Of all the categories of retail that have suffered from the coronavirus pandemic, fashion has arguably been hit the hardest. Retail Week looks at five key considerations that will see fashion retailers through to the other side.

  • Liquidity is key and fashion retailers should suspend all “but the most essential outgoings”
  • Maintaining good relationships with suppliers will pay dividends long term 
  • Social media and social purpose are central to retaining customers once the crisis is over 

While the ongoing coronavirus pandemic has decimated many sectors of retail, apparel has been one of the worst affected.

The impacts have been felt already. Since the government closed all non-essential retail stores on March 24, a number of already ailing retailers, such as Debenhams and Cath Kidson, have been left on the brink and drafted in financial advisers.

Debenhams_Oxford_Street_corner_3x2_

Debenhams has filed a notice of intention to appoint administrators 

Philip Green-owned giant Arcadia has also been mulling the possible closure of “dozens of stores” across its stable of brands outside those earmarked for closure in last year’s company voluntary arrangement. 

The virus has also halted the turnaround of many fashion retailers. On February 11, New Look’s financial results for its third quarter highlighted that it had nearly dragged itself back into the black. By the end of March, it was writing to landlords requesting three-month rent holidays and had ceased all production. 

Many fashion retailers thought they would be able to leverage their online arms to see them through, but that has also proven difficult. 

Research by GlobalData found that coronavirus could wipe out one fifth of all UK fashion spend in 2020

Next is perhaps the best case in point. The multichannel retailer chose to suspend its lucrative online business four days after closing stores, despite it generating more than £2bn in revenues in the year to January 2020.

Research by analytics firm GlobalData published last month found that coronavirus could wipe out one fifth of all UK fashion spend in 2020 – a conservative estimate of some £11.1bn this year.

Coronavirus has also presented profound challenges to even the most resilient of pureplay fashion retailers, as Asos’ recent financial announcement last Tuesday proved. 

Despite reporting a “record” uplift in profits for the six months to February 29, the pureplay fast-fashion giant said it had launched an equity raise of more than £200m to offset disrupted trading due to the virus.

It also said sales over a three-week period in March had fallen by 25% and that it had been in discussion with lenders about extending its existing revolving credit facility by £60 to £80m, and would also apply to the Bank of England for a business interruption loan. 

Against this backdrop, what are the common qualities that define who will weather the storm? Retail Week spoke to a number of experts to see what fashion retailers will need to have in order to survive the coronavirus pandemic.

Cash and liquidity

First and foremost, the most important thing for any fashion business now is ensuring they have enough in cash reserves to survive.

Strategic retail adviser at EY Martin Carr perhaps sums this up best when he says: “Before you start worrying about what the future looks like, you’ve got to ensure that you’ve got one.”

He suggests fashion brands should look to suspend all “but the most essential outgoings” in terms of expenditure in the immediate term and effectively go into a form of hibernation to try to ride out the crisis.

Global research director at GlobalData Maureen Hinton agrees, and says that fashion brands should also be looking to make the most of the government’s raft of new measures designed to support struggling businesses.

“Before you start worrying about what the future looks like, you’ve got to ensure that you’ve got one”

Martin Carr, EY

Over the past few weeks, chancellor Rishi Sunak has unveiled measures to help support businesses in the face of the pandemic, including the large and small coronavirus business interruption loan schemes, the coronavirus job retention scheme and new lending facilities through the Bank of England.

Once immediate cashflow issues have been sorted, the reality remains that the majority of fashion businesses are still going to need to look to banks, lenders or, where applicable, shareholders for either top-up loans or injections of fresh funds.

EY’s Carr says this will require them to make detailed trading forecasts for the next few months based on “sensible assumptions”. By doing this, Carr says fashion brands will be on a stronger footing when they sit down to talk to lenders or shareholders.

“What’s critical is that any business needs to have clear, concise forecasts over the next few months for trading. There’s so much that’s unknown out there at the moment, but you need to be able to communicate to banks and lenders.

“To do that, you might have two or three scenarios, but it needs to be clear to demonstrate that you’ve got a clear plan for protecting your business in the short term and maximising opportunities as they emerge.”

GlobalData’s Hinton adds that it’s also important for listed fashion retailers to be able to engender confidence in shareholders when it comes to fundraising.

Inventory and supply chain

One of the big knock-on effects of the catastrophic slowdown in retail sales has been the mass cancellation of orders by many large retailers from suppliers.

Bangladesh factory workers

Primark has set up a fund to cover the wages of factory workers in countries such as Bangladesh

While many retailers have chosen not to pay suppliers outright, GlobalData’s Hinton says this will not only destroy relationships in the short term, but will also lead to shortages in stock availabilities in the future.

She says maintaining good relationships with suppliers during this period will lead to better stock access and a more agile supply chain when the crisis is over.

“If you can keep a good relationship with suppliers through this, and suppliers can keep their businesses going, you’ll be in a better position at the end of it because loyalty is going to be really at a premium,” she says.

The issue has already proven a divisive one in the sector.

Fashion giant Primark has won plaudits for setting up a fund to cover the wages of factory workers in countries such as Bangladesh and Pakistan after it cancelled orders. H&M also confirmed it would pay suppliers for orders that had already been manufactured. 

New Look, by contrast, has come in for criticism with its decision to suspend payment to all suppliers “indefinitely”. While certainly not alone in the fashion space in making this decision, it has been one of the largest and most high-profile examples – and one that commentators believe could damage the business’ recovery in the long term.

“There’s a renewed interest in social responsibility, so those brands that keep to their commitments are those will that maintain their value in future”

Lorna Hall, WGSN

WGSN director of retail Lorna Hall says that, while scraping together the cash to pay suppliers and factory workers abroad may be tough on businesses now, fashion brands should see it as an investment in brand equity for the future.

“There’s a renewed interest in social responsibility, which is evident in both the customer and the financial stakeholder communities, so those brands that keep to their commitments are those will that maintain their value in future.”

Reduced new stock availability will require greater agility from fashion retailers as they cannot use previous years’ data to predict the categories that will sell post-coronavirus, and when each category will be popular.

Instead, retailers that will survive as the pandemic eases are those able to work with their suppliers to ensure shorter lead times and smaller volumes of stock in order to test the market quickly and flexibly.

Change with your customers

During lockdown, categories like loungewear and sportswear are thriving as consumers get used to conducting their daily lives from their homes.

However, once it is over, Hall believes that fashion retailers will need to be prepared for the new world that emerges and lifestyle changes that will stick around long after restrictions are lifted.

PPE mask production

Some retailers have given up manufacturing facilities for the production of medical equipment 

“What we have to remember is that a lot of fashion retailing is events-based – festival shops and holiday shops are really popular – but with lots of these events cancelled and postponed this year, retailers will need to prepare for changes in their strategic plan. Festivals could, for example, take place later in the year in the winter, which would change the requirements for festival clothing.”

Principal fashion analyst at Kantar Anusha Couttigane agrees and says retailers currently enjoying a sales boom in certain categories must be aware that customer demand will shift.

“While loungewear has seen a spike in popularity in recent weeks, the category is not immune to seasonal changes,” she says.

“When lockdown first began, consumers were looking for warm, cosy and comfortable clothing, but now the UK is experiencing a heatwave, demand for these items could drop off.”

Hall also questions whether, once restrictions lift, customers will immediately start returning to festivals or even going on holiday given the likelihood that many will be facing tight personal budgets.

“Those who do choose to go abroad may be going to different locations or at different times of year, only decided once the full extent of travel restrictions is known. Holidays in the UK, or in other new locations, require new types of holiday outfits that retailers will need to plan for.”

Hall also notes that retailers should prepare for the micro lifestyle changes consumers have made during lockdown that may continue once it is over.

She predicts that, post-pandemic, many consumers may still be wary of travelling on public transport, for example, so may look to buy more long-lasting outdoor wear or sports equipment like bicycles.

With less spend available, retailers need to be prepared for a new type of consumer, who may shirk events-based purchasing patterns in favour of purposeful, practical items when the need arises.

Social media and social purpose

Staying in touch with customers and remaining front of mind has never been more important for fashion retailers than during the coronavirus crisis.

Trying to strike the right balance with relevant and targeted communications that don’t come across as profiteering or overly sales-focused is key.

Nike

Nike has been livestreaming fitness classes to its customers during the pandemic 

GlobalData’s Hinton praises the likes of sportswear giant Nike and athleisurewear brand Lululemon, who have been harnessing the power of livestreaming to broadcast fitness classes into people’s homes during the lockdown.

In a similar vein, health and beauty brands, such as Kiehl’s and Glossier, have been ramping up digital make-up and skincare tutorials for customers. 

For WGSN’s Hall, however, it’s not enough just to have relevant communications. She says brands must be more granular at this time and boil communications down to the community level.

“Social channels are changing,” she says. “It’s not enough for brands to just broadcast out to their followers on social media; they need to be part of the community.”

One aspect of good communication involves highlighting the good things your brand is doing during this time of crisis.

The likes of Inditex, H&M and LMVH have all won press and customer plaudits in their home regions by giving over their supply chains and manufacturing arms to the production of hospital-grade personal protective equipment for frontline medical staff.

GlobalData’s Hinton says that, while it can be easy to become “cynical” about business-for-good initiatives, these kinds of gestures will be remembered once the crisis is over – both by consumers and by shareholders.

“Events like this are good telltale signs of how committed retailers really are to the policies they have outlined, and whether they treat them as ‘nice-to-haves’ or fundamental”

Anusha Couttigane, Kantar

However, for Kantar’s Couttigane, the ongoing coronavirus crisis is obscuring some of the issues the fashion sector was just beginning to get to grips with around sustainability.

She says that the consumer’s awareness of fashion’s impact on the planet has not gone away because of coronavirus, and brands that use the pandemic as an excuse to drop the ball when it comes to the environment will come under scrutiny.

“Although we’ve had a lot of conversations about sustainability as an industry, events like this are good telltale signs of how committed retailers really are to the policies they have outlined, and whether they treat them as ‘nice-to-haves’ or fundamental parts of their business,” she says.

Promotional strategies

Regardless of what season the coronavirus pandemic ends in, all experts agree that the fashion landscape at the time will be highly promotional as retailers try to clear out as much old and redundant stock as possible.

Even before the virus struck, the fashion market was a very promotional one. Data published in mid-March by LovetheSales.com showed that there were 43% more discounted products on the UK high street than for the same period in March 2019.

Carr says it will be vital for fashion retailers to have worked out a sound promotional strategy for when stores open again in order to stand out in a crowded market place.

“When we do open up again, one thing for sure is that the market is going to be flooded with heavily discounted products everywhere you look, because everyone is going to be clearing stock and competing for what, in essence, will be a constrained consumer,” he says.

Kantar’s Couttigane believes that this build-up of out-of-season stock will also be good news for a number of discount fashion retailers.

“There are retailers who could stand to benefit from the surplus inventory available after the pandemic is over,” she says.

“Off-price retailers such as TK Maxx base their whole business model on buying excess stock, so even in this dire context winners can still emerge to take advantage. This could change the dynamic of which channels are thriving.”

The fashion sector is being tested like never before and, while the immediate future is uncertain, there are steps retailers can take to ensure that, when lockdown is finally lifted, they will be able to re-emerge alongside their customers.