The Economics of the Desigual

Clothing and footwear specialist retailers reaches sales of EUR18.942 million in 2010; 4% less than the previous year in current value terms

The economic downturn continues to hamper sales within this channel

Inditex, Industria de Diseño Textil SA continues to lead clothing and footwear specialist retailers with a 18% value share in 2010

Clothing and footwear specialist retailers is expected to increase by 7% overall in constant value terms over the forecast period, reaching sales of EUR20,288 million by 2015

TRENDS

The economic background continued to affect the lifestyles of Spaniards throughout 2010. Even though the hardest times seem to be over, the unemployment rate and disposable incomes stayed at levels similar to those seen in the previous year. The lack of trust and the overall uncertainty regarding the future also affected the channel. Consumers maintained patterns of purchasing acquired during the worst times of the economic downturn: caution, rationality, cutting impulse purchases and special attention to price/quality.

The economic downturn had a direct impact on the performance of a mature channel such as clothing and footwear specialist retailers, which in 2010 experienced a decline in sales of 4% in current value terms. However, the drop was not as sharp as in the previous year, which can be perceived as a sign of the start of economic recovery. The drop in sales just shows how badly the channel as a whole was hit: according to the most recent official data, the textile manufacture index of production dropped by over 20% in 2009, being one of the most affected industry by the economic downturn in Spain.

As a result of the economic downturn, in 2010 the number of outlets declined by 1%, reaching 73,711 outlets in total. With a few exceptions, the main chains were forced to slow down their pace of expansion as demand decreased. The “others” segment (small independent outlets), which accounted for 83% of the overall channel in terms of selling space in 2010, recorded a drop of 0.7 of a percentage point; not only because of the economic downturn, but also because of the sound leadership of the main players.

Children’s clothing and footwear continued to gain share. Some of the factors behind the success of this segment are: growing specialisation; the proliferation of new outlets and chains only for children (such as Prenatal); and the birth boom recorded over the review period, which reached its peak in 2008.

Clothing and footwear specialist retailers is a mature channel, featuring a medium level of concentration and a remarkable number of important players, both national and foreign, leading sales due to their wide geographical coverage and know-how regarding fashion. The four leaders in terms of sales, Inditex, Industria de Diseño Textil SA, Cortefiel SA, Hennes & Mauritz SL and C&A Modas SL, accounted for 32.8% of retail value sales in 2010.

Inditex continued to lead clothing and footwear specialist retailers, accounting for a 18% share in volume terms in 2010, which was growth of 0.4% points if compared with the previous year. The reasons behind this sound success are: its brand recognition, especially its flagship brand Zara; its diverse portfolio, targeted towards consumers from different age ranges and socio-economic profiles; its financial base, which allows it to start ambitious expansion projects; its geographical coverage; and the excellent location of its outlets, which are always in central areas, in addition to promotions, discounts and a range of specific products targeted towards consumers living in a background of economic downturn.

The most dynamic player in 2010 was Sepaleleme SL, as its share increased by 0.2 of a percentage point. The rapid expansion of its chain Desigual was the reason for this phenomenon; in two years it increased from 52 outlets, to 80 in 2010. The outlets feature a bold and modern design, and the only brand sold is its own, with colourful clothes which are especially popular amongst youngsters and teenagers. Desigual, the brand name, can be translated as “un-equal”; another way of meaning “different” or “not mainstream”, and this shows the spirit of the brand: different clothes for different people in different outlets.

The national chain Adolfo Domínguez suffered a marginal decline in share in 2010, standing at a value share of less than 1% in 2010. The fact that its products have higher prices than average and are targeted towards consumers with higher purchasing power was a burden in the economic downturn. The company has started closing its non-profitable outlets as a measure to balance its accounts.

Spain has a strong presence in the competitive clothing and footwear specialist retailers channel. Large local players lead (Inditex and Cortefiel), and many others feature a great level of dynamism and expansion, such as Punto Fa (Mango), El Corte Inglés (Sfera) and Sepaleleme SL (Desigual), leaving aside the large number of independent players present in the channel. As far as international chains are concerned, the most important are C&A Modas SL from the Netherlands, and Hennes & Mauritz SL from Sweden. They stood in third and fourth place respectively with regard to share in 2010, and have been present in Spain for many years. Besides, they have large outlets and high turnover.

Clothing and footwear specialist retailers is expected to record overall constant value growth of 7% over the forecast period. However, it is already a mature channel, and consumers will still be careful when spending. Therefore, the ability to supply good quality products at popular prices will be the key to gaining share.

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Consumer Lifestyles in Spain
Consumer Lifestyles
12 Jan 2011
Shopping for Clothes, Shoes and Luxury Goods
In 2009 the clothing market was valued at over €22 billion in Spain and the footwear market at €6.5 billion. During the review period overall expenditure on clothing and footwear decreased by 2.8% annually (in constant value terms), with clothing (-2.9%) being slightly less affected by the economic crisis than footwear (-7.4%).
Starting in 2008 the clothing and footwear sectors showed negative growth, with the exception of the clothing cleaning, repair and hire segment which managed to grow in value terms at 2.6% between 2007 and 2008 (as compared to 7.7% between 2006 and 2007); while in 2009 growth ground to a halt (showing just 0.6% value growth as compared to 2008) it is estimated to be the only subsector to return to positive growth by 2010, due to show 4.6% value growth as compared to 2009.
Mixed retailers dominated the clothing and footwear distribution channels over the review period. In 2009, 22% of clothing sales were made by mixed retailers as compared to 31% for footwear. While mixed retailers gained value market share in the clothing segment (growing at 1.8% annually over the review period), they lost market share in the footwear segment (decreased annually by 0.6% over the review period). Specialist shops meanwhile made more money from clothing than footwear, with clothing representing 54% of their retail value in 2009 as compared to just 20% for footwear. That said, clothing lost in importance (shrinking by almost 1% year-on-year over the review period) while footwear gained in importance (increasing by over 1% year-on-year over the review period).
Luxury goods have been strongly hit by the economic slowdown as disposable income and consumer confidence decreased. Politicians’ claims that recovery was just around the corner weren’t enough to convince Spaniards to spend in 2009 and 2010. For example, in value terms, the premium segment in fragrances was more negatively affected by the crisis than the mass market. It became “trendy to be thrifty”.
Non-store retailing gained in importance over the review period (constant value annual growth of 7.8%), in fact it was the only distribution channel profiting from the economic slowdown. Especially noteworthy was internet retailing which showed significant growth, albeit due to starting from a small base (still only represented less than 1% of retail value sales in 2009).
In traditional retail channels Spaniards preferred to purchase their luxury goods in mixed retail outlet or in specialised (leisure) retailers. For jewellery the first choice was the specialist retailer with 58% of retail value in 2009. With 39.6% of retail value the mixed retailer was choice number two. For travel goods the proportions were inverted, (29.8% and 54.9% respectively). Watches showed a very similar trend to travel goods (52.7% in specialist retailer versus 41.8% in mixed retail outlet).
Non-traditional retail channels were more important for luxury goods than mass market products. In 2009, 5% of total retail value sales for watches came from home shopping (2.2%) and the internet (3%); with a strong tendency to increase for the latter one (13.4% annual value growth over the review period). Online jewellery also rose, showing annual gains of over 22% in value terms (accounting for almost 2% of total retail value in 2009) and travel goods showing gains of 8% in value terms over the review period an accounting for 2.2% of retails sales in 2009.
Impact
For luxury goods the economic recession modified the approach taken by new premium fragrances launches, with an increasing focus on point of sale advertising. Consumers continued to demand premium fragrances, but less often and in smaller packaging than previously, as they tried to find more affordable means to keep buying their favourite brands.
The watch sector was being threatened by new technologies, including mobile phones, PDAs and MP3 players, all of which were able to tell time, and which were in turn increasingly replacing watches, especially among young people. Watches are likely to become ever more associated with the premium segment and a prolonged recession would represent another serious setback for the industry.
As disposable income continues to decrease, sales of costume jewellery is expected to grow much more rapidly than real jewellery, as costume jewellery becomes a more mainstream product for those who prefer to have more jewellery pieces of lower value.

Table 59 Consumer Expenditure on Clothing and Footwear (Current Value): 2005-2009
EUR million 2005 2006 2007 2008 2009
Clothing 22,489 23,139 24,001 23,896 22,088
Clothing materials 142 133 127 116 98
Garments 21,565 22,152 22,929 22,777 21,002
Other clothing 513 552 610 645 629
Clothing cleaning, 269 303 335 358 359
repair and hire
Footwear 6,485 6,722 7,027 7,007 6,462
TOTAL 28,973 29,861 31,029 30,902 28,550
Source: National statistical offices, OECD, Eurostat, Euromonitor International


Table 60 Consumer Expenditure on Clothing and Footwear (Constant 2009 Value): 2005-2009
EUR million 2005 2006 2007 2008 2009 % Growth
Clothing 24,836 24,685 24,912 23,828 22,088 -11.1
Clothing materials 157 142 132 116 98 -37.2
Garments 23,816 23,632 23,799 22,713 21,002 -11.8
Other clothing 567 588 633 643 629 10.9
Clothing cleaning, 297 323 348 357 359 21.0
repair and hire
Footwear 7,162 7,172 7,294 6,987 6,462 -9.8
TOTAL 31,998 31,856 32,206 30,815 28,550 -10.8
Source: National statistical offices, OECD, Eurostat, Euromonitor International
Notes: Constant value at 2009 prices


Table 61 Consumer Expenditure on Clothing and Footwear (Constant 2009 Value): 2010-2020
EUR million 2010 2015 2020 % Growth % CAGR
Clothing 21,304 18,767 16,581 -22.2 -2.5
Clothing materials 86 48 27 -68.9 -11.0
Garments 20,208 17,511 15,106 -25.2 -2.9
Other clothing 634 704 785 23.9 2.2
Clothing cleaning, 376 503 663 76.1 5.8
repair and hire
Footwear 6,296 5,723 5,202 -17.4 -1.9
TOTAL 27,601 24,490 21,783 -21.1 -2.3
Source: National statistical offices, OECD, Eurostat, Euromonitor International

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Thirty-somethings

The consumer segment of thirty-somethings grew by more than 2% annually from 2005 to 2009, which corresponds to an accumulated growth of 8.6%. It is estimated that this growth will continue throughout 2010 but then start declining by almost 2% annually until 2020. Until 2015 only an accumulated decrease of close to 4% is expected to be recorded; this is expected to speed up considerably from 2015 to 2020 to an accumulated decline of almost 14%.

Due to this slowing growth the overall proportion of thirty-somethings will decrease from 17.3% in 2010 to only 13.4% in 2020. As in most Western countries there will be an increase in the retired population and a decrease in the working population which will result in a problem of maintaining the state pension system.

In this segment there are mainly two groups: the ones that just got married, with a mortgage and one or two infants/babies in tow, and the ones that finally decided to move out of their parent’s house and move into shared accommodation. During the review period, it was very common for thirty-somethings with regular jobs to share flats, as it is was very difficult to pay the full rent with just one salary, especially in city centre locations. On the outskirts or in smaller cities prices were usually lower, but so were salaries so the result was basically the same. Those living in shared accommodation more or less continued to live the twenty-somethings lifestyle.

Those who were married were prone to start spending the main proportion of their household income on mortgage repayments and kids’ products such as health food, clothing, kindergarten and pre-school fees and extracurricular activities.

During the review period an important consumer sub-segment within the thirty-somethings was the gay community. Generally they were in professions with above average salaries and appreciated luxury/high quality products (clothes, accessories, furniture, jewellery, education and organic food) in all aspects of life. In many areas they functioned as trendsetters in society.

Statistikbanken

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