Coronavirus Shutdown Comes At The Worst Time For Luxury Fashion And Retail| Instant News


At this time, the devastating impact of the COVID-19 outbreak on retail is becoming known. March retail sales fell a record 8.7%, and it seems that virtual certainty that April numbers will be far worse given that the extensive closure of “non-essential” brick-and-mortar operations across the United States does not last until mid-month.

Unpacking these results reveals various results. Storage efforts, along with people who eat more at home, drive up spending in grocery stores and pharmacies. At the other end of the spectrum, department store sales (with a large concentration of fashion related offers) fell by around 25%, and Revenue from clothing and accessory stores reaches 52%.

It might be quite disappointing to say that such a deceleration could not have happened at a worse time. Moderate apparel players and department stores have faced huge challenges over the years, and many come into pandemics with weak balance sheets and what is deemed to be a weak liquidity position. In addition, for the luxury segment in particular, March and April are the peak months for full price sales, making them very important for profitability and cash flow.

Not surprisingly, retailers have worked frantically with vendors to cancel orders, return merchandise they have received and get special price-reduction allowances. At one level, this behavior is similar to what happened during the height of the financial crisis when Lehman Brothers failed in mid-September 2008, which started the cascade impact on stocks and consumer spending. In fact, when the COVID-19 crisis fell, it was almost exactly the same place in the fashion cycle – only one season.

The blow taken by luxury clothing and fashion retailers from the financial crisis was very severe. But the impact of the pandemic seems to be even more dire. In the fall of 2008, most retailers made major reductions to clear merchandise, and while sales and profits were very large, at least their physical stores were open, allowing customers greater opportunities to buy goods and giving many companies the opportunity to cover their goods. on. While the e-commerce penetration of some key players is much greater today – more than 30% in both Nordstrom

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and Neiman Marcus, for example – it is clear that relatively few customers are dominated by brick and mortar buyers who switch. So far, the volume of promotional offers has increased doesn’t seem to do much to increase demand.

It remains to be seen when most stores will reopen and in what operating conditions. While some consumers may switch back to their pre-pandemic behavior quickly and shamelessly, it seems that many will return to the physical store reluctantly, either because of security concerns or the realization that they can do good with less.

Either way, specifically for fashion merchandise, it’s important to remember that a fair amount of expenditure is driven by seasonal factors. While there is still (in part) hope for actual summer merchandise, the window of opportunity for selling the full price of traditional spring is closing fast. Bedtime retailers usually get from products purchased for school holidays, Easter, Mother’s Day and other spring events mostly lost. Most high school and college graduations do not occur as live events. And for luxury retailers who get a significant percentage of their sales from domestic and international tourists, well, that won’t come back in the future. In all these circumstances, there are effectively no hidden demands to catch the road.

For consumers with the interest and means to take advantage of what is likely to be a once-a-generation offer, this is a big win. For fashion and luxury retailers and vendors, unfortunately, the losses are likely to be historic and the potential for industry re-formation through store closure, bankruptcy and deep consolidation.

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