Is Fashion Impacted by the Global Recession in Any Way - Essay Example

Global recession impacts on fashion BY YOU YOUR SCHOOL INFO HERE HERE Global recession impacts on fashion Introduction The lingering global recession has created many problems with consumer discretionary income and the methodology by which buyers select their fashion brands for purchase. Financial pressures at the household level, along with an inflationary environment, have depleted disposable income levels in many countries and thus a large variety of fashion retailers are witnessing revenue depletions. This forces clothing retailers to alter their strategies to gain consumer attention and sales with a new emphasis on pricing, untraditional styles of marketing and advertising, and has also improved the competitive position of some low-cost fashion retailers that are seizing market share from more upscale clothing retailers. Further, the recession has even changed the method of employee relations utilized internally in an effort to retain capital in the face of revenue losses. The topic of the global recession impact on fashion retailing was chosen as a means to analyze how businesses alter their traditional operating and marketing models simply to remain competitive when consumer attitudes related to pricing are impacted by international economic downturns. Internalized problems in fashion The financial pressures imposed on retail fashion businesses due to falling sales revenues have forced retailers to alter their employee and management reward schemes as a means to retain capital. Thomsons Online Benefits conducted a research study that identified massive pressures to improve return on investment and minimize operating costs (Personnel Today, 2009). The same survey of 523 different employers indicated that 53 percent believed the economic climate was forcing pressure to justify their reward schemes (Personnel Today) with many considering a total abandonment, in the short term, to save on labour and human resources costs. Why is this significant for the fashion industry? Many fashion retailers experience high turnover rates and reward schemes are seen as motivational tools to ensure training and employee development. When budgets are strained and cannot provide this necessary motivation to ensure excellence and dedication to providing superior customer service, fashion retailers pinched by the recession might lose valuable employee experience when they defect to other retailers that still offer benefits and rewards packages. This can reduce the competitive advantage of these fashion retailers when costs of training new-hires increase exponentially on the back of losses due to job dissatisfaction. Pricing reductions “Shoppers are becoming adept bargain hunters, selecting on price” (Bainbridge, 2009, p.28). Because of this new price sensitivity due to the global recession, even higher-end fashion retailers are being forced to consider price reductions on their fashion offerings at the risk of cheapening their brands. One example of this is Abercrombie & Fitch, a mid-tier fashion retailer catering to youth markets, that had once experienced significant revenue gains based on its ability to sell a hip and trendy brand with a higher-than-industry-average pricing policy. Offered the Chief Executive of Abercrombie & Fitch, “Consumer spending patterns domestically continue to be dictated by cost and value propositions, and this is clearly a headwind for our premium brands” (Talley, 2009, p.B5). This has forced this particular retailer to start lowering prices in the short-run as a means to gain sales revenue, even from its previously loyal youth markets in the face of reduced discretionary incomes. Marks & Spencer is another fashion retailer that has often experienced high sales revenues year after year due to its brand longevity in the international marketplace. However, since 2008, M&S has been forced to lower prices on its fashion merchandise and introduce more seasonal sales to ensure consumer sales dependability. Marks & Spencer, in certain markets, maintains a pricey image, a type of urban myth among consumers that the business is posh and over-priced (Bokaie, 2008). At a time when consumers are feeling the pinch of economic conditions and reduction of personal income levels due to high inflation worldwide, price reductions seem to be the only worthwhile strategy in the short-term to guarantee reliable sales figures. Luxury, high-end fashion retailers are also changing their pricing policies in the face of global recession. Liberty of London and Richard James, as two examples, are resorting to secret sales that are promoted to its most loyal customers. “Discounting is a dirty word in this sector” (O’Connor, 2008, p.1). High end fashion retailers have always avoided the use of sale promotional materials in their stores as it tends to cheapen a store’s merchandise brands. However, the discounting necessity has forced Liberty of London and Richard James to offer 20 to 60 percent discounts using private sale promotions, either through direct marketing literature sent to their consumer base or through discreet private sale websites (O’Connor). Offers one executive of a high end retailer, “There is a (new) demand for designer fashion at markdown prices and when it’s presented as a private sale, it protects the brand and still gives the consumer the idea they are within an exclusive and inner circle” (Anniss, 2009, p.5). Even though discounting is considered polluted business strategy in high-cost fashion retailing, some organisations simply do not have another option if they hope to avoid significant sales losses. The new price-sensitive buyer and their frugal demands are driving these private sale trends and ongoing price reductions in mid-tier and high-end fashion outlets. Other impacts on fashion Fashion retailers are also changing the methods by which they market their fashion brands due to this price-sensitive buyer around the world. Instead of high cost advertising that might have once brought fashion retailers considerable brand loyalty and higher sales volumes, companies are turning toward public relations as a means to achieve maximum value in the face of minimized budgets (Goodkind, 2010). Public relations can include attendance to more trade shows, utilizing press releases online or in print to foster support and acknowledge new strategies related to value provision, or using inexpensive direct mailing to promote new merchandise offerings rather than pricey catalogues or in-store advertising literature production. Using a radically different promotional strategy, such as public relations, illustrates the dramatic operational changes that the global recession is causing many fashion retailers and thus altering, perhaps for the long-term, how businesses choose to connect with their target markets. Some retailers are also turning toward social media, such as Facebook and Twitter, to gain ground with buyers without necessarily having to rely on massive price reductions and clearance. The new price sensitive buyer has also given capital improvement strengths to certain retailers, such as Zara, based on their low-pricing fast fashion models. In or out of the recession, Zara already sells 85 percent of its total inventories at full price compared to 50 percent that its competition enjoys (Hardman, Harper & Notaney, 2009). This business has developed a world-class, benchmarked distribution and production strategy that allows the organisation to replenish its entire inventories in-store in just six weeks (Hardman et al). Zara provides couture-style clothing targeted at the youth buyer that enjoys hip, trendy and stylish clothing variety with the discretionary income levels associated with middle class status. Utilizing procurement and production models overseas where labour costs are far less comparable to Western production facilities, Zara provides high class fashion merchandise at a fraction of the cost of high-end retailers. Because of the price sensitivity occurring in multiple demographics, younger buyers are turning toward Zara as a means to gain the same look and in vogue styles and still gain the perception of fashion exclusivity that Zara’s replenishment model provides. What the recession has done is created a much stronger competitor to higher-priced retailers as customers defect from their upscale fashion preferences in favour of acceptably-priced merchandise offered at businesses such as Zara. Since many other fashion retailers simply cannot meet or exceed the lean production and distribution methodology of Zara and other fast fashion retailers, these retailers continue to seize market share from higher-priced competition across the globe. Further, since Zara operates as a multi-national company, the impact of their success based on pricing and fast replenishment puts considerable financial strain on certain retailers that rely on a high pricing model to secure their longevity and profitability. Conclusion The price sensitive buyer looking for value is the most significant impact on fashion retailing today due to the recession. Pricing reductions, even though it creates problems with brand-building efforts and securing long-term customer loyalty, is the only real course of action that certain fashion retailers can take to ensure sales revenues. Coupled with the strained budgets for human resources, additional costs are being incurred as companies look for new ways to guarantee return on investment even when they might potentially jeopardize human capital advantages by eliminating reward schemes. The recession is a time when companies rely on in-store personnel to sell the brands and push for more sales, and this only serves to potentially de-motivate salespersons which complicates the recession impact even further. Until the recession is over, fashion retailers must identify methods to improve value propositions and gain consumer attention when pricing is a major predictor of purchase intention in multiple consumer demographics. References Anniss, E. 2009. Innovative retail ideas go on the net, Financial Times, June 15, p.5. Bainbridge, J. 2009. Function over form, Marketing, London. September 23, pp.28-30. Bokaie, J. 2008. A thorn in the side of negativity, Marketing, London. July 23, p.4. Goodkind, G. 2010. PR creates good buzz, Marketing, London. October 13, p.11. Personnel Today. 2009. HR fails to measure return on reward schemes, May 19, p.2. Hardman, D., Harper, S. & Notaney, A. 2009. [internet] Keeping inventory and profits off the discount rank: merchandise strategies to improve apparel margins [accessed October 18, 2011 at http://www.boozallen.com/media/file/off_the-discount_rack.pdf] O’Connor, S. 2008. Luxury retailers resort to secret sales, Financial Times, December 20, p.1. Talley, K. 2009. [internet] Corporate News: Abercrombie plans to cut more prices, Wall Street Journal, August 15, p.B5. [accessed October 18, 2011 at www.wallstreetjournal.com] Bibliography Banister, E. & Hogg, M. (2004). Negative symbolic consumption and consumers dive for self-esteem: The case of the fashion industry, European Journal of Marketing, 38(7), p.850. Nebahat, T. 2008. Global sourcing: insights from the global clothing industry – the case of Zara, a fast fashion retailer, Journal of Economic Geography, vol.8, pp.21-38. Read More