Future of European Apparel Industry: Evolution of Stores

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The European apparel market is undergoing a period of profound transformation. The impact of Covid-19 sent shockwaves throughout the global economy, dislocating international supply chains and reshaping the way consumers live, work, communicate and shop. This report focuses on the impact of Covid-19 on the behavior of apparel shoppers in Europe and explores what retailers and stores can do to recover, evolve and ultimately thrive in a postpandemic era.

Few industries will look back at 2020 with enthusiasm. Demand was decimated by unprecedented stay-at-home mandates, store closures, and restrictions on travel and social events. The apparel sector was amongst the hardest hit, forcing many retailers to quickly adapt their business models to accommodate extraordinary trading conditions.

However, every ‘retail-cloud’ has a silver lining. Digital uptake has soared, with some retailers accelerating their digital transformation by years in just a matter of months; new technologies were adopted, new partnerships formed, and new business models embraced. As restrictions ease and Europe’s economies reopen, retailers and brands must reimagine their proposition to reflect a more digital-centric customer journey. As such, an evolution in the purpose and role of physical stores is critical.

This report is divided into three main sections:

1. Covid-19 impact and shift to online – the impact of consumer behavior on European retail sectors as shoppers experience more digital customer journeys since the pandemic.

2. Lost store sales? The growth trajectory of Europe’s apparel market – an analysis of apparel sales across key European retail markets, including a forecast for store-based sales through to 2025, revealing the true impact of the shift to online.

3. The role of stores in a digital-first environment – five key themes that will shape the future success of European apparel stores, helping retailers adapt to a
new digital-centric customer journey.

Section 1: Covid-19 and shift to online

For apparel, Covid-19 impacts have intensified the influence of digital across all stages of the customer journey, reframing consumers’ expectations of brands and retailers. The effects have been felt unevenly across consumer segments epending on age, affluence, technological proficiency, and many other factors. One of the most significant challenges currently facing European apparel brands is assessing whether these shifts towards greater use of digital channels will persist beyond the impact of the pandemic.

Our research suggests that increased engagement in digital will persist for many parts of the market, based on behavioral shifts since the pandemic and long-term shopping intentions. The work identifies four main consumer archetypes for European apparel
shoppers (Fig 1).

Fig 1. Four key shopper types have emerged over the pandemic

Future of European Apparel Industry - Retail Economics

[Excerpt: Download the full report for more detail]

Permanency of behavioral change

The shift towards digital has emerged as the most prolific impact for European apparel brands. Our research shows that just under half (49%) of European consumers have changed their apparel shopping behaviour as a direct consequence of the pandemic.

While some of these behavioral changes are temporary (e.g. from health/safety concerns, or capacity constraints), nearly a third (31%) of European consumers believe that how they shop for apparel will change permanently, even after the impact of the pandemic recedes. The UK shows the greatest impact from behavioral changes with 36% of shoppers expecting to permanently alter the way they shop for apparel following Covid-19. This is the highest proportion amongst the four major European retail markets surveyed.

Nearly a third of
European consumers
think the way they shop
for apparel will change
permanently even after
the impact of the
pandemic recedes.

Shying away from physical stores

Consumers across all European markets researched expect to visit clothing and footwear stores less frequently than pre-pandemic times.

The greatest declines are expected across the UK (-26%), followed by France (-21%), Germany (-18%) and the Netherlands (-18%). Naturally, this varies by consumer cohort. For example, Digital Embracers unsurprisingly expect to make the sharpest reduction in store visits postpandemic (-29%); while Store Loyalists (+6%) intend to increase their frequency of physical shopping for apparel having missed ‘touch-and-feel’ experiences during lockdowns (Fig 7).

Fig 7. Consumers across all European markets expect to visit apparel stores less frequently

Consumers across all European markets expect to visit apparel stores less frequently - Retail Economics

Question asked: “As the impact of the pandemic recedes, do you think you will visit clothing and footwear stores as
frequently as you did before Covid-19?” Net balance = proportion of consumers who responded “more often”
minus proportion of consumers who respondents “less often”. Source: Retail Economics

[Excerpt: Download the full report for more detail]

Section 2: Lost store sales

Lasting behavioral changes from Covid-19 will accelerate the shift towards online – beyond the step-change that European apparel markets have already experienced from the pandemic.

The following section quantifies the erosion of store-based sales over the next five years as a direct consequence of the pandemic, revealing the true impact for apparel retailers and brands reliant on bricks-and-mortar.

1. Store sales already under pressure pre-Covid

Store-based sales in European apparel markets were already under pressure prior to Covid-19 due to the organic migration towards online. Changing consumer attitudes to purchasing new outfits (e.g. mindful shopping, ‘peak consumption’) and discount pressures from a highly competitive European apparel market have also contributed to structural weakness in store-based sales in recent years. Across the sample of European countries analyzed, stores accounted for €9.1 billion fewer sales in 2019 compared with five years earlier. Store performances inevitably deteriorated in 2020 as the pandemic necessitated a shift to online during store closures. This resulted in record sales declines for apparel (Fig 8).

Fig 8. Apparel store sales were on the decline even before the pandemic

Apparel store retail sales were on the decline even before the pandemic - Retail Economics

Source: Retail Economics

The UK is set to be the
most highly penetrated
market, with 60% of
apparel sales projected to
occur online by 2025.

2. Pandemic-induced shift to online

Apparel markets have witnessed a step-change in the proportion of online sales due to lockdowns and enforced store closures. Across key European markets, Retail Economics forecasts online to account for almost half (48%) of apparel sales by 2025, compared to pre-pandemic levels of 28% in 2019. [Excerpt: Download the full report for more detail]

Continued below

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Section 3: The role of stores in a digital-first environment

The pandemic-induced shift to online and subsequent impact on store-based sales has magnified the urgency for retailers to adapt. This involves reimagining and repurposing physical space. Five key themes are explored, each reflecting different aspects of the changing role of stores.

1. Sensory showrooms

Online apparel purchases can be extremely convenient, but stores inject physical touchpoints and emotional dynamics that add considerable value to shopping experiences. Our research shows that almost half (48%) of consumers said that the ability to touch, feel and try on products are the most important aspects of shopping in store. The tactile experience of stores holds appeal to consumers of all ages, but particularly Gen X (45-64yrs) and Baby Boomers (65+ yrs), of whom nearly two thirds still prefer to ‘try before they buy’ (Fig 12). By honing in on high-touch, sensory-driven experiences, physical stores can better compliment digital channels, fuelling online sales instead of competing against them... [Excerpt]

2. Digital technology
As society further embraces the digital age, a well-executed omnichannel retail strategy is paramount. Covid-19 impacts have accelerated digital adoption, with four in ten European consumers now expecting to order more online when shopping for clothing and footwear. Retailers will need to implement new solutions, leverage big data and innovative technologies to differentiate themselves.

This could include digital screens that offer in-store shoppers access to certain features of online shopping (e.g. reviews, stock availability, fulfilment options), virtual mirrors or dressing rooms, or algorithms that share customers’ online wishlists with sales assistants...[Excerpt]

3. Distribution hubs
The shift to e-commerce demands speed, agility and flexibility, and physical stores can play a pivotal role in achieving this. By leveraging stores as micro-distribution centres, retailers and brands can implement faster and more convenient delivery solutions for customers, while simultaneously relieving supply chain pressures and utilizing in-store stock more efficiently.

Levi’s was among several retailers that used its closed stores to fulfil online orders during the pandemic, helping speed up delivery times and preventing overcrowding in its distribution centres. The pandemic will accelerate the rise of ‘grey’ or ‘dark’ stores that mimic normal store operations but are more akin to a walk-in fulfilment hub, geared up for collection and returns. Click-and-collect services surged during the pandemic. Our research shows that consumers expect to increasingly use this service going forward. Around a quarter (24%) of European consumers said they are more likely to visit an apparel store if they offer free click-and collect, and returns...[Excerpt]

4. Personalisation
Today’s consumers crave unique and personalised shopping experiences. In a crowded marketplace, personalization is a key differentiator which retailers and brands can develop to gain a competitive advantage. Personalisation is particularly important for apparel where customer journeys are often complex and rarely linear. Each shopper has their own individual style and preferences, and the path to purchase often spans multiple devices and channels – online and offline. Personalisation is a potent sales tool, offering superior leverage for conversion...[Excerpt]

5. Meaningful experiences

After more than a year, European consumers seek to rediscover the pleasures of physical shopping and the positive experiences it provides. With social events back on the agenda and consumers eager to refresh wardrobes, opportunities abound for apparel retailers to tap into this pent-up demand. But if retailers are to be successful in enticing customers back into stores, they must go beyond the transactional and strive to deliver positive experiences. Physical stores can act as ‘playgrounds’ for consumers by generating interest and creating brand buzz.

Retail Economics research found that entertainment was the most important aspect of a meaningful retail experience for consumers, chosen by two in five shoppers (40%). The fusion of entertainment and retail is likely to take on new heights in a post-pandemic world as physical stores reposition themselves as destinations of discovery. Here, entertainment can include in-store workshops, glitzy fashion shows, and celebrity appearances amongst others. Albeit, retailers must be careful to avoid gimmicks and deliver authentic on-brand experiences.

Consumers want to feel fulfilled by their purchases having acquired them in meaningful ways; and their purchasing habits are increasingly shaped by the desire to ‘do good’. Younger shoppers are particularly attuned to ethical credentials. When choosing an apparel brand, our research shows that Gen Z (16-24 yrs) consumers are motivated less by price and more by social value; whereas older age groups consider price to be a more influencing factor (Fig 16).

Fig 16. Younger shoppers are more purpose-driven, less influenced by price

Younger shoppers are more purpose-driven, less influenced by price - Retail Economics

Source: Retail Economics

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About this report

This report is published by Retail Economics in association with Eversheds Sutherland. It is the first in a four part series on the future of the European apparel industry. This first part looks at: the evolution of the physical store and how its purpose is changing, the impact of Covid-19, impact on physical store-based sales, and the growing influence of digital environments.

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