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With stores shut for weeks, employees furloughed and sales plummeting, many major retail stores are planning to file for bankruptcy. The first major retailer to fall victim to the pandemic's economic fallout is clothing chain J. Crew which filed for Chapter 11 bankruptcy.
J. Crew Group Inc. sought bankruptcy protection after shutting 500 stores worldwide. As per a court filing by Michael J. Nicholson, the company's chief operating officer, the significant financial strain caused by COVID-19 will cost the company $900 million in sales due primarily to store closures across all brands. The company reached a debt restructuring support agreement with its lenders and has also secured $400 million of new money financing commitments.
Similarly, with its stores closed nationwide during the pandemic, resulting in a sharp decline in sales, JC Penney shares have declined nearly 80 per cent this year. Bankruptcy is one of many options on the table for the company to become a sustainable, profitable company but at this point, no decision has been made. The company had been in the midst of a major turnaround before the pandemic hit. It has now made the "strategic decision" to skip a bond interest payment that was due April 15. It has a 30-day grace period to continue discussions with lenders and assess its options.
Privately-owned Neiman Marcus is expected to file for bankruptcy soon, according to lenders. It closed its more than 40 stores across the U.S., including Bergdorf Goodman, in mid-March. The group was already struggling prior to the pandemic, with $4.8 billion of outstanding debt, according to S&P Global Ratings.
Plano-based US retailer JC Penney refused to make a $17-million interest payment that was due by May 7 on its senior secured term loan. Penney has a grace period of five business days under its loan agreement to make the payment before the company is in default. The skipped debt payment is reportedly part of a bigger battle for Penney.
The retailer took the decision to skip payment while it evaluates certain strategic alternatives, none of which have been implemented at this time. The retailer was scheduled to meet representatives from Sephora, a French multinational chain of personal care and beauty stores, in the district court in Sherman today. Instead, the two companies have reaffirmed their 14-year partnership to operate Sephora shops inside more than 650 Penney stores.
Penney and Sephora said in a joint press release that they resolved their legal matters and have agreed to mutually beneficial revisions to their joint operating agreement without providing any details. The chain of 840 department stores is approaching the end of a 30-day grace period before it’s in default on $388 million in bonds due in 2036. On April 15, Penney didn’t make a $12 million interest payment on those bonds.
Most industry analysts expect Penney to file for Chapter 11 bankruptcy soon. The company has both a debt issue — $4 billion in long-term debt — and stores in malls that have either lost their positions in suburban markets or are in smaller cities with less potential for growth.
As Coronavirus has devastated H&M’s business since the middle of March, the brand expects its second quarter to be loss-making as sales will be significantly lower and it will also have to offer a lot of discounts to shift stock from earlier in the season. Around 80 per cent of the brand’s stores have been closed since that time, although from the end of April, it has gradually started reopening them in a number of markets where local restrictions and social distancing rules allow.
The group’s sales between March 1 and May 6 have fallen by 57 per cent year-on-year in local currencies. Its online sales, which continue in 46 of its 51 e-tail markets, have increased by 32 per cent in the same period.
H&M endured the biggest fall in sales in Italy with an 80 per cent drop, followed by Spain on 76 per cent, France and the US on 71 per cent each and the UK on 60 per cent. Its sales in Poland have fallen by 59 per cent, Japan 58 per cent, Denmark 51 per cent, Finland 49 per cent, Russia 47 per cent, Germany 46 per cent and Norway 36 per cent.
The sales of Hermès International SA, a French high fashion luxury goods manufacturer, decreased by 6.5 per cent to €1,506 million in first quarter (Q1) FY20 ended in March 2020 compared to sales of €1,610 million in same period prior year. Ready-to-Wear and Accessories sales fell 9.6 per cent to €325.8 million compared to sales of €360.2 million in Q1 FY19.
The leather goods and Saddlery business declined 6 per cent to €771.1 million due to closure of stores in various geographies. Silk and textiles sales dropped 18.1 per cent to €115.0 million. Sales in France fell 8.6 per cent to €168.9 million, while sales in rest of Europe dropped 10.3 per cent to €234.7 per cent. Sales in Japan grew 4.6 per cent to €213.6 million. Asia-Pacific region reported 8.4 per cent decrease in its sales to €600.9 million. Sales in Americas were 4.2 per cent down to €258.5 million.
The company in its outlook reported that the developments in the pandemic and the measures decided by governments do not enable them to anticipate the dates for re-opening stores. And Hermès believes that sales in the second quarter will be significantly impacted by the closures of a significant part of the network.
Austrian fibres producer Lenzing has formed a joint venture with Austria’s Palmers Textil AG to produce protective masks for the European market in April The JV, Hygiene Austria LP GmbH, is producing so-called mouth-nose protective masks and surgical protective masks and plans to produce more than 25 million masks per month.
The company reported a 59 per cent drop in first-quarter net profit and dropped its dividend as the sector grapples with oversupply. Its net profit fell to $19.2 million and its revenue declined by 17 per cent for the three months to March 31.
The company’s prices for standard viscose fell to an all-time low due to oversupply, said the company, which produces cellulose fibers derived from sustainable wood and pulp. It would withdraw its dividend proposal of one euro per share due to the coronavirus crisis.
Japan-based manufacturer and retailer Fast Retailing, reported 4.7 per cent decrease in its revenues to ¥1,208 billion in the half-year period (H1) FY20 ended on February 29, 2020 compared to ¥1,267 billion in same period prior year. Operating profit for six months period were ¥136.7 billion compared to ¥172.9 billion in H1 FY19.
The company’s gross profits in H1 FY20 were ¥576.7 billion. Its selling, general and administrative expenses reported a loss of ¥438.7 billion. The company reported weaker performance was due to reductions in revenue and profit at Uniqlo International segment (South Korea, Mainland China, Hong Kong and Taiwan), which were adversely impacted by Covid-19 and other factors.
Uniqlo Japan reported 5.7 per cent decrease in revenue to ¥463.5 billion. However, its operating profit rose by 5.7 per cent to ¥71.6 billion. Same-store sales declined by 4.6 per cent after the warmer winter weather stifled sales of core winter items. While e-commerce sales grew by 8.3 per cent, the rate of online sales growth slowed for the same reasons as for our physical stores.
Uniqlo International reported 6.7 per cent decline in revenue to ¥ 541.2 billion and operating profit fell 39.8 per cent to ¥53.2 billion. This was reportedly due to considerable reductions in revenue and profit at Uniqlo South Korea and Uniqlo Greater China, which were both adversely impacted by the outbreak of Covid-19 and other factors.
A recent survey by members of the Australian Fashion Council (AFC) reveals though fashion brands in the country have been hit hard with strict social distancing restrictions on consumer spending, many businesses are taking advantage of the current crisis to rethink over their business models to be more competitive in a post-COVID-19 world. While 75-80 per cent of the 182 survey participants reported they were negatively impacted by COVID-19, 55 per cent said they are proactively responding by developing ‘post-COVID’ strategies.
Topping the list of priorities is beefing up their digital offerings. Around 45 per cent of respondents affirmed their plans to increase digital marketing and otherwise amplify their digital channels. But many also expressed interest in pooling resources and forming joint ventures to modernize Australian manufacturing, and creating co-working spaces, sharing assets and equipment and combining orders to meet MOQs to help smaller brands and sole traders compete.
The participants also expected the government to support local supply chains and manufacturing and increase global awareness of Australian fashion brands by creating group opportunities at international fashion and trade events.
They also expressed interest in adopting more sustainable practices, such as moving towards circular economy and recycling fashion waste. The AFC also noted the need for investment in smart infrastructure, clean energy, tech innovation, increased use of Australian natural fibers and increased processing of regenerated and recycled fibers, as well as a product stewardship scheme for textiles like there is for e-waste and plastics.
Xiantao city which is known as “China Famous Town of Nonwovens”, has over 300 nonwoven manufacturers all are in operation. High-tech Jiahua Nonwoven Company diverted their original business to the melt-blown nonwovens on urgent notice in the middle of February to keep daily output for more than 20 tons, adequate for 20 million pieces of face mask. Xiantao city is capable of producing over 20 million protective clothing, 100 million N95 medical masks and over 2000 million disposable face masks.
Amid hustles and bustles in the first quarter of the year 2020, the industrial textile sector (internationally known as technical textile industry) in China proved a high confidence index in the textiles for medical and healthcare, safety and protection, filtering and isolation, besides in nonwoven and equipment and accessories subsectors. It is worthy of mentioning the nonwoven manufacturers who proactively added more production lines and improved process flow to increase capacity for the first-aid medical textiles to ensure a quick-response supply at the time when emergency materials for fighting virus were called for, more often than not, on short notice.
It does not necessarily mean a thriving business for the whole industrial textile sector even though some subsectors were doing pretty well in the past few months. In recent days, China Nonwovens & Industrial Textiles Association (CNITA) has concluded its survey in the member companies to see how the business was going on in the first quarter of this year. CNITA got 233 respondents out of 240 companies that the questionnaires were sent to, and 11.16 percent of them responded to say that they were doing very well in the first quarter, 30.47 percent of them said they had a fairly good business, 38.63 percent of them were of the opinion that the business was just so so. On the negative side, about 20 percent of them simply said that their operations were not good, 4 percent out of which said the first three months were very bad period for their business performance. CNITA analyzed all the situation to process the data on business climate index model to conclude that the first quarter of 2020 witnessed the prosperity index on averaged 63.7 level in such subsectors as the medical and healthcare, safety and protection, filtering and isolation, nonwovens, equipment and its accessory parts, and the medical and healthcare subsector stands out to rise to 79.2 as a result of urgent demands for these protective gowns and face masks in the virus-ridden period. On the other side of the picture, the subsectors in civil engineering and construction, ropes and nets, linings etc. were rated on the level below 50, a demarcation line to define business expansion or contraction.
In the domestic demand, despite the coronavirus impacts, 31.33 percent of the companies responded to say that the rising demand for medical-grade nonwovens spurred their business growth while 21.03 percent of the sampled companies had a negative reply, saying that the coronavirus outbreaks reduced their business, and 4.12 percent of the companies under questionnaires survey replied that their clients’ orders for production were postponed, but expected to recover within the year, and 6.44 percent stood out to say that the COVID-19 did not impact their business at all. In the export business, 34.4 percent of them expressed that their OEM orders from international clients stayed stable, and 32.79 percent of them said their manufacturing orders were called off to some extent, and 8.2 percent of the companies under survey replied that their export orders were not in effect on voluminous basis, except for 9.84 percent of the companies which were reported to maintain a moderate growth in their business orders.
In the first-aid materials, 20.6 percent of the companies in subject had, as always, been engaged in face masks, protective clothing and its accessory business, and 31.76 percent of the companies shunted their business to the production tied to anti-virus products, leaving 47.64 percent to remain their old businesses not pertaining to the pandemic.
In the fixed assets investment, 66.09 percent of the companies expressed the plan of the new investment in 2020. In the investment in the project that was halted by the coronavirus impact, 67.53 percent of the companies would continue to implement the construction as scheduled, 29.87 percent remained in two minds as to whether or not to prolong it or start construction immediately, only one company decided to put the investment plan on the shelf.
With a lot of hometown of nonwovens in China, China National Textile and Apparel Council (CNTAC) has nominated many hubs of nonwoven and technical textiles manufacturing industry to brand them as “Famous Town of Nonwoven Industry”, like Xiantao in Hubei province, Changxing, Xialue , Xiaojiang and Yiwu in Zhejiang province, Zhenzhou and Rudong in Jiangsu province, and Changle in Shandong province, where the companies producing medical and healthcare textiles were expanding their capacity to meet the needs of the market.
Let us take a look at Xiantao city which is branded as “China Famous Town of Nonwovens”. Over 300 nonwoven manufacturers all are in operation, some of them had actually turned themselves into this nonwoven business by reshaping their production lines. For example, High-tech Jiahua Nonwoven Company diverted their original business to the melt-blown nonwovens on emergent notice in the middle of February to keep daily output for more than 20 tons, adequate for 20 million pieces of face mask with the granules and bacteria filtering effect leveling 99 percent in a quality-assured and quantity-sufficient supply to the market. As the domestic situation improves, these newborn nonwoven companies turned their supply to the international demand. According to Mr. Zhou Zhihong, Secretary General of the CPC Party Committee in Xiantao city, there are 146 nonwoven companies eligible for licenses to do export business, over 80 percent of them rely mainly on international market, and half of the total companies are qualified with ISO 9002 and the other international certifications. As the national manufacturing base for the first-aid and emergent materials reserves, Xiantao city is capable of producing over 20 million protective clothing, 100 million N95 medical masks and over 2000 million one-off face masks.
With the analytical report out of these companies in the survey, China Nonwovens & Industrial Textiles Association (CNITA) predicts an industrial upgrading trend especially in the sector that pertains to medical, healthcare, environment, emergent monitoring and handling etc., where the relevant companies should find more opportunities for business growth through reshaping and upgrading investment. When the crisis is over, the relevant companies in the technical textile industry will expedite the reconsolidation process by virtue of merging and acquiring to be qualified for national reserves base. The industrial clusters should develop a well-matching supply chain to forge a strong manufacturing pivot.
Contributed by Mr. ZHAO Hong
He is working for CHINA TEXTILE magazine as Editor-in-Chief in addition to being involved in a plethora of activities for the textile industry. He has worked for the Engineering Institute of Ministry of Textile Industry, and for China National Textile Council and continues to serve the industry in the capacity of Deputy Director of China Textile International Exchange Centre, V. President of China Knitting Industry Association, V. President of China Textile Magazine and its Editor-in-Chief for the English Version, Deputy Director of News Centre of China National Textile and Apparel Council (CNTAC), Deputy Director of International Trade Office, CNTAC, Deputy Director of China Textile Economic Research Centre. He was also elected once ACT Chair of Private Sector Consulting Committee of International Textile and Clothing Bureau (ITCB)
Even before COVID-19 disrupted financial markets, fashion industry leaders were already on a high alert. And the latest ‘The State of Fashion 2020’ report suggests, future outlook has gotten dramatically and suddenly bleaker as the average market capitalisation of apparel, fashion and luxury players has dropped almost 40 per cent between the start of January and March 24, 2020. Combined with the McKinsey Global Fashion Index (MGFI) analysis, the report expects a large number of global fashion companies to go bankrupt in the next 12 to 18 months. The report outlines five themes that will dominate the post COVID-19 market scenario:
Slow sales recovery
According to the report, a two- to three-month lockdown will cause financial distress for 80 percent of European and North American fashion businesses. The luxury sector will suffer more due to its reliance on travel retail in addition to lower levels of online presence and high dependency on department stores and experiential in-store retail.
Any momentary uptick in sales will not be able to offset a decline in spending across the board. Markets that have been under economic distress before the
crisis — such as Venezuela and Nigeria — will require more time to restore growth, owing to their inherent political instability. Looking ahead, businesses will have to review their operating models. While implementing short-term interventions these companies will have to consider actions for the recovery period and implement resiliency into their planning.
Discounting culture to grow
Low consumer sentiment has hit the fashion industry especially hard due to the discretionary nature of clothing purchases. In Europe and the US, more than 65 per cent consumers expect to decrease their spending on apparel, while only 40 per cent expect to decrease total household spending. As a result, overfilled warehouses laden with unsold seasonal stock will haunt most players, as long lead times weigh heavily on fashion’s supply chain and global consumer appetite for discretionary purchases wavers. Companies will turn to steep discounting to clear inventory for the rest of the year. Mid-market brands and retailers will be hit hardest, as middleclass consumers will turn more to heavily discounted affordable luxury and premium goods.
Digital fashion to grow
The global pandemic’s shutdown of offline retail channels has pushed digitally inept fashion companies to the brink. Consumers in China are increasingly embracing digital solutions for shopping, entertainment and communications thanks to the response of brands and retailers who quickly enhanced their digital capabilities by launching or improving innovative new channels. Nike — whose digital sales in the region grew 36 per cent in the third quarter ended February 29, 34 leveraged Taobao livestream bloggers during lockdown in China, while local fashion group Peacebird grew retail sales as a result of innovative customer engagement on their digital channels including WeChat, which featured over 41 live broadcasting sessions with influencers.
Gap between winners and losers to widen
The shutdown of physical retail and the slump in both consumer and investor confidence will accelerate the decline of struggling companies and buoying stronger empires. This will widen the gap between fashion’s winners and losers, with the latter likely to file for bankruptcy, seek government aid, close, or become targets for stronger players or private equity firms.
New sales models and technologies to emerge
The coronavirus has forced companies to create new sales models to stay afloat. Technologies like virtual fashion shows and digital show rooms, sample sign-offs in sourcing offices, livestream commerce and the latest 3D design tools are being relied upon to get business done. As soon as the immediate firefighting subsides, brands will rush to make longer investments in these innovations.
The advent of technology has rendered millions of artisans in the sector jobless with most of their their skills becoming outdated. COVID-19 has further compounded this problem with the crisis likely to render around one lakh workers in the industry jobless, estimates CMAI. Once famed across the globe as ‘artisans’, these textile workers have now become one of the biggest concerns for many Indian textile manufacturing enterprises.
Globalization leads to erosion of smaller players
Globalization has necessitated textile and clothing manufacturing processes to become cost-competitive. As the annual 2018-19 report of the Indian Ministry of Textiles, notes, this has resulted in a setback for the largely fragmented textile and clothing value chain in India which produces 70 per cent of its output from small and medium scale industries. Handloom and handicraft artisans are suffering due to their loss to market access and branding. This is further preventing them from getting reasonable returns on their efforts.
Schemes launched by the government
As a solution to these problems, the Textiles Ministry launched schemes like Technology Upgradation Fund Scheme (TUFS) or the Powertex scheme for 
powerlooms or the Scheme for Integrated Textile Park (SITP) in order to increase productivity, efficiency, exportability, scalability and marketability of the textile products in India. However, the government fails to adopt an outward looking approach to address the external factors affecting the sector.
Equal focus on all raw materials
One of the critical factors that the government overlooks is India’s overdependence on cotton. While global demand of clothing is inclined towards man-made fiber over cotton, India’s production still remains cotton-dominated. This is mainly due to the high production costs of these raw materials in India. Until recently, India used antidumping duty to protect the very few such domestic manufacturing oligopolies. Therefore, there is a need to infuse efficiency into domestic manufacturing of all raw materials.
Credit facilities for handlooms and powerlooms
The second factor that the government needs to consider is of increasing costs, which have a direct impact on the viability of the textile enterprises. The government needs to provide credit support for both handlooms and powerlooms to start business and working capital support to run their businesses. Also, banks need to assist MSME clusters to leverage their manpower skills and compete with the large corporates operating at economies of scale.
As textile is a power intensive industry, mills incur a significant proportion of their costs as electricity bills. For this, the government needs to reform the power sector by rationalizing tariffs and passing on the efficiency gains to end-consumers.
E-commerce and fintech solutions can be used to link handlooms and handicrafts with the market. This has to go hand to hand with effective advertising and branding support from the government and other agencies including National Institute of Fashion Technology and various textile promotion councils.
Lastly, the government needs to reemphasize the value of the worker in the modern textile industry. To achieve this, it needs to focus on effective skill development and capacity building by revamping the existing research-cum-training agencies. In addition, it needs to focus on the job skill training to adapt to the changing nature of work on the factory floor. This type of value creation will help it to provide a universal social safety net, a safe working environment and decent income levels for workers.
