The measures that most governments have now taken against the spread of the coronavirus, have a terrible effect on fashion retailers. A stress test by McKinsey yields rather alarming results: 90 % of fashion retailers face serious threats from the corona crisis.
Wave of consolidations
71 listed fashion companies with a turnover of over 250 million euros were put to the test by the famous management consultant, and a review of the results is not encouraging: even after one month of forced store closings most chains are having a hard time, one more month and 90 % is in financial difficulties. This is partly due to the fact that even before the corona crisis, fashion retail was a vulnerable sector with 40 % of companies struggling financially.
E-commerce has put a heavy burden on fashion companies with physical stores, and those in the middle of the market are most in trouble, as consumer behaviour was already diversifying towards either luxury or value even before the corona pandemic, German Textil Wirtschaft quotes McKinsey experts Achim Berg and Karsten Lafrenz.
Stores being forced to close puts an extra strain on those companies, meaning banks and private equity funds think twice about continuing financing a company. The consultants say they expect a wave of consolidations, meaning some will be forced to give up while others will be put up for sale. Physical retail will decrease, and especially stores on B-locations will face hard times.
“No resurgence before Christmas”
While e-commerce is at this time unable to compensate the losses, it will be the major winner in this crisis: according to the McKinsey experts the turnover drop for e-commerce is just a temporary glitch (webshops mention drops up to 20 %), but as customers are at home they are increasingly online. They may be a bit reluctant to shop online at the moment, but they might be tempted when webshops offer significant discounts and adapt their shopping habits accordingly.
Retailers should think about store layouts if they want to be successful, and learn from the current experiences with click & collect. Most physical stores are conceived in such a way that customers have to cross the entire store to get to the click&collect touchpoint, but in the current covid-19 setting it may be smarter to put the touchpoint nearer to the entrance: many people will avoid crowded spaces fearing contamination in this climate, the experts say.
Even when most stores will reopen in a few weeks’ time, customers will remain reluctant to go shopping: it will be a less fun way to spend time, due to the necessary safety precautions. Offline turnover may not increase to more than a third of the nomal level: the McKinsey experts think that the retail revival will take time, and a return to normality may not happen before the Christmas period – if then…
