deep dive: uk value clothing market— pure plays drive market … · 2017-04-04 · poundland....
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1
April3,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
1) Majorvalueretailersaccountforalmostone-quarterofthetotalUKclothingmarket,weestimate.Thevalueapparelmarketwasworthnearly£10billionin2016,andsalesincreasedataCAGRof3.4%overthepastfiveyears.
2) NewentrantsandhigherstandardshaveboostedtheUKvalueclothingmarket.Thestructural“winners,”suchasPrimarkandBoohoo.com,arethosethatofferafast-fashionproducttoayoungtargetcustomer.
3) Groceryretailersareprominentinthevalueapparelmarket,andtheyappeartohavegainedsalesasaresultoftheBHSclosureinAugust2016.
4) Higherstandardsandanexplosioninchoiceareheapingcompetitivepressuresonlong-standingvalueplayers.
Deep Dive: UK Value
Clothing Market—Pure Plays Drive
Market Growth
Deborah Weinswig
Managing Director,
Fung Global Retail & Technology
deborahweinswig@fung1937.com
US: 917.655.6790
HK: 852.6119.1779
CN: 86.186.1420.3016
2
April3,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
TableofContents
ExecutiveSummary..........................................................................................................................3
Introduction.....................................................................................................................................4
ValueRetailersCaptureOne-QuarteroftheClothingMarket...........................................................5
TopRetailersinValueClothing.........................................................................................................6
MarketShare........................................................................................................................................6
Retailers’Revenues..............................................................................................................................7
Offline-OnlyRetailers...........................................................................................................................8
SegmentReview:GroceryRetailers,InternetPurePlaysandNewEntrants......................................9
GroceryRetailersareResurgent..........................................................................................................9
Pure-PlayGameChangers..................................................................................................................11
NewEntrantsareWideningChoice...................................................................................................12
LikelyWinnersandLosers...............................................................................................................14
KeyTakeaways...............................................................................................................................16
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April3,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
ExecutiveSummaryMajorvalueretailersaccountforalmostone-quarterofthetotalUKclothingmarket,weestimate,basedonEuromonitorInternationaldata.Thevalueapparelmarketwasworthalmost£10billion(includingVAT)in2016,andsalesincreasedataCAGRof3.4%overthepastfiveyears.Twomajorfactorshaveunderpinnedgrowthinthevalueclothingmarketinrecentyears:
1. Theproductofferinghasbeenvastlyelevated:Valueretailersaremorepopularbecausevalueapparelisbetterthanever.Theselectionofstylishandattractiveproductavailableatverylowpriceshasdramaticallyincreased,especiallyinmerchandiserangestargetedatmillennialandGenZconsumers.
2. E-commercehasinjectednewvigorintothevaluemarket:Sophisticated,fashionableonline-onlyplayersaredistinctfromthesomewhattiredformatsofpreviousgenerationsofvalueretailers.Boohoo.comandMissguidedhavebeenvastlyoutperformingtheirmultichannelpeers,evenwhenmeasuredonlyagainstthoseretailers’onlinesales,aswellastheirbrick-and-mortarpeers.
Primark,withtotalUKrevenuesof£2.9billioninfiscal2015(latestavailabledata)andAsda’sGeorgebrand,withestimatedclothingandfootwearsalesofaround£2.1billioninfiscal2016,arethebiggestplayersintheUKvalueclothingmarket.Groceryretailersandonline-onlyretailersaretwohighlysuccessfulsegmentsinthemarket,andnewentrantscontinuetopilein.
Groceryretailersareprominentinthevalueapparelmarket.Tesco,Sainsbury’sandMorrisonsappeartohavegainedsalesasaresultoftheclosureoftheBHSchain.EachoftheseretailersremarkedthattheyhadseenstrongapparelgrowthovertheChristmas2016period.ThisbenefitwillfallawayaftertheanniversaryofBHS’sfinalclosure,whichwasinAugust2016.
Internet-onlyretailerssuchasBoohoo.com,PrettyLittleThingandMissguidedaregrowingrapidly.Boohoo.comrecentlysaidthatsalesforfiscalyear2017(endedFebruary28),wereupabout50%,aheadofpreviousguidanceof46%–48%growth.Boohoo.comrecentlyacquiredPrettyLittleThing,whichwillfurtherboostitsUKrevenues.PrivatelyownedMissguidedrecentlyreportedthatsaleswereup34%intheyearendedMarch2016,andthatsalesrose60%inthesubsequentsix-monthperiod.
Newentrantsareheighteningcompetitioninthemarket.TheseincludePep&Co,whichisnowrollingoutclothingtostoresinitssisterchain,Poundland.Reserved,aPolishretailbrand,issettoopenitsfirstUKstoreshortly,onLondon’sOxfordStreet.AndAmazon,whichalreadyofferslowpricesonbrandedfashion,issettolaunchprivate-labelproductsdesignedspecificallyfortheUKmarket.
Higherstandardsandanexplosioninchoiceareheapingcompetitivepressuresonanumberoflong-standingvalueplayerssuchasMatalan,NewLookandBlueInc.So,growthintheoverallvalueclothingmarketisnotarisingtidethatisliftingallboats.
E-commercehasinjectednewvigorintothevaluemarket.
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April3,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
IntroductionInthisreport,weexplorevalueclothingretailingintheUK,includingreviewingleadingvalueplayersandanalyzingdriversofgrowth.Welookatthesizeandgrowthofthevalueclothingmarketandthemarketsharesoftopretailers,discussgroceryretailersandInternet-onlyretailersthatsellvalueapparel,andidentifylikelywinnersandlosersin2017.
Wedefinevalueclothingretailersasthosethatofferlowpricepointsthataregenerallysignificantlybelowthoseofmidmarketrivals:inessence,thevalueretailersarewhereshoppersarelikelytoturniftheyarestrappedforcash.Almostallvalueretailersfocusonprivate-labelfashionsratherthanonthird-partybrands.
RetailersinthismarketincludePrimark,Boohoo.com,NewLook,Matalan,H&M,Peacocks,Pep&Co,Missguided,Forever21,SelectFashion,BlueIncandthenow-defunctBHS.Wealsoconsidertheprivate-labelapparellinesofferedbygroceryretailersTesco(F&Fbrand),Sainsbury(Tubrand)andAsda(Georgebrand)aspartofthevaluemarket,aswellasapparelofferedbygrocersAldiandLidl.
Source:Shutterstock
ThereisacaseforincludingSportsDirectandT.K.Maxxwithinthevaluemarket,astheytypicallysellbelowfullretailprice,oratleastwiththeappearanceofadiscount.However,weconsiderthemadjacenttothevaluesectorfortworeasons.First,inmanycases,theyaresellingatpricesthatarestillsubstantial.Second,andrelatedly,SportsDirectandT.K.Maxxalsoprovidecustomerswithsubstantialbrandedofferings,includingbig-namemass-marketbrandsand,inthecaseofT.K.Maxx,premiumlabels.
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April3,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
ValueRetailersCaptureOne-QuarteroftheClothingMarketMajorvalueretailersaccountforalmostone-quarterofthetotalUKclothingmarket,weestimate,basedonEuromonitorInternationaldataon14majorvalueretailers:
• Thevaluemarket’saggregatemarketsharehasincreasedbyapproximately510basispointsinthelast10years,asdepictedinthegraphbelow.
• ThesizeoftheUKvalueclothingmarketwasalmost£10billion(includingVAT)in2016,andsalesincreasedataCAGRof3.4%overthepastfiveyears.
Aswediscusslater,however,notallmajorvalueretailershavegainedovertheperiod.
Figure1.UK:MajorValueClothingRetailers’Sales(LeftAxis,GBPBil.)andAggregateShareofTotalUKClothingMarket(RightAxis,%)
Thegraphshowsthesumof14majorvalueretailers’estimatedclothingsalesandmarketshares:theretailersareAsda,Primark,Matalan,Tesco,NewLook,H&M,Peacocks,Sainsbury’s,Lidl,Aldi,Boohoo.com,Missguided,Forever21andBHS.Source:EuromonitorInternational/FungGlobalRetail&Technology
Twomajorfactorshaveunderpinnedgrowthinthevalueclothingmarket:
1. Theproductofferinghasbeenvastlyelevated:Valueretailersaremorepopularnowbecausevalueapparelisbetterthanever.Theselectionofstylishandattractiveproductavailableatverylowpriceshasdramaticallyincreased,especiallyintermsofmerchandisetargetedatmillennialsandGenZers.
2. E-commercehasinjectednewenergyintothevaluemarket:Sophisticated,fashionableonline-onlyplayersareprovidingaverydifferentshoppingpropositionfromtheoccasionallytired-lookingstoreformatsandrelativelybasicproductofferingofpreviousgenerationsofvalueretailers.Asaresult,Boohoo.comandMissguidedhavebeenvastlyoutperformingtheirbrick-and-mortarpeers,evenwhenmeasuredonlyagainstthosecompanies’onlinesales.
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GBPBil. %
Majorvalueretailersaccountforalmostone-quarterofthetotalUKclothingmarket.
Valueretailersaremorepopularnowbecausevalueapparelisbetterthanever.
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April3,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Forthesereasons,thevaluemarkethasattractedabroaderandmorediverserangeofconsumers,includingyoung,fashion-consciousshopperswhohaveturnedtopureplaysandmiddle-classconsumerswhoaretradingdownforcertainpurchasessuchasbasicswhilevisitinghigher-endstoresforinvestmentitems.
Reflectingthehigherstandardsinthesegment,thegrowthinvalueretailhasnotbeenarisingtidethathasliftedallboats.Undistinguishedmiddle-groundretailerstargetingshoppersinthefamilylifestageoroldershoppershavestruggledtogaintraction,justastheirmidmarketretailpeershave.Forexample,MatalanhasposteddecliningsalesandBHScloseddowncompletelyinAugust2016followingyearsofrevenuedeclines.TopRetailersinValueClothing
MarketShareBelow,webreakdownthevalueclothingmarketbyretailer,basedonEuromonitordata.Somesmallerplayers,suchasSelectFashionandBlueInc,arenotincluded.Thestill-tinymarketsharecapturedbyInternet-onlyretailersisnotable.Forexample,Boohoo.comandMissguidedcaptureonlysmallshares.Wethinkthisunderlinesthefactthatthereissubstantialscopeforgrowthatthesetypesofretailersasmorevaluespendingmigratesonline.
WestripoutBHSdatainthegraphbelow,duetotheretailer’sclosureinAugust2016.Basedonourownestimates,wethinkthatEuromonitor’sfigurefortheGeorgebrandatAsdaisimprobablyhighrelativetothePrimarkfigure(seeFigure3forourownestimates).Moreover,pressreportssuggestthatbothKantarWorldpanelandVerdictRetailseePrimarkastakinggreatersharethanAsda.
Figure2.UK:LeadingValueClothingRetailers’EstimatedShareoftheValueClothingMarket,2016(%)
Source:EuromonitorInternational/FungGlobalRetail&Technology
Fast-growingpureplayssuchasBoohoo.comandMissguidedcaptureonlysmallmarketshares.
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April3,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Retailers’RevenuesBelow,werankmajorvalueretailersbytheirlatestfull-yearrevenues.ForspecialistretailerssuchasPrimarkandMatalan,thisincludesanynon-clothingrevenues.ForgroceryretailersAsda,TescoandSainsbury’s,thefiguresareourestimatesfortheirnetsalesofclothing,footwearandaccessoriescombined.UK-onlydataforsomevalueretailers,suchasForever21,arenotavailable.
Figure3.UK:LeadingValueClothingRetailers’RevenuesExcludingSalesTaxandYoY%ChangeinRevenues
Revenues(GBPMil.) Year-End YoY%Change
PrimarkUK 2,891 Sep15 3.8
Asda(George)* 2,100 Dec16 N/A
NewLookUK** 1,268 Mar16 4.3
H&MUK*** 1,094 Nov16 3.4
Matalan 1,061 Feb16 (3.0)
Tesco(F&F)* 1,000 Feb17 N/A
Sainsbury’s(Tu)* 800 Mar17 N/A
Peacocks 370 Feb16 5.1
Bonmarché 188 Mar16 5.3
Boohoo.comUK 130 Feb16 37.9
Missguided 117 Mar16 34.4
SelectFashion 81 Jun16 (5.9)
*Estimatesforclothing,footwearandaccessories**Includesanelementofinternationale-commercesales***EstimatedbasedondatathatincludedsalestaxSource:S&PCapitalIQ/companyreports/FungGlobalRetail&Technology
TheclosureofBHSin2016freedupseveralhundredmillionsofpoundsofapparelsales.BHS’slastfiledaccountswerefortheyearendedAugust2014,whenitturnedover£668million.Itsrevenueswereconsistentlydecliningyearoveryearintheprecedingyears.Theclosureofthebusinessopenedupopportunitiesforotherretailersthattargetcustomersaged45andolder,asBHSdid.WebelievethatthegroceryretailerswilltakesomeoftheremainingBHSclothingshareandthatMatalan,Bonmarché,PeacocksandPep&Coalsohavetheopportunitytogainsales.
Wealsonotethattworetailersadjacenttotheprivate-labelvaluemarket,T.K.MaxxandSportsDirect,havebeenoutperformingthetotalapparelmarket:
• TJXUK,theparentcompanyofT.K.MaxxandHomeSenseintheUK,grewrevenuesby10.9%,to£2.4billion,intheyearendedJanuary2016(latest).Atthetimeofwriting,thecompanyoperatesmorethan350T.K.Maxxstoresand30HomeSensestoresintheUKandIreland.
TheclosureofBHSopenedupopportunitiesforotherretailersthattargetcustomersaged45andolder.
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April3,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
• SportsDirectgrewtotalsalesby14.2%inthefirsthalfofitsfiscalyear2017,endedOctober2016(latest).ItscoreUKsportsretailsegmentgrewrevenueby7.4%intheperiod,andoperated454storesattheendoftheperiod.Grouprevenuestoodat£2.9billionintheyearendedApril2016,withUKrevenuesaccountingfor£2.3billion.Theretailersellsamixofthird-partybrandsandproprietarybrandswithadiscountpositioning.
Offline-OnlyRetailersAswehavealreadynoted,Internet-onlyretailershavehelpeddrivegrowthinthevalueclothingmarket.And,aswiththeoverallapparelmarket,moreandmorevalueclothingspendingwillmigrateonlineinthecomingyears.
Amongbrick-and-mortarretailers,thereareveryfewholdoutsagainste-commerce,buttheyfeaturedisproportionatelyinthevaluemarket.E-commercelaggardshaveincludedSainsbury’s,whichlauncheditsTubrandonlineonlyinAugust2015.
Source:Shutterstock
Primarkistheonlymajorapparelspecialistthatdoesnotsellonline.Thecompanyindicatedthattheeconomicsdonotstackup,givenitsultralowpricepoints.GeorgeWeston,CEOofparentfirmAssociatedBritishFoods,underlinedthispositioninthecompany’smostrecentearningscall,whenheconfirmedthatanalystscouldruleoutamoveonlinebyPrimarkbecause“theeconomicsofthestoresarejustmuchbetterthantheeconomicsofonlineclothingretail.”DiscountfashionchainPep&Coremainspurelystore-based,too.
Amongthegroceryretailers,Lidlremainsasolelybrick-and-mortarretailer.RivalAldilaunchedatransactionalnonfoodUKwebsiteinJanuary2016,throughwhichitsellsitsclothingranges.Morrisonsisalsoplanninganonlinelaunchforitsclothingranges,aswediscusslaterinthisreport.
PrimarkistheonlymajorUKapparelspecialistthatdoesnotsellonline.
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April3,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
SegmentReview:GroceryRetailers,InternetPurePlaysandNewEntrantsInthissection,wereviewthreenotablesegmentswithinthevalueclothingmarket:groceryretailers,Internet-onlyretailersandnewentrantstothemarket.
GroceryRetailersareResurgentSupermarketretailersaccountfor10%ofthetotalUKclothingandfootwearmarketbyvalue,accordingtoKantarWorldpanel.Butthisshareisdepressedbytheirlowaverageunitprices;theycapturealmostone-quarterofthemarketwhenmeasuredbyvolume.
Onechallengeforthissegmentisthatconsumersarechangingtheirgrocery-shoppingbehavior.Britishgroceryshoppersareincreasinglyturningawayfromlargeout-of-townsuperstoresinfavorofsmallersupermarkets,discountsupermarkets,conveniencestoresandtransactionalwebsites.Intheory,thisshouldbehittingtheclothingsalesofmajorsupermarketretailers,assupermarketfashionreliesonlarge-storefootfalltogenerateincrementalclothingsalestocustomersdoingtheirregulargroceryshopping.However,theUK’sthreepubliclytradedsupermarketgroupshaverecentlynotedstronggrowth,notdeclines,intheirfashionsales.TheyhavelikelymoppedupsharefromBHSfollowingitsfinalclosureinAugust2016.Ifthatisthecase,theyear-over-yearboostinsalesenjoyedbythegroceryretailerswillannualizelaterthisyear.
• SectorleaderTescosaiditscomparablefashionsalesroseby4.3%inthesixweeksendedJanuary7,2017.Tesco’sfashionlabelisF&F.
• Second-placeSainsbury’snoteda10%leapinitsclothingandfootwearsalesinthethirdquarterofitsfiscalyear2017,whichcoveredtheChristmas2016period.Sainsbury’sfashionlabelisTu.
• Fourth-placeMorrisonssaiditsNutmegclothingbrand“performedwell”initsnine-weekChristmastradingperiod,whichendedJanuary1,2017.
Source:Shutterstock
Walmart-ownedAsdaisthebiggestretailerofapparelamongthegrocerychains.Itslong-establishedclothingbrandiscalledGeorge.Asdahasbeenpostingnegativecomparablesalesgrowthintotal,buthasfailedtodisclose
Supermarketretailerscapturealmostone-quarteroftheUKclothingandfootwearmarketbyunitvolumesales.
Asdaisthebiggestretailerofapparelamongthegrocerychains;itsGeorgeclothingbrandiswellestablished.
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April3,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
performanceinfashionrecently.Asda’stotalcompsfellby2.9%inthefourthquarterofitsfiscal2017year.Trafficwasdown1.8%inthequarter—anddecliningstoretrafficissuretohaveaffectedclothingsales.
However,significantsequentialchangesinAsda’squarterlycompsandtrafficsuggestthatthesemetricscouldswingtopositiveterritoryinthecomingyear.Iftheydo,theGeorgefashionrangeshouldbenefit,andTescomaybenegativelyimpacted.
Figure4.Asda:TotalComparableSalesandTraffic,YoY%Change
Source:Companyreports
Sainsbury’shaslikelybenefitedfromanumberofinitiatives,includingthelaunchofane-commercesiteinAugust2015andthereleaseofanupmarketTuPremiumrangeinSeptember2016.ThecompanyrecentlysignedretailexpertMaryPortastohelpmakeTua“destinationbrandforhigh-streetfashion.”
Morrisonswaslatetotheapparelcategory,launchingitsNutmegbrandonlyin2013,andinitiallyonlyinchildrenswear.Theretailer’stypicallysmallersupermarketspresentrangingissuesforclothingandfootwear.Nevertheless,inFebruary2017,Morrisonsannouncedplanstoextendthebrandtowomenswear.
E-commerceremainsanopportunityforNutmeg,andinMorrisons’March2017full-yearresultspresentation,CEODavidPottssaidthatthecompanywouldexpanditsonlineofferingtoincludeclothingatanunspecifiedtime.E-commercecouldprovideaboosttothecompany’sclothingsalesthatisproportionatelyhigherthanwhatitprovidestosupermarketrivals,giventhespacechallengesthatMorrisonsfacesinmanyofitsstores.
Seekingtotaptheathleisuretrend,Tescoenhanceditsapparelofferingwithanactivewearrangeforspring2016.
Meanwhile,AldiandLidlhavemademovestocapturegreatershareinclothing,too,withspecial,short-livedcollectionslaunchedwithintheirrotatingnonfoodspecialbuys.In2016andearly2017,forinstance,Aldilaunchedon-trendfashionlines,officewear,runningapparel,cycleclothing,skiwearandevenridingapparel.
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E-commerceremainsanopportunityforMorrisons’Nutmegapparelbrand.
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Pure-PlayGameChangersBoohoo.combringsexceptionalspeedandagilitytothevalueclothingmarket.Coupledwithultralowsellingprices,thismakesforacompellingpropositionthatisfarmoresophisticatedthanthemediocreshoppingenvironmentsandundistinguishedproductrangesthatcharacterizedsomepreviousgenerationsofvalueretailers.
Boohoo.com’s“testandrepeat”modelisbasedonstockingalimitednumberofunitsofeachnewstyle,andthenbuyingdeepervolumesifastyleperformswell.Thecompanysourcesaround50%ofitsproductsintheUK,which,combinedwiththetest-and-repeatstrategy,enablesittocatertoshoppers’demandsforfastfashion.Boohoo.com’sonline-onlyoperationbringssimplicitytothismodel,whereasotherfast-fashionretailersmustdealwiththecomplexityofstockingnewproductsinmultiplestores.
Boohoo.comcanreportedlygetaproductfromconcepttosalewithintwoweeks.Thecompanysaysitoffers20,000differentstylesandintroducesupto100newstylesaday,andthat“thespeedandagilityofthegroupenablesittobefirsttomarketwiththelateston-trendstylesandfashion.”
ThecompanyacquiredUKpureplayPrettyLittleThingandtheUSpure-playbrandNastyGalinlate2016.Boohoo.com’ssalesjumpedby50%inits2017fiscalyear.
Missguidedoffersasimilarmixoflow-pricedfastfashionaimedatyoungshoppers.Theprivatelyownedcompanysaysthatitaddsmorethan50newstylestoitssiteeachday.
MissguidedfounderandCEONitinPassitoldTheGuardianin2015,“[W]e’rerapidfashion….Ifatrendcomes,weneedtohaveitonoursiteinunderaweek.”Thecompanysaysitcanturnsamplesaroundinaday,anditreportedlygetsproductstomarketmuchquickerthanfast-fashionlegendZaradoes.Passihasstatedthathisambitionistoturnthecompanyintoa£1billionbusinessinfiveyears.InNovember2016,thecompanyopeneditsfirstbrick-and-mortarstore,atLondon’sWestfieldStratfordCitymall.
MissguidedretailstoreattheWestfieldStratfordCitymallSource:FungGlobalRetail&Technology
Boohoo.comcanreportedlygetaproductfromconcepttosalewithintwoweeks.
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Missguidedisadistinctiveplayer,eveninacrowdedyoung-fashionpure-playsegmentthatincludesPrettyLittleThing,ASOS,LittleMistress,Bejealous,BrandAtticandRomwe.Thesee-commercenamesspanthevalueandmidmarketsegments,andweexpectthemtocapturesharefromlegacystore-basedyoung-fashionretailerssuchasNewLookandTopshop.
NewEntrantsAreWideningChoiceCompetitioninthevalueclothingmarketwillonlyincreasewithnewentrantssuchasReservedandAmazonUK’sprivate-labelapparellines.
Pep&Co
• Pep&CoisanewUKwomenswear,menswearandchildrenswearbrick-and-mortarvalueapparelconceptstartedbyformerAsdaandBain&Companyexecutivesin2015.ThecompanyisownedbySouthAfricanretailholdingcompanySteinhoff.Pep&Coopened50storesacrosstheUKinsummer2016andplanstohave85storesintheUKbytheendof2017.
• Followingatrialperiod,Pep&CowillalsorolloutPep&CoclothingshopswithinlargePoundlandstores.Pep&ComanagementstatedthatitsgoalisforPep&CotobetoPoundlandwhattheGeorgebrandistoAsda.
• Thefashionchainisaimedatmothersonabudget.Pricesstartat£1and95%ofproductsalesareunder£10.
Reserved
• ReservedisownedbyLPP,anapparelretailerbasedinPoland.ReservedwillshortlyopenitsfirstUKstore,intheformerBHSsiteonOxfordStreetinLondon.LPPgeneratedPLN6,021million(£1.1billion)in2016.AnalystsexpectLPPrevenuestoincreaseby17%yearoveryearin2017andby12.7%in2018.
Amazon
• Amazonhaslaunchedeightown-labelfashionbrandsonitsUSwebsite.ThelabelsareonlyavailableforAmazonPrimemembers.SeveraloftheselabelsofferitemsatvaluepricepointsandarecreatedbyandexclusivetoAmazon,includingFranklin&Freemanformen’sshoes,FranklinTailoredformen’sformalwear,James&Erinforwomen’sclothingandScout+Roforchildren’sclothing.
• InFebruary2017,DrapersreportedthatAmazonisplanningtolaunchprivate-labelclothingrangesdesignedfortheUKmarketandthatthecompanyhasrecruitedseniorapparel-buyingexpertsfromPrimarkandMarks&Spencer.
• Separately,AmazonisplanningtodevelopitsownlineofworkoutapparelinordertocapitalizeontheongoingstrengthoftheathleisuretrendintheUSandEurope.
ReservedwillshortlyopenitsfirstUKstore,intheformerBHSsiteonOxfordStreetinLondon.
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Source:Amazon.com
• Amazoncanleverageitsvastamountoftransactionandconsumer
browsingdatatodevelopsuccessfulprivate-labelfashionlines.
• Awayfromprivatelabel,Amazonroutinelysellsbrandedfashionbelowregularretailprices,withvariousdepthsofdiscounts,arguablymakingitsofferingsimilartothatofanoff-priceretailer.
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
LikelyWinnersandLosersFinally,inthefollowingthreetables,weoutlinesomenotableretailersthatlook,respectively,likelytooutperformthevaluemarketin2017,broadlykeeppacewiththemarketorunderperformversusthemarket.
Figure5.ValueClothingRetailersthatAreLikelytoOutperformtheValueMarketin2017
AldiandLidlGrocerydiscountersAldiandLidldonotconsistentlyfeatureclothingranges;instead,theyofferselecteditemsforashortperiodwithintheirweeklyspecialdeals.However,theirofferingsfrequentlycapturetheattentionofthespecialistandmainstreammedia,propellingwhatareoftenhighlylimitedrangestopublicattention.
Thisisinthecontextofveryrapidtotalsalesgrowthattheseretailers.AccordingtoKantarWorldpanel,bothAldiandLidlgrewtheirsalesbyaround13%inthe12weeksendedFebruary26(latest).However,inthelatestfour-weekperiod,alsoendedFebruary26,Aldi’sgrowthacceleratedto14.2%andLidl’sacceleratedto16.5%.
Boohoo.comBoohoo.comrecentlysaidthatsalesforthefiscalyearendedFebruary28wereupabout50%,aheadofpreviousguidanceof46%–48%growth.Moreover,thisgrowthhasnotbeenattheexpenseofprofitability;adjustedEBITDAmarginsareexpectedtobeatthetopofthecompany’sguidancerangeof11%–12%.Analystscurrentlyforecast40%revenuegrowthforfiscal2018.Boohoo.com’srecentacquisitionofPrettyLittleThingwillboostitsUKrevenues,anditspurchaseoftheNastyGalbrandintheUSwillbolsteritsinternationalsales.ReflectingBoohoo.com’sstorminggrowth,itssharepriceclimbed281%inthe12monthsendedMarch10,2017.
MissguidedPrivatelyownedMissguidedrecentlyreportedthatsaleswereup34%intheyearendedMarch2016,andthatsalesroseby60%inthesubsequentsix-monthperiod.Some40%ofthecompany’ssalesaremadeoverseasand,likeotherpure-playretailerswithsignificantinternationalsales,itssaleswillhavebeenflatteredbythedepreciationofthepound.
Sainsbury’s(Tu)TheUK’ssecond-biggestgroceryretailer,Sainsbury’s,reportedstrongclothingsalesinthethirdquarteroffiscal2017,withsalesofitsTubrandup10%yearoveryear.Inthefourthquarter(latest),Tubrandclothingsaleswereup5%.UnlikeTescoandAsda,Sainsbury’shasconsistentlyreporteditsapparelsalesinrecentyears,andthosesalesappeartohavebeenconsistentlygrowingaheadofthemarket.Growthhasbeensupportedbythecompany’smovetostartsellingTuonlineandlikelybytheBHSclosure,too.
Source:Companyreports/FungGlobalRetail&Technology
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April3,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Figure6.ValueClothingRetailersthatAreLikelytoKeepPacewiththeValueMarketin2017
H&MH&Mdoesnotfrequentlyprovideupdatesonitsperformanceatanationallevel,butitcontinuestopostweakglobalcomparablestoresalesgrowth,whichhasoffsetbyexpandingnewstoreopenings.ThelatestcompanydatafortheUKisfortheyearendedNovember2016,whensaleswereupbyamodest3%inlocalcurrency,versusa6%increaseinUKstorenumbers.SomeanalystsestimatethatH&M’sfourthquarter2016comparablesaleswerebroadlyflatintheUK.Asoftheendof2016,thecompanyhadasubstantialbaseof281storesintheUK.ThatmeansitsfutureexpansionopportunitiesarelimitedandthatitcouldbevulnerabletosharelosstoInternetpureplays.
PrimarkPrimarkistheleadingvaluespecialistanditcontinuestogainshareoftheoverallapparelmarket.Butmanyofitsgainsarenowdrivenbynewstoresandrelocations;underlyinggrowthisnowmuchsofterthanitwasinpreviousyears.PrimarkgrewitsUKcomparablestoresalesby2%inthefirsthalfoffiscal2017,endedMarch4,2017.Inthepriorfiscalyear,UKcompsfellby2%.AccordingtoKantarWorldpanel,Primarkgained10basispointsofshareofthetotalUKapparelmarketyearoveryearinthe12weeksendedDecember18,2016,anditgained19basispointsofshareinthe12weeksendedJanuary15,2017(includinggainsfromnewsellingspace).
Despiteinputcostpressuresresultingfrompounddepreciation,Primarkstatedthatitwillnotincreaseprices—whichsuggeststhatitdoesnotwanttosacrificetop-linegrowthtoshoreupmargins.Theabsenceofane-commerceofferingcouldbeadragontop-linegrowthinthecomingperiod,particularlyifPrimarklosessharetoBoohoo.com,whoselow-price,fast-fashionmerchandiseappearstooverlapwithPrimark’soffering.However,Primarkwillenjoyinsulationfromthemargin-depletingeffectofe-commerce.
SelectFashionPrivatelyownedSelectFashiongrewsolidlybetweenfiscalyears2010and2015,withrevenueup135%overtheperiod.However,infiscal2016,revenuefellby5.9%,despiteanundisclosednumberofnewstoreopenings,andthecompanyreturnedtoanetlossafterthreeyearsofreportingpositivebottom-linenumbers.SelectFashionnowlooksvulnerabletothegrowthofpureplayssuchasBoohoo.com.
Tesco(F&F)Britain’sbiggestgroceryretailer,Tesco,reported4.3%comparablesalesgrowthforitsF&Fclothingandfootwearbrandoverthesix-weekChristmas2016period.However,theabsenceofanycommentaryinprecedingquarterssuggeststhatthiswasanatypicalperformance.
Apotentialthreatin2017isanAsdarecovery,aswediscussinmoredetailelsewhereinthisreport.Animprovementathypermarket-focusedAsdawouldlikelydrawshoppersfromTesco’slargerstores,hittingimpulsesalesofTesco’snonfoodranges,includingclothing.AnygainsfromtheBHSclosurewillannualizelaterin2017.
Source:Companyreports/FungGlobalRetail&Technology
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April3,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Figure7.ValueClothingRetailersthatAreLikelytoUnderperformtheValueMarketin2017
BlueIncandTheOfficersClubBlueIncandTheOfficersClubaresisterbannersthatbothfocusonmaleshoppers(althoughBlueInchasdiversifiedintowomenswear,too).BlueIncacquiredTheOfficersCluboutofadministration(bankruptcy)in2011.InJanuary2016,BlueIncbroughtinadministratorstoitsA.Levy&Sonsubsidiaryandclosedsome76OfficersClubandBlueIncstores.InMarch2017,BlueIncfiledforaCreditVoluntaryAgreement,whichproposestoreducerentsandcloseunprofitablestores.AccordingtoreportsinTheTelegraphandDrapers,somelandlordshaveraisedconcernsaboutthecompany’sviability.
ThismarksafallfromgraceforBlueInc,whichwasplanninganIPOin2014,butwhicheventuallyoptedforaprivatesaleinstead.BlueIncoperatesapproximately157stores(includingOfficersClubstores).Itslatestaccounts,fortheyearendedDecember2013(priortotheraftofstoreclosures),showedthatitgenerated£99millionofrevenuethatyear.
BonmarchéBonmarchéoffersfashionsformatureshoppers.Totalsalesweredown4%inthefirsthalfoffiscal2017,endedSeptember2016.Totalgrowthrecoveredto3.3%inthethirdquarter,butthatwasinthewakeofrivalBHSshuttingitsstoresbetweenJulyandAugust2016.BonmarchéshouldbereapingtherewardsofBHS’sclosure,giventhatBHSalsohadanoldercustomerbaselookingformiddle-of-the-roadstyles.However,Bonmarche’suptickinthethirdquarterwasonlytepid:onlinesalesweredown3.8%andstore-onlycompgrowthwasamodest0.8%,suggestingthatstoreopeningshavebeentheprincipaldriverofgrowth.Thecompanyisworkingtoimproveitsproductofferingandisphasingoutitsalready-limitedmenswearrangesinordertofocusonitscoreshopper.
MatalanMatalanfocusesonshoppersinthefamilylifestage(i.e.,momswithkids).Thecompany’srevenuesdeclinedby1%inthethirdquarteroffiscal2017,endedNovember2016.Matalanappearstobelosingsalestootherretailersthatofferamorefashionableofferingandamoreappealingshoppingexperience.Moreover,wethinkMatalan’sretail-parklocationsputitatadisadvantagetomall-basedandhigh-streetretailers:storesinretailparksdemandproductthatiscompellingenoughtoenticeshopperstomakeaspecialtriptoastand-alonestore.
NewLookNewLook’sUKcomparablestoresalesdeclinedby7.3%yearoveryearintheninemonthsendedDecember2016,includingadeclineof4.6%inthethirdquarter.Thecompanysaidthatitexpectssalestoremainchallengingfortheremainderoffiscal2017andintofiscal2018.NewLookisalegacyyoung-fashionplayer,anditappearsvulnerabletothegrowthofonline-onlyplayerssuchasASOS,Boohoo.comandMissguided.AsmoreyoungconsumersturntotheInternet,thecompetitiveadvantageofNewLook’ssubstantialstorenetworkwanes:thecompanyoperated575UKstoresasoftheendof2016.
Source:Companyreports/FungGlobalRetail&Technology
17
April3,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
KeyTakeaways• NewentrantsandhigherstandardshaveboostedtheUKvalue
clothingmarket.Thestructural“winners”looktobethosewithfast-fashionproductandayoungtargetcustomer.MarketleaderPrimarkandfast-growingBoohoo.comandMissguidedsharethesecharacteristics.
• Groceryretailersareprominentinthevalueapparelmarket,andTesco,Sainsbury’sandMorrisonsappeartohavegainedsalesasaresultoftheclosureofBHS.ThissupportwillfallawayoncewelapthefirstyearsinceBHS’sfinalclosure,whichwasinAugust2016.Sainsbury’slookstobethemostconsistentoutperformerinthegroceryapparelsegment.
• Higherstandardsandanexplosioninchoiceareheapingcompetitivepressuresonlong-standingvalueplayerssuchasMatalanandNewLook.
18
April3,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comJohnMercerSeniorAnalyst
EvaKubickaSeniorResearchAssociate
HongKong:8thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223004406London:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NewYork:1359Broadway,9thFloorNewYork,NY10018Tel:6468397017
FungGlobalRetailTech.com
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