Can fashion survive a second wave of Covid-19?

Even allowing stores to stay open hasn’t stopped a second wave of Covid-19 lockdowns hitting fashion sales in the US, Australia and across Europe, heightening fears of wide-scale bankruptcies.

Fashion and general merchandise revenues decreased an average of 7.3 per cent across the United States, in the week ending 19 July, aggregated debit and credit card spending data by Affinity Solutions shows. In California, Texas and Arizona, where lockdown restrictions were reintroduced in June, the declines were considerably higher, with California falling 19.9 per cent, Texas down 13.2 per cent and Arizona slumping 18 per cent per data from Opportunity Insights, a team of economists based at Harvard University.

Fashion retailers have been among the worst hit by the Covid-19 pandemic, with many already on the verge of administration or making significant cuts to their store network and workforce. A resurgence of Covid-19 in the US, Australia and some European countries and further lockdowns have come as many governments have announced plans to taper off support for businesses. These trends, compounded by the stress that intermittent reopening and reclosing has on businesses, could lead many more retailers into bankruptcy by the end of the year.

Luxury hubs in Europe will see a slow return of tourism

“There’s no doubt that this will actually drive some consolidation in the retail industry. We’ll see retailers close,” says Paul Zahra, CEO of the Australian Retailers Association.

Retailers in the US have generally been allowed to keep operating even as other measures to combat Covid-19 have been reintroduced, but Belgium is now restricting shopping time to 30 minutes max per adult, while shops in Melbourne have voluntarily shut as residents were told to stay home. The only local lockdown so far in the UK meanwhile forced all fashion retailers in Leicester to close their doors for over a month.

“Our members in Germany, which closed down most of its nonfood operations for two months, including all fashion shops, have predicted that probably 30 per cent of the shops affected, particularly in the fashion area… would never open again or would go bankrupt by the end of the year,” says Neil McMillan, director of advocacy and political affairs at EuroCommerce, the association for retail and wholesale in Europe.

Melbourne boutique Dot Comme saw its store traffic wiped out when the Victoria government reintroduced lockdown measures, and a secondary e-commerce business on Farfetch hasn’t offset losses. Its second Shanghai store, opened at the beginning of the year, will now close. “The city is quite depressing at the moment,” says owner Octavius La Rosa.

Government funds hang in the balance

Retail associations in Europe and Australia say any second shutdowns are likely to be considerably more brutal on business if governments move away from support schemes introduced during the pandemic’s first wave. The Australian government has already decided to cut the money provided via its Jobkeeper support scheme for unemployed workers by around three-quarters. Nearly one million workers in Victoria have been relying on these support payments and the lower budget will be “likely to remove a significant amount of stimulus from the economy”, Goldman Sachs analysts said.

The UK is also planning to end its equivalent employee support scheme in the coming months, and a moratorium on rental evictions by landlords expires in the autumn. “Furlough schemes have done an enormous amount to cushion the pain, but any further shutdowns without furlough schemes would be very, very painful,” says Simon Irwin, retail analyst at Credit Suisse.

British high-street staples TM Lewin, Debenhams and Monsoon are among the companies to have entered administration over the past few months. Irwin says that over the next six months “we would expect a significant step up in both companies downsizing their store estates and restructuring”.

Support may still be on its way in the US, where the two main political parties are debating competing stimulus packages. These would build upon the initial series of loans, tax credits and expansion of unemployment benefits introduced by the federal government in the spring. The US National Retail Federation welcomed many of the measures included in the Republican version of the bill, introduced by Senate majority leader Mitch McConnell on Tuesday.

It may come too late for some fashion brands. Ascena became the latest name to file for Chapter 11 bankruptcy protection in the US, following on from JC Penney, Neiman Marcus, Lucky Brand and Brooks Brothers. “There is a bankruptcy every week and they are usually apparel merchants or department stores… that will continue,” says Sucharita Kodali, retail analyst at Forrester.

On top of uncertain government support, retailers also face sporadic changes to restrictions. In the UK city of Leicester, an outbreak of Covid-19 forced all non-essential stores to close only two weeks after reopening. These retailers began to open their doors again last week, but footfall was still around 30 per cent down on mid-June figures.

“Businesses need clear communication in a timely manner to give them notice to plan for closures and reopenings — securing premises, furloughing staff and managing stock levels to minimise waste does not happen overnight,” says Simon Jenner, director of the Leicester Business Improvement District, who put the discrepancy in footfall down to continued restrictions on travel into the city.

Footfall struggles, even where stores reopen

Rising cases anywhere in the world have generally correlated with less retail footfall as consumers are put off from travelling into city centres to shop, leading some retailers to shutter stores even without government mandates.

In the US, shopping is thought to be a safer activity than going to gyms, bars or restaurants, says Jason Brewer, EVP of communications and state affairs at the Retail Industry Leaders Association. Stores fully enclosed within indoor malls are the only ones that have been asked to close in California, disproportionately affecting some brands more than others. PVH, the parent company of Tommy Hilfiger and Calvin Klein, has had to shut five of its 66 stores in the state, while common anchor tenants with external access like Nordstrom and JC Penney have been able to keep open a much higher proportion of outlets. Gap has temporarily shut 43 of its 76 stores in California, although many of these are non-mall outlets.

Stores fully enclosed in indoor malls like South Coast Plaza in Costa Mesa, California have had to close during the state’s second lockdown

Several clients of Eric Fisch, head of apparel at HSBC USA, are choosing to reopen only select stores in their fleets in California because the traffic doesn’t justify the expense of reopening all of them. “At the moment, that’s a temporary decision, but we’ll see if some of those turn permanent,” he says.

Nearly 14,000 shopping and retail firms in the US that were open on 1 March remained temporarily closed on 15 July, per figures from business directory website Yelp. There also remains the prospect that some of the stores that are now open may close again even in spite of what local authorities say. Levi’s CEO Chip Bergh recently told the Financial Times that this was “almost a certainty” in some of the most affected regions. Technology firms Apple and Microsoft have been among the most proactive in closing stores, with the latter recently announcing it was not planning to reopen any of its shuttered bricks-and-mortar locations.

The yo-yo reopening cycle takes its toll particularly on small businesses like Dot Comme in Melbourne, where La Rosa is struggling with the future of his business. “It’s a little difficult to be positive right now,” he says, “I should be thinking more along the lines of what to do next.”