The COVID-19 weekly report #1

All the big retailers have accumulated stock over the years

H&M in particular, has been busy in this practice for a while. Zara has been putting more and more products on sale during the sales period. And Uniqlo's strategy which offers great quality products to customers without any additional incentives, while keeping the production steady. This is the situation they had before the pandemic.

With the lockdown, travel bans, and store closures, stock of the current season has been added to the old one, piling it up even further. 

According to the Business of Fashion and McKinsey's survey, 65% of consumers from the US and European markets expect to decrease their spending on apparel. Based on these findings, retailers should be ready to take bold actions to get the disposable income of the customers.

Retailers have to face the reality. It is not the time to think about profits but to start thinking about the best strategies to survive.
 

Aging of the stock

A quick look at how old the stock is can already provide an overview of how big the impacts of the markdowns will be.

With RETVIEWS, retailers can easily see the composition of their stock based on when the garments have landed on the website. To visualize the share of the stock that has been created during the pandemic, we have focused on the last sixty days (0-60) for each brand.

Players like Zara, which are highly trendy and rely a lot on timing are going to face more difficulties. Indeed, the share of assortment that is "sleeping", in-stores and in warehouses, due to the COVID-19 is more than 40%. This share also includes high spring and summer garments, and will have to be heavily discounted. This current stock will significantly impact the retailers during the coming weeks.

Transitional garments: have they already been discounted?

As you can expect, retailers have already started to discount more than last year. When we compare the discounts being offered this year with last year's discounts in the same period, it becomes apparent that H&M remains the most consistent with only its Kids deal during the Easter period. The evolution comes more from retailers like Mango and Zara, which generally do not offer any discounts outside the sales period and mid-season.

Which products have they discounted? If we take a look at the whole period, just like last year accessories and dresses are the most heavily discounted.

Surprisingly enough, these past few weeks, retailers have preferred to discount transitional garments such as Outdoor, Knitwear, Trousers and Accessories. These three departments account for 36% of the selection and represent almost a quarter of the current assortment. But still, the most discounted category remains dresses which represents nearly 13% of the whole promotion’s assortment.

In terms of average discount, Summer garments take the top spot. As shown in the graph above, Jumpsuit and swimwear are the most heavily discounted with almost 50% average discount. This shows alignment to the aging stock described earlier.
However, although the most problematic categories are the most heavily discounted ones, they only represent 6% of the marked down assortment.
This raises a question: are the retailers going to succeed in selling all the garments? Wait and see.

New-ins evolution

Retailers had already planned to decrease the number of new arrivals in 2020. This is probably due to the high level of stock the retailers accumulated over the years.

However, the COVID-19 pandemic has accelerated the decrease in new arrivals. Specific categories have been heavily cut, and these include the ones many expected:

Jumpsuits, shorts, t-shirts, tops, dresses, and skirts. All of them have been reduced by more than 60% on average. Shorts and Jumpsuits are the most heavily impacted with more than 70% cut in new arrivals.

This shows the promptness of retailers to adjust their new production, considering the stores are closed. But this also means that the high summer garments that have been bought, if heavily, are yet to come.

Some categories, such as Leggings, Lingerie, and Sweatshirts have seen an increase in sales and in incomings during the confinement period, especially once the governments announced the extensions of the lockdown measures.

The new collection is out but at what prices?

One would expect the retailers to decrease their prices for the new collections, thus they would seem more attractive to the customer. However, this is not always the case.

For instance, when we look at summer garments. Dresses' prices have increased by 17% for both H&M and Zara, while only a small increase can be seen for Mango, which is still the most expensive on average among these brands.

T-shirts' average price has decreased by 14% for Mango and Zara but increased by 7% for H&M, which, surprisingly, makes the Swedish giant the most expensive in that category. Another notable change, albeit not that significant, is seen in the swimwear and accessories category with a price reduction of 5% on average.

All in all, average prices have not increased significantly (3%). Therefore, customers will still be able to buy their favorite garments at almost the same price as last year.
However, for the next collection, i.e., Autumn/Winter, retailers are probably going to revise their prices to provide additional incentives to their customers.

The bottom line

Everyone is talking about it, and it is a fact: the discount frenzy is right at our door.

What can be observed is that being trendy today will cost retailers, as the highest shares of their assortment will have to be discounted pretty soon.

Moreover, discounts so far have not been done on the right categories of garments. Most retailers have focused their attention on products that could be back stocked and sold at full price during the back-to-school period. Retailers would be well advised not to discount transitional garments, but highly seasonal and trend-led can be.

Brands must make the right decisions now and start different strategies of discount to shave and clean their Coronavirus stock. Knowing what your competitors are doing and aligning with their strategy and even outperforming them, this is where RETVIEWS can help.

In the end, there is one thing that is certain: "It seems like everyone will have to accept working with zero profits this year" Jen Mankins, Bird Brooklyn's owner.