The impact of COVID-19’s effect is beginning to take shape as we enter the second fiscal quarter of 2020. While the majority of the world is struggling to include this out-of-control disorder, fashion companies large and small are also fighting to soften the economic blow they’ll take during this troubling time.
Almost 40 percent of global fashion consumers kept their wallets shut during the peak outbreak weeks, a time when sales generally surge thanks to China’s Spring Festival. The country’s travel shoppers, which constitute 38% of the global fashion market, traditionally save most of their consumption for these winter months. And now, as more people in China start to go back to work after a necessary quarantine period, many are considering reduced salaries, which has led to more conservative spending.
However, the economic downturn is not only the fault of consumers. Most brand stores and retail outlets have not even resumed full operations in many areas of the nation and are gradually closing doors abroad, as well. People who remain open have seen few customers. Meanwhile, the stocking new stock continues to be an issue because factories which are crucial to the global fashion supply-chain are trying hard to resume normal operations, thanks to a lack of employees.
All these factors have led to an 80-percent drop in first-quarter sales revenue for some brands as well as less extreme reductions for others. From the stock market, shares of some fashion giants have observed moderate drops, although some have stayed surprisingly resilient throughout the catastrophe. Still, most executives are anticipating an average 5-percent reduction in annual sales. Product launches, promotional campaigns, along with other formerly planned marketing campaigns are brought to a stop.
Even companies that had initially planned on redirecting their focus to markets outside China are aware of the huge gap in revenue an absence of Chinese consumers is leaving — not to mention sluggish generation from China’s manufacturing lines. All these companies are still critical to fashion brands that make garments and accessories abroad because a lot of manufacturing is still greatly exported from China. The bottleneck this is producing in logistics is only going to worsen over the coming months when freight shipments (both outbound and inbound ) to significant markets are confronted with more cancellations. And when regular shipments do restart, the struggle between companies to ship out products will create a massive increase in shipping rates.
While these facts and statistics are obviously worrying, many market experts are not too panicked. In fact, the COVID-19 outbreak is not the first tragedy of its type to unleash chaos in the retail fashion world, and past outbreaks show reassuring settlements. After 2002-03’s SARS outbreak, for example, a related financial slump was accompanied by a steep V-shaped rebound due to pent-up consumer demand, and sales surged after the dip. Although China is rather different than it had been in 2003, most analysts consider that a similar trajectory will follow, and they point to many other examples across the world as evidence. More importantly, if a surge in sales does occur in the third or fourth quarter, leading to even larger sales than before the outbreak, how do the luxury fashion industry deal with an increased demand against its crippled distribution? As many brands have already accepted that Q1 and perhaps Q2 sales are lost causes, many are seeking to readjust marketing strategies for the rest of the year – with some interesting solutions.
Mitigating losses and contingency strategies May Lead to opportunity
This less-than-ideal market scenario is forcing brands to rapidly develop a better comprehension of consumer expectations on pricing and products in this period (and within the coming months), so that they can reform their marketing approaches and approaches accordingly.
One such strategy is focusing on online retail, something that fashion brands like Uniqlo and cosmetic brands like L’Oréal have already effectively done to help soften the blow to in-store sales. For all these brands and many more, this sudden loss can become a significant opportunity if they could boost the digitalization of their activities and increase investments in emerging retail technologies.
Tech improvements will not just help maintain sales via online e-commerce platforms; they’ll also minimize disruptions into supply-chain activities by changing toward the more direct and efficient B2C processes which are gaining favor, as a result of recognizable platforms like Tmall.
It’s still too early to say just how severe 2020 will be for international fashion brands, however as many early-movers have proven, there’s no time to waste when adapting to a new environment. Brands must fully explore innovative approaches to help ensure a continuous sales flow via previously untested techniques. This’new standard’ for the fashion retail sector may push older brands to redefine their own traditional methods by switching to digitalized sales procedures, yet it could also open doors for emerging brands that need a larger market presence.