Though the UK value clothing sector continues to outperform the total UK clothing market, with growth of 8.9 per cent in 2007 against 3.8 per cent overall, a new report predicts this will be its slowest rate of growth in a decade.
This is primarily due to one retailer, Primark, which will gain 4.1 percentage points share this year, overtaking George (Asda) to become market leader.
According to Verdict Research, as the sector matures and growth decelerates, participants must look beyond low prices to sustain growth and profitability.
Over the past decade, the value sector has consistently outperformed the total clothing market taking ever-greater share each year, to such an extent that in 2007 the £8.5bn market accounts for nearly 25% of all clothing expenditure in the UK.
However, its rapid growth rate is beginning to stall and the market is consolidating making it more difficult for players to produce the high growth rates of previous years.
One of the main factors behind this slowdown is that value is now ubiquitous in the clothing market as middle market retailers have sharpened their own prices in response to the growing competition.
Shoppers no longer need to visit value retailers to get low prices, which makes it harder for value retailers to differentiate on price alone. The result is that value retailers are not only competing against each other, but also against more midmarket retailers.
UK Value clothing market shares 2006-2007e
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With price less useful as a differentiator, retailers have to work much harder at driving footfall into their stores, maintaining their sales volumes and retaining customer loyalty.
Price architectures are being extended into higher price points through fast fashion, niche, designer, premium and ethical ranges. Value retailers are investing more heavily in store environments and higher footfall locations and supporting this with higher spend on marketing activity.
Such developments are moving the sector further away from its traditional low cost, no frills model and resulting in higher costs and lower profit densities.
Primark’s success in taking the lead has not just been due to its sizeable space expansion (an extra 2.5m sq ft of sales space in the UK since 2002) but because of its winning proposition - a combination of low prices and fast fashion in high quality, contemporary stores in prime locations. This has raised the bar for all value retailers and even middle market operators.
The challenge for all value retailers will be maintaining growth and profit levels. As they reach both space and demand capacity in the UK, international growth beckons. The Top Five value retailers, Primark, George, Tesco, New Look and TK Maxx have already made moves onto the Continent - some more advanced than others.
Lead analyst at Verdict, Maureen Hinton, says, “The value sector has had a massive influence on the clothing market in the UK over the past decade, causing the whole market to shift prices down.
“With value ubiquitous and price no longer the key differentiator, the value sector is beginning to share many of the characteristics of the middle market.”
She added, “This trend heralds a new cycle in the clothing sector in the UK, where retailers must work much harder to inspire people to buy.”
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