How Is Coronavirus Going To Change The Fashion Industry?
80% of businesses face bankruptcy as global lockdown continues.
No sector is immune from the effects of the coronavirus outbreak, and the world of fashion is no exception. Despite often being regarded as a frivolity, the industry is worth $2.5 trillion globally and responsible for millions of jobs- over 300 million are employed across the fashion value chain.
A new report by McKinsey has warned however of the disastrous economic impact that COVID-19 is set to have on the business of fashion. Declining sales caused by the pandemic are pushing fashion firms across the globe to the edge of bankruptcy and placing millions of jobs in jeopardy.
The stalling of shopping as a result of coronavirus is multi-faceted. Firstly, with people being confined to their homes and retailers ordered to shut their stores, bricks and mortar transactions have ceased completely. Fashion houses and retailers alike have also been forced to evaluate the behind-the-scenes processes of their business and make a decision as to whether their manufacturing and distribution can continue safely. Net-a-porter is just one of the big-name fashion retailers to have paused operations until they can guarantee the safety of their community.
For those that are able to maintain some scale of operation they then must wait for the online orders to come in. With people stuck at home bored, pre-coronavirus this would have been a perfect opportunity for e-commerce sales to rise. However, with people across the globe losing their jobs, being placed on furlough and receiving pay cuts, many are understandably reluctant to make the fashion purchases they would have previously.
So, with sales across the sphere stalling, fashion buyers have rushed to cancel orders for new season stock. The impact of this has then reverberated across the supply chain, forcing millions of garment workers in source markets such as India, Cambodia, and Bangladesh into unemployment. Then there are the investors who, witnessing this, have retreated, resulting in the market value of fashion and luxury companies plummeting by almost 40% in the first three months of 2020 alone. Interestingly this is a steeper decline than witnessed in the overall stock market.
With the global crisis continuing to escalate, stores are facing the prospect of remaining closed for the foreseeable future. McKinsey has projected that, if shops are to remain shut for just two months, 80% of listed fashion companies in Europe and North America will be plunged into financial distress- something that is looking ever more likely.
The fashion industry has long been a difficult environment for businesses to navigate, with more than half of the companies in McKinsey’s benchmark global fashion index noted as “value destroyers”, meaning the profit made by these does not surpass their cost of capital. Brands from high-end to highstreet are all feeling the effects of COVID-19 and it’s particularly putting into question, the future of those companies who were facing testing times prior to the outbreak.
It’s undeniable that a lot of things will emerge alerted when we eventually come out of the other side of this crisis, as is currently happening in China. And it seems that fashion post-COVID-19 is an industry which may be unrecognizable.
Next up, Sustainable Fashion Is On The Rise