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FTSE 350: Clothing chains face difficult 2018

High-street clothing chains face dwindling consumer confidence and rising costs in 2018
January 25, 2018

It feels like traditional, high-street clothing retailers have been staring down the barrel for some time. The ‘squeezed middle’ is not a phrase reserved for the supermarket sector anymore, and juggernauts such as Next (NXT) still face a considerable challenge to win over the cost-conscious consumer this year. That’s despite a chipper Christmas trading update, where a 1.5 per cent increase in full-price sales far outstripped the projected 0.3 per cent decline.

But as wages stagnate, inflation remains high and interest rates may be on the rise. So there can be little doubt that household incomes will remain under pressure. What’s more, the devaluation in sterling and subsequent cost inflation means retailers don’t have the same flexibility on pricing as they did during the 2008 recession. That limits their involvement with promotional activity or discounting, as all efforts go towards protecting margins and, ultimately, profits. 

So herein lies the challenge: to get cash-strapped shoppers to hand over more money for clothes designed and produced for the mass market. It sounds like the sort of pursuit unlikely to result in victory, particularly given the encroachment of online retailers on the clothing sector. These companies offer more flexible, low-cost deals and a more convenient shopping and delivery experience – the future looks pretty grim for traditional business models.

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