Deep Dive: Category Started to Slow

Home , Athleisure, Berlei, Bravissimo (company), Diesel (brand), Figleaves, Intimissimi

DECEMBER 7, 2016

1) The UK underwear market enjoyed strong growth in the period through 2014. However, beginning in 2015, the Deep Dive: category started to slow. British shoppers spent £3,167 million on underwear in 2015, down 0.1% year over year. Intimates 2) Intimate apparel in the UK is sold at a variety of retail formats, including lingerie and apparel specialist stores and department stores. A notable feature of the UK Category in undergarment market is that supermarkets are some of the biggest purveyors of underwear in the UK. the UK: 3) In the past few years, numerous innovative pure-play online lingerie and underwear retailers have been launched Market Growth in the UK and globally. These startups usually offer a point of product differentiation, such as undergarments in non- typical sizing ranges, customized fit and sizing through new and Leading technologies, subscription services, and styles and designs Retailers that merge comfort and practicality with aesthetics.

DEBORAH WEINSWIG Managing Director, Fung Global Retail & Technology [email protected] US: 646.839.7017 HK: 852.6119.1779 CN: 86.186.1420.3016

DECEMBER 7, 2016

TABLE OF CONTENTS

EXECUTIVE SUMMARY ...... 3 INTRODUCTION ...... 4 THE MARKET ...... 4 THE £3.2 BILLION UK UNDERWEAR MARKET SLOWS ...... 4 SEGMENTATION ...... 5 THE RETAILERS ...... 6 THE UK’S MAIN UNDERWEAR RETAILERS ...... 6 RETAILERS AND BRANDS ...... 9 INNOVATIVE ONLINE PURE PLAYS ...... 12 KEY TAKEAWAYS ...... 14

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EXECUTIVE SUMMARY UK consumers spent £3.2 billion on underwear in 2015, down 0.1% year over year. We estimate that UK underwear sales will grow at a pace of 1.5% year over year in 2016 and 2.5% in 2017. The emergence of a new category called “leisure,” which combines lingerie with athleisure gear, will help drive underwear sales. Women’s underwear made up 72% of the total underwear market vs 28% for men’s underwear in 2015. Although sales of women’s underwear grew at a faster rate than that of men’s underwear between 2010 and 2014, sales of both declined slightly in 2015. In terms of underwear brands, Calvin Klein, Triumph and Jockey dominate. Marks & Spencer (M&S) is the largest UK retailer of men’s and women’s undergarments, with a 6.7% market share in 2015, according to Euromonitor International. In the same year, some 9.2 million UK women bought underwear from M&S, according to Kantar Media. M&S allocates over 11% of store space to this category, more than any other retailer apart from Primark. However, M&S has been losing underwear market share over the past few years, as it has in the overall apparel category. Supermarkets are some of the biggest purveyors of underwear in the UK. Asda has the second-biggest market share, behind M&S, according to Euromonitor, and some 5.4 million UK women bought underwear from a supermarket in 2015, according to Kantar. Pure-play online retailers such as Amazon and ASOS are also meaningful purveyors of both men’s and women’s undergarments. Almost every specialty and fast-fashion apparel retailer—such as The Gap, H&M, Topshop, Next and Ted Baker—has branched out into lingerie and underwear. In the past few years, numerous innovative pure-play online lingerie and underwear retailers have been launched in the UK and globally. These startups usually offer a point of product differentiation, such as undergarments in non-typical sizing ranges, customized fit and sizing through new technologies, subscription services, and styles and designs that merge comfort and practicality with aesthetics. New sizing technologies are enabling companies to help shoppers find the perfect fit and the right size.

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INTRODUCTION In this report, we bring together the latest data and forecasts for the UK British shoppers spent £3,167 lingerie market in terms of market size, sales growth, segmentation, as well billion on underwear in 2015, as leading UK underwear/lingerie retailers and brands. We also introduce down 0.1% year over year. several new and innovative UK and global online pure-play underwear and lingerie retailers. For the purposes of this report, we define intimates as the total of briefs, boxers, trunks, bras and lingerie sets, camisoles, slips, garters, shapewear and sports bras. We divide the report into two main sections: The Market: We provide data and insight into the size, segmentation and prospects for the intimates market. The Retailers: We look at leading UK lingerie retailers and brands, as well as new innovative online lingerie startups that have been established in the last few years.

THE MARKET The £3.2 Billion UK Underwear Market Slows • British shoppers spent £3,167 billion on underwear in 2015, down 0.1% year over year, according to our analysis of data from Euromonitor. • Between 2010 and 2014, the market grew at a compound annual growth rate (CAGR) of 3.7%. The category saw a slowdown in 2015. • We estimate that UK underwear sales will grow at a pace of 1.5% year over year to £3,215 million in 2016. • In 2017, we forecast sales growth of 2.5%. The emergence of a new category called "leisurée" will help drive underwear sales. The leisurée category combines lingerie with athleisure gear.

Figure 1. UK: Total Sales of Underwear (Incl. Sales Tax)

GBP Mil. YoY % Change 2011 2,873 4.8% 2012 3,029 5.5% 2013 3,107 2.6% 2014 3,171 2.1% 2015 3,167 (0.1)% 2016E 3,215 1.5% 2017E 3,295 2.5% Source: Euromonitor International/Fung Global Retail & Technology

Approximately 315.5 million units of underwear were sold in the UK in 2015, according to Euromonitor.

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Figure 2. UK: Unit Volume Sales of Apparel

Mil. Units YoY % Change 2011 389.0 3.0% 2012 296.2 2.5% 2013 303.0 2.3% 2014 309.6 2.2% 2015 315.5 1.9% Source: Euromonitor International

According to Research and Markets, the global online lingerie market is expected to grow at a compound annual growth rate of 17% in 2016 to 2020. We estimate that the UK online underwear market will grow by 9.0% annually in 2017-20.

Source: Shutterstock

Segmentation Women’s underwear made up 72% of the total underwear market vs 28% for men’s underwear in 2015, according to Euromonitor.

Figure 3. 2015 UK Underwear Market Segmentation (%)

Women’s underwear made up 27.8% 72% of the total underwear market vs. 28% for men’s underwear. 72.2%

Women Men Source: Euromonitor International/Fung Global Retail & Technology

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Although sales of women’s underwear grew at a faster rate than that of men’s underwear in 2010-14, sales of both declined slightly at the same pace in 2015. According to a survey by Kantar Media in 2015, approximately 7.4 million UK women spent between £10 to £19 on underpants in the preceding 12 months. In the following chart, we highlight estimated bra and underwear expenditure made by UK female consumers. The data suggest that the majority of undergarment purchases are made at low price points, and that the average amount spent is higher for bras than for underwear.

Figure 4. UK: Estimated Number of Women Purchasing Underwear and Bras in the Previous 12 Months, by Amount Spent, 2015 (Thou.)

7,381

6,357 5,944

5,117 4,546

3,339 2,697

1,677 1,643 930 574 415

Less than £10 £10 to £19 £20 to £34 £35 to £49 £50 to £74 £75+

Underwear Bras

Source: Kantar Media

The Retailers The UK’s Main Underwear Retailers Intimate apparel in the UK is sold at a variety of retail formats, including M&S is the largest UK retailer lingerie and apparel specialist stores, mixed goods chains, department of men’s and women’s stores, and off-price and discount retailers. Pure-play online retailers such as undergarments, with a 33% Amazon and ASOS are also meaningful purveyors of both men’s and market share in the bra women’s under garments. category. Almost every specialty and fast-fashion apparel retailer—such as The Gap, H&M, Topshop, Next and Ted Baker—has branched out into lingerie and underwear.

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Source: Shutterstock

M&S is the largest UK retailer of men’s and women’s undergarments, and has a 33% market share in the bra category, according to management. The retailer allocates over 11% of store space to this category, more than any other retailer apart from Primark, according to Retail Week.

Figure 5. UK Leading Women’s and Men’s Retailers’ Shares of Underwear Market (%), 2015

6.7

5.4

3.2 2.4 1.6 1.4 1.3 0.9 0.9 0.8 0.7 0.6 0.4 0.4 0.3 0.3 0.2 0.2 0.1 0.1 Next Asda M&S ASOS H&M Tesco Inditex Arcadia Primark Matalan Figleaves Peacocks Sainsbury New Look Ted Baker River Island Debenhams SuperGroup Victoria's Secret

Monsoon Accessorize

Source: Euromonitor International

However, M&S has been losing underwear market share over the past few Specialty intimates retailers years, just like in the overall apparel category. According to Euromonitor, have lost market share to the company has lost 40 basis points of market share in women’s and men’s other distribution channels, underwear in the past five years. However, M&S flagged strength in the bra from 12% in 2012 to 9% in category during its last earnings presentation, despite weakness in overall 2015. company apparel sales. Management stated that it is focusing on undergarments as a core growth category. To further boost sales in the undergarment category, certain initiatives have been implemented, such as

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extensions to the size offering in the bra range and in-store bra-fitting events. Another interesting feature of the UK undergarment market is that supermarkets are some of the biggest purveyors of underwear in the UK. Asda and Tesco both feature among the top-ten underwear retailers in the UK. According to Euromonitor, Sainsbury’s is also one of the top-fifteen retailers at which UK consumers purchase their undergarments. Sainsbury’s Tu brand even launched a body-sculpting line in 2015. Discounters Lidl and Aldi also launched intimates lines in 2015 and 2016, respectively. According to Mintel, specialty intimates retailers have lost market share to other distribution channels, from 12% in 2012 to 9% in 2015. According to Verdict Retail, the market share of specialist underwear retailers will remain roughly flat in the next five years. Furthermore, according to a Verdict Retail survey, 21.6% of 16-24 year olds shop for underwear at underwear specialist stores, the highest penetration of all age groups. However, most underwear specialists focus mainly on the 25+ age groups and have limited Calvin Klein, Triumph and Jockey offers for younger shoppers. dominate underwear brands In terms of underwear brands, Calvin Klein, Triumph and Jockey dominate, according to Euromonitor. Below, we show the most popular underwear brands amongst UK consumers.

Figure 6. UK Leading Brands’ Shares of Underwear Market (%), 2015

6.7

5.4

3.2 2.7 2.4

1.5 1.3 0.9 0.9 0.8 0.8 0.8 0.7 0.7 0.4 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.2 0.2 0.1

Source: Euromonitor International

According to a Kantar Media survey of 24,282 UK female respondents aged 15 and older, an estimated 9.2 million women had purchased lingerie or underwear from M&S in the past 12 months in 2015. A large number of UK female consumers also purchased private-label undergarments from supermarkets and from apparel and specialty retailers.

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Figure 7. UK: Women’s Lingerie and Underwear Brands Ranked by Estimated Number of Consumers (Thou.), 2015

9,236 7,547

5,385 4,708

1,880 1,547 1,200 1,013 946 880 651 532 445 386 386 252 223 216 M&S Berlei Sloggi Playtex Lovable La Perla Gossard Triumph La Senza Prey Polly Wonderbra Calvin Klein Label Other Brands Private Label Ann Summers Supermarkets' Private Label Victoria's Secret Apparel Specialist Catalogue's Private Base: 24,282 women aged 15+ Source: Kantar Media We discuss some of the UK’s main underwear retailers and brands below.

Retailers and Brands Victoria’s Secret Victoria’s Secret UK sales increased 25.6% year over year to £106.4 million in FY15, for the year ended January 30, 2016. The UK business opened four stores during FY15 and did not report comparable-store sales.

Victoria’s Secret UK sales increased 25.6% year over year to £106.4 million in FY15.

Source: Shutterstock

Following its 2012 UK market entry, Victoria’s Secret operates 14 VS stores and 3 PINK stores in the UK. According to management, the company is only halfway in terms of its penetration of the UK market, and it believes the potential for Western European penetration is similar to that of the US market.

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Calvin Klein Underwear Calvin Klein Underwear is one of the most popular and widely distributed underwear brands for both women and men in the UK and globally. Calvin Klein Underwear is owned by US-based PVH and operates nine freestanding stores in the UK. The company increased UK store revenues by 21.8% year over year to £28.2 million in FY15, for the year ending January 31, 2016.

Triumph International Triumph is also one of the most popular and widely distributed underwear brands for both women and men in the UK and globally. Unlike Calvin Klein Underwear, the brand does not operate its own stores, but is distributed in department stores and mass merchandisers in the UK and globally. Triumph International was founded in 1886 in Germany, and has grown into one of the leading global lingerie and underwear manufacturers with distribution in 120 countries. In the UK, Triumph International products can be found in department stores Debenhams, John Lewis, House of Fraser and Selfridges, as well as on Amazon. Triumph UK revenues declined by 6.4% year over year to £30.8 million in FY15, for the year ending December 31, 2015.

Source: Shutterstock

Intimissimi The brand was founded in 1996 and owned by umbrella company Calzedonia. Intimissimi and Tezenis are the lingerie brands and Calzedonia is the hosiery brand. Intimissimi has over 1,200 stores in 31 countries. Calzedonia operates a franchising network model, and operated 18 stores in the UK as of December 31, 2015. Calzedonia’s (Calzedonia and Intimissimi) reported UK revenue growth of 7.5% year over year to £15.4 million for FY15, for the year ending December 31, 2015.

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Source: Shutterstock

Bravissimo Bravissimo is a UK-based women’s lingerie brand founded in 1995. It operates 25 stores across the UK, as well as an online platform. The company is focused on large bras sizes of D and higher, and carries a variety of brands. The company reported sales of £49.1 million in FY15, for the year ending October 31, 2015, and comparable-stores sales increased 3.3% year over year.

Boux Avenue UK-based women’s lingerie retailer Boux Avenue was founded five years ago, and operates 28 UK stores and 12 stores in five countries. The company also has a strong online presence. UK sales increased 35% year over year and comparable-store sales grew 18.9% year over year in FY15, for the year ending March 28, 2015 (latest available data). However, the company was not profitable, despite a declining loss.

In the past few years, numerous tiny innovative pure-play online lingerie and underwear retailers have been launched in the UK and globally.

Source: Shutterstock

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Amazon Amazon could emerge as a major seller of intimates and underwear. The company is already popular for apparel basics and staples.

Figleaves Figleaves is a UK-based online retailer of lingerie and underwear offering a large variety of brands. The company was purchased by N Brown Group in 2010.

Bluebella Bluebella is a London-based lingerie designer and retailer founded in 2005. Bluebella distributes through UK department stores Debenhams and House of Fraser, as well as Next and online-only retailers such as ASOS and Figleaves. The company also has a strong online presence and ships to 20 countries. Bluebella plans to expand in the US next year by distributing through Nordstrom and Bare Necessities, and aims to sell 10,000 bras monthly in North America.

Source: bluebella

Bluebella’s collections can be characterized as modern and stylish at affordable prices, targeting women aged 18-35 years old. The company had sales of £3.6 million and profit of £350,000 in 2014. Bluebella has also launched an equity crowdfunding campaign on Crowdcube to raise £500,000.

Innovative Online Pure Plays In the past few years, numerous tiny innovative pure-play online lingerie and underwear retailers have been launched in the UK and globally. These startups usually offer a point of product differentiation, such as undergarments in non-typical sizing ranges, customized fit and sizing through new technologies, subscription services, and styles and designs that merge comfort and practicality with aesthetics.

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New sizing technologies are enabling companies to help shoppers find their perfect fit and the right size. This is particularly helpful for bra fitting, as 70% of women wear the wrong bra size.

Lively Lively is a New York-based pure-play online retailer that launched in April 2016. The company is positioned in the “leisurée” category, combining lingerie with athleisure and style with comfort. The company has raised a total of US$5.5 million in investment funding, and ships to every US state. Lively’s largest customer group is 25-35 year-old females. The company is planning to open a pop-up in SoHo, New York next month, following two temporary shops in Montauk, New York.

Lincherie Lincherie is a Netherlands-based lingerie retail chain that sells a variety of brands. The company is known for its unique fitting-room service. Lincherie opened a unique showroom in Amsterdam where customers can try on Many online underwear underwear in a fitting room with a digital mirror and discover their correct subscription services have bra size. Products cannot be purchased in-store, but can be ordered sprung up in the UK, the US through a tablet and delivered within 48 hours. The store’s fitting rooms use and Australia. 3D-scan mirrors that take 140 measurements in one minute, enabling perfect bra sizing. In addition to the showroom in Amsterdam, the company operates 35 stores and a web shop in the Netherlands.

Bare Necessities US-based Bare Necessities is an online undergarment retailer founded in 1998 that sells intimate apparel and underwear for women and men. The company sells a large variety of brands and products in plus sizes. For example, the company offers 150 brands and bras in over 200 sizes.

Source: barenecessities

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Online Underwear Subscription Services Many online underwear subscription services have sprung up in the UK, the US and Australia. The subscription services consist of paying a fixed monthly fee and being shipped one to three pairs of underwear a month, and subscription tiers are based on brand, quality and required number of items. Some startups specialize in plus sizes or sizes outside of standard sizing. Several of the startups have raised investment funding of over US$10 billion each. One such UK online underwear subscription service for men is called Briefd. The company has a two-tier subscription service consisting of one pair of underwear per month for £17.99, or a higher-end pair for £23.99 a month shipped to customers every month. Brands include Armani, Hugo Boss, Calvin Klein, Ralph Lauren, Tommy Hilfiger, French Connection and Diesel, amongst others.

Source: briefd.co.uk

KEY TAKEAWAYS The UK underwear market enjoyed strong growth in recent years. However, beginning in 2015, the category started to slow. Women’s underwear made up 72% of the total UK underwear market vs. 27.8% for men in 2015. Intimate apparel in the UK is sold at a variety of retail formats, including lingerie and apparel specialist stores and department stores. A notable feature of the UK undergarment market is that supermarkets are some of the biggest purveyors of underwear in the UK. In the past few years, numerous innovative pure-play online lingerie and underwear retailers have been launched in the UK and globally. These startups usually offer a point of product differentiation, such as undergarments in non-typical sizing ranges, customized fit and sizing through new technologies, subscription services, and styles and designs that merge comfort and practicality with aesthetics.

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Deborah Weinswig, CPA Managing Director Fung Global Retail & Technology New York: 917.655.6790 Hong Kong: 852.6119.1779 China: 86.186.1420.3016 [email protected]

John Mercer Senior Analyst Eva Kubicka Senior Research Associate

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