Strength and weaknesses:
What to watch?
Trends and challenges:
Despite the inflationary backdrop in 2023, the non-luxury textile segment grew by +4% y/y in Europe and by +6.5% in China as demand was resilient. In the US, sales flatlined in 2023. In 2024, non-luxury sales are expected to grow by +1.5% in Europe, +1% in the US and +5% in China. The luxury segment fared much better in 2023 across regions with growth of +13.5% in Europe, +2% in the US and +9% in China. Nevertheless the momentum should slow down, with +4%, +3% and +5% expected in 2024 for Europe, the US and China, respectively.
Overall, consumer spending on fashion remains under pressure and trends such as ultra-fast fashion brands and the purchase of second-hand goods are only gathering steam.
Although positive for sales volumes, ultra-fast fashion is contributing to pushing prices down and forcing the whole supply chain to adapt to an even faster pace, putting pressure on margins. The growth of the second-hand market is being boosted by online platforms and embraced by retailers that are introducing trade-in programmes for old clothes for sustainability and branding motivations.
Firms in the sector are also facing higher labor costs and higher prices for commodities and energy, which is weighing on profitability. However, despite this challenging environment, non-luxury companies posted a stable EBIDTA margin at 11% in 2023.
Asia Pacific concentrates 80% of the industry’s turnover, with China’s share standing at 50-60% across most segments, the remainder being split between India, Bangladesh, Vietnam and Indonesia. Excluding Asia, Turkey and Mexico also have sizeable textile industries exporting to the European and U.S. markets, respectively. Some countries producing high end or technologically advanced fabric have kept a significant manufacturing base ( Italy, France, Germany, Japan in particular).
Subsectors:
Strength & weaknesses:
What to watch?
Food retailers have been through a volatile couple of years. With the pandemic people spent more time at home and with restrictions on eating-out opportunities, food sales surged in 2020 and well into 2021, before gradually returning to pre-pandemic levels in early 2022.
The war in Ukraine and the following period of very strong inflation was also an extraordinary time, with sales in volume on the downside but turnover in value terms on the upside. However, now food retailers have many products in disinflation or even with prices decreasing. Consequently, food sales in volume, which had been diminishing for a while, finally bottomed out in late 2023 in the US and in many European countries. They are now rebounding in many markets.
Retailers also had to adapt their e-commerce logistics and strategy in response to the post-Covid consumer behaviour shifts, with online sales figures still growing and/or higher than pre-pandemic in many markets.
Furthermore, tight financial conditions seen across most countries continue to weigh on leveraged retailers although softening interest rates in coming quarters will provide some relief.
The post-pandemic pent-up demand for many goods meant booming sales for many non-food retailers. However, it was mostly equipment with long life cycles that was purchased in 2020-2021 and consumers have shifted their splurging to services, meaning lower sales for a number of goods. Against this backdrop, most product categories have been experiencing sluggish growth since 2023.
In the US, health and personal care continue to grow at a fast pace while furniture sales in volume have been decreasing steadily.
In the Eurozone, most sales in specialized stores have been decreasing in volume terms in 2023. Digital sales have been progressing in the US and the UK but have been mostly flat in continental Europe.
Like many other sectors, retailers managed to offset some of the declining volume by passing on higher prices to consumers.
On the cost side, wage growth, high energy prices and increased financing costs are also still weighing on a number of firms in the sector. Against this backdrop, we saw in 2023 some specialized retailers go bust or having major financial issues. Overall, general retailers and specialized retailers had an EBIDTA margin of 7% in 2023 while food retailers an EBIDTA margin at 6%. However, the outlook for specialized retailers is much more challenging as falling volumes can no longer be compensated by higher prices and pricing power is waning.
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Source: allianz-trade.com
Photo: Shutterstock
