Brexit to halt deflation in UK clothing & footwear sector.
I am an Senior Analyst at Verdict working on the Clothing & Footwear sectors, having previously worked on the Global...
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The referendum result in favour of Brexit will ensure that inflation returns to the clothing & footwear sector owing to the sharp decline in the pound and the expectation that it will remain weak for some time resulting in increased import costs. Currency hedging will protect retailers in the short term, but we expect higher costs to filter in from the back end of Q2 2017. It is only once Article 50 is invoked, and new trade agreements are reached that retailers will have more visibility on any changes to tariffs that could further drive up costs. Re-evaluation of supply chains will be crucial to remain competitive and we expect retailers to negotiate harder with suppliers as a result.
Few clothing players will be able to fully absorb increased costs, or risk weakening margins, resulting in price hikes for consumers damaging volume growth. With pressure piled on small independents, which are less able to withstand margin erosion compared to larger rivals, there is potential for consolidation in the market. Midmarket players will be able to justify higher prices through investment in style, quality and service; in contrast price increases at value retailers will be much more evident and remaining competitive on price will be crucial to appeal to more prudent shoppers. UK consumers now place far more importance on quality and value for money, ensuring that retailers who opt to minimise costs by downgrading the quality of fabric and fit to protect margins will lose favour with shoppers.
Giving shoppers justification to make a purchase is vital in order to gain favour over competitors, so clothing & footwear retailers must exploit the point of difference in their propositions in order to seize shoppers’ limited spend. Those clothing retailers that channel investment across innovation, technology and responsiveness to further differentiate their proposition will strengthen their position in the market, and allow them to take advantage of the opportunities created by weaker players that do not respond to shifting consumer sentiment or invest in protecting future sales growth.