For all the talk of fashion’s digital transformation, it’s an industry that still runs on brick-and-mortar, meeting and interacting with consumers face-to-face.
That spells trouble in the age of the coronavirus.
E-commerce has offered some small ray of hope in the shutdown, but with stores locked and associates furloughed, the web business is hardly big or profitable enough now to support troubled companies for long (although in the midst of the turmoil there are some analysts looking to recovery next year and starting to pick winners).
Even if consumers are glued to the latest COVID-19 headlines, and horrors, when they do seek retail therapy by clicking through fashion sites, they’re still browsing more than buying.
Online fashion, apparel and accessories retailers in the U.S. and key European countries saw March sales fall by more than 30 percent from a year earlier, according to Nosto, an AI-powered commerce experience platform.
Visits, the number of orders and total sales across all countries, started dropping noticeably around March 7 and worsened through March 20, when revenues for the day were down 32 percent and visits were off 24 percent, according to the analysis.
“Since that low point on March 20, the data shows some signs of a recovery beginning — with sales revenue and visits recovering somewhat in all countries, while conversion rates are staying relatively the same,” said Matt Levin, Nosto’s global head of marketing. “Increased traffic with stable conversion seems to mean these new shoppers are still buying at typical rates, which could be a result of merchants reacting with discounts and merchandising shifts, or consumer behavior simply stabilizing.”
Nosto tracked sales by 271 merchants on its platform through March 25, including retailers in the U.K., U.S., Germany, France and Sweden.
But even if consumers are starting to become more comfortable clicking and buying again, it’s not enough given the near-complete retail shutdown.
Macy’s Inc. drew $6 billion of its $25.3 billion in total revenues from the web last year — a tidy sum and a significant business, but the department store still had to furlough most of its 125,000 workers this week to conserve cash.
Web sites, through the workers in fulfillment centers, delivery drivers and more, are also vulnerable to COVID-19 and social-distancing regulations. Net-a-porter stopped shipping as it closed its facilities in the U.S. and Europe, victoriassecret.com was down for a time and Stitch Fix Inc. closed distribution centers in South San Francisco and Bethlehem, Pa.
In normal times, fashion retailers get 20 to 25 percent of their sales online, according to Simeon Siegel, an analyst at BMO Capital Markets. That ranges from nearly nothing for off-pricers to approaching 50 percent at some of Urban Outfitters Inc.’s divisions.
But times aren’t normal.
“We need to acknowledge that there’s a human on the other end, that they’re allowing you to get your product and they’re just as concerned about health as you are,” Siegel said.
Still e-commerce revenues — any kind of revenues — are welcome.
“[E-commerce] will help blunt the blow, but by no means should we expect that it’s going to be operating at full capacity. To believe that it’s able to recapture sales [lost at stores], I think is wishful thinking,” Siegel said.
That brings more urgency to the question of when all of this will start to end and consumers — including the three out of four Americans under lockdown — can let loose even a little, reevaluate their financial situation and adjust accordingly.
Ike Boruchow, an analyst at Wells Fargo, noted the Chinese consumer was hunkered down for eight weeks at the start of the outbreak and said a mid-May resurgence in the U.S. is a “reasonable” assumption, although some retailers are looking beyond that to June.
“By June 1, we are generally speaking, back to normal in terms of operations,” he predicted.
The process of opening back up might be slow, though, with some regions opening up first. And just what will count as normal when consumers come back out is still an open question.
This week, Boruchow slashed earnings estimates for the retailers he covers by 45 to 50 percent this year, but offered a relatively bullish take on the bounce back.
“While the COVID-19 headwinds are extremely severe and the downturn will likely be much deeper, we believe it will be shorter in duration than past recessions, setting the group up for a strong 2021 recovery,” the analyst said.
He upgraded his stock recommendation to overweight on Nike Inc., Canada Goose, Ulta Beauty Inc., TJX Cos. Inc. and Ross Stores Inc.
“Unsurprisingly, our ratings changes favor companies with stronger balance sheets, more access to cash, strong global brands, higher margin structures that will be able to cushion the upcoming negative impact and the most recapture opportunity in a 2021 ‘recovery’ year,” he said.
Farfetch and Gap Inc., however, fell to underweight as the analyst said he was becoming more cautious on companies with fundamental issues before the outbreak, little free cash flow, less balance sheet flexibility and “a less likely 2021 positive recovery scenario.”
For weaker brands and chains, the pain of the COVID-19 might just well last beyond the outbreak.
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|Percentage of Revenues Derived from E-commerce||Annual Revenues (in billions)|
|Urban Outfitters Inc.||38.3%||$4.0|
|Lululemon Athletica Inc.||27.9%||$4.0|
|Abercrombie & Fitch Co.||27.8%||$3.6|
|Dick’s Sporting Goods||16.5%||$8.8|
|Richemont SA||16.0%||14.6 euros|
|Ulta Beauty Inc.||13.0%||$7.1|
|Under Armour Inc.||11.3%||$5.3|
|Adidas AG||11.1%||22.5 euros|
|Ralph Lauren Corp.||8.2%||$6.4|
|Michael Kors brand||7.8%||$4.5|
|Tiffany & Co.||7.0%||$4.4|
|Fossil Group Inc.||4.4%||$2.2|
|TJX Cos. Inc.||1.0%||$41.7|
|Ross Stores Inc.||0.0%||$16.0|
|Source: Wells Fargo research and estimates, company reports, YahooFinance.|
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