Fast fashion industry wiped out by coronavirus

(Madrid) Zara, H&M and other Gap stores are gradually reopening around the world, but the financial impact of the coronavirus is devastating for the fast fashion industry, which will have to fundamentally rethink the way it operates, experts say interviewed by AFP.

Nearly 40% of companies in the sector expect an impact on their revenues "much worse" than that of the 2008 financial crisis, according to a survey by Euromonitor International.

This market research firm predicts a drop of at least 12% in global clothing and footwear sales for 2020.

The Spanish Inditex, number one in the sector with its Zara brand, suffered its first net loss in the first quarter since its IPO in 2001, with 409 million euros in negative.

With 88% of its stores closed worldwide at the height of the confinements, the group's sales were practically halved. But Inditex, very solid financially and efficient in inventory management, continued to pay the salaries of its employees without resorting to partial unemployment.

An exception in the sector: in Spain alone, nearly 8,000 employees have been furloughed by its competitor Primark and 4,700 at the Spanish Mango, according to the Workers' Commissions union.

Sweden's H&M still has "tens of thousands of employees" on short-time work globally, according to a spokesperson, and forecasts a "loss-making" second quarter after sales fell 46% in March.

The Swedish chain is gradually reopening its stores, but 1,350 of around 5,000 remained closed at the end of May.

A total of 68,000 employees of Britain's Primark have benefited from government partial unemployment plans in Europe, "otherwise we would have had to part with most of them", acknowledged chief executive George Weston in a press release. He points out that between March 22 and April 21, the brand had “nothing” sold in the world.

The American Gap suffered a net loss of 900 million dollars for the first quarter.

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Farewell to the “pleasure” of shopping?

With the reopening of stores, the Japanese Uniqlo, whose sales had fallen by 60% in April, evokes “solid” sales in May for its summer collection, while Inditex points to a “gradual recovery” with around three quarters of its reopened stores.

But the ascent will be long.

"Brands find themselves with huge stocks on their hands, it's difficult to take the timing back when fashion is dependent on a calendar, on seasons", with collections that are renewed very quickly, explains to the AFP Benjamin Simmenauer, professor at the Institut de la Mode in Paris.

The crisis has disrupted the entire global supply chain, leading some groups to cancel orders from their Asian suppliers, at the cost of enormous hardship for local workers.

In addition, consumers' appetite for fashion "will be significantly reduced, due to the sharp reduction in the level of income" caused by the crisis, explains Marguerite Le Rolland, analyst at Euromonitor in an online conference.

But also because “the pleasure and the social aspect of shopping will be very difficult to maintain with the social distancing measures in place”, she believes.

Lasting changes that will benefit the online clothing trade, which new categories of the population, such as baby boomers, were able to get used to during the confinement, explains the analyst.

Most groups saw their online sales jump: +50% in the first quarter at Inditex, +13% for Gap and +17% for H & M over the same period, with even stronger increases in April and May.

The sector will also have to consider the kind of fashion consumers want. After months of confinement, will they be in lack of sophisticated outfits or will they keep the habit of loose and comfortable clothes, even sports, whose sales have increased during confinement?

"The uncertainty is complete on the subject [...] But we do not see how an event of such importance could not be translated into style," says Mr. Simmenauer.