The Impact of the Global Economic Crisis and Brexit on the UK Fashion Retail Industry
The global economic crisis of 2008 led to restrictive austerity measures in the UK to enable the government to reduce the public debt. The government induced cuts in public spending and also imposed higher tax rates which elevated the prices of basic commodities including housing, food, clothing and education. In 2016, the situation worsened with the Brexit vote which weakened the currency leading to high inflation rates and exorbitant production negatively affected the retail sector. In particular, fashion retailing was vastly affected and many fashion stores had to close down due to high rental rates and increased completion from fast fashion. With low prices and replication of designer clothing, most consumers opted for fast fashion commodities, luxury brands and large retail fashion houses suffered massive losses. They implemented strategies such as leasing out clothing rather than selling with occasional repairing to increase their usage. Consumers too warmed up to second-hand clothes and also repaired garments with minor damages to cut expenses.
The Impact on Fashion Graduates and Consumer Spending
The high unemployment rates also affected fashion graduates who had to relocate in search of better opportunities while most turned to business ventures on a self-employment basis. However, with the low wage growth and high commodity prices, household expenditure became high and consumer spending declined with customers purchasing only items they really required. The financial hardships also reduced bulk buying and only a few items could be bought at a time which increased the trips to the retail stores. Due to these negative effects, the UK government should revise its fiscal policies especially the tax rates and the public spending budget. It should also collaborate with NGOs in the fashion industry to implement initiatives that support new graduates to enable them to showcase their talents, receive capital and run successful businesses.
Acknowledgments
Dear Lord Almighty, your grace was quite sufficient. You gave me life, wisdom, perseverance, courage and patience that led to the completion of this study. Receive my utmost gratitude and praise.
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My academic advisors (names) ___________________ and ____________, producing such high quality work could only be possible with your support. The honest critique, resources recommendations and mentorship, propelled me towards the right direction and improved my research acumen. Thank you
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My family (names and relations) _______________, your understanding, endurance, and encouragement during the challenging times of research and study gave me the strength and inspired me to complete this project. I am so very grateful and just to let you know, you are so precious and irreplaceable. Love you.
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God bless you all!!!!!!!!!!!
Background
The economic crisis occurring at the global level has impeded the protection of human rights at the economic, social and political levels. Despite being the sixth most richest nation in the world, the UK has also been adversely affected and it has implemented austerity measures to remain afloat (Oxfam, 2013, p. 1). The UK government has cut public spending especially the social security funds and also increased tax rates to minimize the deficits it accumulated over the years. The strategy also aimed at attracting external markets to help grow its economy (Oxfam, 2013, p. 2). The austerity measures, however, inflated the public debt to 90% of the GDP. Consequently, in 2014, the GDP per capita was lower than the previous year by 16% in spite of the government reporting a growth rate of 2.7%. The 2008-2009 financial crisis, poor Eurozone performance, inflated number of immigrants have all been implicated in the poor economic position of UK. The poor continue to be compromised due to low incomes for the employed and high unemployment levels (Van Reenen, 2015, p. 1).
As such, the inequality gap between the high and low income groups has broadened with the 1000 richest individuals experiencing a £138 billion increase in wealth between 2010 and 2015. Contrastingly, over the same period, the bottom 10% had an income reduction of 38% while the rich (top 10%) lost only 5%. The trend reduced the spending/purchasing power of the citizens significantly (Oxfam, 2013, p. 3). Although the UK’s economy began recovering in mid-2014 after six years of economic downturn, the effects of austerity continue to be felt to date (Wrigley and Lambiri, 2015, p. 40). While spending on basic requirements such as food, rent, fuel (electricity and gas) health and education have been widely studied (Lambie-Mumford and Snell, 2016, p. 2); the impact on the fashion industry has been overlooked quite a bit. The present dissertation thus aims at examining the effects of austerity measures in the UK on the fashion industry.
Statement of the Problem
The present study is very timely as it is conducted at a time when UK citizens especially the poor continue to struggle with the consequences of the austerity measures, in spite of the government promising to end the cuts. While other sectors have been studied widely, there is a paucity of literature on the fashion industry. The studies that have been done so far have focused on image branding, fashion trends and customers’ purchase decisions but the industry is attracting more academic and marketing research (Pentecost and Andrews, 2010, p. 44; Mollá-Descals et al., 2012, p. 1441). The repercussions of the on-going austerity measures have not yet been studied in this industry which is among the most successful not only in the UK but worldwide and therefore the present dissertation serves to fill this gap for the UK set up.
Study Aims
The present dissertation will look at the impacts of austerity on the living conditions of UK citizens, specifically the retail fashion industry. Its objectives are:
- To examine how human rights are violated by the austerity measures
- To determine the effects on these measures on the economy and the society
- To examine the impacts on the fashion retailing industry
The research question below will be answered:
How has austerity affected the spending power of UK citizens and what are its impacts on the retail fashion industry
Significance of the study
As clothing is among the most fundamental human needs besides food, shelter and education, the present study will explore the effects of the austerity measures on the UK citizens’ purchasing power on clothing. Focus on the fashion retailing is crucial as a large proportion of the population relies on this market to obtain clothing since the luxury brands are too expensive. The results of the study will assist the government in revising its financial policies on the fashion retailing industry to enable the ordinary citizen access and afford clothing. Furthermore, the results will provide fashion retailers with information on the purchasing abilities of their customers as well as their preferences. The details can, therefore, be incorporated into the manufacturing and marketing strategy of fashion items so that the generated products factor in the changing financial situation and consumer behavior.
Dissertation Structure
The dissertation is organized as follows. The introductory chapter provides brief background information on austerity. It also identifies the problem statement and projects the study aims, research questions and its significance. It closes by describing the dissertation structure. Chapter Two provides the theoretical framework on austerity measures in the UK. The theories described justify the need for implementing such fiscal policies within the economy. Chapter three gives a literature review on austerity and how it impacts on the economy, violates human rights and correlates it with Brexit. It also describes the fashion industry in the UK which is the primary topic for the present dissertation while chapter four gives a brief methodology of how the articles incorporated in the study were obtained. The findings on the impacts of austerity on the UK fashion retail industry are presented in chapter five while the analysis and discussion of the results are included in chapter seven. The discussion and the analysis place these findings in context with published literature on fashion and other industries in the UK and abroad. The conclusion and recommendations are presented in the last chapter.
Chapter 2: Theoretical Framework
Many theories have been put forward to justify the need for austerity measures and their effects. Here, the theories of expansionary austerity and critical realism will be discussed.
Theory of expansionary austerity
Ideally, restrictive financial policies are implemented to reduce spending in terms of investment and private consumption also allow the improvement in the export conditions. These factors positively influence the economy, in the long run, facilitating growth. However, in the early 90s economists began hypothesizing that the expansionary fiscal policies had non-Keynesian effects. The theory of Keynesian macroeconomics projects that the best response to short-term deficient demand and long-term excessive debts is to implement fiscal stimulus programs followed by austerity measures upon recovery (Wren-Lewis, 2011, p. 5). Keynes, thus supported government intervention of borrowing during crisis to boost public spending which in turn lowers the unemployment rates (Konzelmann, 2012, p. 17). The debate stimulated the theory of expansionary austerity (EAT) where proponents argue that in certain situations, these policies do not bring about economic growth and instead compromise the stability of the financial systems (Botta, 2016, p. 3). Secondly, the proposition of Keynesian theories to effect austerity measures upon recovery is also highly unattainable (politically) as financial consolidation can only occur during crisis, with recovery, governments move back to their comfort zones (Wren-Lewis, 2016, p. 6). Lastly, opponents of Keynesian theory posit that investments should be funded through savings rather than borrowing (Konzelmann, 2012, p. 17).
However, critiques have also attempted to invalidate the theory by faulting the econometric models used to support it. They point out that first, the CABP (cyclically adjusted primary balance) is a misleading variable as it is erroneous in representing the fiscal shocks resulting from policies. The second school of thought posits that the fiscal policy and economic dynamics have an inverse correlation (Botta, 2016, p. 4).
Critical Realism
The cultural-political environment of austerity can be understood through the three dimensions of the theory of critical realism i.e. ontological realism, epistemological relativism and judgemental rationalism. The ontological realism aspect explains that there is a reality that stands independently of the mind and we always yearn to learn it (Griebel and Heinrich, 2017, p. 2). It asserts that rather than being restricted, social reality falls in an open system that is categorized as real, actual or empirical. From this perspective, causality is then understood as a set of mechanisms that produce given results if particular conditions are maintained. As such, the causal mechanisms can be stimulated and also observed in an empirical setup but their occurrence (realities) does not depend on these conditions. Epistemological relativism asserts that all the beliefs held by people are socially generated and lastly, judgemental rationalism indicates that humans can choose what to believe in from among the competing theories generated through epistemological relativism (Griebel and Heinrich, 2017, p. 3).
Chapter 3: Literature Review
Impacts of Austerity
Austerity and the Economy
The global economic crisis of 2008 negatively affected countries worldwide. The governments of the European nations, the United States and Japan decided to bail out their financial institutions in a bid to save them from collapsing and they accomplished it by incurring public debts. They then turned to fiscal adjustments through austerity measures to lower the rate at which the public debts were increasing. Among the austerity measures implemented were cuts in public expenditure, regressive tax changes, reforms in the labor market and pension reforms (United Nations Human Rights, 2013, p. 10; CESR, 2018, p. 7). As a consequence, the global trade receded; external assistance for development became limited and most importantly their economic demand declined.
According to CESR (2018), some countries effect all the four measures simultaneously, others implement them progressively yet others make use of only one or two. Ideally, during fiscal adjustment, legislators begin by deciding the annual proportion by which the public debts will be reduced. The figure is usually considered on a consecutive multi-year basis rather than a one-off activity. The tax increments are the next to be decided upon and the last item to be thought out is what expenditure from the public budget need to be reduced (Alesina, Favero and Giavazzi, 2018, p. 2).
The UK through the coalition government led by the Conservative Party applied the second option where the reforms were implemented in stages. It increased the VAT tax rates from 15 to 20% and also reduced its investment to the public sector to 1.8% from the initial 3.4% (Dupoint, 2016, p. 7). As a result, £81 billion was deducted from the public spending budget over a period of four years beginning the fiscal year 2011/12 to 2014/15 (Roberts, Marshall and Charlesworth, 2012, p. 10). The local government was the most affected in the public sector but on the other hand, the UK government was allowed high-level borrowing by the bank of England. The salaries of employees in the public sector who earned more than 21000 GBP was frozen for the period between 2011 and 2013. Further, it reduced the wage growth rate at 1% per annum and the Welfare Act introduced in 2012 stopped some of the initial welfare benefits that the citizens were entitled to (Fetzer, 2018, p. 17). These measures stimulated growth and by 2015, the UK was second among the G7 countries in terms of economic growth (Dupoint, 2016). While such financial restrictions are not necessarily harmful to the economy and for the people, CESR, (2018, p. 9) posit that in the UK, they have hurt the economy when their effects are combined with the restrictive measures that were already in place since the 1980s.
According to the United Nations Human Rights (2013, p. 8), the austerity measures have stopped the national economies from overcoming and rising above the 2008 crisis and its second phase in 2011. The slow economic recovery observed in nations like the UK and the high unemployment rates are the direct economic effects of the restrictive austerity measures. It has also lowered the purchasing power of the citizens and subsequently their consumption rates.
Austerity and Human Rights Violation
According to the Committee of Social, Economic and Cultural Rights of the UN, the austerity measures undertaken by the UK government are in violating its ability to protect human rights (Leszkiewicz, 2016, p. 1). Presently, the UK citizens are struggling with high unemployment rates, housing crisis, reliance on food banks, increased mental health cases and poor care and discrimination against migrants. According to McKendrick et al. (2016, p. 4), over one million people in the UK with 117,689 in Scotland received emergency food donations in the financial year 2014/15. The most vulnerable are the low-income families and marginalized groups including women, children and immigrants. The reductions of social benefits especially the household benefit cap, child tax credits indicated that the government was not willing to mobilize and avail resources that ensured the social, economic and cultural rights of all its citizens are not breached (Leszkiewicz, 2016, p. 1).
The austerity measures discriminated against employment patterns such that the young people, those living with disabilities and minority populations remained unemployed in spite of the subtle but stable increases in employment opportunities. Those who were lucky enough were held in part-time work on a temporary basis or on zero hour contracts while others were engaged in precarious self-employment. The national minimum wage set by the government decreased over time such that employees could only afford a modest living. Furthermore, the wage did not apply for persons below 25 years which made life in London unaffordable. The migrants faced discriminated as they could not access jobs because of the numerous restriction. Their woes were further worsened by the decreasing daily allowances they received as support from the government (Leszkiewicz, 2016, p. 1).
Children from ethnic minority groups and from low-income backgrounds do not attain high education levels which bars them from improving their lives and moving their families’ position from the lower socioeconomic class to middle and high-income levels. Most discontinue their education as the high university fees keeps them from training for their preferred careers and they end up taking menial jobs just to survive (Leszkiewicz, 2016, p. 1)
Additionally, the persistent cuts in social benefits and the increases in taxes reduce people’s disposable income while raising the costs of living (CESR, 2018, p. 13). They have thus have rendered adequate housing unaffordable and inaccessible. The affordable houses are defective with most of them being damp and in desolate condition as basic services including water, sanitation, and electricity are lacking (Lambie-Mumford and Snell, 2016, p. 4). Families have to spend more on gas and electricity to at least keep the homes warm to avoid contracting diseases. Families rely on food rations with the one million food parcels being distributed by charity organizations, a 610% increase from the distributions made in 2011-2012. Child care costs have also escalated and only women and children suffer the consequences as men isolate themselves from childcare responsibilities. Further, women have been left out in the decision making processes such that policies from the private and public sectors do not consider women issues while making decisions due to the underrepresentation of the said gender (Leszkiewicz, 2016, p. 1).
The health care sector has not remained unscathed as health services are inaccessible to the migrants and the poor families. The mental health services are also not receiving enough resources from the government to enable them to offer quality care. Care to older people and especially those with dementia is neither adequate nor high quality (Leszkiewicz, 2016, p. 1). The legal system has also been reformed during the period of austerity and economic hardships. The new tribunal fees introduced has made justice inaccessible and therefore, the common citizen cannot fight for their rights to fair terms in employment, education, housing and social welfare benefits through the justice system. The Trade Union Act of 2016 further limited the involvement of workers in industrial action as a way of seeking better employment terms (Leszkiewicz, 2016, p. 1). The trend coincides with the observation of CESR that freedom of expression is breached with citizens being arrested and detained when they attempt to protest against the intense financial cuts and poor living conditions (CESR, 2018, p. 13).
Brexit and Austerity
The outcome of the 2016 Brexit referendum shocked the UK, EU and the world at large. Many did not expect that the Leave vote would carry the day but in the end, it did. It left the government, which supported the Remain camp with the assignment to cut a favorable exit deal with the EU. Many predictions were made regarding the impacts of Brexit on the UK economy. Indeed, the first few months saw the value of the Sterling Pound fall to very low levels and the economy became really vulnerable especially because of the on-going austerity introduced in the 1980s by Margaret Thatcher’s administration. After Brexit, inflation rates rose, the GDP decreased, immigration slowed down and the real estate industry was adversely affected by falling house prices and the rise in leasing rates (Dupoint, 2016, p. 5). As a net importer, the UK continues to bear the brunt of the hard economic times since Brexit weakened the exchange rates making importation more expensive. As a result, businesses have increased the cost of the commodities, elevating the household budget even further (Magill, McPeake and Buchanan, no date, p. 10)
Owing to these negative outcomes, more austerity measures have had to implement as the government finds ways to keep its systems running before the final exit decision is decided in March 2019. For instance, the funds allocated to the NHS seem to be no longer enough and thus the government will have to inject more funds into the health sector (Dupoint, 2016, p. 12). Secondly, to counter the increasing inflation, the government will have to increase the cost of pension. However, Kokotovic and Kurecic (2017) advise that the UK government should not announce new budget cuts, rather it should retain the present policies or loosen them. He does not overlook the fact that Brexit will have short-term complications on UK’s financial position (p. 13)
The Fashion Industry in the UK
The fashion industry in the UK and elsewhere is very diverse as it involves a chain of suppliers, manufacturers, wholesalers, retailers and consumers. The fashion commodities sold include footwear, children wear, women’s clothing, lingerie and men’s wear, accessories, jewelry and watches, cosmetics, hair products (Oxford Economics, 2016, p. 5). Footwear and cloth manufacturing is the largest activity. The industry contributed to 1.7% of the total GDP equivalent to 20.9 billion (Rush et al., 2018, p. 10). It surpasses the contributions made by the car manufacturing (£10.1 billion), chemical manufacturing industries (£10.6 billion) publishing (£9.9 billion) industry being only slightly exceeded by the telecommunication and real estate at 28.7and 26.4 billion pounds respectively (Rush et al., 2018, p. 10).
Consumers of fashion products pay value added tax (VAT) included in the prices of the items, companies and retailing outlets remit company tax to the government while income tax and VAT is deducted from the salaries of the employees working in the industry (Rush et al., 2018, p. 10). The industry also generated 2.8% (816,000) and 2.6% (880000) of the employment positions in 2009 and 2015 respectively with many jobs entailing creative services (designers), fashion journalism , education , photography, marketing and modelling, computer programmers, social media directors, and project managers, accountants, copywriters and lawyers (Oxford Economics, 2016, p. 10; Rush et al., 2018, p. 10). The fashion education curriculum is also widely acknowledged with graduates being sought after because of their talent and abilities. For this reason, UK has received international students who come to take fashion courses under the British curriculum (Rush et al., 2018, p. 10). Given the austerity measures implemented by the government, the fashion industry is among the sectors that have been vastly affected by these measures.
Luxury brands
Fashion products are branded through brand equity to form luxury brands where the strong brands are highly valued both within and without the borders. The designs from the UK are highly distinguished for their creativity. The UK fashion brands generate 202 million sterling pounds annually and are displayed during the London Fashion week that attracts thousands of revelers both local and overseas who are interested in fashion (Rush et al., 2018, p. 11). The luxury brands are only marketed and sold in limited edition by exclusive fashion houses at extravagant prices. They are also unique, superfluous, made from high quality material, have an ancestral heritage and a personal history (Sharon et al., 2015, p. 16; Sharda and Bhat, 2018, p. 224). They are symbolic to the consumers who also derive social and emotional value from these high-end brands. According to Sharda and Bhat (2018, p. 225) luxury brands depict status, wealth and success. The renowned high-end fashion houses in the UK include Armani, Chanel, Versace, Gucci, Louis Vuitton, Mouawad, Prada and
Burberry (Frankel, 2009, p. 1; Conroy, 2015, p. 4; Sharon et al., 2015, p. 4). For instance, Versace manufactured its perfume named Gianni Versace Couture in a limited edition of one hundred bottles. Burberry, Mouawad and Gucci have used a similar strategy to market their limited edition handbags. Mouawad’s handbag was made of ostrich leather with a half carat diamond as an accessory (Meng-Shan, Cheng-Hao and Nguyen, 2015, p. 9).
The motivation towards luxury buying can be understood from three perspectives based on the behavior of the buyers. First, some buyers are enticed by the exclusivity of brands and they tend to buy from the expensive fashion houses where they are assured of avoiding replicas of the preferred items in the general public. Gucci in the 1990s won over the market using this strategy and Burberry adopted it later after it almost lost out as a luxury brand because it allowed numerous stores to stock its products (Meng-Shan, Cheng-Hao and Nguyen, 2015, p. 9). Secondly, the endorsement and use of a certain brand by an influential person increases its demand. The public tends to buy it because of this influence and the trend had been described by Leibenstein in 1950 as the bandwagon effect. Lastly, the ‘Veblenians’ are a group of buyers who purchase items with expensive prices just to impress themselves and others (Meng-Shan, Cheng-Hao and Nguyen, 2015, p. 10).
Fashion retailing
The retail sector is the largest within the larger fashion industry and contributes 1.2% of UK’s GDP (Hallberg, 2017, p. 3). The city of London leads in fashion retailing which is not constant and sellers such as Marks & Spencer
have to constantly customize their image, services and products to meet the ever changing needs and demands of the consumers (Donnell, Hutchinson and Reid, 2012, p. 907; Rush et al., 2018, p. 10). Characteristically, the UK market in fashion retailing is interested in well-designed but affordable clothes and trends are usually set by the London fashion centers. The clothing sector has particularly expanded because of the need for cheap and fast clothes. However, in 2011, the fashion market fell by 0.9% which is attributed to the increased competition with supermarkets (Donnell, Hutchinson and Reid, 2012, p. 907). The supermarkets had begun making and displaying clothes in their large stores which attracted consumers as they went about doing the routine household shopping. As such, the potential customers stopped visiting the fashion houses as they could readily get the clothes they wanted and at a relatively cheaper cost. The rise of internet sales and online shopping boosted the sectors as 15% of retail clothing is sold via the Asos, Boohoo.com and Amazon online platforms (Hallberg, 2017, p. 3). Through them, large fashion houses give discounts and sale offers as common marketing practice and further, goods could be delivered to the customers. The trend killed the smaller fashion retailers that worked independently as they could not cope with the economic difficulties after the 2008 global recession and the entry of supermarkets into the fashion world in 2011 (Donnell, Hutchinson and Reid, 2012, p. 907).
Another popular trend in UK’s fashion retailing is the use of social marketing and online sales through social media apps, conversational marketing where the public interacts with renown designers using specialized apps. The availability of free Wi-Fi in restaurants and commuter services also provide potential customers with the opportunity to access the latest fashion trends during their free time. Lastly, it is now possible to purchase items being showcased on the catwalk online (Hallberg, 2017, p. 6).
Female Fashion
The female fashion consumer is also becoming an influential group in trendsetting fashion especially the luxury brands (Meng-Shan, Cheng-Hao and Nguyen, 2015, p. 11). Womenswear account for 54% in UK’s fashion industry and in 2009, its sales reached 34.4 million dollars against $20.2M in men’s clothing (Mollá-Descals et al., 2012, p. 1443). The products include dresses, suits, coats, tunics, skirts, blouses, tops, t-shirts, shirts, sweatshirts, jumpers, sweaters, jackets (Shallu and Gupta, 2014, p. 101). The female gender frequently visits the fashion stores to make a purchase which is the main difference with the male. However, men spend more money in one shopping trip compared to women (Shallu and Gupta, 2014, p. 105).
Chapter 4: Research Methodology
Cronin, Ryan and Coughlan (2008, p. 38) and Nelson and Amayah (2010, p. 166) state that it is necessary to outline the process of obtaining articles used in the review of a subject. Keyword searches are universally used to formulate the search terms that assist in obtaining literature. Cronin, Ryan and Coughlan (2008) also posit that the keywords should be carefully selected for the output to be relevant to the study (p. 38). The present dissertation relied on secondary data both qualitatitative and quantitative that was recovered from published articles. A search strategy was developed using the keywords ‘austerity’, ‘human rights violation’, ’spending/purchasing power’, ‘fashion trends’ and ‘fashion retailing’ from the research question. Different combinations of these keywords were utilized and the boolean operator ’and’ was used to combine them to form appropriate search terms. The search was then performed on various databases among them, the Business of Fashion (BoF), clothing and textiles research journal (CTRJ), Journal of Consumer Research and Google Scholar. Databases with articles related to financial issues, Google Scholar and the Google search engine were also consulted to obtain literature on austerity in the UK.
The inclusion criteria were studies covering the UK and a publishing date from 2008 onwards (when the financial crisis began). The exclusion criteria applied was studies covering other countries, other sectors other than fashion and those published before 2008 as they covered austerity in other specific periods/scenarios such as the second world war.
Chapter 5: Results
The global economic crisis and the subsequent austerity measures in the UK altered consumer behavior in the fashion retailing sector. Consumer confidence receded and customers became more price and value conscious resulting in a fluctuation in the industry’s growth rate in the years before 2014 (Rayner, 2008, p. 1; Cambridge Econometrics, 2015, p. 15). In 2009, the proportion of consumer spending on fashion items and the apparel industry, in general, was 5.3% which demonstrated a decline in the importance of fashion items compared to the ’60s when 10% of the household budget covered fashion related items. Mollá-Descals et al. (2012, p. 1442) and Cambridge Econometrics (2015, p. 15) observed that in recent years especially after the 2008 crisis, the prices were deflated and although the sales volumes may have increased, the value fell as they were bought at lower prices compared to the years before the stringent austerity measures.
