Gap
Gap canceled its orders for summer and fall.
- Gap Inc. recently announced it would cancel its summer and fall orders as part of a cost-cutting measure amid the coronavirus. It previously announced it would furlough most of its store employees.
- Business Insider spoke to several retail experts who said to expect other apparel companies to follow suit, particularly mall brands, as the pandemic continues to wreak havoc on the retail industry.
- "Unlike other categories like home furnishings or electronics, [fashion has] to deal with seasonality and that poses some unique problems and issues," Neil Saunders, managing director at GlobalData Retail, told Business Insider.
- Visit Business Insider's homepage for more stories.
The coronavirus is rapidly becoming a time of reckoning for the retail industry's most beleaguered brands.
In March, nearly 100 retailers opted to close their doors in an effort to prevent the spread of the coronavirus. Though e-commerce has allowed apparel brands to retain at least one revenue stream, many are hemorrhaging money as the US economy remains at a virtual standstill, prompting executives to resort to drastic cost-cutting measures.
One such retailer is Gap Inc., which made an unprecedented move to halt orders of its summer and fall collections, effectively telling manufacturers and suppliers not to send products for stores. The effort comes on the heels of companywide furloughs that left most employees of Gap and its sister brands jobless around the nation.
"A lot of retailers are now in survival mode and that means they are doing everything they can to conserve cash and keep expenses as low as possible," Neil Saunders, managing director at GlobalData Retail, wrote in an email to Business Insider. "That includes canceling future orders which, along with staffing, are one of the major cost centers."
We spoke to several retail experts who said to expect other fashion brands to follow Gap's lead in nixing future orders and scaling back inventory as the coronavirus wages on.
The curse of seasonality
Apparel companies -particularly fashion brands predicated on seasonal trends - are now faced the nearly impossible task of identifying ways to to prevail against shuttered stores and decreased demand for anything that's not athleisure.
"The dilemma is that retailers don't know when this will be over or when consumer demand might pick back up again, so they are erring on the side of caution," Saunders wrote in his email. "All of this underlines the issues that are particular to fashion - unlike other categories like home furnishings or electronics, they have to deal with seasonality and that poses some unique problems and issues."
In an email to manufacturers obtained by the Business of Fashion, Gap's executive vice president for global sourcing wrote that "stores are the lifeblood of our business" and noted that e-commerce "simply cannot make up for having our stores closed."
A Gap spokesperson told Business Insider the company is "acting quickly and prudently to responsibly reduce expenses."
"We are making decisions based on the best interest of our employees, customers and partners, as well as the long-term health of our business," the spokesperson said in a statement. "We are committed to working closely with our long-standing suppliers to best assess how we can work together through this crisis."
Kevork Djansezian/AP
Saunders said that while scaling back on orders may help brands like Gap in the near term, it may eventually cause challenges down the road when commerce resumes some sense of normalcy.
"Given that apparel retailers are already stuck with a glut of stock that's not selling, many are reviewing what they need for upcoming seasons," Saunders said. "However, cutting orders completely could create future problems as when retailers reopen and go into new seasons they will find themselves with products that are unsuited to weather conditions and are out of sync with what consumers want."
Unlike H&M, which also canceled orders though publicly promised to pay out vendors, it was not immediately clear whether Gap suppliers would still receive payments.
According to Katrin Zimmermann, managing director of the Americas at TLGG Consulting, Gap's decision to enter into "hibernation mode" highlights the dangers of vertical integration, a business method in which a company owns and oversees all aspects of its supply chain.
"The current situation exposes the weaknesses of a centralized supply chain that creates too much dependency on a single market," she said. "Hopefully, COVID-19 will inspire a general discussion around the resilience of supply chains. A decentralized value chain would help a company like Gap to be more responsive to local demand."
An uncertain future for apparel brands
In addition to Gap, experts said that mall brands at large - which have already struggled in recent years in the face of the so-called retail apocalypse, as shoppers increasingly shy away from physical retail in favor of e-commerce - will be among the hardest hit from the coronavirus outbreak.
Channing C./Yelp
Erik Rosenstrauch, CEO of retail marketing agency FUEL Partnerships, said he anticipates that Americans will not only be timid to flood public spaces like malls once stay-at-home mandates and mass quarantines lift, but that many will also have little spending money for superfluous items like seasonal fashions.
"The economic reality for over 10 million Americans who just filed for unemployment is they will only be able to focus their spending on key items for life: Dwelling, food, and transportation," Rosenstrauch wrote in an email to Business Insider. "I can see a change back to simplicity and focusing on what truly matters in life that could have a wide ranging change in perspective once life enters the 'new normal.'"
Mark Zamuner, CEO of the growth consultancy Two Nil, provided a slightly more optimistic view for retailers like Gap and said that such shifts build upon existing efforts for retailers that have invested in digital and scaled back on brick-and-mortar.
"A crisis has always been an opportunity to redefine categories and to accelerate and capitalize on areas that were happening before," he said. "It can create new industry behavior. Gap's decision, while driven by near-term factors, is indicative of a digital transformation."
Zimmermann, the managing director at TLGG Consulting, said another silver lining for fashion retailers canceling orders could be a positive impact on sustainability efforts, namely in curbing overstock and excess inventory.
Still, she said the impact to supply chains and manufacturers will be significant, as fashion companies are likely to continue canceling orders for the foreseeable future.
"It's important to note that this kind of behavior potentially leads to a downward spiral: as companies like Gap cancel their orders, more people lose their jobs, which in turn means they have less disposable income to purchase products from the likes of Gap," she said.
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