The fashion industry is a global powerhouse, from haute couture brands to low-cost high street sellers and the manufacturers that supply them. In the UK alone, the fashion industry contributes over £20 billion to the economy – with consumers spending upwards of £45 billion on clothing and textiles annually.
But fashion, of course, does not exist in a vacuum. Just as tastes and styles are influenced by movements and cultural shifts, the business side of fashion is influenced by the movements of the markets around which – and within which – it operates. Fashion is global even for national businesses and brands, exposing them to the currencies and economics of an international playing field. But what impact can this have on the industry?
The Fashion Industry Landscape
First, it is important to understand the present moment for the fashion industry, in national terms. While the industry continues to represent billions of pounds in consumer spending, it nonetheless took an existential knock during the coronavirus pandemic in 2020 and 2021. High street retailers were forced to close their doors, and a number of a high-profile household names were forced into administration.
Meanwhile, e-commerce experienced a consumer rally of its own, with online shopping continuing to grow in popularity – to the extent that leading online brand Asos was in a position to buy out failing high street brand Topshop.
Fashion and the Exchange Rate
But, as acknowledged before, fashion is a global industry. Budget brands are able to sell high-street fashion at low cost thanks to a global network of manufacture and distribution; likewise, UK-made fashion lines make much of their money from exporting to clients in other countries.
The result is a market that makes constant use of foreign exchange, or forex. Forex markets describe the shifting value of currencies in relation to one another, usually in the form of currency pairs. One of the most important currency pairs to the UK fashion industry is the GBP/USD – the pound sterling, against the dollar.
The pound is currently falling fast against the dollar, and has dropped to its lowest relative value since 1985. As a result, the pound buys fewer dollars – resulting in a significant drop in spending power. Not only do fashion exports bring in less money, but imports of wholesale materials and items are also increased significantly in cost.
Unique Inflationary Pressures
This comes at a unique time for the British economy, when rampant inflation has impacted the spending power of millions of households. A consumer squeeze is underway, and recession fears are rampant. The only solution for the industry, to combat rising costs and reduced spending power, is to raise prices – something which could feed the recession spiral.