Business Corona crisis: what is happening now with the full...

Corona crisis: what is happening now with the full stores of the fashion chains

The story of Ernsting’s Family is that of a rise that only a few companies can achieve: The clothing chain was founded in 1967 as a small family business. But the company quickly grew out of the first, somewhat cramped shop in Münsterland. Today, the branch network has 1900 locations; sales have doubled since 2010 to around 1.2 billion euros. These are the key figures of an impressive growth story in the highly competitive fashion market.

At the moment, one thing is growing at Ernsting’s in a similar way as in the entire industry: the utilization of the warehouse. “We were unable to sell almost anything in April,” says a company spokesman. Now “May goods are there, new items are added every day”.

Many competitors also face similar problems because of the corona crisis: Summer is just around the corner, but German fashion retailers are sitting on mountains of previously unsold spring goods. What to do with all the light jackets and T-shirts, summer trousers and skirts that hang in shops, stack up in logistics centers and warehouses and now even wait in containers in the ports? Is the big discount battle coming now, will it be stored – or is there even a threat of mass destruction of brand new clothes?

So what to do?

Meanwhile, consumer sentiment is weak: customers are now returning to the shops, but “the hoped-for catch-up effect after the shutdown has largely failed to materialize,” says Jens von Wedel, an expert in retail and consumer goods companies at the consulting company Oliver Wyman. In fact, sales are catastrophic at around 30 to 60 percent below the previous year. A current survey by McKinsey confirms the trend: More than 50 percent of consumers therefore want to spend less on fashion, overall the trend is towards more durable fashion items.

One thing is certain: incentives will be needed to lure customers into the shops. Because a mandatory mask, closed changing rooms and spacing strips on the floor do not give rise to a real shopping pleasure. In addition, most of the classic occasions for buying clothes are eliminated: “The dress for the celebration, the new suit for the office, you just don’t need all of that,” says von Wedel. Tchibo also registers the waning consumer mood and says: “We will sell the basics at a later date.”

Store what’s possible

The financially better positioned traders decided to moth as much as possible. At least for the timeless part of the range, they want to prevent what is inevitable: the great discount battle. “In the industry, fear is about a ruinous discount competition,” says an industry expert who does not want to be named. C&A already announced that it would discount until the goods had just been sold. For example, jackets are currently being offered up to 70 percent cheaper. Ernsting’s Family is also already giving discounts – for example 30 percent on a purchase of 30 euros, but without advertising.

Crisis providers such as Gerry Weber and Esprit are particularly at risk from the discount battle: “They went into the crisis with big problems,” says the insider. Gerry Weber just came out of the bankruptcy proceedings shortly before the corona crisis and was actually planning a restart. Esprit was one of the first companies to file for bankruptcy in the crisis.

If the profitable spring goods now have to be sold far below value, this would be difficult for these companies to cope with. Gerry Weber boss Alexander Gedat shows that fashion is also piling up in his stores: “Gerry Weber has done a lot to successfully manage the stocks. Corona is now partially spoiling our plans and the Quantities are increasing again – as with almost all providers. ” For now, the company, one of the largest fashion retailers in Europe, has secured fresh money to deal with the corona crisis.

Why burning is the worst option

But if the discount battles are not enough – and most customers stay at home anyway? Will it be destroyed or burned? All of the dealers surveyed affirmed: “We don’t burn anything,” says a Tchibo spokeswoman. The fashion discounter KiK also emphasizes that 95% of all goods are sold. The small remaining stocks are donated. Only damaged goods are recycled. ” This is how Ernsting’s Family handles it. However, what could no longer be sold – the so-called zero goods – would be given to recycling companies “for recycling”.

So nobody actually burns – or do the companies just not admit it? Industry expert Jens von Wedel believes the statements of the companies are credible. He hadn’t heard a single case: “Everyone tries to avoid that.” When H&M was accused of burning around 10,000 tons of new clothes three years ago, the image damage was huge – although according to H&M it was only a question of defective goods. The amount of 10,000 tons is also rather small in view of the worldwide sales of over 50 million tons of clothing. But the shock of the H&M scandal is still deep in the bones of the industry.

Remnants go to middlemen

According to industry experts, companies are therefore preparing to deliver leftover items to wholesalers or middlemen who later sell the goods via Amazon Marketplace, Ebay, smaller supermarket chains or bring them to Eastern Europe. “This business works better than it did a few years ago. It doesn’t make much money, but it is better than burning the goods for a fee,” says von Wedel.

Gerry Weber also seems to be taking this path, among other things: “We do not burn any goods, but rather sell in our own factory outlets and occasionally to buyers who mostly market the goods abroad,” says CEO Gedat. In fact, burning is expensive: Disposers are currently taking at least 120 euros per ton – not an attractive option given the amount of textiles.

Store as much as possible, discount and otherwise move your head – that’s the most common strategy at the moment. Many retailers are already very concerned about the next autumn goods – but more on the supply side, because many factories in India or Bangladesh are still idle. “Now we are fighting for the autumn and winter goods from Bangladesh,” says KiK. Due to the difficulties, the discounter has already lowered its forecast for sales for the current year to 2.1 billion euros – the level of 2018.

Flexible supply chains like Inditex – the solution to the crisis

In the uncertain situation, long-term season planning becomes a roulette game. Actually, the collections have to be planned for spring 2021 – where nobody can really estimate the demand. “That’s why companies with fast, flexible supply chains are clearly the winners,” says Wedel consultants.

One example is the Spanish Zara parent company Inditex, which has a lot of production not only in the Far East, but in Europe. Other fast fashion providers are increasingly placing orders, especially for trendy products, back to Europe. In the medium term, the concentration of many traders on the cheap Far East supply chain is likely to change towards more producers and more production countries: “In pandemic times, the more diverse the supply chain, the safer the crisis is,” says von Wedel.

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