Headline Diplomat eJournal: Issue 1
The perilous lenses of COVID-19: The impact on the economy
Writes Karen Blair, Journalist, Headline Diplomat eJournal, LUDCI.eu, LinkedIn
Up until February 2020, the fashion industry generated a whopping $2.5 trillion in global annual revenues.
That was before the COVID-19 pandemic took the world by surprise, forcing governments to order businesses to close, place travel restrictions on citizens, close borders effectively upsetting supply chains, and create unified isolation as the new normal.
With much of the world’s population tucked away at home, everything that has been classified non-essential has been given the cold shoulder, clothes included. Clothing sales have plummeted by as much as 34 per cent for some retailers, saved only by an increase in the demand for leisure wear, sleepwear, and socks.
Every area of the fashion industry has been affected; manufacturing, sales, and events. Demand for clothing has come to a horrifying halt as consumers are unable to travel or socialize.
According to research carried out by The Business of Fashion, Covid-19 could spur the biggest economic contraction since World War II. Every industry has been hit but fashion, with its discretionary nature, has been the most vulnerable.
Marsha Cohen, chief industry advisor of retail for market research group NPD notes that ‘sales for apparel are down, averaging close to 60 percent below 2019. As one of the discretionary purchases, the declines have been historic.
The pandemic has left scores of workers jobless – from those who harvest the fibres to make textiles to shop assistants peddling the finished products in fashion capitals the world over. One of which is the United Kingdom.
The United Kingdom attracts billions of tourists from across the globe each year. London, particularly is known to be the hub of commercial activity with maximum retail sales in the European region. To further curtail the rapid spread of the virus in the UK, stores were ordered closed, leaving many retailers to grapple with an 18.1 percent decline in sales. This is the most recorded since records began in 1988. The three market leaders – Primark, Marks and Spenser, and Next all reported a shockingly sharp decline in sales as the demand for essential household items grew.
New York, the world’s fashion capital, has also been upended by the virus and the accompanying preventative measures. US Jeans giant, Wrangler has closed its stores, forcing jeans factories in Mexico and Central America to follow suit.
US fashion behemoths Nike, Gap, and H&M have also closed their doors to the public, no doubt incurring huge financial losses. Their colleagues Khol, T.J. Maxx, Marshalls Group Inc, Old Navy, and the Banana Republic have followed suit.
While some brands have continued to pay their workers as they observe the ‘stay-at-home’ orders, but many employees in the industry have not been so fortunate.
Asia, the heart of garment and footwear manufacturing has been severely affected by the fallout in the industry caused by the pandemic.
Diminished demand has left raw materials piling up in China and cancelled orders have put fabric manufacturers and textile producers in a knot.
Vietnam, which relies on China for most of its fabric imports has experienced serious issues arising in its production process with the suspension of Chinese fabric manufacturing. Consequently, Vietnamese retail brands have postponed or cancelled all orders since March, although textile manufacturers have already paid for the production inputs necessary to fulfil the orders.
The Vietnamese textile and Apparel Association (VITAS) states that approximately 74 percent of VITAS members have lost 30 percent or more of the orders they expected to fulfil.
Additionally, Mongolian goat-herders who produce an estimated 40 percent of cashmere fibre worldwide are also feeling the pinch as the demand from China decreases. For years, herders have feverishly tried to keep up with the demand for the luxurious raw material, but with the global textile industry in a bind, the demand for cashmere has come to a screeching halt. For them, as well as those who work in the industry in India, Cambodia, Bangladesh, Honduras, and Ethiopia, the squeeze on the fashion industry means extended periods of unemployment without compensation, hunger, disease, and depression.
In Bangladesh, cancellations from fashion houses and retailers have affected more than one million of the 4.1 million workers in the country’s garment industry.
Many factories have closed doors and sent workers home because the companies they sew clothes for have abandoned them and refuse to even cover the costs of work already done, which in some cases amounts to as much as three billion dollars.
Mark Anner, director of the Center for Global Workers’ Rights has criticized the move, noting that “going forward, as no new orders are placed and the industry shuts down, workers will have trouble putting food on the table”. Anastasia Orfanou, Founder/CEO of Finest, a fashion boutique in Athens, Plaka with over 30 years on her back says “During these times, we really hope that people stay safe and healthy. If we really struggled to survive, despite our established business, I fear what may be happening in the rest of the world. We have managed to stay afloat, but this would not have been possible if we had significant overheads and employees to pay. Paying for rent on top of 2-5 employees and going 60% in sales definitely means shutting down your business or filing for bankruptcy. Going back to the financial crisis of 2008, this is worse. If people are laid off left and right, buying cloths for the next 2 years is a luxury that nobody will afford. At the same time, offering good quality, prêt-à-porter clothing at a much lower cost is an opportunity that cannot go without for businesses like ours that combine quality, low costs, and personable service.”
A report by Penn State University’s Center for Global Workers’ Rights and the Worker Rights Consortium (WRC), an independent labour-rights monitor found that 58 percent of Bangladeshi Clothing suppliers have stopped most or all their operations owing to order cancellations or lack of payment. Approximately 72 percent of those who cancelled orders refused to cover the costs of raw materials already supplied and 91 percent declined to pay the production costs.
While their partners in the Western world are privy to workers’ hazard pay and stimulus packages, Bangladeshi garment factories are unable to pay workers they send home. This has left workers in a bare minimum survival mode, according to Rubana Huq, president of the Bangladesh Garment Manufacturers and Exporters Association. Huq has suggested that factories move to lay off workers in accordance with the country’s labour laws, which at least entitles the laid-off workers to half their normal pay. This may help for a short while but workers will then be left with a host of uncertainties regarding employment when the crisis ends.
Dublin-based Primark, the company with the largest cancelled or suspended orders, totalling $273 million, says they cancelled out of necessity as every store it owns has been closed. The company did approximately $10.2 billion in sales in 2019.
Many have questioned the legality of fashion houses and large retailers refusing to pay for orders already fulfilled. Like every other business that is operating within the confines of the law, they are expected to pay for supplies that they order. However, there are clauses (force majeure) that release them from their contractual duties in exceptional circumstances. This means that willingness to pay must stem from a company’s social conscience and the ability to empathize with partners.
Primark has called their refusal to pay, “an unprecedented action for unprecedented and unimaginable times.” Other companies including two if the biggest buyers from Bangladesh, H&M, and PVH Corp – owner of Tommy Hilfiger and Calvin Klein, said that they would pay for orders already in production although they would have to place a pause on any new orders until further notice.
In Spain, global fashion giant Inditex– owner of Zara, Massimo Dutti, and Berska closed 3,785 stores worldwide, switching its 13 clothes factories in Spain over to making medical supplies to aid in the fight against the coronavirus.
While the company has not disclosed the percentage of its fashions made in Spain, it did state that it sources 57 percent from factories mostly in Spain, Portugal, Turkey, and Morocco. With its centralised logistic centres in Spain also closed, it calls to question how shops elsewhere in the world are being supplied, if at all.
Inditex, H&M, Target, Marks & Spencer, Kiabi, and PVH have all publicly confirmed that they intend to receive and pay for products already made and orders already placed, but in some cases, no time frame has been outlined on when payments will be made.
In India, the wedding season begins in October to April. Many in the fashion industry there have looked forward to the season for years, as it has proven to be profitable for both large and small businesses. However, social distancing measures have dampened the sentiment of the season and accompanying events which are usually large gatherings. Celebrations now appear gauche in the face of global suffering.
Another element of the fashion industry that has been severely affected is the highly-anticipated ‘Fashion weeks’. This year, Fashion Week held in Milan in mid-February coincided with the outbreak of COVID-19 in Italy- the country that outside Asia would be the hardest hit before being trumped by the US.
Italy’s fashion industry is heavily dependent on China both for manufacturing and its luxury-consumer market. The Chinese have been the single biggest driver in luxury and fashion in the last 10 years, approximately one-third of all purchases of luxury. But with travel restrictions and a new focus on health, Chinese shoppers have stopped traveling to make big-ticket purchases.
Additionally, with a complete lockdown of the country, big brands like Prada, Armani, and Versace, whose headquarters are located in the northern city of Milan, will have to deal with the closure of factories that manufacture their clothing as well as leather goods and jewelry.
The Wall Street Journal has reported that foreign buyers around the world are cancelling orders of Italian textiles and products – placing the entire supply chain in upheaval. The tightly woven network of designers, manufacturers, distributors, and retailers that makeup Italy’s $42-billion-plus fashion industry has been left with huge stockpiles of glamorous apparel with no one to sell them to.
Big clothing brands, which are expected to weather the storm, are now under pressure to assist smaller suppliers scattered across the country. But they too are grappling with plummeting sales and dwindling profits.
Prada has had to close most of its stores worldwide, reopening manufacturing sites to make personal protective equipment.
Salvatore Ferragamo reported a 30 percent slump in sales in the first quarter, prompting a global shut-down of its stores.
Capri Holdings which owns Versace, Jimmy Choo, and Michael Kors have closed 150 of its stores in mainland China as well as its retail stores in North America and Europe.
Giorgio Armani’s cruise show scheduled for April in Dubai has been moved to November and will no longer include its initial cruise collection. Versace and Gucci similarly cancelled US shows that were to take place in May, while Prada cancelled its May resort show in Tokyo, according to reports by CNBC.
The series of events surrounding Fashion Week would usually entertain hundreds of attendees, designers, and media personnel but this year’s staging has had but a handful at each event as the virus staked its claim on the country.
The crisis has brought to fore, the survival of fashion shows and a question of their viability and necessity given the expense and intensive labour that go into producing them. According to Gucci, fashion week is over. The label’s creative director, Alessandro Michele, announced that Gucci was slashing the number of fashion shows it holds each year from five to two and would now be seasonless.
For designers who not only showcase their creativity but also sell pieces during Fashion Week, any consideration of a shut-down is cause for great trepidation.
At the time when COVID-19 began to ravage economies, the $31 billion African fashion industry would have been preparing for a slew of major fashion shows slated for later this year. Since 2010, the textile, apparel, and footwear industry in Nigeria has averaged a growth of 17 percent of the country’s GDP and employs a significant number of women.
The fashion events create employment for artisans, stylists, models, makeup, and hairstylists whose standard of living has fallen owing to cancelled events globally and across the continent.
But the stakeholders within the industry have not gone down without a fight. Uncertain of what the future holds for events and mass gatherings, leaders within the fashion industry in Lagos and across the continent are adopting digital tools to continue events. In June, Congolese designer, Anifa Mvuemba sent 3D models down a virtual runaway to an audience of millions who called her work ‘the future of fashion.’
And it is indeed the future.
If the fashion industry is to emerge from the COVID-19 crisis intact, it must be willing to face and accept lasting structural changes, some of which are already happening. These changes will affect the fashion calendar, the industry’s philosophy on social consciousness, and ultimately people’s sense of fashion.
One such structural change is the way consumers purchase clothing. Online purchases were trending even before the pandemic forced everyone to embrace technology and it doesn’t seem like a practice that will die any time soon.
Stephanie Phair, chief customer officer at Farfetch, an online luxury fashion retail platform, has concluded that a strong online presence is now key to brands’ survival and their success in the future. Considerations of how shopping will take place inside brick and mortar stores post COVID-19 may also come as a shock to shoppers who will now be expected to shop while observing strict social distancing measures. No-touch policies concerning cashing and packaging may also be introduced. All this will inevitably dilute the essence of shopping for most persons who may then choose to continue solely online.
Fashion and apparel brands now need to consider going online with their products. It will give them the ability to reach out to their existing customers and attract new ones by promoting a ‘safer’ way to shop that lets them experience in-store shopping, online.
Consumers are also savvier, buying items in bulk whenever they do buy and expect a reward for this. Apparel brands must start looking into offering discounts on the existing stock to encourage more consumers to purchase and keep their brands top of mind. last
Events like Fashion Week should get comfortable with displaying in a digital space given continued travel restrictions and a growing and persistent fear of large gatherings. Online streaming of catwalk shows may become the next big thing in the industry as designers and fashion houses try to keep pace with the new normal.
Fashion trends may change more slowly, forcing industry players to become environmentally sustainable. In 2018, it was reported that British luxury fashion house Burberry had been burning unsold stock as a way of preserving scarcity and brand exclusivity. Further investigations revealed that the wilful destruction of what the industry calls ‘deadstock’ is nothing new. A Pulse of the Fashion Industry report stated that fashion generates 4 percent of the world’s waste each year, a horrifying 92 million tonnes, much of which comes from off-cuts from the production process.
The extended lockdown has forced consumers to become more environmentally and socially conscious – choosing to mend and upcycle clothes rather than purchase new ones. Brands will now be forced to reduce fashion waste – not just by recycling but reusing and producing better quality clothing that will last as well as giving price breaks on existing stock. With most consumers pinching pennies, clothing won’t be the first, second, or even third item they choose to spend on. Therefore, making clothing more affordable will entice consumers to consider buying apparel as soon as they start earning again. Brands will also need to consider expanding offerings to include second hand and repair or rental services.
The widespread concern regarding brands cancelling orders and placing workers in binds have raised consumers’ consciousness to supporting and endorsing brands they consider to have a mission and purpose to do good. The ability to connect with, empathise, and genuinely seek to make people’s lives better will be the hallmark of the successful fashion brand in the foreseeable future.
Conclusion
COVID-19’s attack on the fashion industry has left many scars and much healing will need to take place. But it has also presented an opportunity to rethink the industry standards and practices, forcing it to become more sustainable, socially conscious, and creative in protecting and serving all stakeholders. Fashion brands must do away with seasonality in favour of a greener, environmentally-friendly way to produce and sell clothing.
All brands must seek to become digital, offering a direct relationship between themselves and customers via online shopping. Designers will get a better understanding of what consumers truly want to wear rather than creating products in a vacuum and hoping they are sold when introduced to the market.
Brands must seek to produce as economically as possible and pass savings to consumers. Otherwise, only brands with affordable leisurewear and socks will be recording profits when markets become active again.
