Friday, 30 June 2017 13:43

ChicGeek Comment Pound Wars Poker Face

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I think we all know how competitive it is at the lower end of the clothing market. But, it was an e-mail, a few weeks ago, from Marks & Spencer that really summed up where we are. It was announcing their new range of men’s ‘Quick Dry Swim Shorts’, all pretty standard for this time of year, but it was the price that caught my eye. A bargain £10! This is cheaper than Topman, cheaper than River Island and even New Look. It’s certainly cheap for M&S and, then, you realise all the retailers are busy racing to the bottom.

What this means is, in order for those companies to make money, they need to shift a hell of a lot of product. British retailers are currently playing a game of poker, holding their hand i.e. keeping prices low, waiting for their competitors to fold. 

Left - Pep&Co at Poundland SS17

But, if this game wasn’t tough enough, new competition is entering the market which will only increase pressure on those margins and unsustainable volumes.

For example, Poundland has entered the clothing market. Their in-house brand, Pep&Co, launched into stores in March this year.

They've already opened over 50 Poundland shop-in-shops with another 50 or so planned for the second half of 2017.  The chain, which was bought by the South African group Steinhoff International, expects to put Pep&Co clothing outlets in up to 200 of its 850 stores over the longer term. 

Pep&Co was founded by Andy Bond, who once ran Asda’s George clothing label, with backing from the South African tycoon and Steinhoff shareholder Christo Wiese.

The first shop opened in Kettering, Northamptonshire, in July 2015 and the chain opened its first 50 stores in less than two months.

They sell a full range of menswear, with 90% of the range under £10. Example lines are denim from £5 and 100% cotton fashion Tees from £3.

If people are wearing Poundland, it means they aren’t wearing another brand. This isn’t about sneering at this end of the market, it’s about wondering who will go out of business first. It's unsustainable.

The market is saturated and these business models only work if you can order huge volumes and shift it fast.

This is new competition for all the supermarket brands plus Peacocks and Primark and traditional high-street retailers like M&S and Debenhams are more keenly pricing their offering. Add discount brands such as TK Maxx and the neverending discounts and sales and you have an environment that is harder to make profit in.

Consumers are being squeezed with higher inflation and low wages and are generally satisfied with cheaper clothes. They can't or don't want to pay more.

Then add the internet, with Boohoo offering bargain fashion-led clothing and websites such as EverythingFivePounds, where everything is, literally, five pounds, and you have the perfect storm to implode some of the giants of the British high-street. Arcadia, the owner of Topman, is already seeing revenues fall and Topman is looking increasingly expensive against the competition.

In this game of pound wars poker, who will run out of chips and fold first?

Left - Louis Vuitton? No, Everythingfivepounds - £5

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