Europe’s Fashion Industry Faces Nightmare

“People do not buy a new outfit to stay at home.” Sales at stores that have reopened languish while ecommerce is booming. McKinsey: up to a third of global fashion retailers will not survive the crisis.

Most European brick-and-mortar clothing stores have been open for three or four weeks, yet sales continue to languish. In April, when all but the essential brick-and-mortar stores were shut, sales of clothing and accessories slumped by 50% in the UK and 67.4% in France, the home of fashion. In Spain, revenues in the sector plunged by 80.5%, according to data published by the trade association Acotex.

But even in May, when stores in most Spanish cities reopened, revenues in the sector fell 72% year over year and are down 45% year to date. Those figures include booming online sales.

“The textile and accessories trade is in a very delicate spot, requiring urgent and specific measures for the sector,” warned Acotex. In other words, government help and money. Otherwise, the trade association said, there will soon be a wave of bankruptcies and closings.

The problem is not just that people have been unable to visit their favorite clothing stores in recent months, it’s that they’re less likely to add to their wardrobe at a time of much reduced socializing, and in many cases reduced income. As Simon Wolfson, CEO of UK fashion retailer NEXT, said, “People do not buy a new outfit to stay at home.” And much of what they do buy, they now buy online.

On Wednesday, Inditex, one of the world’s largest fashion retailers with with eight brands, including Zara, and nearly 7,500 stores in 96 countries (at the end of 2019), reported a 44% plunge in revenues in its first quarter, February through April, to €3.3 billion from nearly €6 billion a year ago, and a net loss of €409 million, its first quarterly loss since going public in 2001. The company’s shares fell 9% on the week and are down 23% year to date.

But online sales have surged 95% in April and 50% in the first quarter. Inditex says it expects online sales to represent more than 25% of total sales by 2022, up from 14% at the end of 2019.

At the end of April, only 965 of Inditex’s stores were open in 27 countries, about 13% of total capacity. But in May, despite seeing “a progressive recovery in sales in the markets that have reopened stores,” total sales in local currencies (including booming online sales) were still down by 51% compared to the same month last year.

Continue reading the article on Wolf Street

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