Calm but tense: mature markets slow down and consumption weakens

A tense calm stains the home stretch of the year in the fashion business. The sector holds its breath while attending to the evolution of mature economies that, in recent years, have become a shelter. However, the biggest fashion markets show an economic slowdown that implies a brake on their domestic consumption.    

After years of globalizing the distribution, the uncertainty that has taken over foreign trade in this last stage has caused many companies in the sector to choose to rationalize their international networks and focus their efforts on mature markets seeking security and stability. But the trade war between the United States and China, the threat of Brexit and the rise of the extreme right in Europe already have an impact on its growth and consumption.    

The United States continues to be the world’s largest fashion market with sales of 328 billion dollars in 2017, according to Statista. It is followed by China, with revenues of 282 billion. The United Kingdom follows with fashion retail sales of 58.4 billion pounds. Italy, Germany, and France are other major markets in the sector where turbulences are also announced.

The world’s largest fashion markets suffer the consequences of an economic downturn

The United States economy grew by 2% in the second quarter over the same period of the previous year, 0.1 percentage points less than expected. The data shows a strong deceleration with respect to the expansion of 3.1% registered in the first three months of 2019, according to the latest data published by the Office of Economic Analysis of the Department of Commerce of the country.    

Private consumption, which grew 4.7% between April and June, boosted the  Gross Domestic Product (GDP) in the US, but it was due to the purchase of durable goods, such as cars or electronic equipment. However, the evolution of fashion retail sales was weaker. Until August, trade in the sector advanced only 0.1% over the first eight months of the previous year.    

The chair of the Federal Reserve of the United States (Fed), Jerome Powell, highlighted last August the strength of the country’s economy in terms of price and employment stability, although monetary policy penalizes exports. Hence, there are already expert voices that predict that the country will enter into a recession in 2020 or, at the latest, 2021.

China, on the other hand, is accelerating its transition from the secondary sector to the tertiary against the clock to compensate for the deceleration of foreign trade based on domestic consumption. The GDP of the Asian giant advanced 6.2% in the second quarter of the year, setting the slowest pace in three decades.   

At the end of August, the Beijing government approved a set of measures to promote internal consumption, including increasing commercial spaces, from the opening of shopping centers and department stores to the pedestrianization of urban areas. The country’s retail sales continue for now to grow above 7%, although the pace weakens. In July, they grew 7.6% and, in August, 7.5%, below expectations, which placed the rise to 7.9%.    

In Europe, Brexit is agitating the British fashion market, the largest in Europe for the sector. The GDP of the United Kingdom fell 0.2% in the second quarter of the year, registering the largest contraction since 2012, according to the country's National Statistics Office (ONS). In the first three months of the year, the British economy had advanced 0.5%.

Fashion trade in the United Kingdom has dodged the country’s economic deceleration for now

The services sector was the one that helped the economy of the country in the face of setbacks in the production of goods and construction. Until now, the fashion trade in the United Kingdom has avoided the political turmoil of the country with increases of 3.2% in June and 1.7% in July.

The largest European economy, Germany, is also at the doors of the recession. Despite being one of the European territories with greater political stability, the country's GDP contracted 0.1% and experts say its economy continues to deteriorate. The Kiel Institute for the World Economy (IfW, for its acronym in German) foresees that German growth will continue to contract at least until 2021, when the country loses its trade surplus.    

The uncertainty that it plans on the evolution of the German economy begins to take its toll on retail fashion sales, which since the beginning of the year have registered strong ups and downs. The turnover of fashion trade in Germany fell 1.9% in July, after rising 1.9% in the previous month and returning to negative rates in April and May, when revenues contracted 5% and 3.6%, respectively, according to the Federal Statistical Office Destatis.   

Germany is heading for a recession this year, according to analysts at the Kiel Institute for the World Economy

French GDP, unlike the British and German, has not yet receded, although its growth is at a minimum. In the second quarter, the country’s GDP grew only 0.2%, partly driven by a slowdown in household consumption. For the third quarter of the year, a 0.3% rise is expected.  

Despite this, of the biggest European fashion markets, France is where fashion consumption is evolving the worst. In April (last available data), the sales of the sector contracted 6.7%, being the biggest decrease of the last seven months and the sixth consecutive month of falls.  

Italy initiated a new political cycle at the end of August following the pact between the Five Star Movement and the Democratic Party. The main concern of the new Government is to restore the country’s economic stability once the political turmoil in recent months has been overcome.  

The Italian economy stagnated in the second quarter with a 0.1% drop compared to the 0.2% growth forecasts made by the previous government team between the Five Star Movement and the ultra-right League. Fashion sales have not escaped the political upheaval of the country so far this year. In July, retail sales in the sector increased by 1.7%, although the pace was lower than in June, by 3.2%, according to the Istituto Nazionale di Statistica (Istat).