Getting the right fit for the future – True’s views on the apparel sector

With the news that we have thankfully passed the peak of the coronavirus outbreak in the UK and are eagerly awaiting the government’s plans for a framework to return to some sort of normality, it feels an appropriate point to share our thoughts on how this tumultuous period will shape and redefine an important area of the consumer sector. As specialist investors in the space, we are fascinated by shifts in consumer behaviour and a key part of our role is to assess which of these shifts are fleeting, and which will become permanent new ways for people to shop. The ability for brands to either align and benefit from these longer-term trends, or adapt and evolve to stay relevant, has never been more fundamental to their survival and ultimate success.

This is particularly true of the apparel sector. Valued at £62bn1 and employing around half a million people2 prior to lockdown, it is a huge part of the UK economy and one that has been impacted more than most by lockdown. It is a sector True knows well through investments such as Alex & Alexa, ADAY, Frugi, and Corporate Partnerships with Primark, TJX, M&S, Abercrombie & Fitch, Express and John Lewis & Partners. As our recent investment in hush shows, it is also an area where we see significant opportunity for those brands with a digital-first mindset and a deep understanding of their customer (you can read more about our investment here).

There are undoubtedly difficult times ahead and the sector is experiencing a rapid period of corporate Darwinism which many brands will not survive. The Bank of England has warned that this quarter will be the deepest recession on record before an expected rebound to pre-Covid levels next year. In light of this, we have laid out our thoughts on what it takes for brands to not only navigate this difficult period but ultimately thrive in the post-Covid world.

Now, more than ever, we all want to feel a sense of community, and the brands that foster this feeling amongst their customers will triumph over those who are just happy to sell you a product. Clearly, this is more important than ever during lockdown, when consumers can feel isolated and crave a sense of connection, and in our view this takes time, effort and passion to build – you can’t fake it!

This is something we love to see when evaluating investments and something that is strong throughout our portfolio – Frugi, our ethical kids’ clothing brand, hosts multiple Facebook groups (such as ‘The Frugi Family’) where consumers sell second-hand Frugi clothing, give valuable feedback on new product ideas and share general parenting and lifestyle tips. Families can also create user-generated content using their ’Frugi fun’ scheme, where consumers upload photos in return for perks & rewards. Hush have identified their most loyal customers, or ‘Friends of hush’, who receive extra gifts, exclusives and personalised notes in their packages in return for their loyalty. They have also hosted popular book clubs at their pop-up shops, and replicated the content on their blog for those unable to join in person. Other brands we’ve noticed doing interesting things to foster community include Rixo, who hosted a ‘Rixo Retreat’ week of events in January with fitness classes and meditation, and Gymshark, who have a handpicked community of athletes as well as a popular lifestyle blog full of exercise and healthy eating tips. At True, we believe this passionate sense of community is of heightened importance now but is equally a long-lasting trend which will keep loyal consumers coming back well beyond Covid-19.

When it comes to channels, we are strong believers in the long-term shift towards e-commerce, a structural trend we have invested behind many times in categories such as cycling, homewares, health, sport and fitness and apparel. This has further accelerated in recent months as shops have closed and consumers are stuck at home – as we wrote on our blog in April, “13% of consumers across Europe are now browsing or shopping online for the first time, a third are buying products online they would have previously acquired in stores and 14% state they will buy less in physical stores after the crisis”. In the apparel sector in the UK, we have seen high profile casualties such as Oasis, Warehouse and Debenhams, businesses with large store estates and high fixed costs. We have also seen companies like Next struggle to service spikes in online demand as consumers shop from home.

Clearly, e-commerce-focused businesses currently have the upper hand, but longer term, how will this shift play out? The past few weeks aside, customer acquisition costs in online channels have been rising as bricks & mortar rents have been dropping and leases becoming increasingly flexible. Across our brands at True, we are considering expansion into selected brand-enhancing bricks & mortar stores, with careful thought around how these fit into the multichannel model and when the right timing is. This is especially true in Apparel, where there will always be a group of consumers who want to touch and feel the product before handing over their hard-earned cash. We are confident there is a place for a modest estate of well-considered stores in an agile multichannel model. The high street won’t die but it must evolve, and we expect this arbitrage to become more powerful in the months ahead as Covid accelerates this correction.

Barely a day goes by in the fashion press without a mention of a new sustainability initiative by a brand or designer – this is something that companies can no longer afford to ignore. At True, sustainability (and, more widely, ESG) are areas we are passionate about and are a key focus for us when evaluating new investment opportunities. Frugi gives 1% of its revenue to charity and use only organic cotton – initiatives that we admired and committed to uphold when we invested into the company. We have just worked with the Frugi team to acquire reusable nappy brand, TotsBots. One of the reasons we chose to invest in hush was its product positioning – good quality clothing in timeless styles that will be worn well beyond the current season, at the opposite end of the spectrum to the fast fashion market. hush are working with the Centre for Sustainable Fashion to implement sustainability initiatives around material sourcing, packaging, and energy usage. The margin pressure companies will experience over coming months will reveal which brands are serious about their sustainability initiatives, as tough calls have to be made when businesses are trying to stay afloat. At the same time, consumer consciousness of environmental concerns has been heightened by the Covid crisis as pollution levels plummet in major cities during lockdown. Brands that are taking sustainability seriously will thrive, and will be highly attractive to consumers, wholesale customers, investors, and talented employees in years to come.

Of course, there are tough times ahead for the sector. Valuations are being hit, with global clothing and footwear stock prices down 24% from Jan-April this year3. There are still many question marks around consumer confidence following Covid-19, and in April, 42% of consumers said their disposable income has decreased4. As brands battle for share of a diminished wallet, it remains to be seen how consumers bounce back from this period of lockdown. None of us can be sure what life will be like and specifically how UK shoppers will respond and regain the confidence to visit the high street, even with social distancing measures in place – no doubt things will take a long time to normalise.

Specifically in apparel, there is growing concern about a stock overhang in the market as brands have missed their sales targets and will be forced to sell stock at clearance prices. Management teams will have to choose between following the herd to shift stock at little or no margin, or hold firm and rely on brand strength to maintain demand – a luxury only a few brands can afford. We believe this will be compounded by higher levels of returns when lockdown starts to lift, as many brands have extended their returns period to encourage purchasing. Further back in the supply chain, brands are making tough decisions about whether to pass this pain on to suppliers, and in the worst cases are refusing to pay for orders that have already been produced. This could lead to a catastrophic impact for many apparel manufacturers, particularly those without central bank and government support in their countries of production, leading to medium term supply contraction.

So, there’s no doubt that it’s not going to be an easy period for the apparel sector. However, we are already seeing consumer attention turn back to non-discretionary spend – web traffic across the apparel sector is now only 10% lower than it was pre-Covid, from a low of a 40% decrease in the days after lockdown5. Longer term, we are confident this is a once-in-a-generation opportunity for companies that can stay agile, both in terms of responding to changing consumer demand and in terms of their operating model as the ‘new normal’ becomes more clear. It’s a valuable chance to re-think and improve elements of a business which may have been underperforming prior to Covid-19 –  no doubt certain bricks & mortar stores that have been forced to shut weren’t making much money in the first place. It’s a great time to make sure your brand is providing customer value, which could take the form of new products in the range better suited to staying at home. It’s also an opportunity to adopt new technology and look after your workforce, whether that be a warehouse automation tool to make working conditions safer, or support from a welfare perspective as provided by companies like Unmind.

The competitive landscape is changing fast, and there will be opportunities for agile, well-funded players to experiment with new channels and acquire new customers. We at True are excited to embrace this opportunity, continue our quest to relentlessly follow the structural and accelerated changes in consumer behaviour and play a role in driving change in the apparel sector through Covid and beyond.


  1. Statista – subscription
  2. FashionUnited
  3. Capital IQ, OC&C analysis
  4. Savanta Coronavirus Tracker, 8th April
  5. OC&C report


To read more on how True believe Covid-19 is accelerating key trends in consumer behaviour, click here

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12 May 2020