January 19, 2021

The textile sector frays with the Covid



The Covid crisis has been primed with fashion industry. No other branch of the business is suffering as severely from the drop in sales as the subsector of personal equipment, clothing, footwear and accessories is doing. Until November, the National Institute of Statistics (INE) estimated the annual drop in sales at 28.6%, compared to the 2.3% increase experienced in the food industry. But the Spanish employers’ association of fashion stores, Acotex, affirms that the INE has fallen short. Ensures that turnover has collapsed 40% in the accumulated annual.

In which both the INE and Acotex figures coincide is that this collapse, far from recovering, has continued to increase in the final stretch of the year. Both entities have calculated the fall in sales in November 2020 at more than 30% compared to November 2019, clear proof that the crisis has taken dangerous roots in the fashion trade after ten months of pandemic. And to speak of a crisis in trade means also to speak of a serious setback, in parallel, in the national manufacturers of clothing and footwear.

Fashion industry and commerce waited impatiently for the Christmas season to look for light in the middle of the huge tunnel through which they pass. In December they again accused the coup. Acotex already anticipates that Christmas shopping has not come back either, which has been much less than a year ago. December left a year-on-year decrease in sales in fashion stores of 32%. With this background now come the sales, to which the sector is entrusted again to try to patch up a fateful year.

The months of severe confinement in which the activity was paralyzed gave way to a period of sharp increase in unemployment, a drop in consumption and a “normalcy” plagued with outbreaks and restrictions that have reduced social contacts and expanded teleworking. And the less the street is walked and the less socialization, the less need to renew the wardrobe. If you add to that the skyrocketing rise in unemployment and the consequent drop in consumption, the perfect storm is in for.

Sector dimension

Economically, the setback that the clothing trade has suffered has a very relevant impact in Spain. When the Covid broke out, in our country the fashion sector accounted for 2.8% of GDP, according to a report prepared by the consulting firm Ernst & Young together with the Boston Consulting Group to assess the impact of the coronavirus crisis. When the pandemic started, the industrial branch of fashion employed around 150,000 people in Spain and had a turnover of around 15,000 million euros. And its commercial branch employed 200,000 people in a total of 62,000 establishments.

Acotex calculates that, so far, the crisis 25% of employment and businesses have been overtaken, and that the turnover has plummeted 40%. That is, they have stopped entering about 7,200 million euros, 15,000 establishments and 50,000 jobs have been lostEither because they have ended up unemployed or because they are trapped in the uncertain limbo of the ERTE. And the crisis adds up and continues. The longer it goes on, the worse. He President of Acotex, Eduardo Zamacola, warns that “in addition to the 50,000 jobs that have been lost, we have another 100,000 at risk”, because “far from intuiting a recovery in the short term. In the last four months of 2020, the drop in sales has been between 32% and 38% in a year-on-year comparison. The situation in our sector is dramatic ».

Of those 15,000 businesses that have drawn the blind in these eleven months of the pandemic, Eduardo Zamacola estimates that 90% will never lift it again, although many of them are theoretically still active, because they keep their workers in ERTE. But most of these businesses have become “zombie” businesses, in an irreversible coma, with no financial capacity to continue holding out. And, in addition to those 15,000 that have closed, the president of Acotex warns that there are many others at serious risk, with another 50,000 jobs that depend on them.

Electronic commerce

Internet sales “are not being the solution to the collapse”, says the president of Acotex, because they are still a minority in the total turnover of the sector and because they have also suffered from the pandemic.

Acotex asks the Government to deploy an effective plan to save this commercial sector. And that it does so knowing that “it is absolutely unviable” to keep all the jobs that are covered by ERTE. For the simple reason that entrepreneurs, with the fall in sales that they drag and the one that will continue to exist, it is impossible for them to keep their templates. So they demand that the Government forget that slogan to which it seems to be clinging to prohibit the layoffs of workers when the ERTEs end.

They claim aid

The president of Acotex warns: if it is not allowed to lose templates, it will be condemned to the absolute closure of many establishments. In addition, this employer is calling for “urgent and specific measures.”

“We are not worth moratoriums on taxes, fees, tributes or Social Security contributions”they insist. “It is necessary to cancel them, the exemption of Social Security contributions as is done with other sectors in ERTE of force majeure, a reduction in VAT to encourage consumption and the moratorium on the payment of ICO loans”, among other measures.

Crisis upon crisis

The impact of the Covid crisis is being devastating in the fashion trade. But, is everything attributable to Covid? The experts consulted by ABC emphasize that no. The current crisis is of great dimension, but behind it a previous structural crisis was dragging, fruit of the sociological transformation, of consumer habits and customs and of the growing presence of digital commerce. To get out of the economic tsunami of the Covid, the experts emphasize that the sector will have to face the structural transformation that it had pending.

Eduardo Irastorza, an expert in digital transformation, consultant and professor at the EAE Business School, sums up the challenge as follows: “Playing in the same way as before Covid, the fashion trade can no longer win the game, because the game scheme has changed” . In a similar vein, the expert Enrique Porta, Partner responsible for Consumption and Distribution of the KPMG consultancy, stresses that the fashion sector is obliged to make profound transformation decisions for its medium and long-term sustainability.

Personal care

And how to deal with this transformation? Eduardo Irastorza is convinced that, given the rise of the internet, the viability of the physical store dedicated to fashion is to reinforce it as a space in which the customer receives specialized, personalized attention, which provides added value and reinforces identification of the consumer with the brand.

“Now, the great temptation that a fashion store can have is to try to maintain its traditional model with fewer resources, which leads to further converting the physical establishment into a product or self-service office. But that is a huge mistake, because you have the simple product dispatch on the internet. What you need is that the people who attend you are much more aware of you, qualified professionals to guide the consumer, train, inform, evaluate and offer brand experiences ».

Enrique Porta also points to that reconversion of the physical store, with employees who “offer a differential service that responds to customer needs at all times.” In addition, it highlights that the future is to deepen the development of digital commerce in the fashion sector and integrate it into the physical store model. The digital channel must tend to “make online purchases more experiential and less transactional, that is, that part of the shopping experience obtained at the physical point is transferred to digital” and, in parallel, the aforementioned transformation of the physical establishments. All this so that “the consumer can interact with the brands at all times in the field -digital or physical store- that best alienates them.”

In any case, this transformation will tend to reduce the number of physical establishments, experts predict. Enrique Porta predicts that there will be fewer stores, but “larger, with wider assortments, which will allow better shopping experiences and integrated with the online channel.”

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