Fashion retail is facing a tough 2022 due to rising costs and inflation. Many businesses were faced with more costs last year, and this year, those will be being passed on to the consumer.
In the U.K., inflation rose to 5.4 % in December, the highest rate in 30 years. Both consumers and businesses are dealing with rising rents, energy hikes and increases in national insurance tax contributions. The Bank of England expects consumer price inflation to hit 6% in April, its highest since 1992, before easing later in the year. The problem is compounded by the rising costs of living and the return to pre-pandemic business expenses as the pandemic subsidies and relief funds in the U.K. are being phased out.
Both fashion retailer Next and e-commerce retailer Asos have warned consumers that they are going to introduce price rises to counter surging cost inflation around wages, freight and manufacturing. Other high street brands, like Marks & Spencer, Primark and Uniqlo, have also said that they’ll inevitably need to increase prices. Lower-range retailers typically do not increase their prices on an annual basis, unlike luxury brands, so these changes are sure to shock consumers.
However, many consumers are still buoyed by savings during the pandemic and retailers are holding on to hope thanks to a possible return to travel this spring and summer, with the U.K. lifting all pandemic-related restrictions early next month. “We’ve got more savings as a nation, and there’s still some pent-up demand,” said Lisa Hooker, consumer markets lead at professional services company PwC. “As hospitality and leisure and holidays come back, there are things that consumers will want to buy, especially clothing items for going away.”
Victoria Aspinall, managing director at direct-to-consumer British leather brand Tanner Krolle, said that any uptick in U.K. retail sales will be linked to the return of international customers. With the lifting of restrictions next month, the U.K. will be one of the first mass retail markets to welcome back consumers from abroad.
Even with the Omicron wave during December, retailers had found relative stability over the holiday period, with good sales overall. In a January retail briefing compiled by PwC, the British Retail Consortium showed 2.1% retail sales growth for the period.
Lisa Hooker said, “In December, you saw less promotional activity in the U.K., which was actually much better for businesses. Now there’s a lot of pressure on businesses, because commodity and energy prices are going up and the living wage is rising by 6.6%, mandating higher staffing costs. They’ve already seen the inflation on transport and logistics, which is not expected to normalize until 2023.” The supply chain expenses in the last few months meant added pressure for brands, with many turning to near-shoring to account for fluctuating delivery times and lags.
The retail market in the U.K. is also poised for its own “great resignation,” as seen in the U.S. and other countries. As workers are looking for better work conditions and pay, they are leaving the labor market, including in-store retail. The number of layoffs in the U.K. are at their lowest level since the mid-1990s, while the level of job openings is the highest on record.
Traditional retailers like Next have already gone through store closures amid shifts in the way consumers are approaching retail. Smaller and more agile brands, as well as those selling direct-to-consumer, will be able to better adapt to the coming changes. Luxury brands like Malone Souliers have seen seen retail’s evolution and changed their production to suit the new demands of the market. “We have fluidly adapted our strategy to the changing needs of retail, taking into account all factors, including the post-Covid landscape,” said an executive from the brand. Malone Souliers has recently prioritized innovation, collaborating with hit Netflix series “Bridgerton” on a collection coming out this year and introducing a made-to-order production model.
Meanwhile, Tanner Krolle has no plans to raise prices for the foreseeable future. “We have no plans to immediately raise prices [due] to inflation,” said Aspinall. “However, we will be keeping a close eye on our cost base and looking at how we can control [price] surges as we work on our next collections.”