(First Published in January 2009) No, this is not a treatise on global warming. The polarization referred to here is that of markets moving in diametrically opposed directions. Over the next few years, we will see a significant shift in demand for apparel and other fashion goods.

Polarization The shift in demand for apparel and other fashion goods will be toward both the high and low ends of the market, with shrinking opportunity in the middle. After the major rationalization in retail capacity that is currently underway (an estimated 150,000 retail doors closed in 2008, with another big number expected to close in the coming year), the new retail environment that emerges like a phoenix from the ashes will look quite different from that of today.

A Tight-Fisted Consumer Despite the fact that inflation has declined, a lack of consumer confidence has caused people to become increasingly resistant to part with their hard-earned cash. Market research indicates that holiday shopping budgets were strictly adhered to. Shoppers expended more effort to find the best price, even rising at 2:00 a.m. to get in line at the local discounter for early bird specials. You could not even enter a luxury store without seeing 30%-, 50%- and even 70%-off signs during the peak of the holiday season. 

Apparel Has Suffered The Most Personal spending on clothing and footwear declined on a smoothed annualized basis for the first time in over 6 years. People have decided they would rather have money than clothes. Like most recessions, however, this one contains the seeds of the next expansion. Eventually apparel wears out, or becomes outdated, and people have to shop again.   

The Value Offering The downward migration has already begun. It seems like all we’re hearing about these days is value. Wall Street’s obsession with discounters - as though they have a corner on the value retail market - caused Family Dollar’s stock to rise 30% and Wal*Mart’s 15% in 2008 in a year during which the average stock plunged 34%. The problem is that many industry observers are thinking too much in clichés. Value is not just low price, it’s a total equation. The value equation can be represented quite simply by the following expression:

Purchase (numerator)  ÷  Cost (denominator) = VALUE

Fashion Customers Left Wanting High-end consumers will not be satisfied with the current value offering. They don’t want ton-and-gun product, they want stylish, different, fashion. They want a shopping experience they can’t get at Wal*Mart or H&M. They want brands, but have found current department store labels stale and directionless. Boutiques, though more interesting, are expensive, small and inaccessible. 

How To Capitalize on this Demand For Value In the coming seasons, middle market players will need to move up, move down, or get out of the way. If you’re selling moderate product destined for the moderate market, it’s time for a change. If  you’re big enough to lower cost of goods sold without compromising quality, you need to become the low-cost supplier. If you’re not big or important enough, you have no choice but to improve your product style, quality, and/or brand image.

High-End Value: A Paradox? Not at all. The truly innovative will devise an entirely new value proposition. They will dramatically increase the numerator in the equation above, while holding to a minimum any rise in the denominator, drastically changing the face of what we call “luxury” today. These brands will capitalize on the market’s desperate need for a new concept. Surviving department stores will seek an entirely new vendor base, and a crop of apparel specialty stores will emerge that do not exist today. The rest will either reinvent themselves or fade into oblivion. 

The value of the purchase increases not just by lowering the denominator, but also by increasing the numerator. In fact, as long as the numerator increases proportionately more than the denominator, value increases.

Judith Russell is Executive Editor of ApparelStrategist.com

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