The Economist - UK (2022-02-19)

60 Business TheEconomistFebruary19th 2022

Theclothesbusiness

The middle-market corset

A

merican consumers are feeling

flush. On February 15th the Commerce

Department  reported  that  the  country’s

shoppers spent 3.8% more in January than

they had in December, unfazed by spiking

inflation  and  covid­related  uncertainty.

That was the fastest monthly rise in nearly

a year. Some of this splurge is going on new

rags.  Elsewhere,  too,  garment­sellers  are

booming.  In  Britain  fashion  was  the  only

segment  to  see  online  sales  grow  last

month, year on year, according to Capgem­

ini,  a  consultancy.  As  catwalks  and  cock­

tail parties decamp from New York, which

has  just  hosted  its  Fashion  Week,  to  Lon­

don, where another one is kicking off, the

mood in the clothes business is as bright as

the pastel­coloured dresses that are all the

rage this season. 

High­end  labels  like  Christian  Dior

(owned  by  lvmh,  a  luxury  colossus)  or

Gucci  (part  of  Kering,  a  fellow  French

group) are relatively immune to economic

turmoil. People who can afford their frocks

may take a knock in a recession but seldom

end up shirtless. The same cannot be said

of less luxurious fashion houses. But they,

too, have had a good run of late. 

Ralph  Lauren,  a  relatively  upmarket

American brand, opened 40 new shops in

the third quarter last year alone, including

a flagship store in Milan, as well as shops

in Atlanta, Chicago, Detroit and Miami, of­

ten  on  those  cities’  swankiest  shopping

streets. Its boss, Patrice Louvet, thinks con­

sumers will keep replenishing their ward­

robesandsayshisfirm“isbackontheof­

fence”.Inthemassmarket,salesatHennes

&Mauritz(h&m), a fast­fashiongiant,are

back to pre­pandemic levelsandprofit­

abilityisbetterthanithasbeeninyears.

HelenaHelmersson,whotookoverasits

chiefexecutiveinJanuary2020,justbefore

covid­19hitEurope,hasproclaimedthat

shewantstodoubletheSwedishgroup’s

salesby 2030 andreachanoperatingmar­

ginofabove10%withinthreeyears,up

fromlessthan2%in 2020 and7.7%in2021.

MsHelmerssonandMrLouvetreflect

anoptimismintheindustryasitemerges

fromthedisruptionscausedbythepan­

demic. Butthey should go easyon the

champagne during upcoming Fashion

Weeks.Clothescompanies,in particular

thosecateringmoretothemasses,facean

assortmentofchallenges.Someofthese,

such as digitisation and sustainability,

predatecovid­19.Thepandemichasonly

heaped on more, from supply­chain

bottlenecksandsky­highshippingcoststo

workershortages.Ontopofthat,theca­

pricesoftheworld’smostpopulousauto­

cracymeanthatone false stepcan cost

firms a fortune. h&m sales in China

slumpedlastyearafterthecompanyex­

pressed concerns about allegations of

forcedlabourintheXinjiangregion.

Fashionretailers’successlastyearwas

drivenbyunusualcircumstancesthatwill

notlast.Pent­updemandtriggereda wave

of“revengebuying”whenshopsreopened

atlast,inparticularfor“occasionwear”

(jargonforpriceystuff ).Shoppers’pockets

werelinedwithinfusionsofgovernment

cash.Andthepandemicwasthefinalnail

inthecoffinforsomeweakerfirms,reduc­

ingcompetitioninthecrowdedmarket;

Topshop,LauraAshleyandtmLewinwent

underinBritain,andAnnTaylor,Brooks

BrothersandJ. CrewdidinAmerica.

Nowthatconsumersarenolongerre­

ceivingchequesfromthegovernment,and

have anyway already spruced up their

wardrobes,theymaybecomemoreparsi­

monious. Unlike luxury brands’ well­

heeledcustomers,whomighthardlyno­

ticethata handbagthatcost$5,000in 2019

nowgoesfor$8,000(asbecametrueinNo­

vemberofChanel’sClassicFlap),thoseof

mass­marketbrands may balkathigher

pricetags.Necessaryinvestmentsindigiti­

sationandsustainability—MsHelmersson

haslaunchedavegancollectionandin­

vestedinSellpy,a digitalplatformtotrade

second­hand clothes—will eat into the

fast­fashionhouses’profitability.

Youngermodels

As for competition, some passé brands

maybe gonebut afewfreshfaceslook

muchmorethreateningtothemass­mar­

ketgiants’marketshare.Companieslike

Shein,a Chinesesuper­discounter, Brit­

ain’s Asos or Germany’s Zalando have

greater digital nous thanmostly offline

h&m andInditex, itsSpanish arch­rival

andownerofbrandsincludingZara.They

arealsofindingwaystoappealtoyoung

fashionistas.Allthismaybewhyanalysts

forecasta moremodestincreaseinh&m

salesthanMsHelmerssondoes,ofaround

50%by2030,andlesscushymargins.Its

shareprice,likethatofInditex,isbelow

whereit wasbeforethepandemic.

Initsannualreportonthestateofthe

clothingbusiness,McKinsey,a consultan­

cy,predictsthatdiscountandluxuryfash­

ion willcontinuetowow investorsthis

year.Themiddle­marketretailersmayen­

joyanotherseasonortwoofrevengebuy­

ing.Afterthat,theirprospectsarelooking

morethreadbare.n

B ERLIN

After expanding in 2021, fast fashion maybesqueezedagain

The fashion weak and strong

Revenues, % change on a year earlier

$ terms

Source:Bloomberg *Estimate for H2 2021

80

60

40

20

0

-20

-40

201 20 21

H2H1H2H1H2H1

Ralph Lauren

H&M

Inditex*

LV M H

Kering