McKinsey: Off-price Retail Fuels Fashion Growth
LONDON — Off-price retail is increasingly becoming an important source of growth for the fashion sector as inflation has hit a high post-pandemic, the new study from McKinsey titled “Mastering off-price fashion in an omnichannel world” revealed on Thursday.
According to an analysis of global data on the off-price market and a survey of 11,000 consumers in 10 European countries, it appeared that this segment grew faster than the fashion market as a whole, and it was hit less hard during the pandemic.
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McKinsey estimated that off-price retail will likely grow five times faster than the market overall between 2025 and 2030. A key pusher behind the growth is the increasingly strong online presence of off-price retailers. Even T.K. Maxx, the European arm of T.J. Maxx, has drastically increased online offerings during the COVID-19 lockdowns.
Other online models that have taken hold include flash sales, done by players like Dress-for-less, Limango, Veepee and Zalando Lounge; mystery boxes from startups like Heat and Scare; and the more traditional sites that offer a standing assortment of fashion items, such as BestSecret, Booztlet, Brands4friends, Otrium and Yoox.
Katharina Schumacher, a digital expert and coauthor of the study, said: “Online sales account for 40 percent of the off-price market and they are growing extremely fast right now — about 13 percent annually, on average.”
She added that mastering off-price fashion in an omnichannel world will be key for fashion companies to “have their brands reach new consumers who would not normally consider making a purchase at the full price,” and to sell their excess stock more sustainably.
The study also revealed that off-price enthusiasts, who are interested in products in the luxury, affordable luxury and premium categories and do their shopping on specialized platforms like Dress-for-less, BestSecret, Brands4friends or Scarce enjoy comparing prices and spend 2.3 times more on their purchases than other groups of fashion customers.
In Germany, for example, the study found that 30 percent of off-price customers spend more than 1,000 euros per year on fashion purchases, which account for 70 percent of total fashion spending.
Achim Berg, McKinsey’s global leader of apparel, fashion and luxury group, added, “At the same time, these buyers are fundamentally willing to pay the full price for premium and luxury brands. Fashion companies should therefore carefully weigh which products they offer off-price.”
Bargain hunters’ expectation of off-price shopping has also increased.
The study showed that this group of customers is younger and tends to spend more. They enjoy going to outlet centers but tend to avoid regular luxury stores in upscale shopping districts.
Felix Rölkens, the other coauthor of the study from McKinsey, said, “Outlets offer luxury fashion labels an opportunity to not only be more profitable but also to reach new groups of customers without cannibalizing their full-price assortment and damaging their brand.”
“But shoppers’ expectations for outlets are constantly growing: amenities that resemble those of regular stores, sales staff who speak several languages, restaurants and a good customer experience,” he added.
To fully capitalize on the opportunity across all levels, the study suggested that “brands must take a multipronged strategy to maximize revenues for both channels and to secure their brand equity — without cannibalizing full-price offerings.”
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