A lot can change in a week but even more so in the face of the COVID-19 pandemic. Many industries have started to feel a pinch on their pockets. Automotive manufacturers have shut down plants, the hospitality industry looks rather inhospitable and retailers have announced that they are closing their bricks-and-mortar stores for the foreseeable future. Fortunately, for many retailers the closure of physical stores does not mean that business comes to an abrupt standstill as consumers can purchase goods online.
Initially, brands may benefit as consumers turn to e-retailers either due to boredom, needing new ‘work from home’ attire or wanting to meet their shopping needs while brick-and-mortar stores are closed. However, despite this, many retailers are not overly optimistic about the longevity of the initial boost to e-commerce sales. According to initial forecasts from research group ‘GlobalData’ clothing and footwear in the UK is expected to decline by £11.1bn in 2020 due to the virus.
The coronavirus forced factories to close throughout China, throwing the fashion supply chain into chaos. Though factories have slowly reopened, many are resuming work at a diminished capacity. Additionally, further travel restrictions have been implemented more widely and will inevitably create logistical bottlenecks, impacting both inbound and outbound supply chains. The fashion sector, similar to other sectors, is fragmented inasmuch the different steps required to make a garment take place in different locations globally. For example, what is produced in China may be sewn into a final product in Vietnam. If there is a backlog in one aspect of the supply chain the whole process is slowed down significantly. Despite China slowly returning to normal the virus has spread to other countries and more manufacturers suffer from social distancing and lockdown procedures which is likely to cause delays in the rest of the supply chain.
This is unlikely to have any immediate consequences for brands like UK high street retailer Next which operates on a more seasonal basis. However, fast fashion brands such as Zara and Boohoo which release new collections each week rely on a supply chain that can respond to this demand and therefore may feel any impacts almost immediately. Overall, fashion brands with a high stock turnover are likely to be impacted sooner than those with low stock turnover.
The UK is anticipated to be under lockdown until at least the end of May/June but normality is unlikely to resume until September. As a result, many summer events which drive demand including weddings, graduations, festivals and summer holidays are likely to be postponed or cancelled. The lack of occasions requiring new outfits for many is likely to transfer into a lack of sales. Even Next CEO Simon Wolfson has stated that “people do not buy a new outfit to stay at home”. Therefore, demand will likely drop for all retailers, both high street and fast fashion.
Additionally, Boohoo and ASOS have faced scrutiny concerning the health and safety of their workers in warehouses. Already some retailers including Next and Net-a-Porter have announced the closure of their online websites. Over the next few weeks, other fashion retailers may face a similar fate as questions regarding what is truly considered to be ‘essential’ are raised.
Once normality resumes retailers, despite cancelling or postponing orders, will have an excess amount of stock which will need to be sold at a reduced price thus dampening profit margins. This issue will be exacerbated further if retailers are unable to shift any stock due to websites also closing. Therefore, it is hard to be optimistic about the state of retail once the virus passes and whether it can ‘bounce back’. Some believe that after months of social distancing and self-isolation consumers will be more likely to spend money on leisure and experiences rather than clothing. The worry will be that insatiable consumer appetites for the latest trend that fast fashion retailers rely on may not bounce back as quickly as the supply chains that support them.
For further information regarding the impact of COVID-19 on vertical sectors including Retail, Pharmaceutical and Automotive follow this link for more information on Ti’s latest report, Global Contract Logistics 2020: COVID-19 Impact Analysis
Source: Transport Intelligence, March 30, 2020.
Author: Beth Poole