Inflation, fast fashion and how to keep shoppers in a recession
Retailers such as Primark and Asos have warned of low profit margins, while the ONS reports that inflation remains at record levels. At a time when consumers don’t want to part with their cash, what can retailers do to stay fresh while making a profit?
According to the Office for National Statistics (ONS), inflation is back in the single digits in August after it rose to worrying heights in July. However, despite its fluctuations, inflation has remained at record-breaking levels, damaging profits for affordable fashion retailers among others in different sectors.
According to Fashion Network, the annual rate for clothing and footwear was up 7.6% in the year to August 2022 from 6.6% in July, while prices rose by 1.1% month-on-month, compared with a smaller rise of 0.2% in August 2021.
It comes as Asos has reported being hit by weak August sales due to inflation weighing on shoppers, while its profits are now anticipated to be “around the bottom end of company guidance” due to the slowdown in activity.
Primark, meanwhile, is struggling with similar problems as the brand warned of low profits for the next fiscal year due to cost inflation, as well as higher energy costs.
Primark’s operating profit margin is now expected to be lower than the operating profit margin of 8% expected for the second half of this financial year, although its parent company, Associated British Foods’ (ABF) outlook for this financial year remains unchanged with an expected full year operating profit margin of 9.6%.
However, the retailer notorious for its bargains has decided not to implement further price increases next year beyond those already actioned and planned, due to declining disposable income for consumers amid inflation.
As consumers have been shown to prioritise essentials over things like clothes, accessories, and fancy shoes, the fashion industry has proven to remain on the same downward trend it has been on since 2021.
Oliver Vernon-Harcourt, head of retail at Deloitte, said: “Retailers, who are also battling rising costs, may be revising expectations ahead of the critical Golden Quarter, with ongoing uncertainty amongst consumers around how much they will be able to spend over the coming months.
“In this case, it may get worse before it gets better. However, the festive period will be an opportunity for retailers to showcase the best they have to offer to attract consumer spending.”
In a bid to minimise losses and in response to customers returning clothes at a higher rate than before, retailers such as Asos and its rival Boohoo have started charging for returns.
Uniqlo, coming from a different approach, has launched a clothing repair service at its flagship store in London. Though this is part of its sustainability plan, it is also a viable way to encourage repeat customers to engage with the brand and pay towards the maintenance of their items.
In times like these, brands must think outside of the box to give consumers a reason to spend with them, and as shoppers become more discerning, it is expected that more returns will happen.
