Cost of living crisis | Fashion | Retail | Sustainability | Tobin Sparrow
Covid-19 was a time of seismic change across all elements of the retail sector. Lockdown after lockdown forced businesses to think reactively on their feet, and diversify in order to survive. And now, without being able to pause for breath, the cost-of-living crisis (COLC) presents a fresh set of challenges for retailers to navigate. Rising energy costs, supply-side issues and soaring inflation are compounded by a customer who feels nervous about their financial future.
To help us understand this further, we spoke to a nationally representative sample of over 1,000 UK shoppers in August to see how the COLC was impacting them. Shockingly, 42% of people were already struggling to meet the cost of household bills, and eight out of ten said they already had less disposable income. For context, it’s important to consider that the real changes to household energy bills only started in October (the monthly outgoing with the largest impact on finances according to our respondents), and the situation has only got worse in recent weeks with interest rate increases.
Therefore, trade-offs will need to be made by many as consumers wrestle with real concerns about how to heat their home this winter, whilst paying the mortgage, filling the car, and putting food on the table. So discretionary spending is going to suffer as they are forced to consider what is essential and what is not.
When asked where they were planning to cut back, clothing and footwear was the primary target. Almost two thirds of those we spoke to are simply going to buy less in this category, and we are already seeing this reflected in the market; with Primark, ASOS and Boohoo all announcing weaker-than-expected trading figures for August.
Pricing strategy is clearly going to be crucial, particularly as trading down is a primary mechanism that shoppers will be adopting – 30% will buy cheaper items at the same retailers, and 29% will move their money to lower-priced competitors. However, as the whole supply chain faces increasing cost pressures, simply lowering prices will not be easy, and this does not need to be a race to the bottom – there are alternative ways to maintain loyalty and footfall.
The Boston Consulting Group estimated that second-hand clothes would make up around a quarter of customers’ wardrobes by 2023. And with over one-fifth of Britons saying they would seek out second-hand alternatives in hopes of saving money during the COLC, now is the time to investigate circular economies and expansion into second-hand marketplaces.
The resale market is booming with brands and retailers including Levi’s, Lululemon, COS and Selfridges all creating their own marketplaces, and many more offer buy-back schemes which offer money off vouchers in return for unwanted items. Retailers like BooHoo Group have even partnered with external partners and apps like ReGain to carry the logistical burden of their resale venture
Not only do these initiatives offer a chance to retain shopper spend, it also allows them to be involved in a more sustainable shopper journey – something shoppers are struggling to balance with the current financial pressures. The number of people who say the environment has dropped down their priority list has increased by 20 percentage points to 54%. Similarly, twice as many people are placing less emphasis on sustainable choices when shopping, and it is not hard to understand why. In times of such financial hardship, price will win and unfortunately, we expect this to become more pronounced as inflation and interest rates rise.
That’s not to say retailers can take their eye off sustainability – the increasing expectation will be that sustainability is a hygiene factor and should come as a part of your brand… it should be a gift to consumers and they do not expect to pay more for it. Despite the COLC we need to keep investigating how to tackle environmental issues and according to consumers, corporations carry this responsibility – not consumers.
Making changes to a business model is not easy, but being responsive to how customers are adapting to the cost-of-living crisis is the only way to navigate these choppy waters. Retail is fast-paced and none comes much faster than fashion – but there are clear opportunities to weather this storm whilst supporting your customers and stakeholders if you look at the numbers hard enough.