The future of fashion on the high street

The headwinds facing the retail sector have never been more apparent, with businesses exposed to a multitude of often competing pressures. Many follow well-established narratives of a dying high street and an industry in flux. The fashion industry has been hit particularly hard by the structural upheaval. Making up one-fifth of all retail take-up a decade ago, it now represents just over one in 10 new openings. Here EG examines how the current challenges on the high street are having a big effect on the future of fashion in the UK. Economics of uncertainty The precarious state of the UK’s economy looms large in any debate around the future of retail. GDP dipped by 0.2% in the third quarter and, despite positive growth in September, there is an anticipation that a recession is around the corner. With uncertainty about  the various permutations of Britain’s exit from the European Union taking its toll, retail sales have stalled and consumer confidence has dipped. Shoppers concerned about the political turmoil and its consequences are tightening their purse strings. Also, under most scenarios, there will be far-reaching effects on the ease of doing business and on profitability levels. In essence, time is money, and Brexit delays are likely to result in an increase in costs for businesses and already despondent consumers. Changing behaviours Evolving consumer behaviours have added a different dimension to the retail turmoil. Online sales now account for more than 20% of all retail spend, millennials are inclined to buy experiences over “stuff”, and footfall is down as people shop when and where they please using their mobile phones. According to GlobalData, in the past decade the UK has spent an additional £50bn on retail – but £150bn more on leisure and recreation. This highlights that consumers are more likely to spend time and money on experiences they can share with others, as we move towards a post-stuff age of impermanence. Some businesses have not been quick enough to deal with these changes; those embarking on digital transformations today are almost certainly too late. A deflated consumer and an accelerating move online has already hammered those rooted in the past. Some retail operations are simply no longer fit for purpose. From bricks to clicks There has also been a structural upheaval in real estate, whereby an erosion of confidence in bricks and mortar has opened a chasm between retailer and landlord valuations. The evolving relationship between these two, with the store caught in the middle, is creating new and inventive forms of rental remuneration. Retailers crave flexibility, landlords crave stability. No other sector in the industry has been hit by these headwinds more than fashion. Take-up has dipped drastically in the past 10 years, as over-zealous expansion gets swapped out for cautious consolidation – due in no small part to the move to online spend and growth of internet brands such as Asos and Boohoo collectively eating into their high street competitors’ already thin margins. The anticipated percentages of fashion spend in the UK by channel speak volumes. All physical locations are forecast to experience falls through to 2023 – with town centres sliding from 40% to 25% in a decade, compared to online, which has jumped from 15% to an expected 35% – largely in line with internet spend expectation nationally. These figures show little sign of reversal, with both tech and consumers pushing the envelope of change in consumption. Nearly 70% of retail e-commerce sales will be made on mobile devices by 2021, according to Poshmark, and 74% of millennials say that social media influences their shopping. New realities Adapting to these new realities is easier for new concepts and brands, which do not have historical portfolios and practices to transform. Many stalwarts of the high street are facing tougher times due to this tsunami of change. The touch-and-go but eventual CVA of Arcadia Group’s 500-plus store estate earlier this year has set alarm bells ringing, with almost 50 store closures and 200 more rent reductions creating an uneven playing field for its competitors. Seeing your competition being given a reprieve on a huge expense when margins are so thin has prompted other retailers to act. Primark, which is doing remarkably well, has asked for 30% off its rent bill, and H&M is seeking turnover-based rents on its stores too. What next? Retail – and the fashion industry perhaps more than most – is at a crossroads of challenges. The effects of economic and political uncertainty, the rise of mobile commerce and the trend towards impermanence are further complicated by the “Thunberg effect”. With younger consumers more aware of carbon footprints and plastic waste than any previous generation, it is a minefield for retailers, whose fortunes can rise or fall on the latest social media meme. What we do know is that some retailers have failed to keep pace with digital transformation and are no longer fit for purpose. It is probable that more lights will go off for the last time in many stores. Whether than means complete eradication of portfolios or right-sizing remains to be seen.     To send feedback, e-mail james.child@egi.co.uk or tweet @JamesChildEG or @estatesgazette