Black Friday of the fashion industry: Profits of Prada and Louis Vuitton brands fell by up to forty percent

How are fashion brands coping with the coronavirus pandemic?
21.Nov 2020
 
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Shift to the digital world

It began with the cancellations of social events and world fashion weeks, the closure of stores and boutiques, the slump in stocks and lost profits, and ended, so to speak, with the era of sweatpants. The fashion world is shaking to its foundations in the current coronavirus pandemic. But, like other field of business, it's also trying to find a solutions in these difficult times. These include, for example, transferring one's activities to the online world or making steps towards sustainability.

Hand sanitizer instead of handbags

Already during the beginning of the pandemic in spring, luxury fashion houses were trying to help as much as possible and to adapt to the situation. The LVMH Group (Louis Vuitton, Christian Dior, Fendi, Bulgari, etc.) expanded their production with hand sanitizer or hydroalcoholic gels, both of which were hard to get at that time, and supplied these products free of charge to the health authorities in France. They contributed financially as well, sending $ 2.2 million (over 56 million crowns) to the Chinese Red Cross.

The brand Versace or the Kering conglomerate (Gucci, Yves Saint Laurent, Balenciaga) contributed to the Red Cross as well, sending over a million dollars (25 million crowns). H&M supported the WHO fund, and designer Giorgio Armani gave a contribution of EUR 1.25 million (over 34 million crowns) to Italian hospitals and institutions.

The era of sweatpants

But fashion houses are actually heavily affected by the coronavirus pandemic. Aftar all, who would go out of their way and dress in the latest luxury fashion brands' collections, when they spend most of the their time quarantined at home, wearing sweatpants? New swimsuits aren't a must have piece, either, as crossing the border is something most of us can only dream of.

Imran Amed, founder and CEO of The Business of Fashion, a company that prepared a report on the impact of coronavirus, confirms it to be true.

"Many consumers are not interested in buying clothes right now. They're so focused on buying the basics - and I think everyone's mind has naturally focused on that."

Žena ve sportovním outfitu
Žena ve sportovním outfitu • Source: Profimedia

Up to 158,000 people are out of work

The feeling of insecurity doesn't help the situation either. Government regulations change like on a roller coaster and companies lay off their employees. According to a study by the credit insurance company Euler Hermes, a total of 13,000 textile and clothing companies in Europe could disappear by the end of the year as a result of the pandemic. That means laying off up to 158,000 people.

Louis Vuitton or Prada faced 40% losses

The fashion industry used to generate $ 2.5 trillion in yearly worldwide sales before the pandemic. But in the current situation, such figures are nothing but wishful thinking. Louis Vuitton, for example, recorded a 38% drop in sales in the first half of the year, while Prada's sales fell by 40%.

Euler Hermes specialist Aurélien Duthoit also predicts that turnover in the European textile and clothing industry will fall by about 19 percent this year due to the pandemic.

Miuccia Prada
Miuccia Prada • Source: Profimedia

The Chinese market is helping the recovery

The Chinese make up 35 percent of all luxury brand customers. And they make a large part of their purchases during the first quarter, when they celebrate Chinese New Year. Last year, the Chinese spent about $ 149 billion in famous fashion houses around that time.

Along with the declining number of coronavirus cases in China comes growing appetite for shopping. At the end of the third quarter of this year, the LVMH conglomerate reported sales of 11.95 billion euros, a decrease of "only" 7% compared to the same period in 2019. The recovery was driven by the opening of the Asian market and key brands such as Louis Vuitton, Christian Dior or Moët Hennessy even made profit.

In total, the LVMH conglomerate reported sales of € 30.3 billion in the first nine months, a decrease of 21%.

"Since the beginning of the year, LVMH has proven its resilience in an economic environment severely disrupted by a serious health crisis, which has led to the complete suspension of international travel, the closure of the group's boutiques and production facilities in most countries for several months,"

says one of LVMH's press releases.

Vaccine and stocks go hand in hand

Just how much the fashion world is affected by the coronavirus is evidenced by the fact that at the time when the American pharmaceutical company Pfizer announced that it had a promising trial vaccine to prevent the spread of COVID-19, European shares of luxury companies rose sharply. Thanks to that, Bernard Arnault, Chairman of the Board of Directors and CEO of LVMH, became the second richest man in the world.

Bernard Arnault
Bernard Arnault • Source: Profimedia

Luxusní byt s terasou - Praha 1 - Nové Město
Luxusní byt s terasou - Praha 1 - Nové Město, Praha 1

Coronavirus as a step towards sustainability?

The fashion industry generates approximately 1.2 billion tons of carbon emissions per year and produces approximately 80-100 billion pieces of clothing. Fast-fashion chains are responsible for a large share of those figures. But that may soon be over. More and more designers, ecologists, but also the general population, are calling for a slowdown, an increase in quality and a shift towards sustainability. The whole process is further fueled by the pandemic. And the Czech brand Pietro Filipi, which announced the end of discounts in July this year, is of the same opinion.

"The epidemic has shown us that there is a huge amount of clothing in the world that is being pointlessly put on sale and offered at a bargain. Collections are bieng created inefficiently and everything is unnecessarily fast. People are buying the same things over and over anyway, things they like, with only minor changes. Fashion trends are a world in and of itself, their existence is somewhat detached from the customer,"

said the owner of the brand Michal Mička.

On the other side of the hemisphere, one of the most influential women in the world, Anna Wintour, thinks the same way.

"I think it's an opportunity for all of us to look at our industry and our lives and rethink our values. Really think about the waste and amount of money, consumption and surplus we've all been enjoying.”

Anna Wintour
Anna Wintour • Source: Profimedia

The Internet has become a salvation

In addition to a significant slowdown and the aforementioned self-awareness, there was another key change in the world of fashion. The traditional catwalk has been replaced by the world of internet and technology. Designers have gradually began to come up with short films or digital presentations. Dior was one of the brands that decided to move in this direction, presenting a surreal spectacle full of fantastic sceneries as part of the Haute Couture AW20. It included mermaids, nymphs, living statues and other wonderful feautures. At the end of September, Moschino also created a unique presentation of their new collection, replacing traditional models with puppets and miniature clothes.

After all, the actual shopping takes place online, too. The H&M chain, for example, said that their online sales had increased by 36% during the first wave of the pandemic. Zalando reports green figures as well, estimating that this year, it will reach a record profit of 300 million euros in online shopping.

Fashion brands haven't won yet!

As stated in The Business of Fashion report and analyzes, the fashion industry is still almost entirely dependent on physical retail. More than 80% of transactions in the fashion industry take place in stone shops. All that remains is to believe in a better tomorrow, and a speedy market recovery. As Imran Amed confirmed:

"This is the biggest crisis modern industry has ever faced."

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