[ad_1]
LONDON — The euphoria of reopenings post-lockdown has given way to panic as British companies large and small find themselves trapped by inflation, soaring interest rates and — after a long pandemic grace period — demands from the tax office and other creditors for overdue payments.
In addition, British businesses continue to struggle with supply chain kinks and with Brexit, which is creating extra paperwork and hampering trade with the rest of Europe.
On top of that, the government’s business support scheme, enacted during COVID-19, has ended, while investors are pulling out of businesses, or taking longer to come up with fresh funds.
Consumers, meanwhile, are spooked. They’re spending what would have been fun money on drastically higher mortgage payments, household and transport costs. No fun there.
British fashion businesses, which even in the good times tend to operate on shaky ground, have been particularly vulnerable.
In the month of July alone The Vampire’s Wife, La Perla, Christopher Kane and Julien Macdonald all faced various debt crises that threatened the future of their businesses.
With help from administrators, and 11th-hour investment, those brands survived with the exception of Julien Macdonald. The designer’s 26-year-old business was placed into liquidation in late July, with administrators FTS Recovery selling inventory and other assets in order to seek repayment for creditors.
While fashion businesses have been particularly vulnerable, they’re not alone.
According to U.K. government statistics, the number of company insolvencies in the second quarter was the highest since the corresponding period in 2009, in the wake of the global financial crisis. Insolvencies in the second quarter were also 13 percent higher than in the corresponding period last year.
Things are only going to get worse, according to Marco Piacquadio, head of the insolvency practitioners FTS Recovery, which assisted the Christopher Kane and Julien Macdonald businesses.
“It’s a pretty nasty set of circumstances to be surviving against, and I think that in the last nine to 12 months we’ve started to see a trend that will likely continue in the next two to three years, at least. I think the insolvency numbers are going to continue for quite a sustained period of time. It’s going to get more painful before it gets any better,” he said.
The triggers that set fashion companies on a path to insolvency are many, according to Piacquadio.
They include investment that takes too long to arrive or doesn’t materialize at all; a decrease in consumers’ disposable income, and demands from the U.K. tax office, which has become more aggressive in pursuing overdue payments now that the pandemic is over.
The fashion crisis happened for all of those reasons.
Macdonald was forced to shut his business due to the loss and under-performance of several key contracts, cash flow issues and general inflationary costs, which impacted on all aspects of the business, according to FTS.
A few weeks earlier, the Vampire’s Wife and La Perla were served with winding-up petitions from the U.K. tax office and other creditors. Both companies have since paid all or part of the money owed, and continue to trade.
Susie Cave, founder of The Vampire’s Wife and husband Nick Cave, at Vivienne Westwood’s memorial service in London.
Jonathan Daniel Pryce/WWD
Siblings Christopher and Tammy Kane ended up repurchasing the company they founded in 2006 and paying their secured creditor in full. The Christopher Kane brand is back in business, although there are no plans to show during London Fashion Week in September.
Looking ahead, Piacquadio said he expects to see more fashion businesses “reaching out for help” as higher inflation, interest rates and a decline in consumer confidence take their toll.
British fashion companies often face difficulties because of problems with cash flow. Most of them are independent, or reliant on a group of small investors, and they don’t have the security net of a big, well-funded parent.
They pay high costs to create, manufacture, transport and store their collections months before they’ll see any money from wholesale clients, or the end consumer. And when a chain in that link breaks — such as a wholesale client canceling an order — it becomes a major headache.
“Most of the companies that I see are not balance-sheet insolvent, but they are cash-flow insolvent. They are unable to pay their debts,” said Piacquadio.
His advice for companies is to make as many cash-flow projections as they can, and work on a 13-week forecasting basis. “Always know where you are going to be in the next three months,” he said.
British fashion companies are not the only ones girding themselves for wider economic challenges. International luxury giants are feeling the heat, too, as middle-class, aspirational consumers in mega-markets such as China and the U.S. pull back on spending.
“Households are wary of spending, consumers remain skeptical about the recovery, and expectations relating to employment and income gains have turned negative,” Moody’s Analytics wrote in a research note following China’s lower-than-expected gross domestic product announcement in July.
On July 31, China’s government unveiled a series of administrative measures to stimulate domestic spending, and offered support to sectors including culture, tourism and sports. The country’s central bank also injected a small amount of stimulus earlier this month to try to jump start the economy, although this was far less than many hoped for. This is against a backdrop of soaring unemployment among 16- to 24-year-olds, a key market for fashion brands.
Meanwhile, in the U.S., aspirational customers have been snapping shut their wallets amid rising interest rates and a cost-of-living crisis, as well as the resumption soon of college loan repayments, which had been suspended during the pandemic by the Biden administration but were later reinstated due to a court ruling.
Burberry’s first-quarter sales declined by 8 percent in North America, and while high-net-worth shoppers picked up some of the slack it was not enough to offset the decline.
In the second fiscal quarter, LVMH Moët Hennessy Louis Vuitton said sales in the U.S. were down 1 percent, following an 8 percent increase in the first three months of the year.
At Kering, first-half net profit fell 10 percent to 1.8 billion euros as solid growth in Asia was offset by a drop in U.S. sales.
Piacquadio said in Britain, high-end retailers will also feel the cost-of-living pinch.
He said while some people are always going to have an appetite for luxury goods, it’s doubtful that most consumers will live beyond their means “as they might have been doing for the past 10 or 15 years,” when interest rates were much lower than they are today.
[ad_2]
Source link