Fashion retailers could write-off £15bn in SS20 stock
With physical shops in the UK remaining closed, a huge volume of stock is building up both in stores and in warehouses, and retailers are potentially facing a £15 billion stock write-off, according to new analysis.
This would clearly have a knock-on effect on suppliers from major brands worldwide to factories in garment-producing countries.
The gloomy prediction, from Retail Economics and Alvarez & Marsal, also said all major non-food retailers are operating in negative cash flow at present and half could run out of cash if they have to stay closed for up to six months. However, at present, it’s seen as unlikely that a six-month shutdown will happen.
“Spring/summer will be a write-off for most retailers and excess levels of stock will flood the market in June and July, leading to significant discounting and margin erosion,” The Times quoted Erin Brookes of Alvarez & Marsal saying. “Given that various clothing retailers were plagued with underlying issues prior to the pandemic, administrations will be inevitable.”
Non-essential stores have been closed since mid-March with sales for retailers down by around 70%, according to the analysis.
While some retailers have continued to operate online, others have been unable to sell anything. Primark, for instance, has no webstore. And even those with large web operations, such as Next, have closed these due to social distancing concerns. Next has only reopened its webstore this week, but for a limited number of product categories and adult fashion isn't among those categories.
There are concerns that retailers who focus most on trend-led product will suffer the most from excess inventory as much of the product could be undesirable by the time the shops reopen. That said, some retailers will clearly try to carry over some stock into next season and particularly into SS 21, with New Look having already suggested it could do that.
The UK fashion market is worth around £55 billion annually in sales, 80% of that conducted through physical shops with the remaining 20% online. Around a third of annual sales are made between March and June. It's likely that large amounts of stock will be shifted (or retailers will attempt to shift it) via deep discounts once the shops are open again.
Richard Hyman, an independent retail analyst, also told The Times that with more than 85% of UK clothing purchases being “wants, not needs, consumers will emerge from all of this having survived without refreshing their wardrobes. This will be a profound influence on future demand”.
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