Five challenges facing fashion retail in 2022 (2024)

1 Rising shop prices

In December, the Office for National Statistics (ONS) announced that the Consumer Prices Index (CPI), which tracks the average prices of a wide range of consumer goods, had risen by 5.1% in the 12 months to November 2021 – its highest growth rate in more than a decade. The ONS said this was driven in large part by fuel price hikes and the rising cost of buying clothing and footwear amid the ongoing supply chain disruption (below).

Further retail price increases are expected in 2022, as businesses continue to combat rising transportation costs and labour shortages. Data released by the British Retail Consortium (BRC) earlier this week shows overall shop prices rose by 0.8% year on year in December, although this was driven by food price inflation. Non-food prices fell by 0.4%, but this was below the 12-month average reduction of 1.7%.

BRC chief executive Helen Dickinson said: “The trajectory for consumer prices is very clear: they will continue to rise, and at a faster rate.”

She pointed out that consumers will also be contending with higher household costs in 2022, including surging energy bills, the looming hike in national insurance, and more expensive mortgages. With this in mind, the BRC is calling on the government to seek long-term solutions for the “resolvable” issues retailers are facing, such as labour shortages.

2 End of the high street cost ‘holiday’

High street fashion retailers have not been trading in a normal economic environment since the beginning of the Covid-19 pandemic, as they have been protected to an extent by government support packages such as the furlough scheme, grants, business rates holidays, and negotiated tax deferrals. Retail analyst Richard Hyman says the industry has been living and trading in an “economic twilight zone, where nothing is as it was”. However, this cost holiday will come to an end as 2022 unfolds.

The extended business rates relief introduced for retail properties in England, Scotland and Wales during the Covid-19 crisis will end or reduce at the end of March. That same month, a new rent arbitration system is set to come into force in England and Wales, covering rent arrears accrued while businesses were legally forced to close during the pandemic. The system includes a revised code of practice, which states that, where affordable, tenants should pay their rent arrears in full.

Meanwhile, retailers were not included in the government’s latest £1bn business support package, which was targeted instead at the hospitality and leisure sectors.

This, coupled with the growth of online shopping during the pandemic – the percentage of total spending on fashion made online in the UK is expected to grow to 52% in 2022, compared with 35% before the pandemic in 2019, research firm Retail Economics forecasts – means we may see more store closures during the year.

Retail Economics argues that the UK high street “needs [government] reform beyond business rates reductions” to prevent a £14.5bn hole in sales by 2025, including retail visa reform, Sunday trading changes and the return of tax-free shopping.

3 Brexit bureaucracy abounds

Another headache facing UK fashion brands in 2022 is the increased paperwork required to trade with the European Union, which could dent the industry’s Covid-19 recovery.

Since the UK left the EU in January 2020, retailers have experienced a two-year transition period that has given some cushioning from the full impact of exiting the bloc. This grace period comes to an end in 2022, and full import custom rules kicked in from 1 January.

To help prevent delays at the border or goods being held, fashion business importing goods from the EU will need to ensure they have all the correct paperwork at the point of import and a Certificate of Origin document on file. Read more

4 Continued supply chain chaos

Supply chain disruptions as a result of the labour shortages, Brexit and Covid-19 forced several fashion retailers, including Asos and Boohoo Group, to issue profit warnings in 2021. Suppliers Drapers spoke to at the end of 2021 predicted that this would continue well into the new year.

"One day it's fabric prices, then it's freight prices, then it's freight delays," one supplier said. “The longer this goes on, the more I think this may just be the new normal."

With so much uncertainty around when things will get better for the supply chain, particularly as the Omicron variant of the coronavirus continues to spread like wildfire, suppliers are demanding support from the government.

At company level, fashion retailers will need to adopt a more flexible, agile response in 2022 to help navigate the uncertain landscape, argues Anita Balchandani, head of apparel, fashion and luxury at consultancy McKinsey: “We’re seeing quite dynamic shifts in what customers are looking for and what they will buy. 2022 will call for agile responses, with the industry needing a much more flexible approach, following demand as it unfolds and evolves.”

5 Turning sustainability pledges into reality

Many fashion businesses, including Asos and Primark, published sustainability strategies during 2021. These incorporated targets such as cutting waste and carbon emissions, and improving workers' rights. But pressure is rising on retailers – from campaigners, investors and the general public – to turn their pledges into reality.

Alongside commitments towards more sustainable materials and reducing carbon emissions, the industry needs to scale up closed-loop recycling processes to achieve tangible improvements in 2022, warns management consultancy McKinsey.

Fashion businesses will need to invest further in areas such as material innovation, and improved industrial processes and manufacturing techniques. However, the actions required will not always demonstrate clear payback in the short term, meaning companies will have to update how they measure return on investment.

While Covid-19 initially led many businesses to prioritise survival, it also thrust sustainable principles and working practices into the spotlight. A survey of 2,000 UK consumers carried out by Drapers last summer found 75% think about sustainability when they shop for fashion, although many are still concerned about the perceived expense of sustainable clothing. Annual spending on ethical products in the UK surpassed £100bn for the first time at the end of 2020, as consumers became more aware of the climate crisis, a report published by the Co-op in December showed.

Awareness of the climate change crisis grew further during the United Nations Climate Change Conference, also known as COP26, which took place in Glasgow last November.To stay ahead of consumer expectations, fashion retailers will have to invest in creating meaningful change in 2022.