Fashion stores weaken after pandemic

Retailers in the fashion industry have emerged from the pandemic weakened. Turnover is clearly lower than in the period before the coronavirus. Consumer behaviour also seems to have changed. Our research department warns of an additional risk of bankruptcy in the fashion industry, especially for specialized fashion stores.

After the coronavirus crisis, the fashion industry has been hit again by the war in Ukraine. European consumer confidence has fallen sharply as a result. Fashion has been particularly affected by this. According to our economists, this could cut fashion spending in the EU by around €4.85 billion in 2022.

Into the wind

Johan Geeroms, our Director Risk Underwriting Benelux, states that the fashion sector is facing the wind on several fronts. "Over the past twenty years, consumers have already spent a smaller and smaller part of their disposable income on fashion. Then you get the coronavirus, now Ukraine, and inflation is also penetrating deeper into the economy. For example, Eurostat reports 9.3% for Belgium and Statistics Netherlands almost 12% for the Netherlands. Inflation for both countries reached a record high in March. Buying new clothes is the first thing consumers cut. You can see the result: the turnover of fashion stores has fallen far below the level of 2019. In addition, gross margins are under considerable pressure. The prices of cotton, synthetic fibres, and transport are high and will remain so for some time to come. That affects profitability."

Casual wear

According to Johan, the Covid-19 crisis and the associated restrictions have pushed consumers online. "The specialized fashion stores in particular are being hit hard. Consumption patterns are also changing. Look at the rise of second-hand clothing for example. Or take casual and sportswear; that segment is growing. Perhaps because so many are working from home. This is at the expense of 'formal' clothing that speciality stores sell." It is striking that sales in the highest luxury segment are above the level of 2019.

Fashion stores are less and less able to cope with it. Johan cites the decline in the number of shoe stores as an example. "You can tell by the growing sales of sports shoes and trainers, at the expense of traditional leather shoes." He refers to INretail, the branch club of, among other things, shoe stores, which confirms that the number of shoe stores in the Netherlands has fallen quickly to under a thousand stores. In February 2021, Belgium still had 1,364 shoe stores, according to a report by RetailSonar.

Warning

Our research department is giving the fashion industry a red signal for 2022 and 2023. "The industry is really in troubled waters with all kinds of structural changes. The risk of bankruptcy is considerable. That can also be major bankruptcies. Think about chains. Since 2016, there have been 78 bankruptcies in Europe in which fashion retailers with an annual turnover of more than €10 million went bankrupt. All in all, about €14 billion in turnover was lost." In addition to retailers, clothing suppliers are also going through difficult times. Increasingly, they are faced with plant closures, material shortages, high shipping prices, and supply chain problems.

What can fashion stores do?

Johan notes, "A good mix of online and offline sales seems to be a requirement. This also includes marketing campaigns. Stores must continue to present themselves with a clear, personal face in order to remain in the picture with the discerning consumer, who has so much choice these days. The better stores can distinguish themselves, the better customers can find them. Customers can also are drawn to customer service and after sales. But fashion remains difficult. Customers who come to the store to have a look and try on, but then search the internet for the lowest price. It is disheartening how cheap fashion is offered today. But for shops that offer quality and really know how to distinguish themselves, a good living can still be earned."