The retail figures of Europe's fashion industry: A deep dive into the industry's complex landscape and future trends

How is the market performing? It turns out that whether the financial outlook is positive or not has never been harder to say. A fact that the Executive Survey by McKinsey and Business of Fashion (BoF) rightly captured. According to the report, against a challenging economic backdrop, executives' views on the industry's prospects are more divided than in any year since the launch of the study in 2017. Whilst 26 percent of the survey respondents anticipate an improvement in conditions year-on-year, 37 percent believe the situation will remain unchanged, and 38 percent predict it will deteriorate.

It is perhaps Christian Pimont, president of the Trade Alliance, that summed the situation best, when asserting: “Bad news keeps coming, but we must and will bounce back.” Geopolitics, rents and wage inflation have greatly affected the sector’s financial results over the past three years. Nonetheless, opportunities exist, which players will need to adapt to and seize.

Looking toward 2024

McKinsey's analysis of fashion forecasts reveals that the global industry is projected to experience top-line growth ranging from 2 to 4 percent in 2024, with variations depending on region and country. As anticipated, the luxury segment will continue to generate the largest share of economic profit. Nevertheless, businesses operating in this sector will encounter formidable obstacles due to the challenging economic conditions. The segment is anticipated to expand worldwide by 3 to 5 percent, in contrast to the 5 to 7 percent projected for 2023, as consumers curtail expenditure following a pandemic surge. Uncertainty within the industry mirrors the broader economic climate, with regional variations, going into 2024. Anticipated pressure on household income is likely to dampen demand for apparel, prompting down-trading across categories.

When low-cost takes over supermarkets' market share

In the context of a gradual decrease in Europeans' purchasing power, the retail sale of affordable fashion items in physical stores has undergone a significant transformation over the past 25 years. Supermarkets, which previously dominated the market for low-cost items, have seen their sales volume decrease by 50 percent, according to FashionNetwork. This decline is partly attributed to the rise of new key players in the low-cost sector, such as Primark, Zeeman, Shein, and Vinted. Over the past decade, the quantities sold by these brands have simply tripled.

Explosive growth for the second-hand segment in Europe

While shifts in the purchasing habits of European consumers are negatively impacting the outlook for in-store retail, new opportunities are emerging in other sectors, particularly in online sales. In this online market, the second-hand segment stands out prominently. Forecasts from Cross-Border Commerce study on Europe's online fashion market indicate a 50 percent growth in the European online fashion market by 2025. The study’s projections also rank Europe at the forefront with an estimated value of 175 billion euros by 2025. Statista predicts that the continent will maintain its dominant position in terms of revenue at least until 2027. The surge in online fashion sales in the region is largely attributed to the growth of second-hand sales platforms such as Vinted and Depop. Vinted, currently holding a 2.7 percent market share, aims to capture 25 percent of the second-hand market by 2025. Ebay Europe also experienced significant growth last year, particularly in the fashion sector, which accounted for a quarter of its gross revenue.

Uncovering Europeans spending habits and their future trajectories

While fashion spending by the French may appear to be at an all-time low, and the trend towards de-consumerism seems to have taken hold in Europe, a closer look at the figures tells a different story. The average French online shopping basket grew by 10.1 percent in 2023, representing 2.664 millions of fashion items bought, according to Statista. Or 53 items purchased for a budget of 800 euros per person. An increase since 2021, but still below pre-covid spending levels. With its position as one of Europe's largest and fastest growing e-commerce markets, UK online sales accounted for 26.5 percent of total retail sales in 2022, according to Statista, whose projections for 2023 indicate a substantial e-commerce user base of nearly 60 million, leaving only a minority of the population as non-digital consumers.

Kantar explained that with the inflationary crisis, Europeans have never been more on the lookout for bargains, and the internet is a powerful ally in helping them compare prices and find the best deals. The world leader in consumer insight shows that French fashion purchases on the internet actually grew by +1.7 percent in the first half of the year, while in-store purchases fell by 4.8 percent. This trend is shared by neighbouring Italy and Spain, where the Iberian acceleration on digital is the most notable in five years (+13.5 points since 2019).

Mapping customer ‘fan-bases’ and their impact on fashion retailing

These figures are confirmed by the Trade Alliance in its study on brand transformation, illustrating the extent to which second-hand fashion plays a role in consumer preferences. "Vinted ranks second in terms of the number of fans of children's and adult fashion. The site 'appeals' to one in five customers, which is a real achievement," said Pimont. This puts the site in fourth place, behind Zalando (22 percent of fans out of total customers), Shein (18 percent), and Galeries Lafayette (17 percent). It's interesting to compare these figures with the consumer penetration rate. This time, Vinted takes the lead, attracting nearly half of the sector's customers (47 percent), followed by the pure players Zalando (41 percent of sector buyers) and Shein (33 percent), then Galeries Lafayette (32 percent). However, traditional retailers, present in city centres and malls, have a low penetration rate and, moreover, show a declining trend.

The ongoing dominance of digital native brands

As a result, the major players in the industry, namely Zalando, Amazon, Shein, Inditex (Zara) and H&M, continue to dominate the market. According to the Cross-Border Commerce Europe study, Zalando has an online market share of 11.7 percent and intends to double this number by 2025. If it succeeds, the platform will soon hold 5 percent of the complete fashion market - both online and offline - thereby placing the Germans at par with Inditex (5.6 percent market share) and H&M (4 percent). Among the "digital native brands," Allbirds, Gymshark, Na-kd, Qwertee, and Stitch Fix stand out as the most prominent in Europe. According to Cross-Border Commerce Europe's estimates, the fashion industry constitutes 18 percent of the entire e-commerce market, with the online purchase of clothing currently representing a 25 percent share that is predicted to rise to 33 percent by 2025.

In a context of reduced purchasing power, global pure players like Vinted and Shein will have a consequential impact on purchasing trends in the short term. Even in stores, the dance is now led by low-cost specialists. To cope with the mounting expenses of increasing cotton prices, rents, wage inflation, and plummeting sales, high street stores will have to adapt and confront. According to Pimont, an average price increase of 9 percent is required to maintain the brand EBITDA in value terms. It will be intriguing to witness the methods retailers will employ to assimilate this increase and uphold sales volume.