Why Fashion Retailing Will Have A Slow Recovery
By every measure, 2020 was a terrible year for the fashion industry. Retailers cut some fashion space, and apparel sales were very disappointing. McKinsey predicts that the global fashion industry’s profits are expected to fall by -93% in 2020. Initially retailers bought too much, lately retailers don’t have enough on their shelves.
The problem is that most retailers look to Wall Street for approval. If their inventory is too high, they get punished by investors who fail to buy the stock. If their inventory is too low, they get punished by customers who walk away without buying anything.
How should fashion retailers behave in 2021?
The New Yorker cover, (December 7, 2020), presents a perfect example of how we act today. Here is a young lady who sits in front of her computer with a smashing blouse and nice earrings, but wears tennis shorts and slippers. She is zooming and does not have to dress-up below the waistline. Until she gets a vaccine, she will continue to do her job at home behind a computer. And, for that, she knows just what and when to dress; she does not have to worry about a full head-to-toe look as she is confined to her home.
Will she tear herself away from the computer?
I have interviewed several people who believe that much of their work can be done at home. However, these same people believe that any deal-making has to have a personal touch and cannot be done well by computer. One friend pointed out that most meetings have social breaks (30 to 45 minutes in length) where serious discussions often are started and deals are concluded. Management teams, in other words, will have to find ways to meet, even if it involves travel, to keep the deal-making going.
That means executives will have to dress up again and look sharp.
The outlook brightens as this starts to happen again, but the question is how fast and how broadly will a return to such business activity take place. The Business of Fashion suggests that fashion sales will decline in 2021 between 0 and 5 percent compared to 2019. This would suggest a relatively rapid recovery and quick bounce back after the sharp drop in 2020. However, the authors hedge by saying a late recovery could cause a drop of -10 to -15 percent in 2021 versus 2019 sales because of containment measures and continued fear of the virus will keep people homebound. Then, recovery could be as late as the fourth quarter of 2023.
I am inclined to believe that a slow recovery is more likely.
Judging by recent observations of major department stores in the South that show them to be poorly stocked in fashion and other merchandise, I feel that retailers remain cautious and doubtful of strong fashion demand for 2021.
I agree with that assessment of demand for 2021.
Here is my outlook for 2021:
1. The virus. While we all hope to be vaccinated tomorrow morning, realistically it will take considerable time for most of us to receive the vaccine. We will continue to be confined to our home.
2. Shopping patterns. Shopping will continue to rely on digital options and spending will focus on basics and necessities. Fashion will not be a priority. However, we will continue to spend more time at home and home furnishings and décor will be considered necessities.
3. Diminished Demand. During our confinement demand for fashion will not return to pre-pandemic levels in the foreseeable future. Unemployment hurts. Retailers must double down on performing categories such as fashion for the home.
4. Travel. Travel will be at a minimum for the foreseeable future. Foreign visitors will not come back soon. Companies must look for new revenue opportunities not dependent upon tourism or vacation wardrobes.
5. Less is more. During this period, The Business of Fashion points out that more products do not necessarily produce more profits. Fashion companies must reduce assortment complexities while increasing full-price sell-though.
6. Opportunities. Some companies are already bankrupt and others are propped up by governmental subsidies. Proactive retailers have an opportunity to gain market share and grow if they analyze their market and address weaknesses they find.
7. Partnership. In order to avoid future supply chain disruption, a deeper partnership with suppliers and vendors is necessary. That would bring greater assurances of continued leadership.
8. Closures. There will be more store closures in 2021. I reported on closures of more than 15,000 store locations in 2020 and expect more stores may close now. Landlord demands for rent payments or debt may overwhelm management.
9. Digital Revolt. As retail companies refine their understanding of customer’s needs and wants, they will realize that many customers enjoy working at home, and it will demand new skills to support digital shopping.
Just as the cell phones made us more introverted and less social, so has the pandemic made us more vulnerable and isolated. This feeling is not going to go away overnight. We are learning to be strong individualists. We dress accordingly - reflecting our mood, our sense of fashion, and our ability to save. We no longer go on cruises; we avoid flights to vacation spots and focus on social distancing and small dinner parties. There is no “must have fashion” now.
What does that mean for a fashion retailer?
It is up to store managements to think anew and be creative about color, design, and fabrics so that we see new reasons to refresh our wardrobes. That will renew interest in fashion as long as there are products that let us make a statement that reflects what we like as individuals.