Recently, the threat of a downturned economy has loomed large around the globe . Seventy percent of economists polled in a Financial Times survey predict a recession by 2023.
Fears of a recession have emerged thanks to volatile economic conditions including high inflation’s impact on groceries and gas, as well as the ripple effect of supply chain and raw materials production destruction from the Russia-Ukraine War. To curtail this inflation, the Federal Reserve plans to increase interest rates. However, economists have concerns that this move would slow the economy too much and result in a recession.
What Happens to the Market During a Recession?
Recessions result from connected sets of specific events, and therefore, all recessions are unique. Even though we can try to glean wisdom from the Great 2008 recession, we should not expect the exact same outcome because it was impacted by a different set of circumstances. The unpredictability of recessions generally puts established and emerging fashion business owners in uncharted territory. Thankfully though, underlying patterns in consumer behavior do remain to guide even the newest brands through challenging new economic conditions:
Consumer confidence will decrease: With low confidence in the economy and high concern over their own financial situation, consumers will reprioritize their shopping habits around necessities, which results in a hit on the fashion and retail industries.
High levels of unemployment: During an economic downturn, businesses must make cuts to save on labor. This not only reduces people’s spending power, but also results in the people who already have jobs feeling that their current income is unstable. This results in more overall caution around spending.
High interest rates: Due to high interest rates, investors have less incentive to invest.
Furthermore, the Harvard Business Review outlined its own model on how consumers of different income brackets would respond to a recession:
Firstly, the group of people who are most economically affected will aggressively cease all non-essential spending.
The next group affected is the largest group. They are characterized by economic optimism, but they are cautious. They decrease disposable spending in all areas but not as intensely as the first group. If economic conditions decline, though, their habits may more closely resemble those of the first group.
The third group feels confident about their ability to ride out the recession, and their spending habits resemble pre-recession times. However, they become more inconspicuous about their spending and more selective in what they buy. This group usually consists of just the top 5 percentile in terms of wealth.
Finally, the last group consists of consumers who live in the moment and are overall less likely to save for the future. Their spending is more invested in experiences, and the recession only prompts them to wait on larger purchases. The general demographic is young, urban, and renting. Their spending behavior will not change unless they become unemployed.
3 Tips to Helps Your Fashion Business Survive Economically Uncertain Times
It can feel nerve wracking and risky to start a business during a period of high inflation, a tight labor market, and supply chain struggles. However, you should not postpone your dreams. While our economy has to face cyclical patterns of economic downturns, we recommend three guidelines on how to best start and maintain your fashion business – yes, even during a recession.
1. Go Bargain or Go Luxury in Your Product Assortment
During spans of economic uncertainty, disparities widen. Customers are either buying the essentials and looking for a bargain or they are the top percentile with the recession barely affecting their financial situation. Therefore, experts have determined that mid-tier clothing companies will perform the poorest.
During the 2008 recession, bargain retailers like Target, Khol’s, and Ross found great success without affecting the luxury market. While the luxury market fell by 9%, some brands within that market performed better than expected like Gucci, Hermès, and Richemont. For example, Richemont's revenue increased by 2.4 percent during that historic recession.
2. Hone in on Your Clothing Line’s Specific Value
A recession is the time to emphasize what your brand does best as customers are being more selective in their purchases. Although this may be easier for established fashion brands that already have the data, startup apparel brands also can do well by bringing something new to the market.
For example, Lisa Marie Fernadez successfully launched a new swimsuit line in 2008. She attributes her success to bringing something new to the swimwear market: neoprene bikinis. Additionally, she targeted a wealthy, recession proof market with a luxury line, yet her prices were still not as expensive as competing luxury swimwear. Finally, she highlights that another surprising benefit of launching during a recession was decreased consumer demand, which allowed her to more easily and sustainably fulfill product orders as her business started out. Ultimately, she emphasized that “The consumer, they halted their spending but they were going to spend on something they didn’t have already in their closet; they weren't going to spend and keep buying repeat purchases.”
That’s a top reason why fashion industry experts recommend starting a private label apparel brand over a wholesale brand as a private label allows for greater control over your product and allows you to create something unique for the market. Wholesale products, on the other hand, are less costly per item, but also less unique and can be found in several other stores.
3. Create Fashion Brand Loyalty
Other than the quality of your products, your brand’s image and customer service will also sway customers to choose it over competitors. An economic downturn is a tough time, and it is important for a company to express their care and customer service through different communication avenues like email campaigns and social media.
Additionally, it is more important than ever during a recession to give customers a good service experience that will make them want to come back, interact with your brand more, and even better, leave you positive reviews online or share your products with their friends and family.
Turning Tough Economic Times into an Opportunity
Between the pandemic and recent high inflation, it seems like our economy can’t get a break and neither can you. However, do not let the dour economic predictions alone hamper your goals. Starting a fashion business is possible and might take more thought, planning, and product investment, but you know that if your business can get through something as major as a recession, then it can overcome other issues as well and thrive even more when times inevitably improve again.