Bleak prospects for fashion retail

After the crown pandemic, war and inflation mean, once again, bad news for fashion retail. Consumer confidence is collapsing, buying behavior is radically changing: second-hand and online are growing at the expense of specialized fashion retailers.

Sensitive to recession

Over the last twenty years, families have spent an ever smaller share of their budget on fashion: the share of spending on fashion in the family budget dropped to as much as 4% in 2020 and the turnover of fashion stores dropped significantly to below the level of 2019 The situation will not improve for the moment: the war in Ukraine is causing consumer confidence to collapse and rising prices are leading families to see their disposable income decrease. This will impact spending behavior, says a new report from credit insurer Allianz Trade.

Fashion, after all, is very sensitive to the recession: it is one of the first items shoppers save on, potentially reducing EU fashion spending by around € 4.85 billion in 2022. According to the report, the drop is felt primarily by specialist fashion retailers as consumer behavior has changed. Shoppers are opting more for online, second-hand, and leisure and sports clothing. More formal clothing is falling out of favor.

Number of shoe stores down

These changing consumer trends are not transitory, the credit insurer points out. Per capita expenditure on fashion continues to decline and already about 40% of expenditure on fashion takes place outside specialized shops. Only sales in the higher luxury segment are above 2019 levels.

As a result, fashion retailers are less and less able to pull it off, says Johan Geeroms of Allianz Trade. He refers to the footwear sector: “This can be seen in the growing sales of sports shoes and sneakers, at the expense of traditional leather shoes”. According to the industry organization INretail, the number of shoe stores in the Netherlands has dropped to less than a thousand stores. As of February 2021, there were still 1,364 shoe stores in Belgium, according to a tally by RetailSonar.

Risk of insolvency

At the same time, inflation weighs on the profitability of fashion retailers. Prices for cotton, synthetic fibers and transport remain high, putting gross margins under pressure. After all, the purchase of goods accounts for up to 50-60% of the operating costs of fashion chains. They will have to adapt the product mix, produce closer to home, focus on more expensive items, and offer fewer discounts. According to a McKinsey poll of fashion CEOs, 67% expect prices to rise more than 4% this year.

These structural changes in the fashion sector increase the risk of insolvency: “They can also be big bankruptcies. Think of chains. Since 2016, 78 bankruptcies in Europe have collapsed fashion retailers with an annual turnover of more than 10 million euros. In all, about 14 billion euros of turnover have been lost “. Incidentally, apparel manufacturers are also struggling: they face factory closures, shortages of materials, high container prices and problems in the supply chain.

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