COVID-19: The impact of the coronavirus pandemic on global fashion retail

The global textile and fashion industry was one of the worst hit sector by the ongoing coronavirus pandemic. Since its outbreak in December 2019 in China, we have seen retailers progressively closing doors as the global spread of the virus continues to increase with by the day. While most brands and retailers have been urging consumers to shop online – the response has been anything but warm. Consumers around the world have been compelled to restrict themselves in homes and amidst pressing concerns of economic uncertainty and rising financial burdens, it can be safely assumed grocery, medicines and staples purchase will precedence over fashion. Eventually, even digital retail is reeling under the effects of the pandemic with increasingly falling consumer spending, transport issues and supply chain hurdles.
At the time of writing this article, the spread of the virus has crossed a staggering 1.8 million cases across 210 countries and has claimed 114,980 lives as of yet. The spread is accelerating across the world, despite relentless containment efforts. Although epidemics and virus outbreaks aren’t uncommon, countries around the world were not prepared for something of this scale and intensity. As such, the coronavirus pandemic has had severe repercussions on the global economy with experts even touting it as the most severe economic contraction since the World War II.
McKinsey & Company’s Global Health and Crisis Response report, April 2020, outlines that most countries are expected to experience sharp GDP declines in Q2. ‘China will undergo a sharp but brief slowdown and relatively quick rebound to pre-crisis levels of activity. China’s annual GDP growth for 2020 would end up roughly flat. In the European Union and the US, monetary and fiscal policy would mitigate some of the economic damage with some delay in transmission, so that a strong re-bound could begin after the virus was contained at the end of Q2 2020,’ the report documents.
The report also highlights how the fashion industry is set to witness pronounced effects of this calamity due to the discretionary nature of the industry. The average market capitalisation of apparel, fashion and luxury players dropped almost 40 percent between the start of January and March 24, 2020 – a much steeper decline than that of the overall stock market.
For the fashion industry, the effects of the coronavirus pandemic were crippling as it hit on both the supply and demand side. ‘We estimate that revenues for the global fashion industry (apparel and footwear sectors) will contract by 27 to 30 percent in 2020 year-on-year, although the industry could regain positive growth of 2 to 4 percent in 2021.4 For the personal luxury goods industry (luxury fashion, luxury accessories, luxury watches, fine jewellery and high-end beauty), we estimate a global revenue contraction of 35 to 39 percent in 2020 year-on-year, but positive growth of 1 to 4 percent in 2021,’ the report outlines.
Even after this is over, the industry is expected to go through a rocky path, with consequences across the value chain – from fiber farmers, textile mills to retail store assistants. Manufacturing hubs in developing countries like India, Bangladesh, Cambodia, Honduras and Ethiopia, will be the worst hit, because extended periods of unemployment might also trigger indigence and disease outbreak.
China’s Absence Leaves a Void
China is among the top exporters of textiles and apparel, with US$118.5 billion and US$157.8 billion exports respectively in the year 2018. This accounted for about two-thirds of the textiles used by manufacturers across Southeast Asia in the same year. Thus, the China’s economic disruption and production-setback itself were enough to had the global fashion retail industry seriously worried about supply chain problems.
On the other hand, we are all aware of how the power of the Chinese consumer has exploded in the last decade. According to the BBC, Chinese shoppers now single-handedly account for 38 percent of the global fashion industry. In an interview with Bloomberg, Casper Rorsted, CEO, Adidas, highlighted that although the group has registered a slight return of consumers into the stores of late, Adidas AG has registered a dip in consumption in greater China by a staggering 85 percent in the weeks since 25th January 2020.
Carlo Capasa, President, Italian Chamber of Fashion revealed to Time in early March, how China’s coronavirus outbreak is likely to be a nightmare for Italy’s US$100 billion-plus fashion industry. Although the Italian fashion retail industry was optimistic about 2020, they are now facing immense issues including supply chain issues and weak demand, especially in China.
Also, with about 50 million Chinese people in quarantine and growing travel regulations to other countries, Chinese buyers were also missed in fairs and high streets around the world. This decline in footfall has impacted the global luxury fashion market the worst, as ‘Chinese customers accounted for 90 percent of the global market growth in 2019, reaching 35 percent of the value of luxury goods sold in the world,’ as stated the 18th edition of the Bain & Company Luxury Study.
The Lowest Paid are The Worst Affected
The fashion industry has always been under the radar for its inclination towards low-cost labors in developing countries. With low wages, flexible or no contracts at all and poor working conditions, informal garment and textile workers have been the most adversely impacted sections during this pandemic. As a result of raw material shortage from China and major brands and retailers bailing out on orders, production hubs across Bangladesh, Vietnam, Cambodia have been forced to shut down, forcing estimated 60 million garment workers into destitution. In certain nations where manufacturing units stay in activity, laborers are compelled to work even when businesses are reluctant to ensure satisfactory precautions, leaving laborers and their families and networks vulnerable to infection.
As per a Bloomberg report, as many as 1,089 apparel production units in Bangladesh have had orders cancelled, worth roughly $2.8 billion due to the escalating coronavirus outbreak. The Bangladeshi humanitarian crisis has made headlines globally, raising serious concerns about ethical sourcing in fashion and textiles.
Rubana Huq, President, Bangladesh Garment Manufacturers and Exporters Association, has taken to social networking to urge brands to ‘just do the right thing by honoring their contracts’.
“So far it’s been $1.5 billion lost, impacting the lives of 1.2 million workers. While the Covid19 wreaks havoc globally, the fate of our industry and our workers has ended up being uncertain. With brands handing out cancellations and deferments, we have no idea what tomorrow holds. Brands who were partners last month have all turned into strangers, unable to fathom our exposure to an existential crisis of handling the wages of 4.1 million workers. Without orders and with empty production spaces, all the workers run a risk of being totally unemployed for a long time to come. For us it comes down to a level of bare minimum survival mode, while the western world still has the privilege of having bailouts from their privileged governments On that consideration, we call upon the international community to surface with a renewed pledge to support the workers of Bangladesh, if not just the businesses,” she shared on Linkedin.
Brands working with factories in Bangladesh include H&M, Bestseller, Adidas, C&A, Marks and Spencer, Target and PVH Corp (which owns Tommy Hilfiger and Calvin Klein), among others.
Fashion Fairs and Events are Cancelled Worldwide
As the coronavirus crisis escalates, an increasing number of organizers around the world are compelled to scrap fashion fairs and other industry events. While Chic Shanghai was postponed, Ispo Beijing was had to be called off altogether. The past few weeks has witnessed a long list of events that have been postponed. Messe Frankfurt’s textile fairs Intertextile Shanghai Apparel Fabrics, Yarn Expo and Intertextile Shanghai Home Textiles; The Materials Shows in Boston and Portland, Berlin’s sourcing fair Asia Apparel Expo, are all adding up to the list.
As the list of cancelled and shelved events continue to grow, several others have decided to go virtual. The Mercedes-Benz Fashion Week in Russia, Zero Waste Summit, and Girlboss Rally in Los Angeles are some of the events that have decided to go virtual out of safety concerns. Even as Giorgio Armani made a last-minute decision to stream his latest collection at the last big day of Milan Fashion Week.
Change in Consumer Behavior
Consumers’ moral is at an all-time low and this has compelled the global fashion industry to struggle to cope with consumer demand. Plagued by the sudden state of affairs and exposed to the vulnerability of economic uncertainty, the spreading rapidly coronavirus pandemic is expected to take a toll on consumer behavior for good. McKinsey & Company’s Global Health and Crisis Response report highlights that in Europe and the US, more than 65 percent of consumers expect to decrease their spending on apparel, while only 40 percent expect to decrease total household spending.
This has resulted in warehouses overflowing with unsold stock in the USA and as per reports in the internet, an increasing number of brands and retailers are facing this as both the virus and lockdowns spread rapidly across the world. Even online retailers have revealed about the increasing dip in online traffic, conversions and consumer sentiment. Even after the dust settles, financial turmoil stemming from the crisis is expected to continue. According to McKinsey & Company’s Global Health and Crisis Response report, this will force a new discount culture to liquidate stock for the rest of the year.
The report also expounds how different market categories to be impacted by the discounting wave to varying degrees. Categories like intimate wear, that are season-less, are less exposed and can be repurposed later in the year. ‘Mid-market brands and retailers will be hit hardest, as cash-strapped shoppers trade down to the value segment for essentials and middleclass consumers turn more to heavily discounted affordable luxury and premium goods. For luxury brands, however, the discounting challenge is exacerbated by the need to preserve reputation and image, making it crucial to avoid steep discounting, or at least discount in a more controlled way through off-price channels,’ the report states.
Reportedly, even fashion behemoths like Gap, Hummel, Adidas, Aeropostale and Asics, among others have announced discounts of 30-60 percent on various products. Indian footwear stalwart Liberty Shoes in a bid to clear inventory has recently announced an end-of-season sale with discounts upto 70 percent.
Expected Impact on Consumption
Retail and business management consultant Wazir Advisors have released a repost that outlines a sharp fall in apparel consumption in the USA and European countries. Globally, new COVID-19 cases are projected to reach the acme between the time frame of end-April to mid-May. In line with this, the Boston Consulting Group, in its Epidemic Projection released on March 26, 2020, has revealed that lockdown in most parts of the USA and EU will last at least till mid-July. This means that stores across these countries will have to remain shut for a total of 3-4 months. As stated earlier, staples, medicine and grocery will be on the priority list, the desire to flaunt fashion will take a back seat chiefly because of uncertain economic scenario and lack of occasions to go out.
Wazir Advisors have outlined that this will result in a drop of apparel consumption in the otherwise largest fashion markets of the world, the USA and EU by 40 and 45 percent, accounting to about US$ 300 billion. “US as a society is more consumerist compared to Europe. Younger population with a habit of regular spending will cause US to maintain a tad higher consumption than EU during the lockdown period; and more importantly, faster return to normal consumption levels,” the report states. It estimates 37 per cent less consumption due to store closures in the US market, and the country’s GDP shrinking by 3 to 4 per cent. Expected net impact would be 40 per cent lower apparel consumption in 2020.
Conclusion
The escalating coronavirus calamity has had devastating effect on the fashion and textile industry – much more than experts expected at the onset of the pandemic. Smart retailers were quick in shifting their focus on digital retail in the beginning of the crisis, but this is expected to have adverse effects on departmental stores, specialty retail stores and new and small players who not equipped to adapt to the digital first mentality.
McKinsey & Company’s Global Health and Crisis Response report outlines the high chances of this crisis being the harbinger of the end of “extreme consumerism”. The responsibility to tackle this crisis rests on the shoulders of brands and retailers who will have to come up with indigenous and innovative ways of reducing stock and reinfusing value into their brand as well as products. The report emphasizes on the fact that although it might prove to be an uphill task, gaining back the trust and enthusiasm of cash-strapped consumers post this crisis should be at the top of the priority list for brands and retailers across the globe.