By Miles Socha
with contributions from Mimosa Spencer
 on March 25, 2020

Locked-down consumers seem to be losing interest in buying apparel online, even as discounting escalates.

A new report by RBC Capital Markets analyst Sherri Malek cites a marked drop-off in demand in recent days.

“We have observed a notable reduction in app downloads and daily app sessions versus last year for a number of apparel retailers,” she wrote. “We expect demand to remain weak for apparel, being discretionary in nature, as restraints on leisure activity reduce the stimulus to buy fashion and the impact of a global shut-down impacts the economy.”

The bank analyzed Apptopia and Google search data for Zara, H&M, Zalando, Asos, Boohoo and Pretty Little Things, and studied Italy, one of the first Western countries to require citizens to stay home amid the coronavirus pandemic. There, since the lockdown, app downloads for these retailers declined by about 45 percent year-on-year.

The bank also flagged accelerating markdowns over the past week, “particularly for multi-channel retailers, with the U.K., U.S. and France currently the most promotional markets,” the report says.

As examples for the week of March 19, Nasty Gal in the U.K. is offering 40 percent off everything, Misguided in Germany and Pimkie in France 50 percent off everything, and American Eagle in the U.S. 40 percent off, including jeans.

“We expect greater promotional activity in Q2 amidst poor demand to hit gross margins substantially. For the online apparel retailers, we expect gross margins to decline an incremental 100-200 bps,” the report says.

On Wednesday, RBC trimmed its earnings estimates for Asos, Zalando and Boohoo, but upgraded the latter online player to “sector perform” after material share-price declines.

The comments dovetail with growing evidence that the online channel is proving no panacea for fashion marketers hemmed in by retail closures, distribution snags and a darkening economic outlook.

“Demand for apparel is likely to be subdued in the near term while consumers stay at home, employment trends soften and uncertainty persists over the economic fallout of COVID-19,” the report says.

Data suggests that online sales were already weak before the health crisis began spiraling in Europe. According to the IMRG Capgemini Online Retail Index, which tracks more than 200 online retailers in the U.K., online retail sales fell 0.4 percent in February year-on-year, and January was similarly weak.

“The picture was particularly bleak for multichannel retailers whose sales growth was down 8.2% versus their online only counterparts (+12.5%). These polarized figures point to an emerging trend in the diverging fortunes of the two different retailer types, which could now be hugely exacerbated by the Coronavirus crisis,” IMRG Capgemini said, while also noting “clothing continued to be one of the best performers of the year to date.”

In France, textile and clothing sales over the internet are down as consumers focus on essential goods and electronics, noted a spokeswoman from Fevad, an association of internet commerce operators in France.

Oxatis, which manages e-commerce sites for clients around Europe, has observed an increase in internet sales overall in France of around 30 to 35 percent, but a diverging performance for fashion and beauty clients which are experiencing a sales decrease of around 20 percent.

While RBC expects that “the near term will undoubtedly be challenging for apparel,” it remains positive on the “long-term equity stories” for Zalando and Asos.

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