The COVID-19 weekly report #2

Like last week, we have looked into the European markets and focused mainly on the French, Italian, Spanish and German markets to understand how brands have been coping with the ever-changing situation.

What brands need to know

The markets that we have analyzed had confinement measures imposed almost two months ago. During this time, the repercussions on the fashion industry have been numerous: store closures, warehouses with low headcounts, furloughs (but no layoffs) and increased focus on online sales. We have, therefore, decided to analyze what brands have been doing in order to get the best out of the situation and understand what seems to be working for these brands.

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

Aging of the stock

Last week we analyzed the aging of stocks from the main retailers of the European markets. As data comes from AI, Primark is not part of the retailers analyzed.

We can already see a good improvement in terms of stock composition. When we compare the share of the assortment of 0-60 days, it becomes apparent that it has dropped compared to last week.

This improvement comes from two factors: merchandising actions taken by the retailers and a reduction in terms of new arrivals.

Apart from C&A, which has continued to increase its new arrivals steadily, all the other brands have reduced their share of the Spring/Summer collection.

However, this result came with a shift in the share of 60-120 days. As we enter another month, this impacts the aging of the stock.

Nevertheless, the results can be taken as a good example of adjustment in terms of new arrivals by the retailers, who still want to stay seasonal and relevant while reducing the number of new articles as much as possible. As new articles represent a possible, almost certain, reduction cost.

Two trends in terms of discounted articles

Two trends of discounting came out of the confinement period. Some retailers have lowered their share of discounted articles, while others have increased it.

In our current analysis, H&M, Uniqlo and C&A are part of the first group. Their strategy all along the crisis has been to not add any extra articles in discount but rather use precise actions and take advantage of their loyalty program. For instance, H&M offered member deals which reward their loyal customers. All of them preferred to do flash deals rather than permanent markdowns. Moreover, this is translated into the data hereunder.

The latter group includes Zara and Mango. The Spanish brands have decided to take the other side of the coin and bet on permanent markdowns and (or) long deals. For instance, Mango offered a flat deal at the beginning of the lockdown on all its assortment with 20% off. Now the Spanish brand is offering discounts up to 50% on its whole spring collection with some extra 15% off on selected articles.

Zara, on the other hand, decided to markdown specific articles; mainly its spring collection. The brand discounted a precise selection of articles with up to 40% off. It is noteworthy to mention that Inditex's top brand does not usually do any markdowns outside the sales periods.

All in all, brands have not increased their average discount, apart from Mango, which always has lower markdowns than its competitors historically.

New discounted categories

In terms of categories, the most discounted categories have not changed much. However, the gold and silver medals  have switched compared to last week.

Knitwear and Dresses are now at the top of the podium while, last week, they were third and sixth respectively.

It can be observed through the Retviews data that spring dresses have been heavily discounted as predicted. On a side note, it is also the most represented category for all brands. Thus, its impact is always quite significant. However, the Knitwear category discounted mainly transitional products such as light long-sleeved cardigans or knitted spring sets. Our last week's conundrum  remains: is it really a good idea to take reduction costs on articles that could be sold for full price during the back to school/back to work period?

Out-of-stock evolution before confinement vs now

On a positive note, the level of out-of-stock of the analyzed retailers has been steadily improving.

Some brands have massively increased their level of out-of-stock such as Mango and Uniqlo. The out-of-stock graph can be analysed as the selling as the more one brand sells, the more out-of-stock it will get. In this case, Mango has more than doubled its level of out-of-stock but still remains lower than all the others. Uniqlo's level of out-of-stock has increased by 75%. This is coupled with a low, or almost nonexistent, amount of new articles and replenishment, which helps the brand to reduce its level of stock but can also be tricky from a customer perspective.

Zara and H&M have both increased their level of out-of-stock by more than 30% during the whole lockdown period. Although, the level of out-of-stock of both brands is clearly not the same. The Swedish brand has almost 55% of its assortment out-of-stock, while Zara has only 12.5%.

Altogether, this level of stock has been coupled with a little increase in terms of new arrivals for all brands, except C&A, which increased relatively more compared to the others.

The bottom line

Actions have clearly been taken by the whole industry to tackle the tricky stock situation generated by this state of crisis.

Some brands have been more drastic than others with more discounts on a whole assortment or adding more articles while it is not historically what the brand is used to. Others have opted for a less reduction-costs oriented strategy with deals.

All in all, the results are quite positive for all brands. Now that the plans are in place to ease the confinement (beginning or mid-May), one question remains: how will the post-covid situation be?