Brands, retailers and manufacturers worldwide have shifted from damage control to a fight to stay afloat as the likelihood of an imminent return to business as usual recedes. American retailers watched in frustration on 22 March as the US Senate failed to pass a $1.8 trillion relief package for the US economy, which is expected to be harshly hit by the fast-moving coronavirus pandemic. Any optimism about consumer spending in China and other Asia-Pacific nations remains limited and provisional.
Here, Vogue Business highlights the latest news from the luxury industry and related sectors.
Outlook catastrophic for the luxury sector, Italian factories close. Luxury brands, which are heavily dependent on their physical stores, have seen sales plummet worldwide. Investment firm Bernstein said on 18 March that the first half of 2020 is “likely going to be the worst in the history of the modern luxury goods industry”. The Bernstein note to investors added: “This scenario is worse than in 2008, as there doesn’t seem to be any offset — other than possibly a quantum of solace from online.”
Fashion and luxury stores across the West are closing, either voluntarily out of concern for employees and shoppers, or mandatorily by government order. One typical snapshot: sales at Burberry, which has closed 40 per cent of its global stores, are down 40 to 50 per cent since 24 January. While the possibility of a surge in e-commerce business in the West offers hope for many brands, the online sector is not immune from the slowdown — and supply lines are unravelling.
Luxury goods manufacturing has now halted entirely in Italy. All non-essential factories were ordered to close on 21 March following a late-night Facebook address by Prime Minister Giuseppe Conte. Worldwide, fast fashion supply chain workers face disaster as retailers rush to cancel orders, as reported by Vogue Business. An estimated $100 million worth of orders have been cancelled with Bangladesh alone over the past week, according to a sourcing agent (paywall).
From retail to manufacturing, fashion companies search for safety nets. No company in the fashion sector has been untouched by the coronavirus pandemic, with retailers in Europe and North America predicting a further collapse in consumer spending in the weeks ahead.
Companies are looking for support wherever it is available, from government subsidies to the option of seeking new ownership. In the US, a $1.8 trillion emergency relief package for the economy failed to pass through the Senate on 22 March. In the UK, the government’s introduction of a business rates ‘holiday’ and an unprecedented deal to pay up to 80 per cent of employee wages are helping smaller fashion companies to struggle on. Meanwhile, British men’s formalwear specialist Moss Bros has been sold to Crew Clothing, while Cath Kidston is just one of a number of UK companies searching for a buyer.
In the global supply sector, a Fung family consortium is seeking to take private the Hong Kong-based clothing supplier Li & Fung Ltd in a HK$7.22 billion ($930 million) deal that values the company at about $1.4 billion. The consortium, together with Singapore-based GLP Pte Ltd., a logistics warehouse operator, has offered HK$1.25 per share, 72.7 per cent over the company’s average closing price in the last 60 days.
China seeks to return to normal, but a cash crisis looms. Luxury brands hope that revived sales in China may offset the disastrous picture in the West. Many stores have reopened — the SKP mall in Beijing was described as “busy” by one shopper on Monday. Brands have also been quick to exploit further the potential of WeChat to expand online sales. Transactions via online shopping channels are reported to have returned to normal levels.
But almost half of Chinese retailers face a cash crisis if sales do not rebound quickly, according to a report by Bloomberg. Retail sales in January and February dropped 20.5 per cent year-on-year, China’s National Bureau of Statistics said. In Hong Kong, the secondhand luxury market is booming. “There seems to be a trend of people monetising to make sure they are liquid in the event of a prolonged crisis,” Andrew Brown, chief executive of WP Diamonds, told Nikkei Asian Review.
Support for the health sector becomes a new priority. While the luxury sector reshapes for an uncertain future, companies are stepping up their support for the frontline fight against coronavirus. Italy’s Moncler is paying €10 million towards the construction of a hospital with 400 intensive care units in Milan. Miroglio, Giglio and Ermanno Scervino are among the Italian companies now buying or producing face masks. French luxury group Kering is importing three million face masks from China for distribution to French health authorities.
In the US, nine companies are co-operating on a high-priority drive to make face masks, with a target of 10 million a week within a month, said the National Council of Textile Organizations. The companies include American Giant, Fruit of the Loom, Hanesbrands, Parkdale Inc., Los Angeles Apparel, AST Sportswear, American Knits, Beverly Knits and Riegel Linen.