Thirty-six since Giorgio Armani closed Milan Fashion Week with a behind-closed-doors runway show.
Two weeks since the Saks Fifth Avenue flagship in New York went dark to slow the spread of COVID-19.
And it all seems like a lifetime ago.
The pandemic has become all-inclusive — closing stores and countries, keeping consumers in, threatening to force companies into bankruptcy, putting an unprecedented three million-plus people on the U.S. unemployment rolls in a single week and so much more.
Europe is shut down and struggling. Italy has logged more than 10,000 deaths and Prince Charles and British Prime Minister Boris Johnson contracted COVID-19. The U.S. has more confirmed cases than anywhere else — 125,000 — and the epicenter of New York is seeing a dire rush on its hospitals. On the brighter side, China, which has logged just over 82,000 cases since the initial outbreak, is starting to bounce back as it tries to fight off a second wave of the disease.
The U.S. is now where China was in the third week of January, said Deborah Weinswig, chief executive officer and founder of Coresight Research.
“I feel like we’re still really early,” Weinswig said. “Our hospitals are just getting full. The economic fallout is going to be greater than in China. This is unlike anything we’ve seen in our lifetimes, between 9/11 and the Great Recession, we are seeing greater unemployment and it’s really early.”
In tough times, retailers usually see consumers trade down with, for instance, the Nordstrom shopper going to Macy’s and the Macy’s shopper going to Walmart and the Walmart shopper going to Dollar General.
“We’re not seeing a trade down, we’re just seeing a stop,” Weinswig said. “We’re all living these different lives.”
At home and at work, everything has changed in one way or another — and for just about everyone.
Chief executive officers, subbing as fortune tellers, have huddled with their advisers and number crunchers, put a finger to the wind and rushed to slash expenses, halt capital projects and load up on cash to weather the storm.
VF Corp., one of fashion’s strongest companies and parent of Vans, The North Face and Timberland, took in $1 billion from its $2.5 billion revolving credit facility out of “an abundance of caution,” effectively funding its working capital through September.
On the other end of fashion’s cash divide, Neiman Marcus, which had been seen as a possible bankruptcy candidate in the distant future, could now file in weeks if it can’t find some alternative. That will only hurt the many smaller brands that are seeing retailers cancel agreed-upon orders and operating on the edge.
Gary Wassner, ceo of factor Hilldun Corp., which helps finance shipments to stores, said his company alone has seen abrupt cancelations for $300 million to $350 million worth of goods that were set for April, May and June deliveries.
At retail prices, that’s $825 million worth of designer fashions that brands have been working on for six months or more and that now have nowhere to go — a situation that is endangering many small businesses.
“Without [government] support, every company is going to go out of business,” Wassner said. “No company in this country can survive for six months without cash flow, either they close or they make dramatic cuts in every single category.”
Money has simply stopped flowing through the fashion superstructure, from consumers to retailers, retailers to vendors, vendors to suppliers and on down the line.
Exactly how long it lasts is an open and pressing question.
Globally there were 691,867 cases and 32,988 deaths as of Sunday — numbers that have continued to go up as officials rush to “flatten the curve” with social distancing (or mutter about reopening to try to save the economy).
While the damage is not all done, the first, crazy rush of the crisis has rapidly become the new routine.
Stores have closed en masse. A WWD tally of closures at just 40 retailers based in the U.S. and Europe found that more than 31,000 stores are closed — off price giant TJX Cos. Inc. has closed over 4,500 by itself. Zara parent Inditex shuttered 3,785 stores while Hennes & Mauritz closed 3,441 and Ascena Retail Group turned the lights off on another 2,800.
Think of that as the tip of the iceberg.
“The United States [it appears] is at the early stages of the strongest effects of the virus showing physical evidence of its wrath,” said Terry J. Lundgren, former chairman and ceo of Macy’s.
But that means different things for different companies.
“If you’re a family business with 10 employees, you are juggling and holding on to whatever cash you have just to get through this next how many weeks before consumers are allowed to come back into your store,” Lundgren said, adding that then comes the question of how much they spend.
Big companies with a big enough balance sheet are starting to now think about strategy in a changed world, he said. “What would I change if I had my way right now?” is what Lundgren would be thinking as a retail ceo, pointing to people, leadership and likely more store closings.
Even if life doesn’t return to normal in the midst of economic crisis and global pandemic, it does fall into certain rhythms. And executives are going to increasingly start thinking as Lundgren suggests and move from panic mode into a new evaluation of the business landscape.
“Businesses are pivoting out of a crisis mode and into ongoing operations both in terms of what do they need to do tactically and what can they do strategically,” said consultant Greg Portell, lead partner in Kearney’s consumer practice.
While the strongest companies can start to think about just which competitor they might try to scoop up at a discount, the companies in the middle of the market, which cater to the millions who have just lost their jobs, will have to realign their missions.
“They have to give the customer a reason to put them back on the radar,” Portell said.
But COVID-19 is seen as something of a recurring nightmare, coming back again and again until a vaccine is developed or it runs its course.
“Everyone we’ve talked to is planning for waves of risk,” Portell said.
The pause in business as usual could eventually open up space to also contemplate the bigger picture.
“Is this the end of the global supply chain?” wondered consultant Jonathan Low, a partner at Predictiv. “People have focused so much on efficiency and just-in-time inventory. What may come of this is a more realistic approach to risk. Everyone was trying to squeeze every cent of profit they could out of the system and it turns out you need a little slush…so you’re ready for surprises.”
COVID-19 certainly has everyone at least a little bit tired of surprise.
Walmart and Target remain open and are contending with stampedes to essential categories like food, while other sectors have practically shut down, even online in some places.
Luxury has taken a hard hit in stores and online. Net-a-porter, for instance, stopped shipping in the the U.S. and Europe temporarily after its distribution facilities were forced to close. In the U.S. on Sunday, the luxe platform redirected users to its Hong Kong site.
Consultancy Bain & Co. said the luxury market took a 25 to 30 percent sales hit in the first quarter, when much of China was under lockdown. (Luxury leader LVMH Moët Hennessy Louis Vuitton said Friday that its first-quarter revenues will fall between 10 and 20 percent).
And Bain’s “intermediate scenario” for the full year sees a luxury sales decline of 22 to 25 percent, or 60 billion euros to 70 billion euros. That’s about the equivalent of shutting down LVMH (annual revenues of 54 billion euros in 2019) and Kering (16 billion euros) for 12 months.
Those sales declines are seen leading to even bigger profit hits in general.
But disruption might open up space to reinvent, make better use of data and digital collaboration and to be more ready for an even more digital world, or perhaps a resurgence of retail, when the outbreak ends.
Thinking about the end of the outbreak, which could take a year or more to peter out, is still hard to imagine. In the meantime, here’s a look at just where key markets around the globe are right now.
U.S.: A $2 Trillion Rescue and a Long Unemployment Line
President Trump signed a $2 trillion stimulus bill for the U.S. on Friday — the largest rescue package in American history.
And it’s seen by some as a stopgap that will hold over the economy for only so long before more is needed.
People aren’t shopping in fashion stores, and stores aren’t buying inventory. Most large chains that don’t sell tuna fish or hand sanitizer are closed. Much of the economy is shutting down and it’s not clear just what it will take to restart it.
For now, the numbers are only growing.
Victoria’s Secret and Bath & Body Works parent L Brands Inc. said the workers for its shuttered stores would receive pay for another week, until April 4, but then most associates would be furloughed while senior vice presidents and above would have their base compensation cut by 20 percent. Cash pay for chairman and ceo Leslie H. Wexner and other members of the board was suspended.
All told, L Brands had more than 57,000 employees going into the COVID-19 crunch.
Multiply that many times and that’s the fashion industry.
Overall, 3.3 million people filed for unemployment aid during the week ended March 21 — a surge unlike anything seen by economists.
Designer Tom Ford, chairman of the Council of Fashion Designers of America, said American fashion is a $400 billion business, employing four million people beyond retail jobs. And the National Retail Federation forecast that just over two million retail jobs will be “imperiled” during March, April and May, and about four million jobs within 12 months.
Coresight Research projected the COVID-19 shutdown would lead to a total of 15,000 permanent store closures this year, up from 9,500 last year.
“More U.S. retailers will go bankrupt this year, and Chapter 7 filings are likely to rise,” Coresight said. “The rationalization of mall space has lagged physical store closures. The coronavirus outbreak could accelerate a correction in mall space that is already overdue.”
U.S. suppliers — to do what they can and also to help keep operations moving forward at some level — are following the lead of manufacturers in Europe and elsewhere, turning to the production of protective masks and medical gowns to supply front-line medical workers.
Many companies now are turning to the fine print of the new stimulus package, which includes up to $500 billion in loans, loan guarantees and investments to support businesses and states. Large companies can get relief as they seek to renegotiate their debts and laid-off or furloughed workers can tap into expanded unemployment benefits.
France: Retail Hits and Catwalk Cancellations
Retail activity came to a grinding halt on March 14 in France, when the government ordered the closure of all nonessential commerce. Prime Minister Edouard Philippe on Friday said officials have decided to extend a countrywide lockdown, which came into effect on March 17, until at least April 15. It may be extended further as a scientific council advising the government has recommended at least six weeks of confinement.
On Friday, the Fédération de la Haute Couture et de la Mode, French fashion’s governing body, canceled upcoming men’s and haute couture fashion weeks set for June and July — indicating just how much further the industry still has to go. (It was rapidly followed by the Camera della Moda in Italy doing the same thing for the men’s shows in June, and the CFDA canceling the men’s shows and resort shows in New York).
Already, the impact on the economy has been significant. An association of retailers, the Alliance du Commerce, has said that companies are struggling to survive, with the latest blow coming after strikes against pension reforms crippled the sector at the crucial end-of-year period, and the disruption from yellow vest protests before that.
Now the sudden loss of economic activity is estimated at around a third of normal levels, with consumption — an important driver of the country’s gross domestic product — down around 35 percent, according to the country’s economic statistics agency INSEE.
Around a third of all employees are working remotely while another third is on temporary unemployment, the figures show.
The institute declined to provide GDP estimates, but said that a month of confinement would likely reduce GDP by three percentage points compared to the previous year.
The government has stepped in with a range of measures to assist companies and employees in a bid to keep the system in place as much as possible, drawing on lessons from Germany, which proved to be relatively successful in fighting off the worst of the outbreak early on.
French finance minister Bruno Le Maire is comparing the situation to the Great Depression that started in 1929, and predicts the French economy will contract by far more than the 1 percent currently forecast by the government, and has drawn up a list of companies that will require state intervention, including nationalization, to stay afloat.
The French government is also working on a law to govern dividends. Le Maire and unions have called on companies to hold back on paying dividends and instead use the money to maintain employment.
United Kingdom: Looking Online for Salvation
British retailers large and small have shut their doors, sent shop staff home and are trying to eke out sales online as the coronavirus crescendoes. Some warehouses have closed, although others remain open and the British government is still saying that online retail is still “open and encouraged,” while postal and delivery services should be running as normal.
Amazon, Matalan, Asos, Marks & Spencer, Boden and Sweaty Betty are among the retailers that continue to trade online, while a host of others including Next, Fenwick and Net-a-porter have temporarily shuttered their warehouses.
On Friday, José Neves, the founder and ceo of the London-based retail platform Farfetch, echoed the British government and asked consumers to continue shopping online in order to keep retail — and especially small fashion businesses — alive throughout the crisis.
He said the majority of retailers and brands trading through Farfetch are small, often family-run, and have had to close their physical stores.
“Most of these businesses are, however, still able to trade online. This is a vital lifeline for them at this time. We are doing all that we can to help all of our partners, but especially the smaller ones,” said Neves. “In some cases, we are managing their logistics so they can deliver your orders safely, directly to your home. And we are waiving or reducing some of their costs of using our marketplace.”
If retailers — such as Primark — cannot trade online, or if they’ve been forced to shut their warehouses, the British government has given them a reprieve. Last week it unveiled an unprecedented 350 billion pound package of measures aimed at keeping the economy afloat and people in employment. Britain’s Chancellor of the Exchequer Rishi Sunak said the U.K. would pay 80 percent of furloughed workers’ wages, up to 2,500 pounds a month, if employers promised to keep them on staff.
Sunak has also promised to pay 80 percent of the profits of self-employed workers. And the British Fashion Council and creative industries bodies are lobbying the government for more specific support for creative businesses.
With or without the virus chaos, the U.K. retail sector needs all the help it can get: In the fourth quarter of 2019, 57,000 retail jobs were lost due to store closures, bankruptcies, layoffs and Brexit preparations, according to the British Retail Consortium. Indeed, the number of retail workers in the U.K. has been dropping consistently for the past four years.
Despite the government’s latest fiscal intervention, fashion retail is still set to suffer badly due to COVID-19, according to a report from Global Data. Apparel and footwear will bear the brunt of retail closures due to the coronavirus, with one-fifth of U.K. fashion spend to vanish in 2020, according to a new report from the market research and analytics company.
Fashion sales in 2020 will be down 11.1 billion pounds compared with 2019, according to its preliminary forecasts.
Kate Ormrod, lead retail analyst at Global Data, said amid a U.K. lockdown and self-isolation, “buying new clothes and footwear is far from a top priority for consumers, making spring a [fashion] season to forget for fashion retailers — but one with long-lasting consequences.”
She added that while retailers are “striving to entice spending with discounting, promotions rife and loungewear at the forefront of marketing campaigns, we expect these to have little impact at present as consumers acclimatize to their new daily routines.”
Meanwhile, worries about supermarket shortages will ensure that food shopping remains top-of-mind for most consumers.
Italy: The Lockdown Continues
As the first Western country to be severely hit by the COVID-19 pandemic in late February, Italy has been under lockdown since March 9 and with all nonessential commercial businesses and manufacturing activities shut down until at least April 3.
The country’s retailers, except for grocery stores and supermarkets, as well as pharmacies, insurances, banks and post offices, were forced to close starting March 12 and experts believe the lockdown might be extended even further as the number of new infections is slowing but not declining.
According to a recent study conducted by Confcommercio, in the most pessimistic scenario that views the crisis stretching until the fall with the country getting back to normal activities beginning Oct. 1, internal expenditure could decrease 5.7 percent in 2020, down 52 billion euros from 1.088 trillion euros in 2019. “The crisis is stretching further [than expected], the economic damages increase and a lot of businesses risk ceasing operations. In light of this unparalleled emergency, we need to support the liquidity with extraordinary measures,” commented Carlo Sangalli, the association’s president.
Although Confcommercio could not provide an exact number of retailers that were forced to close, it did forecast that the hospitality and restaurant sector will be the most severely hit and could register a 21.6 percent contraction in year-end sales, while fashion retailers might lose 6.6 billion euros, down 11.3 percent compared to 2019.
In the latter category falls Calzedonia Group, which anticipated the lockdown measures shuttering its stores in the most affected areas and was then forced to close all its 1,756 units throughout the country for its brands including Calzedonia, Intimissimi, Intimissimi Uomo, Tezenis, Falconeri, Signorvino, Atelier Emé and outlets.
Similarly, Benetton Group, which already implemented restrictions for its manufacturing activities by closing its plants in Ponzano Fabrica and Castrette, in the Veneto region, ahead of the general manufacturing shutdown issued on March 21, closed all its 103 directly operated flagships for the United Colors of Benetton, Sisley and Undercolors of Benetton brands on March 12. A company spokeswoman said some 900 retail employees were asked to use their paid leave and vacations as the group tries to determine how to implement the government’s measures to support employment, that are part of the 25 billion euro aid package unveiled by Prime Minister Giuseppe Conte on March 16. In particular, the government pledged to allocate 3.3 billion euros to extend the “cassa integrazione,” a wage support measure usually applied to manufacturing companies, to commercial activities and to all those entities with fewer than 15 employees, even including those with only one employee. Neither company would comment on the current situation for their stores abroad.
Coin SpA was compelled to stop retail operations for its network of 74 directly operated and franchised stores under the Coin, Coincasa and Coin Excelsior banners, while OVS SpA, which has been listed on the Italian Stock Exchange since 2015, closed around 1,400 stores as of March 12, including units for its namesake retail chain, the Upim mass-market store chain and the standalone BluKids children’s wear stores and Croff banners, dedicated to accessible interior design.
China: Consumer Confidence Down, but Industry Fights Back
China is recovering from the first wave of the outbreak and working to prevent the second wave from abroad. Beijing last week issued a travel ban on most foreigners entering China and sharply cut international flight routes.
But a two-month lockdown on Wuhan, the initial epicenter of the coronavirus outbreak, will be lifted on April 8. Big companies are running at 95 percent capacity, while the number for small businesses was at 72 percent as of March 21, according to China’s Ministry of Industry and Information Technology.
Chenfeng Group — the manufacturer for Uniqlo and a dozen Chinese fashion designers including Haizhenwang, Chenpeng, Feng Chen Wang and Xu Zhi — is now running at 80 percent capacity. A month ago, the Shanghai government wouldn’t let anyone go into its plants.
Consumer confidence, however, is still understandably low. Some 86 percent of Chinese consumers are planning to adjust their spending in 2020, according to consultancy firm China Luxury Advisors. Some 59 percent said they are more likely to decrease spending on luxury handbags and apparel, 43 percent to cut back on overseas travel and 45 percent on entertainment.
In response, brands are implementing a series of innovations to bring themselves closer to digital-savvy Chinese shoppers. A flock of luxury brands joined the newly introduced Shipinhao, WeChat’s answer to Instagram, including Louis Vuitton, Dior, Fendi, Prada and De Beers.
Prada and Miu Miu joined Tmall in March to expand their online sales channel. Both brands are also working with Aimee, a new virtual idol designed by Tmall to showcase items from their spring collections.
Cartier sold at least 222 Juste un Clou bracelets, 157 Love wedding bands and 50 Tank Solo watches since its Tmall debut on Jan. 10.
Louis Vuitton worked with Xiaohongshu, a popular social commerce platform to create original interactive content using livestreaming. Some 15,000 users watched Zhong Chuxi, a friend of the house, and influencer Yvonne Ching promoting its summer 2020 collection, resulting in 6.25 million comments and likes.
Shanghai Fashion Week is wrapping up its first purely digital outing with a consumer-facing angle, prioritizing survival over creativity. Some 150 brands started broadcasting Tuesday on Alibaba’s Tmall, with brands ranging from Diane von Furstenberg, Pinko, Miss Sixty, Converse, Anta, Icicle, Lily and Le Fame to homegrown designers such as Shushu/Tong, Xiao Li and Yirantian taking part.
The schedule includes livestreaming slots for retailers such as Labelhood, Lane Crawford, Net-a-porter and The Balancing. Around 100,000 users watched Net-a-porter’s streaming, leaving nearly one million comments and likes.
On the retail scene, a number of state-owned department stores were shut at the beginning of the outbreak, but the majority of shops, including luxury brands, never shut their doors like the rest of the world is doing during the outbreak. For Chanel, in-store sales saw an increase during Valentine’s Day and International Women’s Day. Shoppers were seen queuing in front of the shop at SKP Beijing and Shanghai’s Plaza 66, respectively.
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