Coronavirus Shutdowns Came At The Worst Possible Time For Fashion And Luxury Retail

By now, the devastating impact of the COVID-19 outbreak on retail is becoming well known. March retail sales fell a record 8.7%, and it seems a virtual certainty that the April numbers will be far worse given that the wide-spread shuttering of “non-essential” brick-and-mortar operations across the United States did not take hold until mid-month.

Unpacking these results reveals a wide range of outcomes. Stocking-up efforts, along with people eating at home more, drove a surge in spending at grocery stores and pharmacies. At the other end of the spectrum, department store sales (with a large concentration of fashion-related offerings) fell some 25%, and apparel and accessory store revenues cratered 52%.

It’s perhaps quite the understatement to say that such a massive deceleration could not have come at a worse time. Apparel specialty players and moderate department stores have been facing significant headwinds for years, and many came into the pandemic with weak balance sheets and what might be charitably considered shaky liquidity positions. Moreover, for the luxury segment in particular, March and April are the peak months for full-price selling, making them disproportionately critical to profitability and cash flow.

Vestidos de Novia

Unsurprisingly, retailers have been working frantically with vendors to cancel orders, return already received merchandise and obtain special markdown allowances. At one level, this behavior is akin to what happened during the peak of the financial crisis when Lehman Brothers failed in mid-September of 2008, initiating a cascading impact on stocks and consumer spending. In fact, where the COVID-19 crisis falls is almost exactly the same place in the fashion cycle—just one fashion season off.

The hit that luxury and fashion apparel retailers took from the financial crisis was severe. But the impact from the pandemic seems certain to be more dire. In the fall of 2008, most retailers took massive markdowns to clear merchandise, and while the sales and profit hit was substantial, at least their physical stores were open, allowing customers greater opportunity to buy the goods and affording many companies the chance to cover their overhead. While the e-commerce penetration of some key players is far greater today—over 30% at both Nordstrom JWN  and Neiman Marcus, for example—it’s clear that relatively few customers who are predominantly brick-and-mortar shoppers are making the switch. So far, the growing volume of promotional offers doesn’t seem to be doing much to increase demand.