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Drapers Investigates: The cost of coronavirus to fashion retail

Drapers coronavirus survey

Drapers’ survey of the impact of coronavirus on the fashion retail industry reveals the cost in terms of lost business and job cuts.

Drapers’ Covid-19 coronavirus survey sheds light on the number of businesses across the UK and Ireland currently battling to survive amid the devastating outbreak, with more than a third of respondents already reporting staff cutbacks. It found that the industry will require rapid and transparent support from the government for it to be able to bounce back. 

As the coronavirus pandemic grows, so does its impact. Like every industry, fashion has been heavily affected. Events such as Graduate Fashion Week and manufacturing trade show Make It British Live have been postponed indefinitely, while suppliers and manufacturers are grappling with refused shipments and weaker forward orders.

Elsewhere, retailers and department stores have been forced to shut their doors and reduce staff working hours.

Drapers continues to gather and disseminate valuable information on how the UK and Irish fashion industry is impacted by and responding to the coronavirus crisis. Please take the anonymous survey

Against this backdrop of instability, Drapers conducted a survey of the fashion sector to gather and disseminate information regarding the challenges businesses are facing and to find out what national support they need. The survey was open to fashion-based businesses from across the UK and Ireland, and received 301 responses between 19 March and 23 March.

Drapers also asked business leaders from all parts of the industry about their business-continuity strategies

Respondents described the situation as “heartbreaking” and “devastating”, and many feared their businesses would be wiped out as a result of the epidemic. Immediate and potentially long-term impacts include store closures, “significant” declines in revenue, anxious colleagues, “drastically” reduced footfall, a build-up in deferred payments and debt, cancellation and delay of orders, and job cuts (see the survey methodology below).

“We have gone from implementing a growth strategy this year to creating and implementing a survival strategy,” the founder of one Scotland-based fashion brand said.

Drapers coronavirus survey of the fashion industry march 2020 1

Drapers coronavirus survey of the fashion industry

Worryingly, more than one-third (37%) of participants revealed their businesses have had to cut back on staff as a result of coronavirus. Of those who said their businesses had not done so yet, 49% said it was being considered.

Even before the government ordered non-essential retailers to close their doors on 23 March, 50% of respondents said the retailer or brand they work for had been forced to close stores, while 52.5% of respondents said opening hours had been reduced. However, 80% said they were still accepting online orders.

Drapers coronavirus survey of the fashion industry march 2020 4

Drapers coronavirus survey of the fashion industry

With many customers isolating in their homes, companies’ best-performing products were jeans, denim, leggings, loungewear and athleisure.

Of the suppliers, manufacturers and agents who took part, 77% said their business functions were still operating, while 51.5% of those who had not closed their businesses said they had reduced working hours. Many said this was because they still had to work to deadlines: 52% of respondents were still taking orders, and a further 22% were still taking orders on a reduced basis.

Drapers coronavirus survey of the fashion industry march 2020 2

Drapers coronavirus survey of the fashion industry

However, 59% said they have had to cancel orders, which they claimed would have a “catastrophic” impact on company finances in the short and long-term.

“Although it is a setback with customers returning items and stores now shut, on top of reduced sales, we are trying to remain positive and thinking of other ways we can keep the business going through online platforms,” the managing director of one London-based independent retailer said.

Respondents said they have put measures in place to mitigate the impact. These included bringing payroll and other controllable costs to a bare minimum; reducing supply chains to ensure stock intake is brought in line with reduced sales; discounting; increased cleaning; recruitment freezes; offering unpaid leave; staff allowed to work only contracted hours; driving omnichannel; payment plans with suppliers; applying for business interruption loans; cancelling orders for summer stock; and asking landlords for extended rent payment holidays.

Last week, the government announced business grants to cover 80% of wages of those employees not working as a result of coronavirus, introduced a year-long business rates holiday, and said it would introduce £330bn of government-backed loans and guarantees for UK businesses.

Drapers coronavirus survey of the fashion industry march 2020 3

Drapers coronavirus survey of the fashion industry

Many respondents said they believed the government has been “outstanding” so far, and is doing as much as it can in such difficult circumstances. However, some said it was too slow in announcing the closure of retail stores and called for it to move faster when reacting to changes, avoid deferring costs, and ensure proposed actions “actually happen”.

“We need more clarity on things, as so much is in the fine print and we need access to cash now, not in the future,” said the managing director of another London-based independent retailer.

Business-continuity plans: retail reacts to the coronavirus crisis

We sit down on a daily basis to decide who we’re going to pay

Managing director of a high street retailer

The nature of working in fashion is that often what we sell is a “want”, rather than a “need”. We’ve got to respect that the things we’re selling are suddenly not so important in the minds of the consumer and that’s a level playing field across the entire sector.

[Before the closures] we were almost disregarding the obligations that we’ve got in the shopping centres and on the high street in terms of opening hours, and then saying we were going to trade with what suits us. It’s a very brave landlord that is going to come and give us a doing in these uncertain times.

 At the moment, we are reviewing all of our payments going out – to landlords, suppliers, the government – and then prioritising to ensure we have the cash liquidity to pay our staff. 

We’re not asking anybody anything – we’re just making decisions. We’re trying to be as dynamic as possible, and sit down on a daily or weekly basis to decide who and what we’re going to pay.

Even if shops [hadn’t been] forced to close, we’d be in a position perhaps where if people weren’t coming in, then it wouldn’t viable [to stay open]. What we did was work out store by store what’s a viable level of turnover and once we get below that it would make sense for us to just close the store.

This is going to be the biggest hit the retail industry has seen

Lord Wolfson, CEO of Next

Any estimates that we have made during the coronavirus epidemic are guesswork. We have no better understanding than anyone else on how long this will play out, and what effects it will have on consumers. We have got some experience from what we’ve seen in our online business in overseas territories, where the disease is more advanced, and that has informed the modelling that we’ve done. But it is still anyone’s guess.

Our worst-case scenario – or what we believe to be the worst-case scenario – we’ve called at -25%. That’s not during the affected period – it’s more like -55% during the affected period and -25% of our whole-year sales. That would be equivalent to the company being completely shut for three months. We think that’s the most extreme things could get, but clearly, we don’t know.

The models we have done are in three steps. The first is that we’ve come up with three different sales scenarios. There’s a -10% scenario, a -20% scenario and a -25% scenario. The first scenario is spread over 12 weeks, and the second two are spread over 24 weeks. We have assumed that the second half of the year returns to normal, which may be optimistic.

The important point is the cashflow modelling that we’ve done. We have £1.6bn of the cash resources out of bank and bond facilities. We think that even in the worst-case scenario, as long as we take mitigating action within the business, we can still have our peak cash requirement as £110m of cash resources available to the business.

We do not think the business will need to draw on government facilities, although that option is open to us. The conclusion we’ve come to going through the modelling exercise, is that because our balance sheet is very strong and because the margins of the group are wide, we are placed to weather this storm without needing to seek outside assistance.

Having said that, as a precaution, we are in discussions with our banks about extending our facility by another £200m. Those conversations are going well, and it is likely we will have those in place within the next month.

World War II is the closest we’ve got to this

Chairman of several high street retailers

There are some businesses that so far are relatively unscathed by the crisis, but there are some that have already been absolutely killed by this. This will have a significant impact on jobs, which will ultimately impact spend. 

No business leader in the industry at the moment has been through something like this before.

World War II is the closest we’ve got – this is not

the same as SARS, or the ash cloud, or Brexit – therefore we need to be employing the same strategies as war times.

It is impossible to predict what will happen in both the short and long term. It could be that the virus lasts for three months, and then things drift back to where they were. I do think we’re in for a long period of economic downturn. 

It will impact jobs for quite some time, then we should hopefully see a healthy economic bounce. That’s what happens in war time. Ultimately, there will be three shocks. We’ll think [everything is] back to normal [after the first wave of the virus] and then it will be back again in the winter, and then there will be a significant economic bounce.

We’re being asked to put autumn 20 orders on hold

Marc Querol, wholesale and communication manager of Double H Agency

Regarding the situation and the actions taken by the government, we feel that it is a bit of breathing space for all our customers and for the sector. 

Having said that, we honestly don’t know what will happen in the end. But if we are able to get more answers like the one we had [about loans and grants] from the chancellor, it will definitely help. We are getting a few emails asking for us to stop deliveries and put autumn 20 orders on hold. 

We are waiting for answers from the different brands we represent in the UK as to what they want to do next. The main challenge will be how we will face trading afterwards, because I cannot see people going to trade shows or other massive events, so we are starting to find new ideas and concepts.

The social media side of business is very much alive to see if that helps us to stay afloat

Hayley Attridge, owner of womenswear independent Blue Boutique in Saffron Walden, Essex

 I am scared. The effect was immediate: nobody’s going away, so nobody’s buying summer clothing.

We’re doing a 30% off offer to encourage spending and to keep cash flowing through the business. I’d never dream of doing something like that usually, but there were mornings where I’d seen one person in an hour, when normally I’d see five or six.  

We stayed open as long as we could. One member of staff is self-isolating because she’s had a kidney transplant, and I had already had to cut hours for the other two ladies by half to keep our heads above water.

We’ve not had issues with suppliers, but we stopped doing top-up deliveries. I already have a stockroom full of clothes.

Part of the trouble is that the messages we’re receiving are so conflicting. There is no clear-cut message because the government doesn’t know what it is dealing with. It’s new ground for them too – they’re damned if they do and damned if they don’t.

The chancellor’s message [for the £330bn aid package] was incredible, but I need to know how we get that help. Lots of independents and cafes around me had already closed. It’s like a ghost town.

I’ve been trying to boost the business by sending out emails, and the social media side of it is very much alive to see if that helps us to stay afloat.

We all need to do what we can to maintain jobs

Ecommerce director of one mass-market fashion retailer

I am hearing clothing businesses were down anywhere from 40% to 60% in sales over the last few days of trading. Customers were not in the mindset to shop for clothing at all, so fashion was among the hardest hit sectors.

There are many decisions and trade-offs to make about virtually every area of the business. People’s safety is uppermost in the mind but, equally, we all need to do what we can to maintain jobs for staff to come back to. 

Forward planning in the supply chain is one massive issue, including when to cancel orders because of the collapse in demand, and how to balance that against potentially putting factories out of business. 

There is also what to do about the immediate variable cost base and marketing spend (what is committed versus uncommitted) and the tactical trading strategy, as well as proposition (home delivery and returns windows).  

Honestly, what we do may realise only very marginal offset gains, but we must figure out what those things are to help businesses survive.

Good things, like creativity and innovation, can come out of challenging times

David Segal, digital and creative manager at Raeburn

[Even before all non-essential stores were ordered to close], we were encouraging people to buy online, and are currently offering free domestic shipping. 

A lot of customers are UK- or London-based and come into the store to buy things, so we were trying to make things easier for them. We didn’t know what the situation would be for the store over the coming day, and a lot of stores had closed nearby, but we had to wait and see.

We always have a lot of events and workshops going on in our studio in Hackney, east London. We had a lot lined up for the coming weeks, which have had to be frozen. However, rather than just cancelling every event and workshop, we’re looking for ways to engage with our community when people work from home.

We usually host lab tours every two weeks – people can meet the team, and learn about the brand. We’re launching Lab Live from the end of March. It will replicate the studio tour via Instagram Live, and it will enable people to join in from all over the world.

It’s a big opportunity for the brand. This is something we’ve wanted to test for a while but lends itself perfectly to this situation. We could use the platform to teach people how to sew or how to repair garments – virtual workshops, Q&A sessions, all sorts. We don’t have all the answers but we’re trying to find ways to engage with our audience.

Sometimes it’s the case that a lot of good things, like creativity and innovation, can come out of challenging times. The virtual tour, for example – we’ve been thinking about it for a couple of years, but now we’re having to make quick decisions for the future.

Our seamstresses can do the work at home now that the schools are closed

Creative director of a premium fashion brand

We’ve been trying to get all the fabrics and trims we could possibly need from our suppliers based in Europe and the UK before the potential situation of everything closing down. If we can get the bulk of everything in now, then our seamstresses can do the work at home now schools have closed and they need to be there to look after their children. 

We’re doing a lot by video call. Design meetings are being held by Skype. Obviously, this could never come at a good time, but in terms of where we are in the season, we can make it work. Right now  we’re in a research and design phase, so I’ve been able to give everyone jobs they are able to do from home. 

The real struggle will come when we’re supposed to be getting products made. A lot of our stuff is made in the UK. It is hard to tell yet if that will be an advantage. It could be that the factories are overrun with orders because of production issues in other countries and we lose our slots. 

We’ve heard from buyers that retailers are cancelling orders. We had one very frank email from a boutique saying that it couldn’t accept deliveries now and if we do send its order, they won’t be able to pay for it. 

We can kiss goodbye to profits this season

Womenswear agent

I’ve had a few retailers wanting not to cancel but add in terms and special conditions that were not part of the original sales agreement, which has left me a little bit in a dilemma. While you want to be supportive – and I’m very aware we’re working in a partnership – it seems a little bit one-sided. We’re picking our way through the situation and how it’s going to impact on us. It’s a very delicate time.

The government announcement of [business loans and grants] will certainly allay people’s fears, and a loan is always welcome. But people will ultimately be thinking how long will it take to get that help and what will the impact be on the business before it kicks in. Will it be too late? Retailers will worry that there are a lot of businesses out there and if we’re all applying for this loan at the same time, then the help is going to take a long time to come. 

I was talking to one retailer about offering a kind of Deliveroo-type service. This store has such good customer service that perhaps they would be able to offer a personal shopping service. But that’s not going to be for everybody.

The problem is there are no social gatherings and that’s what really propels sales. If there are no social gatherings and we’re all just sitting watching TV, you don’t need a new dress.

In terms of stock, everyone has been quite tight already – the budgets we used to see are a thing of the past. Retailers aren’t going to be massively  overstocked in the first place, but when no one is coming in to buy the product, then it leaves them in a position where they’re going to have to mark down.

We can kiss goodbye to huge profits – or even any profits at all – this season.

We’re confident that we will get through this”

Nika Diamond-Kredel, founder of east London-based leather goods brand Paradise Row 

It goes without saying that events such as these will be challenging for businesses such as Paradise Row as any luxury purchase during times of uncertainty may seem unnecessary. That said, as a small local business, we are better protected against the disruption to global supply chains and do not have the burden of lengthy payrolls and bricks-and-mortar stores weighing us down.

And as a sustainable brand making timeless pieces, Paradise Row does not have to worry about getting rid of seasonal stock. Although there is uncertainty as to when this will end, we’re confident that we will get through this and when we do, our beautiful handcrafted leather products will still be there looking for new owners.

Paradise Row is a brand at the heart of its area and community, so as long as there is social distancing, the main cost will be a human one. Times like this give us an opportunity to reassess our priorities and think about the role we all play as considerate consumers and citizens. That is at the heart of everything we are trying to do at Paradise Row.

About the survey

  • Carried out online on 19-23 March 
  • 301 respondents across the UK and Ireland 
  • Respondents were 23.9% independent retailers, 22.6% multiple retailers or department stores, 29.2% fashion brands, 4.7% fashion agencies, 8% fashion suppliers, 13.2% manufacturers, 2% university and further education, and 13% other
  • 86.1% of respondents said neither they, a family or staff member had contracted the virus 

 

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