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The Diverging Fate of French Fashion: International Luxury Lovers Meet Local Penny-Pinchers

Despite its venerable position on the fashion scene, the French apparel and footwear market has not escaped the country’s poor macroeconomic environment, with value sales contracting by 1.3% in 2013. Against this challenging backdrop, price polarisation has become salient. While high tourist inflows have kept the luxury segment afloat, domestic consumers are driving growth at the economy end of the market.

Penny-Pinching Pushes Prices Down

French consumers have become increasingly cautious with their spending on apparel and footwear purchases. It comes as no surprise that budget-friendly brands have emerged triumphant. In fact, the top five apparel brands in France operate at the economy end of the market, namely Kiabi, H&M, La Halle, Camaïeu and Zara.

The fast fashion business model in particular has captured the hearts (and wallets) of French consumers, who are still eager to replenish their wardrobes but now at a much lower price threshold. While the leaders of the model, H&M and Zara, have been the key beneficiaries of this trend, a slew of new entrants to the market, notably Primark, Topshop and Forever 21, are also targeting the same cash-strapped, fashion-conscious consumer base.

Like the rest of Western Europe, the shift to thrift has fed an unhealthy discounting fever in France. Despite the country’s regulated sales periods, it is evident that discounts are becoming deeper and more frequent. Price-conscious behaviour has also fostered the growth of discount outlet stores.

Discounting and the infiltration of fast fashion brands have put downward pressure on average unit price, which in apparel and footwear is set to decline by 6% over 2013-2018 in constant terms.

Tourist Inflows Support Luxury Sales

France’s rich fashion heritage has enabled it to maintain its position as a prime tourist magnet. This influx of tourists has become a boon for the French apparel and footwear market, notably at the luxury end. Designer apparel and footwear registered a value CAGR of 1.8% over 2008-2013, outperforming the 0.8% CAGR decline posted by the general apparel and footwear market, largely driven by tourist expenditure.

France is by far the most popular European destination for Chinese tourists, with departures to France from China totalling 354,600 in 2012. Additionally, expenditure by Chinese tourists in France is set to reach RMB11.3 billion by 2017, up from RMB5 billion in 2012.

Many designer fashion brands have been welcoming these travellers with open arms. Indeed, it is rare to find a concession not equipped with a Mandarin-speaking salesperson. Apart from the prestige factor of claiming to have bought a French brand in Paris, lower prices compared to their domestic market (where prices are heavily inflated on account of import taxes) are a big pull factor for tourists shopping in France. Luxury brands have been keen to close this gap in order to ensure the profitability of their operations abroad by raising prices in Europe. The average unit price of designer ready-to-wear apparel in France rose by 8.5% over 2008-2013.

The Descent Continues

Appetite for luxury is on a crescendo, buoyed by tourism inflows. Designer products accounted for an impressive 20% of total apparel and footwear value sales in 2013, with this percentage set to increase to 23% by 2018.

Unfortunately, growth at the premium end of the market cannot eclipse the weak macroeconomic environment that looms large. France’s wider apparel and footwear market is set to contract by US$2.68 billion over 2013-2018, making it Western Europe’s worst performer. Price erosion will become a stronger force due to the rise of promotional activities, the growing popularity of discount outlets and, to a larger extent, local consumers’ fixation with fast fashion.

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