Online channel may not be the savior clothing retailers hoped for

Closing distribution centers for employee safety

Source: PantherMedia/Claudio Divizia

Since the UK Government enforced stores to close for the foreseeable future, many non-food retailers hoped that customers would divert spend onto their online channels. However, last week, Next – the UK’s third largest clothing retailer – announced that it was prioritizing the safety of its employees by closing its distribution center. As a result, many retailers may now feel pressured into shutting their own e-commerce operations bringing potential sales from this channel crashing down to zero, according to GlobalData, a leading data and analytics company.

Hannah Richards, Retail Analyst at GlobalData, comments: “With no revenue, many retailers will have to resort to cancelling stock orders, furloughing staff, making redundancies, or permanently closing stores to reduce costs and protect the long-term survival of the business. Wider effects of coronavirus (COVID-19) have already been felt, with Jack Wills announcing the permanent closure of an additional 17 stores on top of its pre-virus closure plans, and both Arcadia and Urban Outfitters have cancelled all outstanding orders and extended supplier payment terms.”

Further challenges facing retailers in this unprecedented situation will be that by shutting down their websites, they will be sat on large amounts of stock, with no platform to sell it. A large proportion of stock will become out of season and their limited storage capacity will prevent them from prioritizing new stock until their existing inventory is disposed of.

Richards continues: “Even though larger retailers such as Next and TK Maxx have shut their online operations they should be able to fare better than smaller retailers specializing in a single product category. However, as their existing shoppers switch to those competitors who are still operating, this could have an impact on their customer loyalty which may need to addressed when they resume trading.”

Children’s-wear is set to be the most resilient clothing subcategory, with purchases often driven by the need to replace existing items as opposed to trend-led purchases. As a result of its closed operations, market leaders such as Next, could see a decline in its share of the category (depending on the period it is closed for) as shoppers opt to buy from operating competitors such as Marks & Spencer and the major grocers.