Fast fashion or Pre-loved?

Pre-loved clothing is becoming the latest fashion.

British clothing retailers have had to adapt their business models to change to changing trading conditions. From climate change and erratic weather, to the structural shift from the traditional high street to online shopping. On top of this, there has been the cost-of-living crisis and the pressure on consumer spending. The latest shift in consumer habits presents another challenge – the growth of pre-loved clothing. Second-hand clothing sales could make up 10% of the global fashion market next year.

While no formal data is available, the UK second-hand clothing and footwear market is thought to be worth £2.4bn according to a recent survey of 2,000 adults by Westfield. Research house GlobalData estimates that between 2016 and 2022 the second-hand clothing market grew by almost 150% and is forecasting a further increase of 67% by the end of 2026.

Charity shops have been an important driver of the pre-loved clothing market, but the sector has been boosted by the growth of online shopping sites such as eBay and Vinted. Some individuals have created their own part-time businesses selling second hand footwear and clothing, although this has become more challenging as HMRC now requires those trading online to disclose sales above a low threshold, from a little as £1,000.

There are a combination of factors driving demand in the second-hand clothing market, but the two most important are low prices and the sustainability issue, with many consumers avoiding fast-fashion. The Westfield survey revealed that 34% of an 18-34-year-olds wardrobe contained second-hand clothing, compared with an average 23%. Parents are also an important customer segment, buying second-hand clothing for children, especially younger age groups, which essentially continues a decades-long tradition of acquiring ‘hand me downs’ for kids.

Not surprisingly, some leading UK retailers are moving into the vintage clothing sector. A third of the respondents in the Westfield survey indicated they would be more likely to buy second-hand clothing, if they could buy direct from a high-street retailer.

Talking of pre-loved, having started life in China but now Singapore based, fast-fashion platform Shein failed to list in the US earlier this year, and is reported to be instead considering a listing in London, valuing it at £50bn. It will be interesting to see how this is received by politicians and investors, given the demand for pre-loved clothing, but especially given the questions raised by the US regulator about its ties to China and alleged use of Uyghur forced labour. London does not want to be the market of last resort.

What have we been watching? 

Canada became the first G7 member to lower interest rates this year, with a cut of 0.25% to 4.75%. The European Central Bank (ECB) followed earlier interest rate cuts by Switzerland and Sweden and lowered rates by 0.25%. While markets welcomed this news, inevitably, focus has now shifted to the pace of any further cuts over the remainder of 2024. The general view seems to be that there is likely to be fewer cuts in the latter part of the year than previously expected and that in the UK and Europe this is due to sticky service sector inflation. The Bank of England is less likely to cut interest rates in June ahead of the general election unless there is a noticeable reduction in the pace of services inflation. Elsewhere, weak US manufacturing data raised concerns about economic growth but also provided support for those seeking an earlier interest cut from the Federal Reserve. The US AI-frenzy showed no sign of abating, with the market value of AI chipmaker Nvidia surpassing $3trillion. It has now overtaken Apple for second position by market value, just behind the AI player Microsoft. Oil drifted along with other commodities on global demand concerns. Albeit, the iron ore price also came under renewed selling pressure due to stories that Beijing is looking to crack down on steel production to curb emissions. Iron ore prices have fallen 40% so far this year.

The ongoing instability of the Israeli Government saw the resignation of war cabinet minister, Benny Gantz, in protest at the lack of a long term plan for Gaza. Hard line members of the war cabinet have also threatened to resign should Prime Minister Netanyahu agree to the ceasefire proposal. With Netanyahu also likely to face personal legal issues once he ceases to be Prime Minister a route to peace remains very difficult.

Ukrainian forces have used US-supplied Himars missiles to destroy an advanced air defence system inside Russia, as the Kremlin warned Washington that it could suffer ‘fatal consequences’ for aiding the cross-border strike.

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In the UK, could it be the final nail in the coffin for PM Rishi Sunak? Nigel Farage announced he would lead the Reform Party and stand as an MP in the forthcoming general election. To compound his woes, a decision to cut short his participation at D Day commemorations looks to have completely undone any positive momentum, and leading Conservatives have had to spend the weekend denying that he will resign. At the same time, a YouGov poll indicated that Labour is heading for the biggest election victory in history! Meanwhile, there was a ‘curve ball’ for the Bank of England as natural gas prices jumped due to an unplanned outage in Norway. If for an extended period, this might have implications for the next UK energy price cap and, in turn, inflation.

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In Europe, the ECB cut interest rates by 0.25% to 3.75% as widely expected, but focus shifted to the pace of further cuts over the remainder of 2024. This seems to be shifting towards one further cut rather than the two cuts that had been anticipated. The ECB raised its 2025 inflation forecast from 2% to 2.2% but increased its growth forecast for the eurozone for 2024 from 0.6% to 0.9%.

In the EU Parliament elections, populist parties made further gains, notably in France where President Macron called snap elections in response to the performance of France’s National Rally party.

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In the US, the ‘flash’ ISM manufacturing activity reading was 48.7, signalling contraction. There was a noticeable drop in new orders from 49.1 to 45.4, while construction spending was weak for the second month in a row. This temporarily increased the likelihood of interest rate cuts but was more than offset by very strong US jobs data on Friday.

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The Japanese Yen strengthened as the Finance Minister confirmed intervention s to support the currency during April and May.

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Brent oil slipped to under $78. Despite OPEC+ extending its production cut, not all members have been adhering to the new target while concerns remain about global demand given weak economic data from both the US and China.

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Finally, more green investment shoots? The European IPO market appears to be showing signs of life, with its strongest level of activity since 2021. This has enabled private equity funds to start unlocking value in their portfolios with a number of high- profile flotations, including CVC. Even the UK is starting to see some new issue activity, which is much welcomed. The UK has lost and continues to lose quoted companies to takeovers, so it is important for the health of the economy that the listed company hopper is refilled.

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Alpha Portfolio Management is a trading name of R C Brown Investment Management PLC which is authorised and regulated by the Financial Conduct Authority.