MILAN — New opportunities and challenges lie ahead for the global fashion industry as the implementation of major international trade deals will significantly impact sourcing trends and uncertain economic growth prospects in key international markets will impede sales growth for the foreseeable future.
During an online seminar hosted by market research firm Euromonitor International in partnership with the United States Fashion Industry Association, Julia K. Hughes, president of USFIA, said the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership — if approved — could significantly impact sourcing options for U.S.-based fashion retailers, with more than half of association members believing they will have to “strategically adjust or redesign their supply chain” following TPP implementation alone.
The agreement is also expected to affect U.S export patterns — with 70 percent of USFIA members expecting to export more to TPP partners — especially for niche producers. “We talk a lot about ‘made in U.S.A.’ and reshoring, especially at the high-end with luxury products 100-percent made in the U.S., and I think this number understates the potential impact in the handmade area for U.S. exporters,” Hughes added.
The figures are part of a recent survey carried out by the association, which represents American fashion brands, retailers, importers and wholesalers. Some 72 percent of USFIA members expect to source more from future TPP partners — “especially Vietnam and Malaysia” and also from Japan, which offers an “excellent opportunity at the luxury level,” Hughes said.
During the Webinar, titled “Challenges, Trends and Forecasts for the Global Luxury Goods Industry,” the industry association president also discussed the main challenges members expect to face this year and pointed to increasing production or sourcing costs — a concern of some 80 percent of USFIA members last year — as “by far the top issue.” Hughes said, “We see this continuing into this year,” following rising labor and shipping costs as well as increasing costs of complying with trade policies and regulations in many different countries.
A second challenge is the continuing strong competition among retailers that has driven many bricks and mortar operators into bankruptcy. Third is meeting consumer demand — “by which we mean, how to guarantee that you have right product for what is a pretty fickle consumer today? Do you have the products consumers want, at the price and in the styles they want, in stores today? [It’s] not as easy as it seems.” Another challenge concerns managing supply chain risks — whether natural disasters or terrorism, for example — which is also one of the main drivers for expanding sourcing options. The last main challenge is the economic outlook in developed countries: “This is critical especially for demand for luxury goods,” Hughes said.
Despite these challenges, USFIA members remain by far optimistic about the outlook for their industry over the next five years. According to the annual survey, 68 percent said they were “optimistic” and 21 percent “somewhat optimistic,” while only 11 percent said they held a “neutral” view. No one was pessimistic. “We see lots of optimism that companies can deal with those pressures,” Hughes said.
While the U.S. fashion industry overall appears to see a bright future, things appear a bit less rosy at the highest end of the market, according to Euromonitor. Fflur Roberts, Euromonitor head of luxury goods research, said that over the next five years “the luxury goods industry is set to rise only slowly, with headline growth disappointing.” The market researcher forecasts that luxury goods sales growth will slow to 3 to 4 percent a year in 2016 to 2020, compared with just over 4 percent annual sales growth in 2010 to 2015 (bar 2014, when the figure was just under 3 percent). The total value of the luxury goods market will reach some $370 billion in value in 2020, up from just over $300 billion in 2015, according to the research firm.
The coming years will see stark contrasts in performance between regions, Roberts said. While Western Europe will remain the single largest regional market for luxury goods; the weak euro and fear of terrorism (which impacts tourism, one of the main drivers of luxe purchases in the region) will be a drag on sales. In Eastern Europe, political instability will dampen prospects while in Asia-Pacific, the second largest regional market for luxury goods, slower economic expansion in China, Hong Kong and Japan will keep sales growth “muted.” The Middle East and Africa — albeit starting from lower comparison bases — will be the fastest growing markets, while the outlook for North America “remains positive as consumers continue to spend.” Finally, in Latin America, Euromonitor expects to see “a notable rise in luxury spending, despite the economic slowdown in Brazil.”
The slowdown in China, which over the next three years had been on track to overtake Japan as the world’s second largest single luxury goods market after the U.S., means it will remain in third place “at least for the short term,” Roberts said.
Roberts was bullish on the prospects for India, pointing out that it was the fastest growing of the BRIC markets in terms of luxe sales in 2014 to 2015 (up 18 percent). However, she also pointed out potential pitfalls in India’s continued growth story, including limited suitable locations for luxury stores (currently mostly limited to high-end hotels and some shopping malls), poor infrastructure and inefficient bureaucracy.
In terms of product categories, designer apparel and footwear — dominated by women’s wear — continue to dominate luxe goods sales around the world. Growing 16 percent in 2010 to 2015, this category represents some 40 percent of total global luxe sales. The fastest growing category, up 45 percent in the same period, is bags and leather goods, which is the third category overall (15 percent) in terms of total luxury goods sales, following watches and jewelry (20 percent), whose sales expanded 23 percent in the five-year period. The out-performance of leather goods is due largely to tourist spending, even though domestic consumers account for the majority of spend overall, Roberts said.
While “traditional” categories continue to rule the roost, new product categories —like wearable tech — are getting bigger slices of consumers’ budgets. Roberts explained that “2015 was ‘bang’ for wearables, with Apple Watch, followed by the launch of the Apple Watch Hermès.” Overall, Euromonitor expects sales of wearables to reach 305 million units by 2020. However, aside from Apple, few luxury brands have so far launched wearable tech products.
The future of luxury is brightest, perhaps, in terms of online commerce.
“Ten years ago there was major skepticism of selling luxury online, but today e-commerce is one of the biggest stories and the industry’s key battle ground over the next five years,” Roberts said. Already online sales of luxury goods have almost doubled, from 5 percent five years ago to 8 percent today.
In the U.S., online luxe sales reached $8 billion in 2015, nearly three times the next biggest markets, the U.K. and Japan. But as a percentage of total luxury spending, the U.K. — with 14 percent of total luxury sales coming through e-commerce — leads the pack, followed by Germany (11 percent), and then the U.S., Japan and South Korea (each at 10 percent).
Euromonitor predicts that the hottest part of the e-commerce market will be mobile commerce. According to the researcher, global sales of connected devices (smartphones, tablets, wearables, desktop and laptop computers) will jump by 37 percent, to over 2.2 billion units, in 2015 to 2020.
Manufacturers and retailers looking to cash in on mobile commerce should look at the forecasts: In China, the world’s largest mobile retailing market in 2015 (with almost $150 billion in sales, twice the value of mobile retail in the U.S., the world’s second largest mobile retailing market), mobile sales already account for just over 50 percent of total online sales — a figure set to grow to 67 percent by 2020. Those thinking that the U.S. would be close behind need think again: according to Euromonitor, by 2020 the United Kingdom will have the second highest penetration rate of mobile commerce as a percentage of overall online sales, followed by Germany and South Korea. The U.S. trails the pack, in fifth place, with some 43 percent of online sales expected to come from mobile platforms, compared with 28 percent today.