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Cemetery for mannequins: the black reality of the fashion industry

The relatively positive results of the public fashion chains traded on the Tel Aviv Stock Exchange, especially Fox, Golf and Castro, do not tell the full story of the plague days. A special Dun & Bradstreet analysis for Globes provides a glimpse into the enormous difficulty of the fashion industry

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Two Moses

Monday, 25 January 2021, 12:14

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The fashion industry is considered one of the most severely affected industries due to the corona crisis, due to the prolonged closure imposed on trade activities in Israel.

However, the relatively positive results of the public fashion chains traded on the Tel Aviv Stock Exchange, including Fox, Golf and Castro, do not tell the story behind the complex reality faced by small and medium-sized businesses in the industry.

An analysis conducted by the consulting and business research firm Dun & Bradstreet for Globes provides a glimpse into the enormous difficulty faced by businesses in the fashion industry, and with the enormous volume of closures recorded in 2020.

The data show that about 950 stores were closed during 2020, of which 800 were small businesses.

This is an increase of about 27% compared to the number of stores closed in 2019, and a drop of about NIS 3.5 billion in spending on fashion in Israel.

A brief stroll inside the malls on closing days on the way to the pharma chain or post office reveals a cemetery for mannequins, which are loaded onto trucks on the way to closing and dismantling stores at worst, or replacement and renovations at best.

"The big ones overall came out well from this period, but we did see that the small businesses were hurt. They paid the price, and they are the ones who came to the crisis with poor financial strength," Efrat Segev, vice president of economics and research at Dun & Bradstreet, told Globes. At a time like this, which in any case requires businesses to take air and rely on existing resources, not everyone survives. "

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The stores remained orphaned.

Ofer The Grand Mall in Petah Tikva (Photo: Reuven Castro)

This injury was recorded after the industry suffered many disruptions in its operations during 2020, particularly during the two lengthy closures, as based on the mix of products sold in stores, the industry is not considered an essential industry under government definitions.

The industry stores remained closed during the closures, as did the third closure that began in late 2020 and lasted into 2021. This is while food chains, pharma chains and stock stores, which remain open in closures, have increased the shelf space of fashion items sold in their stores.

According to Segev, "The industry has been hit dramatically. This is a shutdown for almost a year with few breaks in the middle. This is an injury that cannot be recovered from, people have simply entered the job-seeking circle.

Closing after closing

It is worth emphasizing that the fashion industry faced tremendous challenges that were felt long before Corona, leading to the closure of medium and small fashion chains as early as the end of 2017. The change in consumption habits, reflected in fierce competition with international shopping sites, alongside open sky reform.

In addition, there was an excess of commercial space, there was an increase in overheads - including the high rents that prevailed in the malls until the Corona crisis - the minimum wage has risen in recent years in several beats, limited access of some businesses to funding sources and more.

Against the backdrop of industry trends, many chains have run into difficulties or closed for reasons of unprofitability, and the number of fashion stores closed has steadily increased in recent years.

By the way, the significant increase in risk in the industry occurred in 2018, with the strengthening of online purchases from foreign fashion sites, during which the number of stores that closed almost doubled compared to the previous year.

Precisely after a certain stabilization in the industry in 2019 (in which a relatively high amount of store closures was still recorded - about 750 stores were closed), the corona crisis came, with a record number of closures.

Among the chains that have run into difficulties in recent years, some of which have been acquired by new owners, in 2020 are Razili (acquired by the Inter Jeans group), Bonita de Mas (acquired towards the end of 2020 by Naaman Group) , And more.

In 2019, the Discreet chains, the Cassidy women's fashion chain, the Zebra discount fashion chain (acquired by the Discount fashion fashion chain), the Michal Negrin chain and more ran into difficulties.

Among the chains that ran into difficulties in 2018 are, among others, Honigman, Jaffa Tel Aviv and Mish-Mish.

Alongside them, other chains emerged from the industry this year due to lack of economic viability, such as the Rami Lee chain and the Forerbar 21 youth fashion chain (later on, the global chain also ran into difficulties).

In total, there are more than 8,000 fashion stores in the industry today, about half of them within chains and half of them independent (which are not part of a chain).

The industry crisis is also reflected in the erosion of redemptions, with the summary of 2020 showing that online has not compensated enough for purchases in physical stores, and spending on fashion has declined.

According to Segev, "People have less disposable income, and also much less certainty. Fashion is still a luxury, at a time when there are so many unemployed people, in the IDF, or do not know what will happen to their workplace, ultimately reducing consumption. The private sector, and the fashion industry, was one of the victims. "

Came out of the industry.

Forever 21 (Photo: GettyImages)

Decrease in industry revenue

In line with the high number of stores closed, the crisis in the industry in 2020 also led to a significant decline in industry revenue.

According to Dun & Brstrit, revenue in fashion stores in Israel (sold in physical stores and through online trading sites of some of the chains and the Israeli fashion) in 2020 is estimated at $ 13 billion, a decrease of 20% compared to the revenue of the industry of fashion stores in 2019.

This Despite an increase in online sales of Israeli stores and fashion chains in 2020, in the shadow of the corona crisis, which moderated the overall decline in industry revenue.

Dun & Bradstreet explain that the decline in sales in physical stores was higher than the increase in online sales and attracted a decline in industry revenue.

Added to this are online purchases from foreign fashion sites by Israelis, estimated in 2020 at an additional NIS 3-4 billion.

In total, the total expenditure on fashion items by Israelis is estimated in 2020 at NIS 16-17 billion, a decrease of 15% -20% compared to the total expenditure of Israelis on fashion items in 2019, before the corona era, which was estimated at about 20 NIS 1 billion.

In terms of consumer behavior, Dun & Barstreet estimates that the volume of online purchases (from Israeli fashion sites and foreign fashion sites combined) increased by about 50% in 2020 compared to 2019, and the share of the online trade channel reached a record rate of about 35% of total spending in 2020. Of Israelis on fashion.

Evidence of an increase in online purchases was also reflected in the shopping holidays last November (Chinese Singles Day, Shopping IL and Black Friday), in which, according to ICC data, Israelis made online purchases over NIS 250 million, an increase of about 70% compared to the previous year.

If so, the decrease in Israelis' total expenditure on fashion items is due, among other things, to a decrease in private consumption in Israel in 2020, in the shadow of the crisis and its effects on the labor market and disposable income (according to Bank of Israel data) ), Along with a decrease in prices in the fashion industry in Israel this year as a result of the decrease in demand, at a rate of 5.7% according to CBS data.

According to the Dun & Bradstreet indices, the fashion stores industry is among the industries with the highest risk in 2020, with only restaurants , Bars and cafes and the travel agency industry were found to be more dangerous in the past year.In total, the level of risk in the industry increased by about 13% in 2020 compared to the previous year.

The big networks are ready

As already mentioned in the introduction, there is a great difference between dealing with the crisis of the big chains, most of which operated an online trading site before the crisis, compared to independent fashion stores, some of which do not operate an online trading site and are dependent on shoppers.

Thus, some of the major fashion chains have made adjustments in the face of the crisis, including increasing activity in the online trading arena, reaching an arrangement to reduce the monthly rent during the closures, expelling workers to the IDF, etc. It is

enough to be impressed by the aggressive measures Fox announced at the beginning of the crisis. The standing orders, or the struggles of the Castro-Hoodis group with mall owners all over the country that have led to the evacuation of stores and legal proceedings, to be impressed by the magnitude of the cuts in their expenses.From the

financial statements of major public companies, including Fox, Golf Group and Delta Group. Significant decline in their business results in 2020, and even maintained similar or high profitability indices compared to 2019, despite the crisis (Delta Group recorded a decline in international activity as a result of the situation in the US and Europe, and excluding other non-recurring expenses).

In this context, the major chains are reporting an increase in online sales - the Fox Group has continued to develop and market through the group's website, Terminal X, which offers other leading fashion brands alongside the group's products;

Golf Group continued to develop and market through the group's sites and through the Adika site;

And the Delta Group reports an increase in the group's online site in Israel, in some months even by hundreds of percent compared to the previous period.

The Castro Group was able to increase its online activity by hundreds of percent, and thanks to cost savings, even made a profit margin.

On the other hand, the independent stores do not enjoy a size advantage over the store tenants and were dependent on the goodwill of the property tenants, for some of whom renting the store is their main source of livelihood.

There were independent stores that organized in a short period of time on e-commerce, but many failed to establish a proven trading platform in a short period of time.

Other problems that clouded the activity in the industry in the past year, especially among small businesses, were low accessibility to sources of financing and low credit days in the industry, compared to credit days in the economy which stifled the business in terms of cash flow.

Thus, fashion stores receive shorter credit days from suppliers, compared to the norm in the past year - while credit days in the economy in 2020 were estimated at 104, on average, credit days in the fashion stores industry are shorter and estimated at 100 days on average.

But above all, the most significant factor influencing the activity is the decline in public consumption of the public in the shadow of the crisis, when the public has less money to spend on clothing and footwear, and also a lower need due to closures and the absence of social events, weddings, conferences and meetings.

Luxury clothing, suits and premium brands have been replaced by sportswear, basic fashion and lingerie (trainings, comfortable home clothes and pajamas) and children's clothing - categories that enjoyed high demand during the past year, under the crisis and closures.

In other words, we spent more time on the couch at home.

One moment of rejuvenation is not enough.

Pilots open malls at the end of November (Photo: Reuven Castro)

A Dun & Bradstreet survey shows that the level of risk is higher among fashion stores in the periphery compared to fashion stores in the center of the country, at an average rate of 5% -3% (in the southern region at 5%, in the northern region at 3%).

A possible explanation, among other things, is the higher sensitivity to the economic crisis and the decrease in disposable income among the population in the periphery.

Since the industry has been characterized in recent years by the leakage of activity to online commerce sites, and in 2020 the share of online purchases reached a peak of about 35% of Israelis' total expenditure on fashion items, independent fashion stores will have to make adjustments and develop this platform.

Dun & Bradstreet estimates that the level of risk in the industry in 2021 is expected to remain high.

"Looking ahead to the Israeli fashion industry, we are not very optimistic. We are still in the middle of a closure, and the good news is not good from two directions - many stores remain closed, and the crisis in the economy continues. The level of private consumption will remain below average. And there will also be less demand for fashion items. "

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