Cheap fashion: the trend may be over

British fashionistas have never had it so good. For the past decade the price of clothing has been falling at an astonishing rate, and almost everyone is now able to afford a wardrobe, or even two, stuffed full of the latest fads. The discerning consumer has got into the habit of mixing and matching, buying a number of expensive pieces to wear together with a range of cheaper staples. As fashion has got cheaper, more clothes have been snapped up. In 1997, the average woman bought 19 items of clothing a year, but this has now risen to 34 items a year.

But research published today suggests the trend towards ever-decreasing pricing is coming to end, and while clothing may remain relatively keenly priced over the next few years, the dramatic falls that consumers have been taking for granted for so long will no longer be seen.

Neil Saunders, consulting director at the research firm Verdict Consulting, who carried out the study, said there are several factors that have been driving prices down. Perhaps, most obviously is the sourcing of products from countries around the world, such as China and Bangladesh, where labour costs are phenomenally cheap. "This has underpinned price deflation," Mr Saunders said, and has allowed value players, such as Primark and H&M, to flourish. The expansion of the major supermarkets and the value players into clothing "has reshaped the competitive landscape". The low prices of Primark, and supermarkets such as Asda and Tesco, has meant that other retailers have had to lower their prices to try to remain competitive. Retailers such as M&S and Next have been able to maintain sales figures despite slashing prices due to higher volumes flying off the shelves. "Instead of someone buying one T-shirt, they will buy two or three," Mr Saunders points out. "People are buying fashion in a much more disposable way."

Between 2003 and 2007 prices have fallen by an average of 10 per cent.

However, it is not possible for clothes to carry on getting cheaper, Mr Saunders said. "We are not saying that cheap clothing is going to disappear, but it is not going to keep on getting cheaper, as it is simply not sustainable," he said. "If prices continued going lower, clothing would eventually cost nothing."

Mr Saunders added that retailers had already taken the benefits from sourcing overseas. "It will be very difficult for retailers to extract significant extra savings from moving production to ever cheaper locations," he said. Rising fuel, staff and rent costs are also taking their toll on retailers, who are coming under increasing pressure to pass these increases on to the consumer, he added. In 2006, retailers faced an additional £9.5bn in costs.

The UK consumer is also simply saturated with clothing, so reducing prices is unlikely to stimulate demand, Mr Saunders added. As a consequence some retailers are focusing on adding value to their ranges, such as Per Una at Marks & Spencer, which is encouraging consumers to trade up to more expensive products. "Low prices are no longer the differentiator they once were - the new model is much more about adding value and providing clothing that is aspirational or different," Mr Saunders said. "The days when retailers could simply reduce their prices and expect to sell more are drawing to a close. It is now much more challenging, and generating increased market share will be dependent on successfully balancing price and many other aspects of the proposition."

Nick Tomlin, at the retail branding agency Tomlin Bean, agrees that is not just pricing that is the issue, but the environment, store layout, the whole shopping experience, which some consumers are prepared to pay for. He points to the difference between the department store Debenhams, with "the majority of clothes on racks", compared with a more open and stylish environment, such as that created by the US clothing company Abercrombie & Fitch. In its west London flagship store, it has blacked-out windows and low-level lighting, creating an atmosphere around the brand, Mr Tomlin said. "It's about the sensual pleasure that fashion brings," he added. "It is not just about value, but also the added-value of the retail experience. Those that succeed will recognise that they need to create an atmosphere." As Mr Saunders said: "To an extent people are bored with clothing shopping - they like low prices but want to be inspired, and they are prepared to pay for the privilege."

Verdict is forecasting that price inflation will creep back into the market by 2010, bringing an end to 12 years of continuous deflation. Womenswear is expected to bear the brunt of this, with average prices forecast to increase by 4.7 per cent between 2008 and 2012. Menswear is forecast to continue to see price deflation, but less than in the previous five years. Furthermore, as the supermarkets extend their presence in the accessories and footwear sector, prices in those sectors are expected to continue to spiral downwards.

Jose Marco, an analyst at Numis Securities, recognises that costs are rising and retailers are having to find ways to offset this by becoming more efficient. "Underlying cost inflation is around 3 to 4 per cent, and we are not expecting this to go down," he said. But he believes there are further operational efficiencies to be derived at some retailers. "They can still do better in terms of supply and logistics," he said.

Asda, which is a key value player with its George at Asda range, believes the market is far from saturated. "Fashion is cyclical in nature, it is constantly changing," a spokeswoman said. "People need to update and supplement their clothes on an ongoing basis, and our customers tell us they want to do it at an affordable level." On the issue of rising costs, she said that retailers work hard to manage and mitigate costs. But she adds that pricing is not just about being cheap, it is about value. Consumers want to buy cashmere and silk, but at a fair price.

Certainly shoppers don't show any signs just yet of abandoning Primark. The chain opened its doors to its flagshop store on Oxford Street in April to scenes of near-rioting as women and girls fell over each other to get through the doors first, eager to get their hands on £3 skirts and £4 organic T-shirts. A spokesman for the retail chain, which is owned by AB Foods, said that in terms of footfall and sales, consumers are far from turning their backs on fast fashion. "The Primark on Oxford Street has become a destination, queues are still stretching around the shops," he said. "You can see that external factors will impact on pricing across the high street, but we don't see that as being something that will change our position as price leader. These factors will influence the market across the spectrum. There is a collective consciousness that Primark is cheapest, which is why we don't need to advertise."

He added: "It is a fiercely competitive marketplace. Everybody is watching everybody else on pricing."

Consumers are, however, becoming more interested in the sourcing of products, and there are growing concerns about the labour conditions of people in developing countries, many of whom work long hours making cheap clothes for the West. Asda points out that sourcing from developing countries brings a number of benefits to the local community, such as in Bangladesh, where workers producing clothes for Asda and other Western retailers receive higher wages, free medical treatment and maternity leave and better prospects of a rewarding future in a higher-paid job. "Any abuse is completely unacceptable," a spokeswoman said.

"There is an increased concern about ethical sourcing. People want to know where things are from," Mr Saunders added. "This will get stronger in time, and we could see a consumer backlash."

As the biggest retailer of Fairtrade cotton on the high street, M&S is one of those leading the way on ethical sourcing. Chief executive Stuart Rose has said that demand for Fairtrade products is getting stronger, and entire ranges have been converted, such as its basic T-shirts.

And the environment is also the big issue on everybody's lips, which is gradually flowing through into fashion. Mr Saunders added: "There is a trend away from being a disposable society, and this will have an impact on fashion eventually."

Although consumers may want to know more about where their fashion is from and are increasingly concerned with their carbon footprint, value for money remains high on the list when choosing clothing. Shoppers still want cheaper basics while splashing out on luxury items when the mood takes them. Though consumers may want more from their clothing on the one hand, Mr Tomlin believes the taste for cheap fashion is far from over. "It's the Prada Primark phenomenon," he said. "One of the interesting aspects of the British consumer is that they have much more brand confidence than perhaps in the US, so they are comfortable wearing Prada and Primark together. Although we may see a slight inflation I don't see this changing in the short term. Consumers will continue to source from both aspirational and value brands."

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