How can fashion brands navigate the impending online slowdown?
26-3-2025
HOW CAN FASHION BRANDS NAVIGATE THE IMPENDING ONLINE SLOWDOWN?
The online apparel market will continue to grow between 2023 and 2028 but it will be at a slower rate, according to GlobalData forecasts.
The online fashion market has surged in popularity in recent years, mostly thanks to its convenience and ability to compare prices. More recently, the introduction of tech features like AI and AR that allow consumers to visualise what an item will look like before they receive it has contributed to its meteoric rise.
However, according to GlobalData forecasts, growth is set to slow in the years to 2028.
In 2023, the global online apparel market rose 2.6% to reach $554.0bn, remaining muted due to economic struggles, as well as consumers appreciating the experience of visiting physical stores again post-pandemic with online penetration dipping 0.4ppts to 26.6%.
The market is forecast to strengthen further still in 2025 with growth of 5.9%, followed by a CAGR of 4.5% between 2023 and 2028 to reach $691.3bn and an online penetration of 29.5%. However, this is still much weaker than the CAGR of 10.4% witnessed between 2018 and 2023, with the market now much more established post-pandemic.
So what is causing the online fashion slowdown?
Financial pressures for consumers
Like the total fashion market, short-term growth in the online channel will be limited as a result of consumers having less disposable income due to high inflation and interest rates affecting their willingness to spend on non-essential fashion. While consumers struggle financially, many will also make more considered purchases, avoiding impulse buys online and preferring to shop in store where they can see, feel and try on items before buying. A significant amount of new fashion spend is also shifting towards the secondhand market with digital operators such as Vinted soaring in popularity.
Maturation in major markets
The pandemic significantly sped up online growth as stores were forced to close, and now in major markets which are digitally advanced, the online channel is already reaching maturation within the fashion market. In the UK, Germany and the US, online accounted for 39.8%, 32.1% and 30.5% of 2023 total fashion spend, respectively, limiting growth prospects. The number of brands and retailers operating online now also means competition is high and purchases are becoming more thinly spread, with newcomers constantly emerging. While online will still outperform offline in the forecast period, the online market will experience a much softer CAGR of 4.7% from 2023- 2028, compared with 10.4% from 2018-2023.
Profitability challenges
Selling online often means running on much thinner profit margins than selling instore, which will have a significant impact on business as online becomes a bigger proportion of total spend. Shipping fees are not always passed onto the consumer, with many brands and retailers offering free delivery for orders above a minimum threshold. Returns rates also remain a huge problem, leading to more logistical costs as well as stock which cannot be resold. Increased competition online also often means more frequent discounting as players strive to offer the cheapest price. These issues will affect the ability of brands and retailers to invest in developing their digital propositions, with Primark still hesitant to launch full online operations.
Despite this, there is still growth to be had, especially in the Asia-Pacific region.
Out to 2028, Asia-Pacific is set to overtake the Americas to become the biggest online apparel market, with a 2023-2028 CAGR of 5.4%, and its share rising 1.4ppts to 37.3%. The region’s outperformance is driven by its increased internet connectivity, as well as its growing middle-class population giving consumers more discretionary spend.
In contrast, America’s CAGR will be slightly weaker at 4.3%, causing its share to shrink 0.5ppts to 36.5%, with the maturity of the online market in the US and Canada giving it less scope to grow. Europe’s growth is forecast to be the weakest between 2023 and 2028 at 3.5%, with its share falling 1.2ppts to 24.4%. This is again due to the region being well established online, as well as it facing some of the greatest economic and geopolitical issues, with reduced consumer sentiment impacting consumers’ propensity to spend.
While it is by far the smallest market, the Middle East and Africa is anticipated to see the strongest CAGR of 9.4%, with its share rising 0.4ppts to 1.9%, aided by the region’s fast-growing economies and developing digital infrastructure.
So what can online retailers do to capture growth in a muted market?
Omnichannel integration
Retailers need to offer a unified shopping experience where customers can effortlessly transition between online and physical stores. As well as features like click & collect and real-time inventory checkers, which are already being used by most major players, brands can also integrate newer technology like virtual fitting rooms or store modes on their apps, to make the shopping experience even more streamlined. By merging digital and in-store experiences, retailers can increase convenience, thereby fostering higher engagement, loyalty and sales.
Live shopping and social commerce
Live shopping offers a way for brands to interact with shoppers more closely and create greater engagement. While this has previously been most popular in Asia, it is becoming more common in Western countries, with Zara expanding it to the US, UK and Europe, with a session featuring Cindy Crawford and Kaia Gerber in September 2024. Shopping via social media is also a lucrative area brands should tap into, particularly through TikTok and Instagram Shops, as these encourage impulse purchases of items consumers have seen on the platforms.
Personalisation through AI and data analytics
In today’s competitive online market, retailers should leverage AI and data analytics to tailor the shopping experience to individual consumers. From personalised product recommendations to customised marketing and promotions, AI-driven personalisation increases relevance and engagement. Analytics also allow retailers to select the correct products by identifying trends to pre-empt customer needs, as well as to optimise pricing strategies. This will help retailers to drive higher conversion rates and build long-term loyalty.
Bolstering logistics capabilities
With convenience being one of the main drivers of the online channel, consumers are increasingly swaying towards retailers with faster and more diverse delivery options. Therefore, logistics and fulfilment are crucial areas for players to invest in to attract customers and prevent them shifting towards competitors. Robotics and the investment in more regional fulfilment centres will allow retailers to get goods to consumers more quickly, while the introduction of options like same-day or scheduled deliveries will also help to build customer satisfaction.
By Just Style
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