Especially the big ones stumble: fashion retail expects further bankruptcies

Monday, January 11, 2021

Especially the big ones stumble
Fashion trade expects further bankruptcies

The corona crisis has driven the next fashion retailer into bankruptcy, Adler. It is noticeable that particularly large companies in the textile retail sector go bankrupt. A certain economic self-interest could also be a reason.

Esprit, Galeria Karstadt Kaufhof, Sinn, Appelrath Cüppers, Hallhuber and now Adler: Well-known German fashion retailers have had to seek rescue in insolvency proceedings since the beginning of the Corona crisis. And more should follow soon. Both the credit insurer Euler Hermes and the textile trade association are assuming this.

The latest victim of the corona crisis in the textile trade is the traditional fashion chain Adler. Because of over-indebtedness, Adler Modemärkte AG submitted an application to the Aschaffenburg district court to open insolvency proceedings under self-administration. An expert had been commissioned to check whether the processing of the bankruptcy in personal responsibility was possible, said the responsible bankruptcy judge.

The company hopes to be able to reorganize itself through an insolvency plan, as recently succeeded by competitors Galeria Karstadt Kaufhof, Sinn or Appelrath Cüpper. Therefore, business operations – as far as possible due to corona – should also be continued in full. Adler operates 171 stores, 142 of them in Germany, as well as an online shop.

The reason for the insolvency application is the second corona lockdown, stressed Adler. The company was no longer able to cope with the considerable loss of sales due to the closings of most of the sales branches, which have continued since mid-December 2020. Numerous other fashion retailers are likely to have similar problems. "Many companies have bet on the Christmas business in order to save themselves with a small buffer until spring," said the Germany boss of the credit insurer Euler Hermes, Ron van het Hof. With the lockdown, however, this hope was dashed. "In this respect, we expect further bankruptcies in this area."

Pre-crisis level not expected until 2023

Even at the textile trade association (BTE) it says with a view to the Adler insolvency application: "That will not be the last." The companies in the sector currently need a lot of money to pay for the goods for spring and summer. But money is scarce – because of the lockdown, but also because so far no noteworthy aid from the state has reached the industry. The BTE fears that tens of thousands of fashion stores and over 100,000 jobs are at risk.

It is noticeable that so far it has been mainly the big players who seek protection in insolvency proceedings despite the partial suspension of the obligation to file for insolvency. In the first nine months of 2020 alone, Euler Hermes registered a total of eight so-called "major bankruptcies" of companies with a sales volume of more than 50 million euros in the textile retail sector. In the same period last year there were only three. One reason for this could be that the industry giants are more likely than smaller competitors to use the insolvency proceedings as a restructuring tool to get rid of debts, to get out of long, expensive rental contracts and to part with employees more easily.

There is no rapid improvement in sight for the industry, even if the pandemic is managed in the course of the year thanks to the vaccines that have now been developed. Euler Hermes does not expect a return to the pre-crisis level in fashion retail until the course of 2023 – and thus later than in most other sectors. "So it is a long dry spell that companies have to master. It separates the wheat from the chaff," said Ron van het Hof.

"Discount battles" after the shops reopened

The industry was under pressure even before the pandemic. Sales in stationary fashion retail have been falling for years. Business was particularly good for online retailers and fast fashion providers such as Primark. According to a recent study by the management consultancy PwC, the number of companies in the clothing industry fell by almost a third (31 percent) between 2010 and 2019. Many smaller companies with fewer than 100 employees in particular disappeared from the market.

The corona crisis hit a troubled industry. The crisis accelerated change in the industry. Only those who meet customer needs with innovative concepts will survive, predicts PwC retail expert Stefan Schwertel. "We are seeing that market participants are disappearing without a strategic realignment and are causing high vacancy rates in German city centers." However, the current industry crisis also has something good for consumers. According to estimates by the BTE, half a billion unsold fashion items are likely to pile up in stores by the end of January. Most of these are winter goods, which are losing value day by day in view of the approaching spring. Industry insider Ron van het Hof expects real "discount battles" after the shops have reopened.