COVID FALLOUT - FASHION AND LUXURY

Covid-19 had major repercussions on various industries worldwide, but the most affected ones lie in the category of non-essentials. The very first essence of the word luxury is something that is not essential and is generally purchased for comfort or statement and fashion is often associated with luxury.

This quarter has witnessed the biggest fall of fashion and luxury industry, with an approximate fall in growth by 40% alongside a major chance of a further fall (up to 50%). Fashion industry forms a major part of the economy currently valued at $2.5 trillion. With disrupted financial markets, upended supply chains and crushed consumer demand, 2020 has been no less than a nightmare so far. The industry now is on a red alert and so is the global economy.

Coming to the beauty industry, which has seen a bit of a rise when it comes to skin care while there is a 1 percent fall in the revenue from cosmetics products. The Beauty industry has launched products which help in sanitization leading to increase in revenue. Under cosmetics, we have seen a decrease in the lipstick sales and a rise in the eye makeup sales, wearing masks has definitely shifted beauty priorities. If we talk about Footwear, Apparel and Accessories, all of them have seen a fall. (can be seen in the graph above)

Around 56% of the global fashion companies were unable to cover their cost of capital and it is expected that a large number of companies will go bankrupt in the next 12 to 18 months if the situation does not improve. (Source: Mckinsey Insights)

The impact on fashion may be even stronger now than during the 2007-2009 financial crises, when the unemployment rate went up from 4.4% to 10.0% over nearly 2 1/2 years. Fast forward to the present and in just the initial two months, the unemployment rate has gone up from 3.5% to 14.7%- resulting in a dip in fashion retail spending across all markets high and low.

(Source: Boston Consulting Group)

The crisis has disrupted the entire supply chain of these global companies. Most of the manufacturing units lie in Bangladesh, Cambodia, Ethiopia and India, shut down of these units will lead to unemployment of the workers further exaggerating the problem of hunger and disease. It has become difficult for companies to source their raw material from other countries leading to the stoppage of production altogether. The safety measures taken for the production and delivery of goods lead to increased cost and cycle time.

The crisis has hit the daily lives of the buyers and now they prefer buying only the essential consumer goods. As per McKinsey and Co, 75 percent of the shoppers in Europe and United States believe that their financial situation will be affected negatively for another three months. The pandemic has completely changed the consumer behavior, and it is likely to stay for the next few years.

The pandemic has left the fashion industry in the dark, with imposition of lockdown, brands are unable to operate due to which they completely relied on stock available. To facilitate their operations, brands adopted online marketing strategies and held various online events in order to increase the revenue. Brands like LVMH and Coty added hand sanitizers to their product lines along with the production of Masks. Chanel contributed its services by producing masks and gowns while Armani designed surgical Overalls. Prada is contributing by making facial covers for donation. H&M is working to make personal protective equipment for hospitals in Europe. These gestures make the entire industry come together and fight the war as a team as we are all in this together.

This pandemic has brought a new wave in the fashion industry, which we never thought of, the entire business model being shifted online. It is reported that online shopping will replace in store shopping even after Covid-19, as the pandemic has completely changed the buying behavior and selling model.

As seen in various reports, customer is likely to cut their extra expenditure on fashion especially high end brands. In order to increase sales and make customers feel safe brands are adopting new methods. Stores like Nike, Gap and Adidas have included in store precautions, sanitation facilities, contact less checkout transactions and quarantined returns. Routine store cleanings and limited consumers within the stores is the new normal.

Brands have shifted from producing the products that are trendy to what people actually need in the market. While the pandemic has affected people’s disposable income but the lower priced, high end is less likely to be influenced, the risk lies with luxury.

With the shift in the distribution channel and adoption of new product strategies, fashion industry will lift itself from the effects of Covid.

- Anushka Tyagi