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It’s not an easy time to be a clothing retailer, and even the luxury market is feeling the pinch. Logic would suggest that consumers who favour high-end labels won’t be deterred much by inflation or the rising cost of living. But Burberry (BRBY) is proof that even wealthy shoppers sometimes feel they must tighten their (designer) belts. 

The group – London’s only homegrown luxury brand – recently issued a substantial profit warning for the quarter to 31 December that sent shares down to four-year lows. While it’s true there has been a widespread slowdown in luxury consumption, Burberry is also struggling to sell shoppers on its fresh creative direction. 

The Christmas period proved tricky for fashion retailers across the cost spectrum. High-street fixture JD Sports Fashion (JD.) put out a profit warning in early January that attributed softer-than-expected holiday trading to the unseasonably mild weather. As is often the case, it's an excuse that has been deployed by other companies in the sector over recent weeks, including troubled bootmaker Dr Martens (DOCS). 

In November, the company said it expected full-year revenues to decline by a high single-digit percentage following a warm autumn in some of its key markets. On one level, it makes sense: consumers won’t go in search of a new parka or pair of winter boots if they can keep wearing their summer clothes. But, as is the case with Burberry, macro factors can only explain so much.

Weakness in Dr Martens’ wholesale division, and higher-than-optimal levels of inventory, have also impacted its performance. Excess stock is a particular issue for clothing retailers, as unsold items take up valuable warehouse space, as well as eroding available cash and working capital. Online retailer Asos (ASC) became one such poster child for the dangers of poor inventory management after it had to write off £130mn in excess stock at the end of 2022. As demand falls away, this kind of problem becomes a bigger risk.

Poor performance hasn’t deterred rival Frasers Group (FRAS) from upping its stake in Asos, however. As of mid-January, the company owned nearly one quarter of the struggling business. It also holds shares in Next (NXT), AO World (AO.) and Boohoo (BOO), among many others. Investors clearly fear that Frasers' diversification strategy can only do so much to shield it from the sector's woes, given its own shares have slumped 12 per cent over the past month. But it has shown itself to be a canny operator in recent years.