First came Storm Brendan. From 13 January, 80mph winds and driving rain battered parts of the UK. Then, only weeks later, Storms Ciara, Dennis and Jorge wreaked further havoc, as severe weather warnings were issued and parts of the country battled severe flooding. It was the wettest winter on record since 1862.
Meanwhile, the first case of coronavirus in the UK was recorded on 31 January. At the time of writing, there are now 1,543 confirmed coronavirus cases in the UK, and 55 people have died. Speculation is ongoing as to whether the UK will follow other countries’ lead by closing schools and offices.
It has all added up to the most difficult conditions Nigel Oddy, CEO of New Look, has seen in his 40 years of retail, as he tells Drapers in an interview due out later this week: “We’ve had two of the biggest storms, the wettest February on record, coronavirus and there’s still a lack in consumer confidence from Brexit and business rates [to deal with]. The headwinds out of our control are stronger now than I’ve ever experienced in my career.”
As one managing director of a high street chain summarises the situation: “Retail, especially bricks and mortar, is facing an unprecedented situation, and many businesses have already entered crisis stage.”
As a discretionary category, fashion often faces the fallout from negative macro-economic changes
Anusha Couttigane, Kantar
The impact on footfall has been stark, says Paul Martin, UK head of retail at KPMG: “Though many retailers had reported a decent first couple of weeks in 2020, that really started unravelling at the back end of January when the first bout of storms hit the UK.”
That drop was compounded by fears around coronavirus says Lisa Hooker, retail leader at PWC: “People are being more cautious and not wanting to go into big shopping centres. We’re hearing of significant like-for-like drops in footfall in busy areas over the last 10 days.”
The situation is particularly stark for fashion retail. Toilet roll and long-lasting food such as pasta have flown off the supermarket shelves as consumers panic buy, but some non-food stores have reported footfall declines as high as 20%, says Martin. The latest Springboard Footfall Monitor showed a 31.2% year on year decline in high street footfall.
“As a discretionary category, fashion often faces the fallout from negative macro-economic changes,” says Anusha Couttigane, principal fashion analyst at Kantar. “In times of trouble, consumers switch their spending to essential items, particularly when there’s heightened concern over shortages.”
Many brands are having to react now as they may well have too much product on board
Head of retail, fashion multiple
Fashion retailers such as New Look at the value end of the market and premium brand Whistles, have already launched discounts on new-season products, in an attempt to stimulate sales.
“Many brands are having to react now as they may well have too much product on board and perhaps feel that, even if they have a better Q2, they will still have too much stock at the end of the season,” says one head of retail at a fashion multiple. “For those that are not cash rich, this is a big problem and many brands have already put significant markdowns on spring 20 product.”
In the days, weeks and months to come, were the impact of coronavirus to escalate and the government to extend social distancing measures, the impact on physical stores would only worsen. In Italy last week, the government ordered the closure of all stores, other than food retailers and pharmacies.
“At any minute Covid-19 could go from something you can see the lighter side of, to being chaotic and dangerous and overwhelming to public services,” says the founder of one high street retailer. “You can also quite easily imagine stores shutting, not because they’re obliged to, but because they can’t be staffed.”
And therein lies the second and third big impacts of the virus for retailers: staffing and the supply chain. Last week, prime minister Boris Johnson shifted UK strategy to the “delay” phase of containment. People with even mild symptoms that could be related to coronavirus are now being told to stay at home for 14 days. The advice is to avoid pubs, restaurants and non-essential travel, and work from home wherever possible.
In physical retail, this will have huge knock-on effects. Stores may decide to open fewer days during the week or for shorter hours to be able to cover shifts.
Anyone saying retailers are using events as an excuse is probably underestimating the situation
CEO, high street retailer
PWC’s Hooker, meanwhile, says workforce planning at some distribution businesses now involves dividing staff into teams that work separately and do not interact, to mitigate the impact of any infection.
“With the sheer volume of unprecedented circumstances that we are facing, I think anyone saying that retailers are using them as an excuse – when an entire European country [Italy] is in quarantine – is probably underestimating the situation,” said the CEO of one high street retailer. “The reality is it will affect supply, without a shadow of a doubt, and most people are experiencing a three- or four-week delay anyway.
“And yes, absolutely, like most retailers we can change from sea to air freight to catch up on some of that, but that does come at a cost so there is therefore a margin missed there as a result.”
Retailers that operate online have also been affected by the virus.
“The recent spread of the coronavirus has certainly impacted our sales figures and website traffic,” says William Forshaw, CEO of leather goods brand Maxwell-Scott. “The traffic on our seven international Maxwell-Scott websites, for instance, is down by 39% since the outbreak.”
Supply chain problems
The UK clothing sector also remains heavily dependent on both manufacturing and materials from countries where the impact of coronavirus is already more severe, such as China and Italy. Disruption may not kick in for spring, as many of the season’s goods have already been delivered in the UK.
The full extent of inventory damage could become apparent later in 2020, believes David Wystrach, senior director for airfreight EMEA at freight company Flexport: “In the last four weeks alone we’ve already seen 17 sailings from the Far East to Europe cancelled, further exacerbating already reduced capacity following Chinese New Year, when manufacturing slows and stops in China.
Brands will have to concentrate on clawing back lost profits
Sophie Johnson, Birmingham City University
“Fashion companies are now requesting alternative freight modalities such as rail from China to Europe in an attempt to make up for the manufacturing delays. We also see our customers shifting production from China to Turkey.”
“We are seeing each brand take its own approach to the predicted impact,” adds Joelle Hillman, client partner at global affiliate network Awin UK. “Some fashion retailers are going hard with full-site discounting to prevent any impending performance dip, while one footwear retailer has pulled back on all additional marketing spend and performance as a direct result of the virus.”
In the longer term, all this disruption will have a knock-on effect on both innovation and investment in the sector, believes Sophie Johnson, a lecturer in fashion business and promotion at Birmingham City University: “With most retailers developing contingencies for stock availability, price increases and lack of consumer spending, brands will have to concentrate on clawing back lost profits, as opposed to innovation brand development.”
On top of that, “brands will be extremely conscious of their expenditure, and investors will proceed with caution. It’s a turbulent and unpredictable time for the industry with no clear end in view.”
The Drapers Verdict
Although the first couple of months of the year can always be a slow time in retail, as shoppers hold back after a spending splurge in the run-up to Christmas, this year has held unprecedented challenges, particularly for bricks-and-mortar operators.
And while forecasters can make pretty safe bets as to when the bad weather will subside, the impact of coronavirus is almost impossible to predict. A quick look at Italy and France, where every clothing store in the country has been told to close, gives some clues as to how widespread the impact could be for retailers in the UK.
All retailers can do for now is take precautions. But with attention quite rightly focused on surviving the short-term, it is possible there will be a knock-on effect on longer-term considerations such as innovation and investment.