Fashion’s "Perfect Storm" is upon us

You may have seen my post covering the salacious reporting on Philip Green who has been quoted as “asking the taxpayer support to prop up Arcadia”. I know that there are plenty of people who will have a lot of bad things to say about Mr Green and I’m certainly not writing this post in his defence. After all, he is someone who is more than capable of fighting his own battles. However, I do feel that we have to remember that he did not create the current Covid-19 crisis, nor did (or any other business owner for that matter) have any inclination that he would ever have to deal with a situation like this in his career.

Of course, it is easy to see why the newspapers have decided to focus on the personal wealth that this man has amassed. Especially when there are so many “ordinary folks” particularly ones who work in companies just like the ones that Philip Green owns, who are struggling. It makes for a great headline and above everything else, it sells papers. However, it is created just for that, it is not necessarily true and sharing stories like this does not have any benefit to anyone, apart from the papers themselves, driving up their sales and creating a fear and hatred culture amongst those who read them.

If you ask me, I would much rather that they took the opportunity to focus on the very real challenges that are being faced by the entire fashion industry at the moment.

Forced Store Closures

Being forced to close stores is just the tip of the iceberg for the fashion industry. Many retailers would have been gearing up for the surge of purchases made during the Easter holidays, only to find that instead of an increased cashflow, there was a complete shutdown.

Along with the shutdowns, the retail companies are still needing to pay the rent that is due on their stores and of course, they have so many staff members that also still need to be paid too. The only option many retailers have is to lay off those staff members, or, if they can, request support from the Government as a part of their furlough scheme.

Another thing to remember is that the stores are still going to be full of stock on the rails and all of these items are going to be gathering dust. You may think that it is only food that has a perishable nature, but the truth is that fashion does too. The longe that it sits on the rails, then the more that the value falls away.

During the last 2 weeks of the lockdown the value of the items that are unsold will have dropped by at least 40%, although this is based on the assumption that people are still buying clothes that are designed for colder weather, given the glorious sunshine that we seem to be enjoying and the ever approaching Summer months that are on their way.

Consumers are still getting their clothes in other stores

If the fact that these retail stores were shut wasn’t enough of a hit for companies like Arcadia, JD Sports, Superdry, Next, New Look, and Frasers (Sports Direct) there is also the fact that there are still stores which are open selling clothes, supermarkets.

Supermarkets are not only benefitting from the panic buying that we have seen of late, but they are also open and still trading as normal due to the fact that everyone needs food. These supermarkets are also benefiting from the fact that they can also sell general merchandise and clothing too.

Clothing stores have been deemed as not being an essential shop, which is why they have been closed, however the same rules do not apply to the clothing departments within a supermarket.

Clothing retailers are being made to watch as the large supermarkets are taking away their share of the market, often just across the road from where their store sits shut and shutters down. Can you imagine how that must feel for a business that you have worked so hard to build up to the success that it is today?

Supermarkets and the retail stores; what is essential?

Please believe me that this post is not meant in any way to attack large supermarkets as they are doing an amazing job making sure that the general public can get everything that they need during lockdown, whilst keeping them safe. I am also not advocating a relaxation of the current lockdown in order to keep clothing retailers open.

I am more writing this post as a way to point out that there has been an unwanted side effect caused by the lockdown to those who are not food sellers.  We have created a situation whereby supermarkets are experiencing an unprecedented sales boom as well as the ability to take market share from those other retailers selling items such as fashion and toys, who have been locked out of the game for the foreseeable future.

One retailer that you may have seen in the news, decided to make somewhat of a stand, is the owner of Sports Direct, Mike Ashley.  He saw that supermarkets (often located close to his stores) were still open and they were still being allowed to sell clothing and sports goods, while his stores were not allowed to stay open, even after employing the same social distancing rules that the supermarkets were implementing. 

After making this opinion public and stating that he was going to keep his stores open, Mike Ashley saw a huge backlash from the general public, the media and also the Government too.  However, I believe that he could have been forgiven for making such a hasty decision, based on his belief that Sports Direct actually provided essential goods to the public.

His stores do sell bicycles, which are a part of the “essential purchase group” and at the time of him being in the media, we were at the beginning of the lockdown process and many of us (including him) were simply not aware of the full impact that Covid-19 was going to have on all of our lives.

It didn’t take long for Mike Ashley to reverse his decision and of course, he was absolutely right to do so.  However, you have to see from his point of view, how frustrating it must have been at the time to be told that he cannot open his stores, then openly criticized for trying to keep his business running, while food retailers continue to stay open and sell non-essential items in their stores.

Online trading is no party either

Faced with closing stores, many retailers are working frantically to improve their on-line presence in order to keep their heads above water. However, this doesn't come without any issues. There are already clothing stores that operate solely online and are doing well at what they do (ASOS, Boohoo, Pretty Little Thing etc) and the truth of the matter is that even online sales of clothes have reduced, after all, you don’t really need to buy new clothes if you are simply sitting at home all the time.

Another consideration for these online retailers is that they are now being criticised for putting the lives of their staff in the warehouses and distribution centres at risk.  Next and River Island are two big name retailers who decided that they should close their online operations and whilst ASOS, Boohoo and Sports Direct continue to accept and fulfil online orders, they have done so whilst being heavily criticised in the press.

Again, looking at it from their point of view, these retailers are portrayed as villains in the press, whilst the supermarkets are being supported and even seen in a positive light for continuing to trade, when their operations work much like many of the distribution centres of the clothing retailers online. Again, I’m not advocating that clothing retailers should be allowed to re-open; I’m just pointing out that the line between essential/non-essential is a little vague.

Meanwhile, the clothes keep coming...

Stores were closed just as we approached Mother’s Day in the UK and we are now rapidly approaching Easter. This means that there is a whole wealth of stock that is locked down in warehouses and even with the best efforts, there is no way that online trade is going to help to reduce this stockpile any time soon.

Along with this, these retailers still have stock that is in transit to them, having left their manufacturing factories some time ago. Once this stock is received into a UK port, this means that the ownership has transferred from supplier to retailer and they must now find a home for that stock.

Of course, the stock could simply remain within the container at the port, but, each container will be charged at a storage rate of ￡120 per day. Fashion retailers are left between a rock and a hard place. They simply do not have the capacity in the warehouses for all of this stock and they then have to find money in order to pay for the stock to be stored elsewhere; all at a time when no money is coming in from sales.

Opening stores will not release the pressure any time soon

Once the current lock-down is lifted, then it won’t be a simple case of reopening the stores, most of the stock currently in those stores is no longer going to sell at full price……..

Retailers are going to have to ensure that their staff are there to pull out the old stock to make way for the new stock to come in.  The old stock is going to have to be stored somewhere, which again is going to be at the cost money they don’t have at the moment.

We should also keep in mind that there is unlikely to be a shopping frenzy, even though many people haven’t had the chance to shop for some time. Instead, social distancing is likely to still be in effect, which means that the number of people allowed into a store is going to be heavily reduced and the time within the store will be limited.  This will limit the number of sales that stores can make and will reduce their revenue. All putting additional strain on those retailers when they really need a sales boost to recover their losses to help get back on their feet.

The future will be different

So, needless to say it’s a very tough time for fashion retail and it’s not set to get better anytime soon. The next twelve months will be significantly different, as we have already explored the impact that social distancing is going to have on in store purchases. 

Retail was already changing due to the imbalance between business rates on-line & physical stores, which was driving down footfall on the High St. Add into this the Covid-19 situation and we will see this change accelerate faster than we ever imagined it would.

Three key changes to look out for during the next 12 months:

1. Footfall is unlikely to ever recover to “pre-coronavirus” levels. In fact, during the next 12 months social distancing will make any short term recovery near impossible.
2. Social distancing will help drive more sales on-line.  Shoppers will become used this, to changing their habits for the future.
3. Brand Experience will be key.  Stores will need to bring the brand experience to life so that they can support on-line sales against pure play on-line retailers who don’t offer that ability for consumers to interact with their brands.

Government needs to do more........... It goes without saying that the Government has put in place short term support for those retail stores that are struggling. The introduction of the ability to furlough staff and the financial help with business rates is going to help, but it is unlikely to be enough to really support fashion retailers.

The huge cost of unsold stock (let’s not forget with more stock on the way) and property rents will still weigh heavily on fashion retail.  This means more will need to be done if we want to see this important industry survive and continue providing valuable local jobs across the country.  

Now, more than ever, we need a review of how retail property rates are calculated.  If the Government believes we can go back to normal with business rates after this year, there will be another financial shock in store as large numbers of retailers are forced to shut up shops that will no longer be viable.

Has coronavirus brought forward the time for the Government to begin taxing online sales to reflect the same tax burden faced by high street? One person who definitely thinks so is Mike Ashley, who already suggested it in 2018.

Time will tell what happens to the fashion industry over the next year, so let's watch this space and see if these big name stores can survive and continue to allow us to buy the clothes that so many of us love to wear.