic problems. People who can afford their clothes may struggle a little during a recession but they don't end up with nothing. Other fashion brands that are not as luxurious are also doing well lately.

Ralph Lauren, which is an American brand that is a bit more expensive, opened 80 new stores in 2021 alone. They opened a really important store in Milan, Italy, and also in cities like Atlanta, Chicago, Detroit, and Miami, in the fanciest shopping areas. The boss of the company, Patrice Louvet, believes that people will keep buying new clothes, and he says his company is doing great. Hennes & Mauritz, a big fast-fashion company known as H&M, has seen its sales go back to how they were before the pandemic, and they are making more profit than they have in many years. Helena Helmersson, who became the CEO of the company in January 2020, right before COVID-19 started spreading in Europe, noted that she wants to double the company's sales by 2030 and make sure they are making more than 10% profit within three years. In 2020, their profit was less than 2%, but in 2021 it was 7.7%.

Ms. Helmersson and Mr. Louvet are feeling hopeful about the fashion industry as it recovers from the problems caused by the pandemic. However, they should be careful not to celebrate too much this year. Clothing companies, especially those that cater to a lot of people, are facing many challenges. Some of these challenges, like using technology and being more environmentally friendly, were there even before COVID-19. The pandemic has added even more challenges, such as problems with getting supplies and paying a lot for shipping, as well as not having enough workers. On top of that, the decisions of the world's most populated autocracy (probably referring to China) can make companies lose a lot of money if they make a mistake. H&M's sales went down in China last year because the company expressed concerns about forced labor in the Xinjiang region.

Fashion stores did well in 2021 and 2022 because of unusual circumstances that won't last forever. When stores finally reopened, people had a lot of built-up desire to buy things, especially expensive clothes for special occasions. People also had extra money from the government. And the pandemic caused some weaker companies to go out of business, so there was less competition in the crowded market. In Britain, stores like Topshop, Laura Ashley, and TM Lewin closed, and in America, Ann Taylor, Brooks Brothers, and J. Crew closed too.

Now that people are no longer getting money from the government and have already bought new clothes, they might start being more careful with their money. Unlike rich customers who buy luxury brands and might not even notice that the price of a handbag went up from $5,000 to $8,000, regular customers of mass-market brands might not want to pay higher prices. Investing in technology and being more environmentally friendly, like Ms. Helmersson did with a vegan collection and a digital platform for trading second-hand clothes, will make it harder for fast-fashion companies to make as much money.

Passé Brands Beware

When it comes to competition, some old-fashioned brands might disappear, but there are new brands that are more threatening to the big stores that sell a lot of things. Companies like Shein from China, Asos from Britain, and Zalando from Germany are better at using technology than H&M and Inditex, which owns brands like Zara. They are also finding ways to attract young people who love fashion. Because of all this, experts think that H&M's sales will increase by about 50% by 2030, which is not as much as what Ms. Helmersson thinks, and they won't make as much profit. The price of H&M's shares, just like Inditex's shares, is lower than before the pandemic.

In its report about the clothing business in 2022, McKinsey, a consultancy, says that cheap and luxury fashion will continue to impress investors. Stores that sell clothes in the middle range might have a couple more seasons of people buying a lot of things to get back at the stores, but after that, things might not go so well for them.

 

 

 

 

 

 Notes

 

Gross, E. L. (2020, July 23). Ann Taylor, Lane Bryant Owner Latest Retailer To File For Bankruptcy. Retrieved from Forbes: https://www.forbes.com/sites/elanagross/2020/07/23/ann-taylor-lane-bryant-owner-latest-retailer-to-file-for-bankruptcy/?sh=232033cb3f21

Howland, D. (2021, November 2). Ralph Lauren is Opening 90 New Stores this Year. Retrieved from Retail Dive: https://www.retaildive.com/news/ralph-lauren-is-opening-90-new-stores-this-year/609307/

Marcos, C. M. (2022, February 16). Retail Sales Jumped in January, Another Sign of the Economy’s Resilience. Retrieved from The New York Times: https://www.nytimes.com/2022/02/16/business/economy/retail-sales-january.html

McKinsey & Company. (2022). The State of Fashion. Retrieved from Annual Report : https://www.mckinsey.com/~/media/mckinsey/industries/retail/our%20insights/state%20of%20fashion/2022/the-state-of-fashion-2022.pdf

The Economist. (2022, February 19). The Middle-Market Corset: After Expanding in 2021, Fast Fashion May Be Squeezed Again. Retrieved from https://www.economist.com/business/2022/02/19/after-expanding-in-2021-fast-fashion-may-be-squeezed-again

The Guardian . (2020, December 31). Analysis: From Laura Ashley to Debenhams: The Biggest Retail Collapses of 2020. Retrieved from The Guardian: Retail Industry: https://www.theguardian.com/business/2021/jan/01/from-laura-ashley-to-debenhams-the-biggest-retail-collapses-of-2020