‘Revenge spending’: Non-essential spending surges post-lockdown despite cost-of-living crisis
The phrase ‘revenge spending’, reportedly first used in the 1980s, characterizes the incremental increase in consumer spending, relative to normal levels, after an unprecedented adverse economic event (such as a global pandemic). In a nutshell, revenge spending describes the need to spend money to make up for a previous inability to do so.
As countries around the world have lifted lockdowns, “revenge spending” seems to be happening. Despite the prospect of major economic downturns in many countries, one of the first global trends seen after the lockdown was a sharp rise in consumer spending. On the first day of its reopening in April 2020, French luxury brand Hermes’ flagship store in Guangzhou, China reportedly garnered $2.7 million in sales. Similarly, Lamborghini sold all its supercars until 2024, while both Ferrari and Bentley posted record figures.
The United Kingdom does not seem to be an exception to this phenomenon. The return of socializing, vacations and weddings appears to be fueling a boom in revenge spending. Research by Kantar for The Guardian showed that UK shoppers are spending almost 20% more on clothes this year than in 2021; Figures highlighted within Kantar’s research include sales of wedding and party wear which are up 165% from last year. Kantar’s fashion director Andy Saxton observed that “people appreciate that little bit of escapism.”
While such ‘revenge spending’ appears to contradict expectations of an economic slowdown, it is important to consider inflation in the garment industry. Kantar also found that the volume of clothing sold has fallen by around 8% since the pandemic, while the average price has increased by 9%. Research group GlobalData found that younger shoppers, who are likely to have lower incomes and young families to care for, are cutting back much more than older generations, whose savings and income are less volatile in the context of an economic downturn.
Kantar’s research suggests the autumn/winter 2022 fashion season will face significant headwinds as inflation continues to erode the purchasing power of UK consumers and clothing suppliers face widespread supply chain problems. While summer tempts many consumers to spend more, rising energy bills and cooler weather may curb the upward spending trend.
Post covid beauty boom
Since the pandemic, the beauty industry has experienced a boom period. The future is equally positive for the industry, with GlobalData anticipating a 2% sales increase by 2025. However, the difference between the growth rates is interesting, as is who is falling behind.
In particular, the beauty industry took a “high-profile casualty” at Revlon, a 90-year-old brand with worldwide recognition. This loss shows how fast and competitive the industry is. With a relatively low barrier to entry, small independent brands have the room to maneuver to keep up with fast-paced trends.
A successful tactic for larger brands like L’Oréal and Estée Lauder has been to acquire these smaller brands in an attempt to stay relevant. These have included brands such as Youth to the People and DECIEM Beauty Group, whose brands include The Ordinary, an international skincare brand.
Yet while the beauty industry is following other global markets in digitization and flexibility, in some ways its core is still rooted in the in-store experience. In 2018, Avon’s CEO declared that the beauty industry is ‘Amazon-proof’. This is due in part to the shift in customer preferences towards specialized and personalized customer experiences.
Harrods is perhaps the best example of this. Annalize Fard, director of home and beauty at Harrods, says the brand’s development is focused on ‘building communities of beauty’, with each location showcasing products that reflect regional tastes. Most recently, online brand Glossier announced an in-store partnership with Sephora, the brand’s first partnership with a retailer. The brand is expected to hit stores in 2023. Customers expect more personalized experiences, especially when it comes to beauty services, and this personalization has been the most effective way to ensure customer loyalty.
The result of the spread of new brands and the growth of specialization has led to a more fragmented beauty market. Smaller brands can target specific customer needs with the maneuverability to outperform larger brands. However, more established brands are capitalizing on their resources to deliver a highly personalized customer experience. As the industry returns to pre-pandemic sales levels, it will be interesting to see how it continues to fragment and create growth opportunities.
Circular Fashion: Less Trench, More Stitch
Recent estimates show that UK consumers spend £54bn a year on shoes and clothing, and this figure is expected to rise in the coming years. It is also estimated that fashion is responsible for between 2% and 8% of global carbon emissions, as well as being the cause of significant pollution and waste. Every year, some 300,000 tons of used clothing are burned or buried in landfills. Recent news headlines have also provided us with shocking images of piles of unwanted UK clothing being washed up on the coast of Ghana, left to rot and serving as a stark indicator of the harmful nature of the UK’s fast fashion industry. United Kingdom.
According to the sustainability charity WRAP, around 70% of the UK’s used clothing is sent abroad, with Ghana being one of the main recipients. However, almost half of the imported clothing that Ghana receives cannot be resold because it is of poor quality or personalized and unique, such as bachelorette party shirts or novelty sporting goods.
Awareness of the undeniable environmental impact of fast fashion has undoubtedly led to the introduction and rise of ‘circular fashion’. For example, the UK government recently committed £80m in government funding to a structural change programme, which the British Fashion Council believes can help move UK industry towards a circular model. This change is not only an environmentally conscious decision, but also a commercially sensible move, given that the secondary market is growing 11 times faster than the primary market.
Due to the expansion of the secondary market, the uptick in big brands announcing partnerships with rental platforms is not a real surprise. Jigsaw recently launched a circular service with rental platform My Wardrobe HQ, with the British fashion retailer’s chief executive explaining that it was ‘commercially sensible to explore re-commerce; this is how customers want to buy’. As a result, the fashion retailer is now offering customers flexible short-term rental options from £6 a day, along with a monthly subscription offering a “rotating wardrobe”.
Other brands are following suit, acknowledging the enormous problem textile waste poses globally. For example, Group-owned womenswear retailer H&M & Other Stories has partnered with fashion rental platform Hurr, while ASOS makes its move to “be more circular” with its Thrift+ partnership. The circular strategy is not restricted to high street areas; Hurr recently partnered with Mulberry to enable the luxury brand’s items to be repurposed for special occasions and everyday use, as part of its commitment to becoming a fully regenerative and circular business by 2030.
However, Leah Riley Brown, Sustainability and Policy Advisor at the British Retail Consortium (BRC), has confirmed that ‘there is no silver bullet that will lead the industry to an effective and sustainable circular economy. A complex cocktail of policy initiatives is required to ensure the right balance between encouraging best practice by business without unduly affecting consumers.’ Brown confirms that political initiatives must start with ensuring that the new Extended Producer Responsibility (EPR) regime is properly established. EPR is a common green policy, designed to shift part of the bill currently paid by taxpayers to producers, ensuring that they are responsible for the environmental impacts of their products.
EPR schemes are undergoing significant reforms, with new rules due to come into force in 2024. The government is now looking to extend the concept to more products and will launch a consultation phase for fashion and textiles by the end of 2022. The BRC views an effective EPR for fashion and textiles as an integral part of building a circular economy, which will help achieve net zero targets. Indeed, the BRC notes that the retail industry will be vital in moving to a circular economy (as part of a broader shift to a more sustainable modern economy), which is why ‘BRC is working with the government with one ultimate goal: less ditches, more stitch’.
The British Retail Consortium is concerned that the ‘downswings’ part of the transitional relief will cost retailers over £1bn
With the 2023 trade tariff revaluation drawing to a close at the end of July, retailers are eagerly awaiting the outcome of the government’s recent consultation on the transitional relief plan. The purpose of the transitional relief scheme is to limit how much a company’s commercial rates can fluctuate in a year by limiting increases in bills (“up cap”), with the aim of giving taxpayers a degree of certainty about their bills .
However, this relief scheme has been called a “double-edged sword” by critics as, while ascending caps increase, they also limit decreases. This means that those who are being overcharged on their business rates as their cadastral value falls will subsidize those who are underpaying as their cadastral value rises.
The impact on retailers is not going unnoticed, as despite representing 5% of the economy, the retail industry is paying 25% of the total bill for merchant fees. The consequences are the loss of shops and jobs, which particularly affects businesses in the poorest parts of England, where rents are falling. As a result, these businesses are forced to pay much higher fees to subsidize those in wealthier areas, with stores outside of London being the hardest hit. In addition, the viability of the store is being undermined.
The BRC’s Tom Ironside argues that the transitional relief is a “flawed system that could cost retailers over a billion pounds over the next three years, leaving them with no choice but to close the stores that are most affected by inflated fees.” artificially”. The proposed solution is to drop the phase-down part of the transitional relief, but keep an upward transition to better align with the government’s Leveling Up White Paper. However, the government’s proposal has not yet been published and more information is expected in the autumn.
Source: www.lexology.com