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Men's Outerwear - UK - February 2003 Executive Summary Retail brands are still strong The strength of Next, Gap and more recently M&S, is due to powerful brand development strategies, with the retailer's own labels accepted as strong brands in their own right by consumers. M&S launched its Blue Harbour casualwear range at the beginning of 2002 and it is believed to have been a great success. It has all the hallmarks of a brand, but has in fact been manufactured. Consumers want to see strong brands and this is one way that the retailers can meet that requirement. Designer brands The design houses are responsible for the polarisation at the upper end by selling product which, without their label, would be considerably cheaper. Through their exclusive air and relatively heavy advertising support, they have expanded their niche. Many department stores, such as Debenhams, are creating brands by forming strategic relationships with suppliers. Exclusive own-label ranges, which are often created by well-known designers and yet often come in at lower prices, are making designer merchandise in menswear available to the mass market, for example.

Distribution Multiple specialists still have the largest share of the menswear market, but this share peaked in 1999 at 26.5%. In the last three years their share has rather dramatically declined by more than 4 percentage points to a 22.2% share. While Next has managed to improve its own share during this period, Arcadia (Burtons and Top Man) has lost share. Variety stores lead by M&S suffered significant losses in market share terms, dropping from 19% in 1997 to 15.3% by 2001. However, this decline appears to have been reversed in 2002. Due in part to the store's successful launch of Harbour Blue, the casualwear range. Bhs has also improved its share in the last 12 months. Figure 24: UK retail distribution of menswear, by type of outlet, 1997-2002 Source: Mintel Variety stores, multiples and independents have all suffered because of the rise of discounters, factory outlets and supermarkets, which have increased their combined share from 10.8% to 16.7% in only five years. Factory outlet centres in particular have grown dramatically over the period, and space in factory outlet centres continues to rise. Among discounters, Matalan has shown the biggest improvement in share. The department stores have also managed to make gains. This has been driven by Debenhams and House of Fraser, as well as the relative success of Allders in repositioning its fashion departments in a move to attract more of the younger but fashionable consumers. The supermarket chains have steadily been building a presence in this market with the lead being taken by Asda and Tesco. They have now been joined by Sainsbury's with its Jeff and Co range. Although there is no doubt that the supermarkets have taken share from the traditional high street stores, their most direct competitors are the discounters and factory outlet stores. In order to compete and take the wind out of the sales of Matalan, Tesco in particular has adopted an aggressive pricing policy. This has recently got it in trouble with courts, which have now ruled that Levi has the right to determine the retail pricing of its own products. its main thrust of growth, however, remains the development of value-for-money mainstream ranges, especially in casualwear.

The Consumer For this section of the report, Mintel analyses the results of the annual TGI survey, as well as exclusive consumer research commissioned by Mint e l from BMRB. The TGI survey asks if men have made any purchase from various product categories over the past 12 months. Figure 30: Proportion of men purchasing major items of outerwear during the last 12 months, 1997-2002 Base: men aged 15+ Taken from TGI annual survey of around 25,000 adults Source: TGI, BMRB 1997-2002/Mintel Jeans, jumpers and shirts are a staple part of men's wardrobes, with over half of men buying jeans, over two thirds buying shirts and almost half buying jumpers and pullovers during 2002. The most notable trend is the shift from jeans to trousers, with the purchase of trousers growing by 6.2 percentage points between 1997 and 2002. This growth has been at the expense of jeans, which in the period under review decreased by 3.1 percentage points, in line with the general market trend away from wearing denim. Overcoats have seen a positive shift in popularity in the last year, which ties in with the recent popularity of parkas. Figure 31 presents a demographic breakdown of purchasers of selected outerwear categories for 2002. Figure 31: Purchasers of outerwear, by demographic sub-group, 2002

Advertising and Promotion Advertising expenditure rose significantly over the review period, with greater media availability created by the boom in menswear publishing, particularly through FHM, Loaded and Arena. Figure 25 presents the main media monitored expenditure on men's outerwear between 1997 and 2002. Figure 25: Main media monitored advertising expenditure on all menswear and leisurewear, 1997-2002 Source: Nielsen Media Research/Mintel Sports and leisure outstrip expenditure by far, due to the fact that this is a market where traditionally the manufacturers' brands dominate. Similarly Jeans is another market dominated by manufacturers' brands. The situation is complex, in that without distribution there is no point advertising, while without advertising, distribution is difficult. The largest proportion of men's media advertising still comes from the sports and leisurewear sector with the brands, eager to build their brand availability and awareness, spending heavily. However, since 1999 advertising expenditure has been on the decline. The most significant drop in 2001 was due in part to a dramatic cut in expenditure by JJB Sports. The company has since reinstated its advertising budget. Nevertheless, there does appear to have been a general decline in this sector. The downturn in the branded jeans market is reflected in the downturn in advertising expenditure by this sector - between 1997 and 1999 expenditure on advertising for jeans halved. However, 2001 saw a dramatic increase in expenditure on jeans advertising largely due to Levi promoting its engineered jeans. Men's fashion and outfitters maintained their spending steadily over the period, dropping slightly from a peak of 14.6 million in 1999. Meanwhile, expenditure on advertising for coats and other outerwear remained comparatively minimal. Advertising by menswear brands Figure 26 presents main media monitored expenditure on men's outerwear by selected brands between 1997 and 2002. Figure 26: Main media monitored expenditure on men's outerwear, by selected brands, 1997-2001

Market Size and Trends In 2002, sales of men's outerwear saw a 3% increase in value on 2000, continuing the slow recovery of 2000 and 2001, after the sharp decline in sales values in 1999. However, sales values are not expected to recover to 1998 levels until 2005. In real terms, sales of men's outerwear have grown by 20% in the period under review, showing the impact of price deflation in this market. Prices are suffering intense competition from the lower end of the market and suppliers are always striving to find the lowest cost sources. Figure 7 outlines the total value of the men's outerwear market during the 1997-2002 period. Figure 7: UK retail sales of all men's outerwear, 1997-2002 Source: Mintel Falling prices may be good for the consumer and it may bring additional volume growth, but it causes difficult trading conditions for both retailers and suppliers as their margins are eroded. The major high street retailers have remained under pressure in the battle with the discounters and supermarkets. Suppliers have had to tighten already tight margins. They have been forced to reduce costs either by finding cheaper sources of supply or reducing costs in the supply chain. Meanwhile they have faced heavy competition from cheap imported goods, resulting from a strong Pound. Fabric developments and NPD There continue to be developments in fabrics in menswear and some are making a real impact on sales. Currently 'soft feel' fabric is a huge seller on the high street In recent years there have been various new developments including crease-resistant, Teflon-coated fabrics that are easier to care for and stain resistant. In certain markets, especially shirts and trousers, the attractions of easy care and crease resistance are evident and are strong selling points. This has helped to add value to certain products. Soft feel fabrics are particularly important in casualwear where comfort is an important attribute. For years suppliers have vied to produce the most comfortable fabric. From ring spun to carded to washed all have been tried. The consumer has been bombarded with the technical benefits of these new treatments. Manufacturers and retailers have an important role in helping to educate consumers about the benefits that such fabrics can offer.

The Future Polarisation squeezes margins The men's outerwear market will continue to polarise. At the bottom end, the discount sector, together with supermarkets, will continue to expand. They will do so through offering very competitive prices and by developing brands. The supermarkets are already seizing on this by working with well-known designers such as George Davis and Jeff Banks. At the top end, the designer brands will continue to fully exploit the men's magazines to expand their part of the market. Brands to continue development Strong brands will continue to increase market share in all parts of the men's outerwear market. At the top, the designer brands will continue to develop their distinct images. In the middle, the consumer will be asked to play along with the idea that the retailer brands presented to them are stand-alone and do have a separate identity from the rest of the store. At the lower end, consumers will be pleased to be able to purchase brands at low prices. Changes expected in the supply structure The rise of discount retailers such as Matalan and the supermarkets, which are mainly out of town, the demise of middle-market clothing and growth at the top end of the market will continue. The convenience of being able to drive to out-of-town stores and park there, in addition to a growing number of supermarkets providing 24-hour shopping, will also add to the propensity of many consumers to shop in such outlets.

Supply and Distribution Structure Menswear specialists Austin Reed Austin Reed is a long established retailer in the UK, selling menswear and womenswear from its chain of over 100 high street shops, six airport shops and a number of concession outlets. It has concessions in Selfridges in London, House of Fraser and from September 2002, Allders. The retailer also has a presence at two of the leading factory outlet sites - at Cheshire Oaks and in Swindon. The menswear offering is divided into:. Modern classic - sharp silhouettes, Contemporary - sleek sophistication, Signiture - luxury. Reed - casual knits. Sports - rugby shirts, Golf (introduced Spring 2002) - colourful cottons and Ski - GOR-TEX fabrics. Dresswear - formal events eg Ascot. Made to measure. Arcadia Arcadia has been taken over by Taveta, a consortium headed by Philip Green, the owner of rival Bhs. Arcadia comprises Burton and Top Man. In October 2001, the group announced the disposal of Principles, Racing Green, Hawkshead and Warehouse to Rubicon Retail, an MBO vehicle, for 35 million. Burton Burton is Arcadia's largest chain. The chain has some 376 stores nationwide and is the UK's largest speciality menswear chain. Burton's target customer is aged between 25 and 49. A reduction in selling space and closer ties with Dorothy Perkins have helped Burton Menswear. Burton's prices are competitive, pitched at or below those of Marks & Spencer and certainly below nearest multiple rival Next. Burton, as with other menswear retailers, has been forced to readdress its price architecture in order to generate good value for money. In spring 2002, Burton, as Official England Sponsor of the Football Association, launched the Official England Suit for the World Cup, as well as a number of casual T-shirts, tops and caps for the event.

Market Drivers Ageing population Over the period 2002-06 the male population in the UK is expected to grow by 1.2%. Figure 1: Trends and projections in UK male population, by age group, 1997-2006 Between 1997 and 2002 the population of 15-24s grew by 2.7%, and is expected to further increase by 5% between 2002 and 2006. This group are more concerned about quality than price when buying clothes, and are more likely than average to prefer designer labels. There was an 11% decline in the number of 25-34s between 1997 and 2002, and there is a further 6.5% decline expected between 2002 and 2006. Men in these age groups are generally high spenders on clothing, and this is possibly due to the fact that at this age they are acquiring a 'working wardrobe' including suits and shirts, although this age group tend to be more price conscious, as they are more likely to be setting up home and starting a family. The 35-44 age group grew by 10.8% in the 1997-2002 period, and is expected to grow by a further 1.1% between 2002 and 2006. The number of 45-54-year-olds is expected to stabilise at around 3.9 million in 2006, while the number of men aged 55+ grew by 4.4% between 1997 and 2002, and is expected to see further 4.6% growth by 2006. There will be an increased need for retailers to address this growing portion of the population. Men in their 50s and 60s have money and time to travel and have leisure pursuits. Growth in this age bracket favours those retailers that target the older consumers, including department stores and variety stores. Consumers have lifestyle needs in these age groups, and retailers and suppliers, which have tended to regard this market as rather dull, must innovate and change in order to attract the mature consumers. Men's attitudes The combined effect of a number of contributory influences, such as changing lifestyles and the influences from men's lifestyle magazines such as FHM, GQ, and Esquire, has seen men become more aware of image and more interested in projecting their own style in terms of dress and presentation. Figure 2 shows some key attitude data extracted from TGI for 2000 and 2002. Figure 2: Attitudes towards appearance, 1998, 2000 and 2002

Forecast Steady expansion The UK market for men's outerwear is forecast to grow by 3% in current terms between 2002 and 2007, to be worth almost 6.2 billion. Due to strong price deflation within this market, real growth will be higher, at a rate of 10% over the forecast period. Figure 39: Forecast of the UK market for men's outerwear, 2002-06 Source: Mintel Casualisation and polarisation remain key trends Relaxed dress codes at work will continue to increase expenditure on casualwear, at the expense of the formal sector. However, this also means that men are more willing to dress up more outside work, with a consequent boom in the 'smart-casual' sector. Recently there has been some return to formalwear, particularly by City institutions keen to maintain a more serious image, and this should help boost growth of formal clothes.