Fashion and Luxury Goods Could See Declines

Consultants Expect Luxury Market to Shrink

Last Thursday, the luxury department store chain Neiman Marcus (NMG) filed for bankruptcy. It was the second major retailer to file since the beginning of the COVID-19 pandemic, as J. Crew filed for bankruptcy earlier in the week.

Neiman Marcus said it has received $675 million to continue operations through the rest of the pandemic. Creditors have also committed $750 million for additional liquidity after the department store gets through bankruptcy.

As lockdowns ease around the world and retailers reopen their doors, some industries will see a lift. However, analysts say that the luxury goods industry and retailers like Neiman Marcus may continue to struggle. Even as the Chinese market begins to recover, luxury sales could continue to decline by 50% to 60%, according to the consulting firm, Bain. In the first quarter of 2020, luxury brands saw a 25% decline in sales, and a recent analysis predicted that it could take two to three years for companies to get back to revenue levels seen in 2019.

McKinsey Predicts Steep Downturn for Fashion

Bain isn’t alone in making these projections. McKinsey also expects sales of luxury goods to decline in 2020. The consulting firm has especially bad news for the $2.5 trillion fashion industry.

The forecast, published in The Business of Fashion’s “The State of Fashion 2020 Coronavirus Update,” says that the whole fashion industry, including fast fashion and non-luxury brands, could decline by 27% to 30% this year. The numbers look worse for personal luxury goods like watches, jewelry, high fashion, and perfume. That industry could see a 35% in 39% drop in 2020.

McKinsey says that fashion is more vulnerable than other industries because it is discretionary. Continued lockdowns could put 80% of fashion companies in “financial distress.” The impact of that kind of strain would be wide-reaching, as it could cause job losses in retail stores as well as in clothing factories across the world.

The Upside

In better news, some analysts expect that the post-coronavirus market could be a time for luxury brands to explore environmental sustainability. While some fashion brands are eliminating sustainability initiatives to save money, others are leaning in and reusing fabrics to cut costs and increase sustainability at the same time.

“For the luxury world, in general, if you look at the movement of goods in the last few months, it’s almost close to zero,” said Ulrik Garde Due , CEO of Mark Cross, a luxury brand. “The carbon footprint of fashion is reduced. The question is: Once we reach the new normal, will it stay that way? Will people realize they don’t have to travel around the world constantly for shows in five different countries with seven seasons a year? I hope not and that all this accelerates a more sustainable luxury industry.”

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