Clothing retail had a strong year in 2015. The annual growth of 5.9 per cent was primarily due to increased sales volume, and to a lesser extent price changes, even though the dollar increased substantially between 2014 and 2015. The lion’s share of the offering in clothing retail is both manufactured and purchased abroad, which means that even minor fluctuations in foreign exchange rates impact the purchase prices paid by retail traders. The relatively modest price increase rate in 2015 is likely due to the forward exchange contracts that are generally signed for 6-12 months in order to counteract short-term fluctuations in foreign exchange rates. The contracts generate a delay in the Swedish market before the price changes have full impact.

Profitability in clothing retail has recovered somewhat since the dip in 2012; the total operating margin was 3.9 per cent while return on equity was 22.3 per cent in 2015. Promotion-driven sales are still a menace for many retail traders — price-reduction sales follow upon each other and goods are sold for a fraction of the original price. Sales promotions have certainly always been the downside of fashion sales — the fashion cycle creates longing for new trends and collections on the one hand but reduces the value of leftover items that remain unsold on the other. The problem faced by clothing retailers is that more consumers are becoming cost-conscious and well-informed and expect price-reduction sales and bargain prices from the start, and then wait for them before making purchases. Fewer people are buying at full price. Price-reduction sales are fundamentally meant to be a tool to sell leftover stock, and are not meant to constitute a general price reduction.

There are other causes for concern in the ever tougher competitive climate, which is apparent in the decreasing number of companies and stores in the industry. The number of active retail clothing companies has decreased during the past five years by 16 per cent, and during the same period 700 clothing stores and 1,400 employees have disappeared. Part of this is due to growing competition from e-commerce, whose sales in 2015 were SEK 8 billion in the clothing and shoes segment, which corresponds to approximately 13 per cent of total sales. Competition has also arisen as a result of urban style trends, and sports clothing being transitioned into clothing that is used on an everyday basis. This has resulted in sports retail beginning to approach the domain of clothing retail. Since the turn of the millennium, sports retail has gradually grown and increased its share of the fashion market.

The concentration in the industry due to the advantages held by large companies constitutes another competition aspect. This is apparent, for example, through the gross profit margin which between 1997 and 2015 increased twice as much in the category for large companies compared to the category for the smallest ones; this could be due to the advantages attached to purchasing and stronger negotiating position in relation to suppliers. Both net margin and return on total assets are thus clearly stronger in relation to the mean (characterised by companies with high sales) compared with the median. At the same time, operating margin decreased for all size groups between 1997 and 2015, which demonstrates that the tough competitive situation still applies to the entire spectrum.

E-commerce is expected to continue growing in the future, at the same time that the trend of fewer physical stores is expected to persist. International e-commerce for clothing is growing by leaps and bounds. Above all, German-based Zalando has made major progress in Sweden the past few years. Zalando has also announced investments in Swedish-based stock, which will probably shorten delivery times and further strengthen the company in the market. The winds of change, therefore, continue to blow.