Economic Uncertainties Force a New Era for Fashion Players

Economic uncertainties and geopolitical tensions are forcing the fashion industry to shift into a new era of restraint and pragmatism while they prepare for the campaigns of Black Friday and Christmas 2022 with big volumes of stock. The industry is being forced to rethink and reformulate its business model for online sales, as well its approach to managing stock and production costs, according to an article by Marta Godoy in Business Insider.

Big fashion players such as Inditex and Primark were the first to risk their competitive positions with price increases, while a good proportion of the industry is set to follow. An estimated 82% of fashion companies in Spain are expected to raise their prices this year, according to a sector study from e-commerce platform Veepee and Modaes. This unprecedented figure demonstrates the material impact of the current economic crisis on the industry – specifically rising inflation along with increased costs for transport, energy and raw materials driven by Russia’s war on Ukraine. The change in business priorities is a stark change to 2021, where only 9% of the industry indulged in price increases and 57% of the industry was focused on stability. This year that stability figure has dropped to 18%. However, despite the adverse disruption, 75% of companies foresee a positive evolution of their businesses.

While online sales saw a boom during the pandemic, certain policy changes will likely instill a sense of “moderation” for the buyer. The major business model tweaks are centered around delivery and return fees, whereby delivery fees might be dependent on the item and location, while charges may be incurred for returns that require transport for collection. Companies such as Inditex and El Corte Ingles have their own business models for delivery and returns, though seemingly with the common goal of reducing margins and shifting extra costs onto customers.

Rising prices along with China’s zero-covid policies are also forcing fashion giants to reformulate supply chain strategies in order to get ahead of future disruptions, improve efficiencies and boost sustainability. As a result, 71% of companies have made relevant changes to their procurement policy. Production in proximity has been the most popular policy shift (40%), along with having fewer suppliers (18%) and producing less (17%). However, record levels of inventory storage indicates that the fear of supply chain tensions continues to persist. As of 31 July 2022, inventory volumes shot up to 43% year on year, to approximately 3.7 billion euros.


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