uk supermarket fashion: big players facing new threats take on...

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    September 30, 2015

    DEBORAH WEINSWIG, EXECUTIVE DIRECTORHEAD OF GLOBAL RETAIL & TECHNOLOGY DEBORAHWEINSWIG@FUNG1937.COM US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright 2015 The Fung Group. All rights reserved.

    UK Supermarket Fashion:

    Big Players Facing

    New Threats

    D E B O R A H WE I N S WI G E x e c u t i v e D i r e c t o r

    H e a d o f G l o b a l R e t a i l & T e c h n o l o g y F u n g B u s i n e s s I n t e l l i g e n c e C e n t r e

    d e b o r a h w e i n s w i g @ f u n g 1 9 3 7 . c o m U S : 6 4 6 . 8 3 9 . 7 0 1 7

    H K : 8 5 2 . 6 1 1 9 . 1 7 7 9 C H N : 8 6 . 1 8 6 . 1 4 2 0 . 3 0 1 6

    Asda, Tesco and Sainsburys are major clothing and footwear retailers, with a combined 2014 market share of around 7%.

    By number of shoppers, Asda was the second most popular womenswear retailer in the UK in 2014, and was the top retailer for menswear and childrenswear.

    But the migration of some grocery shopping to the Internet and to smaller stores threatens to hit impulse purchases of fashion in big superstores.

    At the same time, growth at the three PsPrimark, Peacocks and Pep&Cois providing stronger competition in budget fashion.

    As a result, supermarket retailers will have to work harder to actively attract customers to their fashion ranges, whether that is in-store or online.

  • 2

    September 30, 2015

    DEBORAH WEINSWIG, EXECUTIVE DIRECTORHEAD OF GLOBAL RETAIL & TECHNOLOGY DEBORAHWEINSWIG@FUNG1937.COM US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright 2015 The Fung Group. All rights reserved.

    UK Supermarket Fashion: Big Players Facing New Threats PROXIMITY SHOPPING TREND POSES A THREAT Grocery retailers are among the biggest sellers of clothing and footwear in the UK. And three retailers dominate this segment: Asda via its George fashion brand, Tesco through its F&F label and Sainsburys through its Tu brand. For a number of years, these retailers carved solid positions in the lower end of the mass apparel market.

    In this report, we posit that the major changes in grocery shoppingthe boom in online and smaller-store, more local shoppinghave the capacity to substantially erode grocery retailers prominence in fashion retailing. At the same time, we see a second threat in the growth of specialist value players, notably the three Ps: Pep&Co, Peacocks and Primark.

    SUPERMARKETS AMONG THE UKS BIGGEST APPAREL RETAILERS In UK fashion retailing, the top three grocery retailers, Asda, Tesco and Sainsburys, account for a little under 7% of UK spending on clothing, footwear and accessories, we estimate. This is roughly equivalent to the share enjoyed by market leader Marks & Spencer (M&S). Asda is the UKs sixth-biggest clothing and footwear retailer, we estimate, based on 2014 sales values.

    In unit volume terms, Asda overtook M&S to become the UKs second-biggest clothing retailer in the 24 weeks ending July 6, 2014 (latest publicly available), according to Kantar Worldpanel, a market-share monitoring service. Primark is the UKs biggest fashion retailer in volume terms. We have no indications of whether Asda has maintained the second position by volume.

    At the end of fiscal year 2015, Sainsburys claimed to be the seventh-largest UK clothing retailer by volume and the 10th biggest by value.

    The UKs fourth-biggest grocer, Morrisons, began selling apparel only in early 2013; under the Nutmeg brand, it sold childrenswear initially and later branched out into adult clothing. We expect Nutmegs total sales to be minor due to several factors other than its relative newness: unlike Asdas stores, many of Morrisons stores are too small to carry a full clothing line; the adult ranges remain limited; and Morrisons does not sell its clothing range online.

    Figure 1. Top Retailers Estimated Share of UK Clothing, Footwear and Accessories Spending (%)

    2013 2014

    M&S 7.5 6.9

    Next 6.0 6.1

    Primark 5.0 5.1

    Arcadia Group 5.2 4.9

    Sports Direct 4.4 4.4

    Asda/George 4.0 3.9

    Tesco/F&F 1.8 1.7

    Sainsburys/Tu 1.3 1.3 With the exception of M&S data, which are those published for clothing/footwear sales, the data are estimated and exclude items other than clothing, footwear and accessories.

    Source: Company reports/S&P Capital IQ/Office for National Statistics/FBIC Global Retail & Technology

  • 3

    September 30, 2015

    DEBORAH WEINSWIG, EXECUTIVE DIRECTORHEAD OF GLOBAL RETAIL & TECHNOLOGY DEBORAHWEINSWIG@FUNG1937.COM US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright 2015 The Fung Group. All rights reserved.

    Recent Performance Neither Asda nor Tesco has given recent updates on the performance of their fashion brands. Given Asdas negative comparable sales performance in 2014, we estimate the retailer lost share in clothing and footwear as a result of lower footfall in its hypermarkets. Recent sales data from Kantar Worldpanel show that Asda has typically turned in total sales declines in excess of 2% in 2015. In light of this, we expect the companys share of total clothing, footwear and accessories sales to decline further this year.

    Tesco noted a 28.5% increase in its online clothing sales in fiscal year 2015, following a near-60% surge in its Internet fashion sales in fiscal year 2014. But this online growth is probably from a very small base. Tesco has not recently noted the overall UK performance of its fashion brand, F&F, but we suspect that sales growth has been held back by the poor performance of some Tesco superstores.

    Figures released by Sainsburys suggest it saw around 8% growth in its fashion sales between fiscal years 2014 and 2015: including VAT, sales grew from approximately 750 million to over 800 million. Sainsburys Tu brand has benefited from several tailwinds: it is a newer brand than George and F&F, so it has not reached the same level of maturity; a rebrand in 2013 and a tie-up with TV stylist Gok Wan since 2011 have kept the label fresh and fashionable; total sales in Sainsburys larger stores do not appear to have been hit as badly as Tescos or, in 2015, Asdas; and the launch of a transactional Tu website in August 2015 should boost sales in the current and forthcoming fiscal years.

  • 4

    September 30, 2015

    DEBORAH WEINSWIG, EXECUTIVE DIRECTORHEAD OF GLOBAL RETAIL & TECHNOLOGY DEBORAHWEINSWIG@FUNG1937.COM US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright 2015 The Fung Group. All rights reserved.

    CUSTOMER NUMBERS Customer numbers are an effective proxy for volume sales, and for this we turn to figures from Kantar Media and TGI. These data confirm the prominence of Asdas George brand across womens, mens and childrens clothes, and the overall 1/2/3 ranking of Asda/Tesco/Sainsburys. Note that the data below exclude footwear.

    Figure 2. Leading Ladies Clothes Stores in the UK, by Number of Customers, 2014

    Figure 3. Leading Mens Clothes Stores in the UK, by Number of Customers, 2014

    Figure 4. Leading Childrens Clothes Stores in the UK, by Number of Customers, 2014

    Base: 24,506 consumers aged 15 years and older; Great Britain; January through December 2014

    Source: Kantar Media/TGI/Statista

    Base: 24,506 consumers aged 15 years and older; Great Britain; January through December 2014

    Source: Kantar Media/TGI/Statista

    Base: 24,506 consumers aged 15 years and older; Great Britain; January through December 2014

    Source: Kantar Media/TGI/Statista

    All three of the big supermarkets make the top 10 for womenswear, by shopper numbers.

    Womenswear is the largest segment of the clothing market, accounting for around half of total UK apparel sales, according to multiple sources. So, the ranking of retailers for womenswear is likely to be most representative of rankings for clothing overall.

    Asda and Tesco climb up the rankings for menswear and childrenswearconfirming that they are stronger than their competitors in segments where fashionability is a little less important.

    Each of the three big supermarkets overindex in kidswear, reflecting the lower value attached to childrens clothing. In this segment, Asda widens the gap with Primark, and Tesco and Sainsburys jump ahead of rivals. The young-family shopper segment is core to grocery retailers supermarket sales.

    LOOMING THREATS There are clearly pockets of growth: Sainsburys Tu brand continues to grow more quickly than the total apparel market, and Tescos F&F has posted very strong Internet sales growth. But for the immediate and medium-term future, we see two main threats that could herald a sustained period of aggregate market share loss for Britains supermarkets.

    Threat 1: The Decline Of Superstores Structural changes in grocery retailing mean there are likely to be ongoing declines in total sales and footfall in large, out-of-town superstores. In turn, we see this negatively impacting clothing and footwear demand at

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