With profits hitting record-low levels in 2020, the fashion industry’s form was hit hard by the COVID-19 crisis in 2020. The pandemic continues to spell doom in 2021, with fashion retailers still experiencing delayed deliveries amid more online shopping. A recent report by equity analysts Michael Field and David Whiston studies the impact of these industry disruptions on fashion manufacturers and retailers across the world.
Published in the Morning Star, the reports cites China as being worst-hit by COVID-19 hit. China accounts for around 36.5 per cent of all fashion exports by a wide margin. The pandemic compelled manufacturers to shutdown factories and disrupting operations of retailer’s who relied on exports. The disruptions intensified as China reopened its economy around April 2020, when other countries announced fresh lockdowns. This destabilized China’s production and made its shipping schedules unreliable.
However, the disruption benefitted manufacturers located closer to home for companies like Inditex . The vulnerability of supply chains will compel retailers to diversify sourcing in future.
Demand collapse leads to 90% drop in sales
Demand for fashion collapsed in the initial months of 2020 as stores remained shut. This caused fashion sales to fall by almost 90 per cent in some regions. Many retailers had to cancel their orders, halting production of new clothes and accessories. This led to a rise in inventory levels for manufacturers who also had to pay for the costs of existing orders
As per a Centre for Global Workers Rights report, around 72 per cent retailers refused to pay for their raw material costs while 91 per cent didn’t pay for production costs.
Online retail surges as stores remained closed
Online shopping surged during the lockdown period. The percentage of online sales of UK clothing giant Next in its overall sales jumped from 45 per cent in 2019 to more than 70 per cent in 2020. However, the rate of returns for goods purchased online also increased to 35 per cent during the year, shows a survey from GXO.
A few players managed to beat this trend and grow their online sales significantly. These companies closed their brick-and-mortar stores and focused on the new cutting-edge e-commerce technology. An example is Nike, which closed a few of its stores in Vietnam to focus on online operations.
Few retailers beat forecasts
The pandemic has raised costs and other consumer related concerns for fashion retailers. However, a few retailers have been able to beat analysts’ forecasts. For instance, activewear and basic apparel wear company Hanesbrands 5.8 per cent sales growth to $1.79 billion in the third quarter (Q3) of FY21 ended on October 2, 2021, over the same period of previous fiscal. The company’s net income for the three-month period expanded to $151.7 million (Q3 FY20: $103.3 million). All this despite the lockdown and disruptions