The phrase ‘revenge spending’, reportedly first deployed in the 1980s, characterises the incremental increase in consumer spending – relative to normal levels – after an unprecedented adverse economic event (such as a global pandemic). Put simply, revenge spending describes the urge to spend money to make up for the previous inability to do so.
As countries around the world have lifted themselves out of lockdowns, ‘revenge spending’ appears to be occurring. Despite the prospect of major economic recessions in many countries, one of the earliest global trends observed post lockdown was a sharp increase in consumer spending. On the first day of its reopening in April 2020, the flagship store of French luxury brand Hermes in Guangzhou, China, reportedly made USD 2.7 million in sales. Similarly, Lamborghini has sold out of its supercars until 2024, while both Ferrari and Bentley have posted record financials.
The UK appears to be no exception to this phenomenon. The return of socialising, holidays and weddings seems to be fuelling a boom in revenge spending. Research carried out by Kantar for the Guardian showed that UK shoppers are spending almost 20% more on clothing this year than in 2021; figures highlighted within Kantar’s research include sales on wedding and party outfits up 165% on last year. Kantar’s fashion director, Andy Saxton, observed that ‘people are valuing that bit of escapism’.
While such ‘revenge spending’ appears to contradict expectations of an economic slowdown, it is important to consider inflation in the clothing industry. Kantar also found that the volume of clothing sold has fallen by about 8% since the pandemic, whereas the average price has risen by 9%. Research group GlobalData has found that young shoppers – who are likely to have lower incomes and young families to care for – are cutting their spending much more than older generations, whose savings and incomes are less volatile in the context of an economic downturn.
Kantar’s research suggests that the autumn/winter 2022 fashion season will face significant difficulties as inflation continues to erode consumers’ spending power in the UK, and clothing suppliers face widespread supply-chain issues. While summertime tempts many consumers to spend up, rising energy bills and the cooling weather may curb the upward spending trend.
Since the pandemic, the beauty industry has experienced a boom period. The future is equally positive for the industry, with GlobalData anticipating a 2% sales uplift by 2025. However, the difference between the kinds of growth is interesting, as is who is being left behind.
Most notably, the beauty industry took a ‘high-profile casualty’ in Revlon, a 90 year old brand with name recognition across the globe. This loss is demonstrative of how fast-paced and competitive the industry is. With a relatively low barrier of entry, small independent brands have the manoeuvrability to keep up with fast-paced trends.
A successful tactic of larger brands such as L’Oréal and Estée Lauder has been to acquire these smaller brands in attempts to stay relevant. These have included such brands as Youth to the People, and the DECIEM Beauty Group, whose brands notably include The Ordinary, an international skin care brand.
However, while the beauty industry is following other global markets in digitalisation and flexibility, in some respects its core is still rooted in the in-store experience. In 2018, Avon’s CEO stated that the beauty industry is ‘Amazon-proof’. This is partially due to the shift in customer preferences towards specialised and personalised customer experiences.
Harrods is perhaps the best example of this. Annalise Fard, Harrods director of home and beauty, states that the brand’s development is focussed on ‘building beauty communities’, with each location showcasing products reflective of regional tastes. More recently, the online brand Glossier announced an in-store partnership with Sephora, the brand’s first partnership with a retailer. The brand is expected to come to stores in 2023. Customers are expecting more tailored experiences, especially in regard to beauty services, and this personalisation has been the most effective way in securing customer loyalty.
The result of the propagation of new brands and the growth of specialisation has led to a more fragmented beauty market. Smaller brands are able to target specific customer needs with the manoeuvrability to outperform larger brands. However, more established brands are capitalising on their resources in order to provide a highly tailored customer experience. As the industry returns to pre-pandemic sales levels, it will be interesting to how it continues to fragment and create opportunities for growth.
Recent estimates show that UK consumers spend £54 billion annually on footwear and clothing, with this figure expected to rise in the coming years. It is also estimated that fashion is responsible for between 2% and 8% of global carbon emissions, as well as being the cause of significant pollution and waste. Around 300,000 tonnes of used clothes are burned or buried in landfill every year. Recent news headlines have also provided us with shocking images of piles of unwanted clothing from the UK washing up on the Ghanaian coastline, left to rot and serving as a clear indicator of the damaging nature of the UK’s fast fashion industry.
According to the sustainability charity WRAP, around 70% of the UK’s used clothing is sent overseas, with Ghana being one of the main recipients. Yet nearly half of the imported clothes received by Ghana cannot be resold as they are items of poor quality, or are personalised and one-off in nature, such as hen party t-shirts or novelty sports kit.
Awareness of the undeniable environmental impact of fast fashion has no doubt led to the introduction and rise of ‘circular fashion’. For example, the UK government recently pledged £80 million in government funding for a programme of structural change, which the British Fashion Council believes can help in moving the UK industry toward a circular model. This shift is not only an environmentally conscious decision, but also a commercially sensible move, given that the secondary market is growing 11 times faster than the primary market.
Due to the expansion of the secondary market, the uptick in big name brands announcing partnerships with rental platforms comes as no real surprise. Jigsaw recently launched a circular service with rental platform My Wardrobe HQ, with the CEO of the British fashion retailer explaining that it was ‘commercially sensible to explore re-commerce; this is how customers want to shop’. As a result, the fashion retailer now offers customers flexible, short-term rental options from £6 per day, in conjunction with a monthly subscription offering a ‘rotating wardrobe’.
Other brands are following suit, recognising the huge problem textile waste poses globally. For example, H&M Group-owned womenswear retailer & Other Stories has partnered with fashion rental platform Hurr, while ASOS makes its move to ‘be more circular’ with its Thrift+ partnership. The circular strategy is not restricted to the realms of the high street; recently Hurr partnered with Mulberry to enable the luxury brand’s items to be used reused for special occasions and everyday use, as part of its commitment to become a fully regenerative and circular business by 2030.
However, Leah Riley Brown, sustainability and policy advisor at British Retail Consortium (BRC), has confirmed that ‘there is no silver bullet that will move the industry to an effective and sustainable circular economy. A complex cocktail of policy initiatives is required to ensure the right balance between encouraging best practices by businesses without unduly impacting consumers.’ Brown confirms that the policy initiatives must start with ensuring the new Extended Producer Responsibility (EPR) regime is set up correctly. EPR is a common green policy, designed to shift part of the bill currently paid by taxpayers onto the producers, ensuring they’re responsible for the environmental impacts of their products.
EPR schemes are undergoing significant reforms, with new rules set to come into force in 2024. The government is now looking to extend the concept to more products and will be launching a consultation phase for fashion and textiles by the end of 2022. The BRC views an effective EPR for fashion and textiles as integral to building a circular economy, which will help reach net zero goals. Indeed, the BRC notes that the retail industry will be vital in moving to a circular economy (as part of the wider shift to a more sustainable modern economy) which is why the ‘BRC is working with the government to one ultimate end: less ditch, more stitch’.
With the Business Rates Revaluation 2023 drawing to a close at the end of July, retailers are eagerly awaiting the outcome of the government’s recent consultation on the transitional relief scheme. The objective of the transitional relief scheme is to limit how much a firm’s business rates can fluctuate in a year by capping increases on bills (‘upwards cap’), thereby aiming to provide ratepayers with a degree of certainty over their bills.
However, this relief scheme has been dubbed a ‘double-edged sword’ by critics as, while the upwards cap limits increases, it also limits decreases. This means that those who are being overcharged on their business rates as their rateable value falls will subsidise those who are underpaying as their rateable value rises.
The impact on retailers is not going unnoticed, as despite accounting for 5% of the economy, the retail industry is paying 25% of the total business rates bill. The consequences are loss of shops and jobs, particularly impacting businesses in poorer parts of England where rent is dropping. As a result, these businesses are being forced to pay much higher rates to subsidise those in richer areas, with stores outside of London being impacted the most. Furthermore, store viability is being undermined.
Tom Ironside of BRC argues that the transitional relief is a ‘flawed system that could cost retailers over one billion pounds over the next three years, leaving them with no choice but to close those shops which are most impacted by artificially inflated rates’. The proposed solution is to scrap the downwards phasing part of transitional relief but retain some upward transition to align better with the government’s Levelling Up White Paper. However, the government’s proposal is yet to be published with further information expected in Autumn.