The clothing industry is facing a long-term structural decline as consumers with ‘too much stuff’ cut back on the number of new outfits they buy, even as prices fall.
Consumers have been buying clothes in ever-increasing quantities over the past 20 years as fast-fashion retailers such as H&M and Zara and budget retailers including Primark and Walmart cut prices after shifting production to Asia.
However, volumes are starting to peak, while prices are likely to keep falling, according to a report by Morgan Stanley.
“If volumes have plateaued (or even begun to fall) and average selling prices continue to decline, the value of clothing sales will fall too,” Morgan Stanley analysts Geoff Ruddell, Kimberly Greenberger and Maki Shinozaki said in a report this week.
“It is our contention, therefore, that the apparel markets in many developed countries may now be entering a lengthy period of structural decline.”
Increasing consumer awareness about the negative impact of the clothing and textile industry on the environment is only one of the reasons why volumes have started to decline.
Morgan Stanley suggests Austrian economist Carl Menger’s Law of Diminishing Marginal Utility is also to blame – consumers are buying so many pieces of clothing they are gaining little marginal utility or pleasure from buying more.
Kantar data suggests consumers in the UK are buying 50 items of clothing a year, up from 20 items in the 1990s but down from 52 three years ago. In the US the figure is estimated to be as high as 65 items a year, compared with between 40 and 50 in the 1990s and almost 70 in 2005.
“Put simply, consumers would rather spend their marginal dollar on, say, going out for a meal, than on buying a 60th item of clothing in a year,” Morgan Stanley said.
While the report refers to large global companies including H&M, Zara parent Inditex Group, GAP, Abercrombie & Fitch and online retailers ASOS and Zalando, it augers poorly for the long-term outlook of the Australian sector, led by Premier Investments, Myer, David Jones, Noni B and discount department stores Kmart, Target and Big W.
Earnings forecasts for the world’s largest clothing retailers – led by ASOS, Zalando, Macys and Marks & Spencer – have been downgraded by almost 40 percent since the beginning of 2016, yet their share price performance suggests they are poised for profitable growth.
“If clothing volumes are plateauing in developed countries, the only way the
apparel markets there can grow is if clothing prices go up,” the report said.
“But (potential US tariff impacts aside) we think it more likely that they will continue to fall … as production continues to shift from China to lower-cost countries in the region (such as Vietnam and Bangladesh),” it said.
US clothing prices have fallen by 0.8 percent a year since 2001, while UK prices fell for 13 consecutive years until 2010.
But volumes in the UK have more than doubled since 1998 and US volumes have grown almost 50 percent since 2001, driving 28 percent market growth.
“Expecting consumers to buy clothing in ever-larger volumes, in response to ever-lower prices, was never likely to be sustained in the very long term,” Morgan Stanley said.
Consumers might become even more reluctant to buy new clothes if they understand the true impact of their fashion addiction on the environment.
While 98 percent of UK consumers claim to ‘recycle’ clothes by donating them to charities, putting them in recycling bins or passing them onto friends and family, a recent UK inquiry into fast fashion heard that less than 1 percent of clothing globally is recycled into new clothes and only 13 percent is recycled at all. The vast majority (73 percent) of clothing ends in landfills or is incinerated.
Retailers such as H&M are offering customers vouchers if they return clothing for recycling and launching new collections using sustainable materials.
In Australia, consumers are being encouraged to donate past purchases to charities every time they buy new clothing to help reduce the 311,040 tonnes of clothing waste generated each year.
Moving the Needle, a program aimed at reducing the amount of clothing sent to landfill, was launched this week by the Minister for the Environment, Sussan Ley, Salvos Stores, St Vincent de Paul, Australian Red Cross and the National Association of Charitable Recycling Organisations.
The average Australian buys 27 kilos of new textiles a year and accounts for 23 kilos of textile waste that goes to landfill. Move the Needle is targeting a 20 percent reduction in textile waste by 2022.
For more information visit: https://www.afr.com