Zara

Spain’s fashion retailers are bracing for sales losses of up to 7 billion euros as the coronavirus continues to paralyze the country, forcing the government to launch a 200 billion euro aid package.

Most shops, including those run by large chains such as Zara, Primark and H&M, shuttered over the weekend as the country imposed a 15-day curfew in an attempt to contain COVID-19, which had killed nearly 500 people and infected more than 11,000 by press time, marking the worst toll in Europe after Italy.

“If we close March, April, May and June, we could lose 6 billion euros to 7 billion euros” in sales, predicted Eduardo Zamacola, president of main trade lobby Asociacion Empresarial del Comercio Textil y Complementos, or ACOTEX, basing his estimate on the industry’s roughly 1.5 billion euros in monthly sales. Losses could accelerate depending on how long the virus impacts sales, which so far this year “have been nothing spectacular,” he said.

As Europe’s fourth-largest economy remains on lockdown, “no one has a buying spirit,” added Zamacola.

He revealed ACOTEX and other retail associations are teaming up to ask the Spanish government to provide them with a multibillion-euro package to stem losses.

“Our sales are zero right now so we need a cash injection and pardoning of taxes and other aid to recover,” Zamacola noted.

As stores shutter around the nation, retailers are getting squeezed with losses in the Madrid area alone forecast at 6 billion euros every 10 days, according to analysts.

Retail workforce headcount in Spain, which has one of Europe’s highest unemployment rates, is also expected to dwindle from around 200,000 as firms issue so-called Ertes, or temporary layoffs, observers said.

“We expect one million job losses in all of Spain until the alarm ends,” Zamacola said. That remains a bit of a mystery as Spanish officials say the curfew may be extended to combat the pandemic.

The fast-spreading disease is hitting all retailers equally. Fast-fashion giant Inditex’s stores remain shuttered across the country, as are those of competitors Mango, Cortefiel and Desigual, which also have large operations around the world, where closures will also hurt them. Meanwhile, El Corte Inglés, the country’s largest department-store chain, is running its supermarket section after shutting all other retail departments.

“We expect all of their clothing and other divisions to present an Erte,” said Antonio Deusa, who looks at the textiles and clothing sector for labor trades union UGT.

He said 80,000 jobs could be lost as small and large apparel manufacturing firms shutter in Spain. However, some factories are quickly reconverting their operations to make gowns and masks to help prevent COVID-19, offsetting some losses.

An example is Inditex, which is reshuffling one of its key garment-making units in the Arteixo, Galicia region, to engage in that trade.

Most other sewers in Spain’s shrinking garment sourcing sector won’t restructure that easily, however, exacerbating years of losses as labels have shifted production to cheaper outposts in Morocco, China and around Asia. Executives said that process may gain traction in coming weeks as retailers look for ways to stave off raw-material shortages from China or other pressured outposts in Turkey, Hungary or Bulgaria.

“The summer season’s clothing is already in stores so we won’t have a problem there, except for a potentially brutal overstock,” said Zamacola. “Winter will be a bigger problem because there is a shortage of raw materials. We are also not going to sell summer so we may not be able to pay suppliers.”

Carmen Torres, general manager of garment manufacturers’ lobby Fedecon, agreed that “fall-winter collections will see delays while the summer sales season will be a mess.” However, she noted sewers hope to ramp up as soon as the alert is over. “We will start manufacturing with great urgency to avert the economic impact as much as possible. I hope we don’t see losses of that magnitude,” she added, referring to the high band of ACOTEX’s estimates.

Spanish brands that rely on China, including Inditex and Mango, have been shifting output to Thailand, Morocco and Turkey to ensure they can source their winter collections. But as COVID-19’s future remains unpredictable, the benefits of that strategy remain difficult to assess.

“It’s all a big riddle with no real winners,” Zamacola added.

The virus, however, could yield lessons. “There are going to be positive lessons in terms of social collaboration and human contact as everyone teams to fight this,” Zamacola added. “The importance of physical contact and proximity that has been lost with social media will come back. There will also be more campaigns for buying local products to help those who have been hit in the country.”

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