Everything increases: the drop in consumption spares no one

Inflation chokes consumer budgets worldwide, and fashion consumption suffers a peremptory tsunami. Many European chains are closing while they are looking for ways to stay alive in the United States. Not saved in the online sector, which grosses (much) less than expected and suffers

It is called the ‘lipstick effect‘ and it occurs in luxury when, instead of buying a handbag, the customer settles for purchasing lipstick. It is certainly not a good investment in terms of durability, but this consumer switch photographs what is happening in the world of luxury retail. If, then, those with a large budget prefer to save money, those who have to pay close attention to the family budget every month buy the bare minimum. Certainly not a dress, a pair of shoes, or a handbag, especially when the cost of living is under constant upward inflationary pressure. Everything increases. Families spend more to buy less. If even the weather does not stimulate the need to buy, the drop in fashion consumption is served. And no one is spared.

Everything increases

“Sales growth in September slowed down as the high cost of living continued to weigh on households. The Indian summer also meant that autumn clothing sales, such as knitwear and coats, have not yet started,’ summarises Helen Dickinson, CEO of BRC – British Retail Consortium. Thus, the downturn in consumption is hitting hard at retailers who do not have broad shoulders. In France, the shoe retailer Minelli has gone into receivership. And Naf Naf, in receivership since September, will close 17 shops (with 107 jobs at risk).

German chaos

In Germany, we are witnessing the worst situation. Many shoe chains have already blown up in recent months. The most striking example is the department store Galeria Karstadt Kaufhof, which will close 90 out of 129 stores. But the list of closures goes on and on. In Berlin, the French Galeries Lafayette (190 employees) are also raising the white flag due to ‘changing consumer habits in the city’s retail market’. Galeries Lafayette, however, will open 20 shops by 2025 in Asia (China) and the Middle East. Also, in Germany, by 31 August 2024, Deichmann will close all 28 stores of its shoe and streetwear brand Onygo.

American countermeasures

In the US, the big retail chains are taking countermeasures. To WWD, Neiman Marcus CEO Geoffroy Van Raemdonck says that “the lower income consumer has suffered the most, while we have gained more with our top customers”. The retail chain, which reduced revenue in May-July, is transforming itself: more focus on top-selling brands and more services for wealthier customers. Macy’s will reduce the size of its stores. After three years of testing, it will open 30 more smaller format shops by 2025. JCPenney recently informed international suppliers that payment terms will increase from 60 to 90 days, while domestic suppliers will be paid at 60 days instead of 45.

Italian decline

In Italy, the situation is the same. “The drop in volume sales recorded in August, both cyclical and tendential – higher than our estimates – is further confirmation of a complicated economic picture, which is moreover being extended to almost the whole of the rest of Europe. In fact, the weakness of demand for consumption is associated with a drop in the confidence of families and businesses,” writes Confcommercio. According to this, without the big boost from international tourism, the outlook for the second half of 2023 is for ‘zero growth’. According to the first data from the survey of member companies of Federazione Moda Italia, September ended with a 6% drop in sales, partly due to the exceptional weather conditions. Shops that have full warehouses face financial challenges related to supplier payment deadlines and taxes, rising energy costs, indexed rents, and staffing.

Online also creaks

This uneasy scenario does not spare online sales. On the contrary, industry players faced an unexpected downturn after the pandemic boom. Farfetch and YNAP (soon to be married) are limping along. In the April-June period, YNAP recorded an 8% drop in sales. Farfetch saw its revenues fall by 1.3%. This is the third consecutive quarter with declining revenues. Other competitors are no better off. Asos reported a 15% drop in the June-August quarter, although this did not prevent the group from reporting a profit. The stock, however, continues to fall on the stock exchange: it has dropped 30% since the beginning of the year. The outlook is also bleak for Zalando, whose share price has lost 35% since the beginning of the year.

But there are those who invest

In spite of the depressing situation, brands, in a long-term perspective, continue to invest in retail. For example, Barbour will open a flagship store in Milan. Hoka will open its first retail shop in Europe, in London. But above all, DFS, the LVMH-owned travel retail operator, will open a ‘seven-star’ luxury retail and entertainment facility on the duty-free island of Hainan (China). It is scheduled to open in 2026. The facility will house more than 1,000 luxury brands and occupy over 128,000 square metres. Confirming how investments are moving towards more promising markets and destinations. (mv)

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