Strong Demand for Value, E-Commerce and Sportswear Sustains Pressure on Europe’s Middleground Apparel Retailers

Executive Summary

We discuss three growth segments in European apparel, which look set to keep the pressure on legacy midmarket apparel retailers:

• High-Quality Value Retailers: Primark has raised standards in discount apparel. It appears to have drawn shoppers from midmarket rivals while consolidating the value segment. T.K. Maxx likely had a similar impact. Consolidation means the apparent strength of the discount segment is not a rising tide that lifts all boats.
• Internet Retailers: Zalando aims to grow gross merchandise volume (GMV) from €6.6 billion in 2018 to €20 billion by 2023/24. But Zalando, like ASOS and Boohoo Group, is facing a challenge as fulfillment cost ratios rise in line with consumer expectations. More positively, marketing costs as a share of revenue are tending to decline across the pure-play space.
• Major Sportswear Brands: In the UK, Germany and France, sales of sports apparel have grown considerably faster than sales of all apparel. Even as brands focus on direct-to-consumer channels, we see demand for premium-branded sportswear supporting multibrand platforms such as ASOS, Zalando and Amazon. We see a degree of symbiosis in increased demand for major sportswear brands and the growth of online fashion platforms.