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Retailers – is diversifying the only way to survive?

Global high levels of youth unemployment and rise in cost of higher education means the spending power of 15-24 year olds will decline over 5 years. We reveal what retailers are doing about it.
Retailers – is diversifying the only way to survive? | EDITED
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Generation Y are a hugely appealing consumer group; as digital natives, driven by their unerring desire for newness, they are confident online purchasers whose social media habits have the power to organically market brands. They sound like fast fashion’s ideal consumer but, is it all too good to be true?

Currently, the cohort of 15-24 year-olds represent fashion’s largest consumer group, but Mintel’s April UK womenswear report estimates that despite the UK womenswear market growing by 12% in the next five years, the spending power of Gen Y will decline by 6% in that time. High rates of youth unemployment and the rise in cost of higher education, 15-24 year olds are predicted to be spending less on apparel. The effects of those pressures, according to Mintel, are already being felt, and are in turn affecting purchasing behaviour; the under-25s have become more discerning and less impulsive in their purchase decisions and are 40% more likely than other age groups to make a purchase in order to replace an existing garment. Meanwhile, the 25-34 age group is growing in size, forecast to grow by 8% as a proportion of the UK population in Mintel’s five year projection.

The US, as well as the UK, are seeing a decline in spend from 15-24 year olds. A poll run by Gallup revealed only 44% percent of Americans aged 18-29 had a full-time job in June 2013 and globally, The Economist estimates there are 290m 15-24 year olds neither working or studying.

Retail may already be starting to feel the effects. Abercrombie & Fitch, who famously pigeonhole their marketing to the young and the beautiful, reported a dip of 4% in comparable store sales in 2012 and they’re to close 10% of their bricks & mortar stores by 2015. Beleagured department store J.C. Penny has been criticised for forgetting its core customer base and having an assortment ‘too young’ – something that Marks & Spencers in the UK have also been accused of, filling many column inches in the process. If the industry is over-estimating the value of Gen Y, how can retailers whose customer base consist largely of this cohort secure their sales in the coming five years?

EDITD’s data suggests that many key retailers have started to make strategic shifts. Comparing the price points of new product arrivals in a three month period (5th May – 5th August) in 2013 to the same period in 2012 reveals this change. At £30 price increments, Next’s highest growth in a womenswear price point sits at the £120-150 mark – stocking 184% more products within the bracket this year than last. (They also grew the £210-£240 price point by 200% but the shift is less revolutionary – from 5 products to 15.) Their average price has grown from £37.77 to £39.79.

This story is echoed elsewhere. Topshop’s foray into premium pricing and appeal to the professional consumer have been underway since they first developed their Boutique and Unique lines. However, in the past 12 months they’ve grown the £120-150 significantly, with a 242% increase in  new products. They have also grown the £90-120 price bracket by 147%, but most interestingly, they’ve decreased the number of products in the lowest price point, £1-30, by 25%. In 2012, it was this bracket that their average price sat within – £22.67. In 2013, their average stands as £32.15.

At ASOS we can see they’ve given the most growth to their £240-270 bracket, at an enormous 295% increase in new products into this price point. This is evidenced in the growth of their stock of grown-up designer brands such as See by Chloé – they’ve carried 136 products by the brand so far this year, compared to just 69 in the same period last year. Building on their higher pricing, appealing perhaps to an older consumer but certainly a more affluent one, has shifted ASOS’s average price from £35.31 to £44.11.

For ASOS, that may indicate quite a strategy rethink, given that back in 2011, Nick Robertson told Marketing WeekIf we were just a UK-based business and we saturated the audience of 20 year olds, then we would have no choice but to expand the demographic. But it’s more about refining the focus to this 20-year-old market and going for it globally – sticking to our core customer.” It seems they’ve not only gone for geography, but demography too.

There are brand launches which tangibly highlight retailers’ concerns, most notably, H&M’s  & Other Stories. The line appeals to an older consumer, with a closer focus on workwear, tailoring and quality, at a higher price point.

So is upping pricing the simple answer? Unfortunately not. Retailers risk alienating a loyal customer base by dropping vast quantities of unfamiliar stock and pricing into their regular merchandising, not to mention fit differentials.

But retailers either need to seek out new geographies or subtly grow their demographic in the coming years to ensure sales. Doing this in a streamlined way will mean close monitoring of competitors and consumer tastes, but retailers can appeal to diversified consumers. Just this week, news broke that French Connection will be winding down its Tegan brand, which launched for autumn 2011, and is aimed at an older demographic than their main brand. Tegan sat on a separate website to French Connection, with no reference to the existing brand with its strong consumer base. No wonder the line caused confusion and went under the radar. Look to Zara, whose youth-targeted TRF line is clearly defined in store, online and in the garment labelling – the positioning of the diffusion is clear and therefore alienates no-one. When diversifying, retailers must make the offering identifiable to each consumer so there is no confusion as to who shops where, whilst remaining true to the brand identity that formed the connection with the shopper in the first place.