Clothing retailers face £15bn of write-offs as stock lies unsold

clothing rail

Fashion retailers are facing £15 billion in stock write-offs, according to industry bosses and analysts.

Shops not classed as “essential retail” have been closed since March 16, around the time that most retailers had taken delivery of their latest spring and summer collections.

Sales are thought to have plunged by 70 per cent, according to analysis by Retail Economics and Alvarez & Marsal.

Retailers including Arcadia, Primark and Next have halted or cancelled orders as they confront a mountain of stock that cannot be sold. Analysts warn that in order to clear it, retailers will have to slash prices heavily, which will hit profits further.

“There will be a bonanza for consumers, but it will be a disaster for retailers’ balance sheets,” Matt Clark, of Alix Partners, an advisory firm, said.

Primark, which does not sell goods online, has warned that it will lose £650 million in revenue each month because of store closures. Inditex, the owner of Zara, said last week that it would take a €300 million hit from writing down the value of its inventory.

Trend-focused fashion chains, such as River Island, Topshop and New Look, are thought to be most vulnerable because they will not be able to delay selling stock as their clothes will have fallen out of fashion.

“We’re not going to be selling many holiday outfits if people are stuck indoors,” a retail chief executive said.

The British fashion market is worth about £55 billion a year in sales, with 20 per cent of that online. March to June is thought to account for about a third of sales, therefore putting £18 billion at risk. It is thought that some of the stock will be cleared via discounting and online purchases.

Richard Hyman, an independent retail analyst, said that about 85 per cent to 90 per cent of clothing purchases “are wants, not needs. Clothing is the most discretionary purchase of all. Consumers will emerge from all of this having survived without refreshing their wardrobes. This will be a profound influence on future demand.”

Marks & Spencer has delayed orders worth about £100 million to avoid being left with a glut of stock. It is understood that most were so-called basic items, such as T-shirts, which are less exposed to fashion trends.

Lord Wolfson of Aspley Guise, Next’s chief executive, has said that even when there is the ability to trade, “people do not buy a new outfit to stay at home”. Next temporarily shut its warehouses, suspending online orders. It is opening its website again this week after putting in new social distancing measures for workers.

The suspension of Next’s website hurt other fashion brands, including the struggling Quiz business, which have come to rely on Next’s Label business for extra income.

“Spring-summer will be a write-off for most retailers and excess levels of stock will flood the market in June and July, leading to significant discounting and margin erosion,” Erin Brookes, of Alvarez & Marsal, said. “Given that various clothing retailers were plagued with underlying issues prior to the pandemic, administrations will be inevitable.”