After the corona pandemic, war and inflation just add on the misery for fashion retailers. Consumer confidence is plummeting and buying behaviour is changing dramatically: second-hand and online are growing at the expense of specialised fashion retailers.
Sensitive to recession
In the past twenty years, families have been spending an ever smaller share of their budget on fashion: the share of fashion expenditure in the household budget dropped to just 4 % in 2020, causing the turnover of fashion stores to fall far below the level of 2019. This will not improve for the foreseeable future: the war in Ukraine is causing consumer confidence to nosedive and rising prices mean households see their disposable incomes fall. This will have an impact on spending behaviour, a new report by credit insurer Allianz Trade says.
Fashion, after all, is highly sensitive to recession: it is one of the first items where shoppers make cuts, potentially reducing fashion spending in the European Union by some 4.85 billion euros in 2022. According to the report, the decline is primarily felt by specialised fashion retailers: as consumer behaviour has changed, shoppers are opting more for online, second-hand and leisure and sportswear. More formal clothing is falling out of favour.
Declining number of shoe stores
These changing consumer trends are not just temporary, the credit insurer emphasises: per capita fashion spending continues to decline and already about 40 % of fashion spending is now happening outside of speciality stores. Only sales in the highest luxury segment are above 2019 levels.
As a result, fashion retailers are less and less able to cope, Johan Geeroms of Allianz Trade explains. He points to shoe stores: “You notice it in the growing sales of sports shoes and trainers, at the expense of traditional leather shoes.” According to Dutch sector organisation INretail, the number of shoe stores in the Netherlands has fallen to under a thousand. In Belgium, the picture is a little bit better: 1,364 shoe stores were still active in February 2021, according to a count by RetailSonar.
Risk of insolvencies
At the same time, inflation weighs on the profitability of fashion retailers. Prices for cotton, synthetic fibres and transport remain high, which puts pressure on gross margins. The purchase of goods already accounts for up to 60 % of the operating costs of fashion chains, who will therefore have to adjust the product mix, produce closer to home, focus on pricier items and offer less discount. According to a McKinsey survey two thirds of fashion CEOs expect prices to rise by more than 4 % this year.
These structural changes in the fashion industry increase the risk of insolvencies: “They can also be big bankruptcies. Think of chains. Since 2016, there have been 78 bankruptcies in Europe in which fashion retailers with an annual turnover higher than 10 million euros have collapsed. All in all, some 14 billion euros in turnover were lost as a result.” Incidentally, clothing manufacturers are also struggling: they are faced with factory closures, material shortages, high container prices and problems in the supply chain.