The Renaissance of Travel & Tourism
As the world rolls out the proverbial red carpet once more, the Travel & Tourism sector finds itself amidst a renaissance. The echoes of a global pandemic and economic tremors are fading away, and a fresh canvas awaits the industry. 2022 saw the sector begin to navigate the choppy waters, spurred on by an insatiable yearning of the global populace to take to the skies and seas once again.
Yet, the tapestry of travel is not being rewoven in the same manner. The needle and thread are guided by new hands, and the patterns that emerge are as complex as they are intriguing. One cannot deny the trials faced by the sector: a staggering $4.5 trillion in GDP lost and 62 million jobs vanished. But the adage that every cloud has a silver lining rings particularly true here.
For starters, the démodé designs of yesteryears have evolved into a richer tapestry, as the new era of travel is being shaped by a myriad of factors. Travel restrictions, vaccination rates, health security, shifting market dynamics, consumer preferences and the ever-pressing need for adaptation are all working in concert. The Travel & Tourism Development Index (TTDI) by the World Economic Forum casts a spotlight on the importance of sustainability, resilience, and inclusion in the sector’s rejuvenation.
One particular strain of thread stands out: the advent of "bleisure" travel. A portmanteau of business and leisure, bleisure has seen a surge as flexible working conditions afford the modern knowledge worker the liberty to merge work and wanderlust. There's a symphony in the making, where the traditional Monday to Friday constraints bow out to a more harmonious blend of work and exploration.
On the other side of the spectrum, we must also turn our gaze to the virtual horizon. "Virtual travel" is a burgeoning market, propelled by the leaps in digital technology and, ironically, the pandemic. While initially perceived as a mere simulacrum of the real experience, it is fast becoming an essential thread in the tapestry. The confluence of the virtual and the tangible is poised to bring a certain synergy to the industry.
Of course, no modern tapestry is complete without the green thread of sustainability. The conscientious traveller of today is acutely aware of the footprints left behind. The industry must now grapple with integrating decarbonisation into its value proposition. This necessitates collaboration across the industry, for it is not just a challenge but also an opportunity to redefine what travel should embody for generations to come.
As an international B2B receivables management company specialising in high-value and highly-sensitive accounts, it is crucial we appreciate the multifaceted nature of this evolving tapestry. The Travel & Tourism sector's financial ebbs and flows, intricately woven with global economic, social, and political threads, demands dexterity in risk management.
It is imperative to remember that in this renaissance, as colours bleed into each other and patterns emerge, the tapestry is yet on the loom. There will be knots and frays, but there will also be moments of clarity where every thread is in its place.
P.S. Unravel the Threads with Our Latest Report
It is said that knowledge is the thread that binds the tapestry of understanding. Our latest report, on this sector, is an invaluable guide through the labyrinthine world of Travel & Tourism. It takes an incisive look at the emerging trends, challenges, and opportunities in the sector.
What sets this report apart is its meticulous attention to detail. It not only delves into the global macro trends but also casts a discerning eye on the economic undercurrents that are shaping the industry.
In this sea of change, our report is a compass that can help you navigate with confidence and foresight. It is an indispensable resource for industry professionals, policymakers, and stakeholders who are looking to weave their threads into the new tapestry of the Travel & Tourism sector.
Don’t let this opportunity pass you by. The report is available now for download. Equip yourself with the knowledge that empowers.
Unmasking the New Luxe: A Tale of Resilience, Adaptability and Evolution
In the expansive world of luxury goods, an exhilarating narrative is unfolding. It's not just about diamond-encrusted watches or haute couture anymore – it's about the new definition of luxury, the shifts and turns it’s taking, and how these changes are shaking up the sector.
Our latest "RiskPulse: Luxury Goods Sector 2023" report unravels the intricacies of this ever-changing landscape.
Despite an economic roller coaster and a moderate Worldwide Risk Score (WRS) of 4.6 out of 10, the sector remains resilient. Luxury, it seems, has a tenacity that cannot be easily undermined.
Fueling this resilience is the sector’s growing appeal in emerging markets. Asia is blooming as a luxury hotspot, with its affluent middle class showing an insatiable appetite for the finer things in life. Yet, it's not just Asia that’s transforming the luxury map; the Middle East too is stepping up, staking its claim in the luxury narrative.
But as we navigate this brave new world of luxury, it’s not just about who’s buying, but also what they're buying into. Consumers are demanding more than just exquisitely crafted products; they want their purchases to embody sustainability and ethical sourcing. These values are no longer a choice but a necessity for brands that wish to thrive in the contemporary luxury ecosystem.
And let’s not forget the digital frontier. As e-commerce platforms bring luxury to doorsteps, brands are faced with the challenge of replicating the exclusive in-store experience in the virtual space. It’s a thrilling era of innovation as luxury explores new ways of enchanting its customers.
The Luxury Goods 2023 report is an invitation to dive deep into this fascinating world. It’s a must-read for those wishing to stay ahead of the curve, understand the sector’s shifts and turns, and glean insights into the future of luxury. Your journey into the heart of luxury starts here.
Fashion & Apparel 2023
In today's rapidly changing world, understanding the risks and opportunities in the Fashion and Apparel (F&A) sector is crucial for businesses to stay ahead. At Baker Ing, we are committed to providing in-depth analysis and insights to help your business thrive. We're excited to announce the release of our comprehensive 38-page report, which offers a detailed overview of the F&A industry and its challenges.
The report, available for download at https://bakering.global/product/report-fashion-apparel-2023/, reveals a moderate Worldwide Risk Score (WRS) of 4.5 out of 10 for the F&A sector. Supply chain complexity emerges as the primary risk factor, as global value chains are increasingly vulnerable due to logistical challenges and political tensions.
However, there is a silver lining. The F&A sector is poised for post-COVID expansion, driven by the burgeoning Asia Pacific market. As businesses adapt to the evolving landscape, they must address several critical areas:
- Invest in supply chain management and AI technologies: A robust supply chain strategy and cutting-edge technologies will enable businesses to overcome challenges and capitalize on opportunities.
- Respond to environmental and ethical demands: Consumers are more aware than ever of the environmental and ethical implications of their purchasing decisions. Companies must adapt to meet these expectations by incorporating sustainable practices and transparent policies.
- Embrace e-commerce and digitalization: The pandemic has accelerated the shift towards e-commerce and digital solutions. Businesses must embrace these trends to remain competitive in the rapidly evolving F&A industry.
This comprehensive report provides valuable insights and guidance for businesses navigating the complex landscape of the Fashion and Apparel sector. Download the full 38-page report today at https://bakering.global/product/report-fashion-apparel-2023/ and equip your business with the knowledge and insights needed to succeed.
Don't miss out on this essential resource for understanding the F&A industry. Download your copy now and stay informed about the risks and opportunities that lie ahead.
#FashionIndustry #ApparelIndustry #RiskReport #SupplyChain #Digitalization #ECommerce #AI #Sustainability #BakerIngReports
Open Banking Integration
Determined to keep pushing boundaries, we're always looking for ways to improve the debt recovery process for both our clients and debtors. That's why we are excited to announce our latest feature - Open Banking Integration.
With Open Banking Integration, we can leverage a debtor's real financial data to create optimised repayment plans that are tailored to their actual financial situation. This enables us to improve debt recovery outcomes and the efficiency of debt collection strategies.
To learn more about how Open Banking Integration can enhance your debt collection capabilities, check out the intro video, contact your account manager, or please contact us.
Spring Budget 2023 and its impact on credit management
in this blog, Baker Ing's Chief Economic Advisor, Markus Kuger, gives his analysis of the recent Uk budget announcements and what its means for credit management.
Summary
- The Spring Budget contains limited handouts for consumers (more free childcare and longer energy bill support) and companies (100% expensing for capital expenditure, creation of investment zones).
- Corporation tax will go up for companies with annual profits higher than GBP50,000 and business rates still remain under review.
- Macroeconomic forecasts have improved in this Budget with growth revised upwards and inflation changed downwards.
- Despite this, living standards will still drop quickly this year with negative repercussions on the business and consumer sentiment.
- Despite the support measures announced in the Spring Budget, 2023 will remain challenging as the risk of late or non-payment is likely to rise, on top of the deterioration seen in 2022.
Policy measures aimed at supporting growth
While Kwasi Kwarteng’s Mini-Budget in September 2022 shocked markets and ultimately led to his and Prime Minister Liz Truss’ departure, the Spring Budget presented by Chancellor Jeremy Hunt on 15 March produced more positive news as it contained handouts for households and businesses in order to stimulate the ailing UK economy. While consumers will benefit from a continuation of the energy support package for an additional three months, more free childcare, higher pension allowances for well-earners and frozen alcohol and fuel duties, the support for the corporate sector was smaller.
The most noteworthy handout to businesses was the introduction of full 100% expensing for capital expenditure on qualifying plant and machinery for the next three years. This policy, aimed at increasing investment will mainly help businesses with large qualifying capital expenditure in excess of the annual investment allowance. Companies operating in sectors involving less plant and machinery spend (often found in the service sector which accounts for more than 70% of UK GDP), or businesses that are loss-making, will not benefit from the new policy though.
The second policy measures aimed at increasing gross fixed capital formation was the creation of 12 so called investment zones, a plan already included in Kwarteng’s Autumn Statement. In order to “drive business investment and level up”, the zones will be created in the West Midlands, Greater Manchester, the North-East, South Yorkshire, West Yorkshire, East Midlands, Teesside, and Liverpool. Scotland, Wales and Northern Ireland will also be home to a zone each and the ultimate location will be decided in consultation with the devolved governments. Each of the investment zones in England will have access to GBP80m (including tax reliefs and grants) over the next five years and local authorities will be able to tailor their plans around local circumstances. The proposals must credibly explain how partners in the local area will use the levers available to increase growth in priority sectors, identify private-sector match funding and use the local planning system to support growth. The zones will likely be linked to universities and leading research institutions and will enhance growth in five key sectors: life sciences, creative industries, digital technology, advanced manufacturing and green industries.
Reform to research and development tax relief, creative industry relief and extension of cultural reliefs as well as reduced paperwork for international traders also feature in the Budget but the effects will be limited.
However, the Budget also contained unwelcome news for companies. Most notably, the chancellor confirmed the rise in corporation tax, a measure that was flagged up long in advance. For companies with a taxable profit exceeding GBP250,000 per year, the rate will increase from currently 19% to then 25%. The rate will remain at 19% for companies with a profit of below GBP50,000 and businesses with profits between GBP50,000 and GBP250,000 will pay between 19% and 25%. No decisions have yet been made regarding business rates. Two consultations were recently closed and the government has promised to release the findings shortly. In addition, the Budget foresees the launch of two new consultations: one on providing ratepayers with more information on their business rates valuations, and the second on measures to combat avoidance and evasion. While business rates remain unchanged for the time being, it is clear that reform still ranks highly on the government agenda and changes can be expected in one of the next Budgets.
Revised set of macroeconomic forecasts show improvements
For credit risk professionals the policy changes announced by the chancellor are probably of limited importance. However, the Budget also contained a set of new macroeconomic forecasts which are interesting from a credit risk perspective. Positively, the macroeconomic outlook has improved over the past months. The Office for Budget Responsibility (OBR, a non-departmental public body established in 2010 to provide independent economic forecasts) now predicts the UK economy to avoid a recession and to shrink by 0.2% only this year, compared with the previous forecast of -1.4%. Main driver behind this improvement is the moderation of energy prices which will also have a positive effect on government finances. Instead of borrowing GBP170bn in 2022-23 (as previously forecasted), the government deficit will come in at a lower GBP152bn while for the next financial year, borrowing will be GBP8.5bn smaller than initially anticipated. Over the medium term, the chancellor also expects slightly improved government finances: in 2027-28, government borrowing will stand at GBP50bn, down from a previously forecasted GBP70bn. Despite the lower borrowing, government debt will remain at a high level of around 95% of GDP, making the government vulnerable to higher debt refinancing costs (which have already risen over the past year).
Chart: Real GDP Growth Forecasts OBR
Problematically, even with the revised set of GDP forecasts, the UK will be the slowest growing G7 economy this year and the average annual growth rate for the UK economy for 2020-28 will come in at just 1%, compared with the 2.8% recorded before the global financial crisis in 2008-09. While pre-Covid real GDP levels in the UK will finally be reached again in mid-2024, six months earlier than expected in the last Budget, this is later than in any other G7 economy (which are already exceeding Q4 2019 outputs). For consumers, the normalisation in energy prices and the extended government support is welcome news but nonetheless, real disposable income per capita (which measures living standards) is projected to drop by a cumulative 5.7% over 2022-23 and 2023-24. This is 1.4 percentage points lower than previously feared but it is still the largest two-year fall since the start of this data series in 1956-57. As a consequence, households will continue to reduce non-discretionary spending this year with negative repercussions on domestic demand.
Positively for the interest rate outlook, the OBR’s inflation forecast was also updated: after having peaked at above 11% in Q4 2022, consumer price inflation will slow down to 2.9% in Q4 2023, according to the latest set of projections. While still slightly above the Bank of England’s (BoE) 2.0% inflation target, it would be the lowest rate since Q3 2021. Easing energy price inflation, a slowing economy and the response to the sharp monetary tightening cycle the BoE had embarked on over the past quarters all play a part in this drop inflationary pressures. While the BoE will likely rise interest rates a few more times this year, the speed and the magnitude of the tightening cycle will certainly drop. The key policy rate stood at 0.1% until December 2021 and has since been hiked ten times to currently 4%. Markets are pricing in a terminal rate of 4.5%, reached by mid-2023.
Chart: Inflation Forecasts OBR
From a credit risk perspective, 2023 will be a challenging year, despite the drop in inflation and the better than expected real GDP growth. Consumer price increases will outperform nominal wage growth for the next quarters, thereby leading to a drop in disposable income. Consumer confidence has improved in late 2022 before dropping again in early 2023 and the levels recorded are still low, indicating widespread pessimism amongst households which will impact adversely on their willingness to spend. UK business confidence indicators (such as the Purchasing Managers’ Index) have improved in February but still indicate challenges ahead (such as a drop in new order inflow in the manufacturing sector).
The challenging operating conditions in 2023 will adversely impact on the number of business failures. Worryingly, 2022 already saw a stark increase in liquidations in England and Wales, according to the government’s Insolvency Service. One in 202 active companies (equivalent to 49.5 per 10,000 active companies) entered insolvency proceedings last year, up from 32.9 per 10,000 active companies in 2021 and the highest ratio since Q3 2015. Overall, 22,109 company insolvencies were registered in England and Wales last year (Scotland and Northern Ireland also recorded increases), up by 57% and the highest reading since 2009.
Chart: Registered Company Insolvencies in England and Wales
Source: Insolvency Service
For 2023, another increase in the number of business failures is likely as low growth, reduced government support on the energy cost front for companies and comparatively high interest rates will all create headwinds for companies’ cash flow and profitability. Carrying out frequent counterparty risk assessments and teaming up with trusted advisors is recommended against this backdrop.
Credit Cruise 2023
Exciting news! We're thrilled to announce our upcoming Credit Cruise 2023 event on the Thames in London, taking place September 7th, 2023. Register for the ticket pool now: https://lnkd.in/dYpUGzn
Join us for an exclusive afternoon aboard the Pride of London boat, where you'll have the opportunity to network with industry leaders, hear from top speakers, and enjoy stunning views of London's iconic skyline.
We're pleased to welcome Nick Leeson, The Original Rogue Trader, as our keynote speaker. With a maximum of 80 attendees, this event is the perfect opportunity to connect with other receivables management professionals in a fun, welcoming atmosphere.
And of course, there will be plenty of food, drinks, plus music too.
Join us for an unforgettable afternoon of networking, learning, and fun. Stay tuned for more details to follow, and don't forget to register for the ticket pool: https://lnkd.in/dYpUGzn
#corporateevent #receivablesmanagement #networking #London
Germany Credit Factsheet
We're keen to share our updated Germany Credit Factsheet with you all: https://bakering.global/product/factsheet-germany-2023/
The German industrial sector has been of much interest of late, as December's statistics revealed a 3.1% decrease in production, largely due to a decline in energy-intensive industries. This serves as a reminder of the ongoing impact of the energy crisis on the German economy.
Despite these challenges, the outlook for Germany's business remains positive, with easing material bottlenecks and well-filled order books suggesting a less severe winter economic slowdown. However, these developments nonetheless bring significant risks for companies and their ability to make timely payments.
Given the importance of being proactive and vigilant in navigating these challenges, we're proud to have serviced a 17% increase in debt placement for Germany in Q4 of 2022, which deviates from the country's typical prompt payment history
We have responded to the rise in demand for credit control support also, with our team providing extra attention to accounts with poor payment behaviour, allowing our clients to focus on their key clients and effectively manage risk.
We hope you find this update to our Germany Credit Factsheet of use. Stay informed and ahead of the curve by visiting Global Outlook, our hub for insights and analysis for credit professionals: https://bakering.global/product/factsheet-germany-2023/
Baker Ing Credit News: Medical Devices Feb 2023
Stay up-to-date with the latest medical devices news by watching the Baker Ing News for Credit Professionals: Your rundown of January's most important developments in just over 2 minutes.
For more in-depth insights, download the complimentary report on "Medical Devices Europe 2022" here: https://bakering.global/product/repor...
Baker Ing Credit News: Construction Feb 2023
Stay up-to-date with the latest fashion news by watching the Baker Ing News for Credit Professionals: Your rundown of January's most important developments in just 2 minutes.
For more in-depth insights, download the complimentary report on "Fashion in the USA 2022" here: https://bakering.global/product/repor...
If you found this useful, why not join us at the next Let's Talk Credit Ltd fashion forum in London on February 8th? Connect with industry leaders and hear from top experts in the field. If you're interested in attending, please contact us for an invitation.
Baker Ing Credit News: Construction Feb 2023
Stay up-to-date with the latest construction news by watching the Baker Ing News for Credit Professionals: Your rundown of January's most important developments in just 2 minutes.
For more in-depth insights, download the complimentary report on "Construction in Europe 2022" here: Construction in Europe 2022
If you found this useful, why not join us at the next Let's Talk Credit Ltd Construction forum in London on February 7th? Connect with industry leaders and hear from top experts in the field. If you're interested in attending, please contact Christina Onofrei for an invitation.
Economic Bulletin Oct 2022
EXECUTIVE SUMMARY
Download this full report from the Global Outlook store: https://bakering.global/product/bulletin-economic-outlook-oct-2022/
- The final quarter of 2022 and 2023 will be challenging as economic and political headwinds are increasing.
- Recession risks are rising as consumer and industrial confidence indicators are plummeting.
- Inflation is currently on a 40-year high but will moderate in 2023 because of base effects and tighter monetary policy.
- Supply chain risk is still above pre-pandemic levels but has fallen in recent months with maritime shipping costs dropping (also linked to the weaker economic outlook).
- Payments performance in Europe improved in mid-2022 but Ireland and the UK performed against the trend and saw longer delays in B2B payments. • The number of business failures in the EU rose in April-June 2022, a fifth consecutive quarter of increase.
- That said, the number of business failures still stands below pre-pandemic readings and some countries (such as Germany and Italy) still continue to report improvements.
- Looking ahead, credit risk in Europe will rise as the economy is slowing, interest rates are rising quickly and banks are likely to tighten lending. • Elections in France, Sweden and Italy in Q2 and Q3 2022 ended with at least partial victories of antiestablishment far-left and far-right parties
- Policy making will become more complicated as approval ratings for incumbent governments will fall amidst a cost of living crisis and the looming recession.
- Companies should assess counter-party risks closely and team up with trusted advisors to minimise the adverse impact of the deteriorating political and economic environment.
Download this full report from the Global Outlook store: https://bakering.global/product/bulletin-economic-outlook-oct-2022/
New Report: Media in the USA 2022
EXECUTIVE SUMMARY
Download this full report from the Global Outlook store: https://bakering.global/product/report-media-in-the-usa/
The US is the world biggest market in the media sector, with one third of the total global media revenues. Moreover, its global influence and leadership is unparalleled in shaping the industry, imposing new trends and innovative business models. The US is home of the core of the content produced by biggest studios in the world -such as Warner, Disney, Viacom- that is distributed worldwide and dominates the world’s cultural life. More recently, the US has been the epicentre thousands of companies that make, contribute to and support digital media, drive innovation and shape the sector, such as Netflix, Amazon, Google (YouTube), or Meta in social media and metaverses.
This global leadership has huge consequences, and recent shocks have placed obstacles in this dominant position which was, until recently, unchallenged. The trade war with China, exacerbated by China’s “Great Firewall” policy which restricts the entry of foreign company (especially social media) into its territory, placed media at the heart of the commercial and diplomatic conflict; the war in Ukraine further contributed to placing on top of the agenda media companies and the strategic role they play in international spheres, from a commercial, propaganda and diplomatic perspective.
Amid this context, China’s high-tech sector developed very rapidly. With huge economies of scale, it was able to create mirror companies to the US dominant ones in each segment. These companies are now becoming key players at global level, with leadership in some areas of the world. Their popularity in the US with the rise of some services like social media TikTok (owned by Chinese ByteDance) or messaging service WeChat (owned by TenCent) are of concern not only for the US media sector, but also for the US diplomatic sphere. In 2020, former President Trump threatened to ban the ByteDance and Tencent in its territory.
In the past decades, the US media sector saw a huge activity in mergers and acquisitions and innovation, with the consolidation of Disney’s catalogue for example -through the acquisition of Marvel, LucasFilms and more recently 21st Century Fox- and the emergence of Netflix and social media. The rapid deterioration in the macroeconomic development -with a sudden increase in interest rates- is expected to inaugurate a new phase in the media market. The pace of mergers and acquisitions may slow down, and the innovation efforts of some companies (commercial, technological, consumer-driven services) may also decelerate. The sector will however continue to see innovations and new areas of development such as the metaverse are likely to be shaping it in the coming years.
The sector still benefits from a huge domestic market which allows it to develop content and new products with large economies of scale and to remain globally extremely competitive. At domestic level, Americans are amongst the biggest consumers of media, laying the base of an extremely strong internal market. Pre- COVID, Americans were consuming more than 12 hours of traditional and digital media per day, vs a world average of 7.5 hours. Combined with a population of 332 million inhabitants whose average purchase power is high, the domestic demand is high and fuelling a sector that has grown extremely concentrated and competitive.
Download this full report from the Global Outlook store: https://bakering.global/product/report-media-in-the-usa/
Report Update: Tokio Marine HCC
Report Update: Media in Europe March 2022
Baker Ing have noted an 18% increase in debt placement from our media clients this year. Learn what could be driving this activity in our Media Europe report, now updated with exclusive commentary from our partners Tokio Marine HCC.
Learn more about Media in Europe with this new report or download in full from: https://lnkd.in/ey6TSJ_p
New Report: Media in Europe 2022
New Report: Media in Europe March 2022
The media sector directly impacts us all and is consistently one of the most dynamic, innovative and high-value sectors of the global economy. Recent events have accelerated digital adoption but, equally, there has been a move in many jurisdictions to tighten regulation and, as ever, inflation looms as a restraining force. As online media matures, we see consolidation in markets with traditional players increasingly securing positions of dominance... significant opportunities for challengers remain, however. Learn more about Media in Europe with this new report or download from: https://lnkd.in/ey6TSJ_p
New White Paper: Higher-Risk Accounts for Competitive Advantage
New White Paper: Higher-Risk Accounts for Competitive Advantage
At a time of global economic turbulence and fast-changing events, many credit professionals are tightening credit policy and moving to a risk-averse position. Counterintuitively however, we observe an increasing number of seasoned credit directors viewing this period as a time of opportunity to increase their influence within their organisations by working ever more closely with their sales colleagues and increasing the efficiency of credit policies to provide a source of competitive advantage which competitors not only do not possess but, rarely even consider. In adopting a growth mindset, in conjunction with forward-looking technologies and best practice, best-in-class credit professionals are increasingly becoming central to many companies’ capacity to control risk whilst simultaneously exploiting such as an engine to capture market share. Get an overview of the most common approaches to leveraging higher-risk accounts as a source of competitive advantage in this new white paper:
Read the full paper on Global Outlook.
Fashion & Apparel 2022
Fashion & Apparel 2022
What fashion-company casualties will there be now that we are moving back to a more normal trading environment? What impact will the shift have on companies who restructured their operations to survive lockdowns? Will they need to adapt once again to meet the needs of a new commercial environment, and are they capable of doing so quick enough if so?
With strengthening global trading conditions, there is much for the fashion industry to be positive about as we move into 2022. However, times are changing for the industry – if not, already changed. Just one example of the change we are seeing is stated in the Global Clothing B2C E-Commerce Market Report by Research and Markets which forecasts that over 50% of retail growth globally is expected to derive from online sales between 2020 and 2025. As with any structural changes, there will be those that manage to adapt quick enough to thrive, and those that fail to.
The pandemic of the past two years hit the fashion industry hard. Retail fashion was, at the beginning of 2020, still heavily reliant on footfall in physical shops. Further, the disruption to global trade generally had wide ranging and profound effect on fashion, from routes to market, to labour availability, supply chain management and marketing cycles. Sales fell, orders were cancelled, and inventories built up. Where businesses were able to adapt, they most often operated far below their volume capacities, with both increased operational costs and, in many cases, capital investment required in order to adapt, with consequent profit margin shrinkage.
As well operational disruption, we’ve further seen profound shifts in consumer demand over the past two years. Lockdowns drove down demand in the luxury, formal, accessories and beauty segments whilst increasing demand for leisure, active and comfort. This further disrupted businesses’ product development and marketing cycles, as well as profoundly impacting those with less diversified product ranges.
As we move into 2022, the industry now faces old challenges but on a new scale. Input shortages, logistical constraints and inflation are challenges the industry knows only too well. However, it now faces these old challenges in a weakened financial state, during a time of market volatility, and structural changes in consumer tastes and behaviours. Retention of Title is something credit managers need to secure post COVID, with the rise of both insolvency and phoenix companies. We have seen assets and goods being moved between different trading entities and shops, as well as being sold online through platforms such as e-Bay, Vinted and luxury-fashion second-hand sites.
Nonetheless, even though the most pressing challenges are the old enemies of inflation, supply-chain disruption, and cost-control, its vital to consider the new context these old challenges approach us in. Not only has the industry been weakened financially by the lockdowns but, the past two years has rapidly accelerated fundamental changes in the industry which must be considered too:
Social Responsibility
Social responsibility, for want of a better term, was both a building consumer trend and a political force before COVID. Over the past two years though, for a variety of reasons better left to sociology professors to dissect, we have seen social responsibility come very much to the fore – again, both politically and as a consumer trend. This was driven in large part by the increasing influence of younger consumers but has very much spread wider than that demographic to the point that socially responsible value judgements are now arguably the desired consumer standard, with anything falling below the perceived bar being deemed unacceptable and undesirable.
Interestingly it is the polar-opposite ends of the industry which have been most effected so far. Both the luxury and ‘fast-fashion’ segments have come under heavy scrutiny and companies have had to act. In the luxury segment, we see a subtle shift in marketing away from purely a positional-goods value proposition (i.e., exclusivity) to one of social values and association with those values via the brand. Equally, at the other end of the scale we have seen manufacturers focus action on sanitizing their supply chains and offsetting environmental impacts.
With the political and cultural Zeitgeist seeming to grow ever more enthusiastic for social responsibility in all its forms, it will be interesting to see how the industry can adapt to this new paradigm, being as it impacts both operational practices of companies, as well as influences consumer demands and behaviours. For example, younger consumers seem very happy to purchase second-hand luxury goods or will forego brands entirely which are perceived not match up to their high standards of socially responsible behaviour. How to square these thoroughly uncommercial values with the need to maintain sales volumes and margins is a problem not yet solved. That said, we have seen some shifts to this end, such as changes to manufacturing inputs, as well as marketing in many instances moving away from a trend-focus to more emphasis on timeless quality.
Regulation
Linked to the above trend of social responsibility, it seems 2022 may be the year of regulation for the fashion industry. If social responsibility is the cultural trend influencing companies to change in line with their consumer’s demand, then ESG is the big stick of government demanding change. It is a topic we have covered previously and too large to cover here but, needless to say, the Environmental, Social and Corporate Governance values codified in the ESG standards currently being applied by many financial institutions, and expected to be rolled out widely, could have profound effects on companies’ ability to access finance and professional services.
As well as the potentially existential threat which ESG standards could well be to certain segments, we also have a raft of other legislation recently introduced or incoming in 2022 which will impact all fashion companies; new European online sales legislation, the UK’s Green Claims Code, France’s carbon labelling and ‘anti-waste’ laws, the USA’s strengthening of the Garment Worker’s Protection Act…and probably more to come!
The fashion industry is under pressure to adapt faster than it would like and some segments don’t yet have a solution for their long-term survival.
Route to Market and Digitization
It goes without saying that the shift to online dominance is almost complete now. Those that have not yet managed to integrate digital channels into an omnichannel route-to-market strategy are most likely not with us any more….or won’t be for long. The best businesses are now focusing on how they integrate their digital and non-digital channels across the customer journey to really make the most of this new paradigm.
However, with the pervasiveness of new technology throughout companies’ operations, often adopted at speed over the past couple of years, we must be aware of the threat of cyber-attacks. This now represents a significant and widespread risk and it is imperative that credit managers are knowledgeable about the measures companies need to take to mitigate the risk.
Conclusion
Whilst there is much to be optimistic about as we enter more usual trading conditions, there is no doubt that the fashion industry in under severe pressure, being impacted more than most by the old challenges of inflation, supply chain management and cost-control. What is particularly concerning is that the industry faces these challenges from a weakened financial position after two years of restrictions, as well as being buffeted by some profound and rapid changes in consumer demand/behaviour, whilst fending off increasingly interventionalist legislation around the globe.
So, optimism is appropriate as we enter 2022 but, we must be vigilant of the high-risk environment fashion companies are operating in.
Cautionary tale 1 – international group goes into administration:
- Trinity Group
- Trinity Group is a Chinese-owned up-market fashion conglomerate. It owns several ‘heritage’ fashion businesses, including Kent & Curwen, Gieves & Hawkes, D’Urban (Japan) and Cerruti.
- The Group went into administration early in January 2022 and is understood to be heavily indebted. Administration is thought to have become essential when it failed to find a buyer for its Gieves & Hawkes subsidiary.
- A majority stake in Trinity is owned by Shundong Ruyl International, based in China. This does not mean that its subsidiaries are now in administration, but they have become assets in a struggle to find a way that will repay most to Trinity’s creditors.
- The least likely outcome is a solvent third-party acquiring Trinity. The most likely outcome is the sale or disposal of the main subsidiaries, including; Gieves & Hawkes, Kent & Curwen; D’Urban (Japan), and Cerruti and Cerruti 1881.
Cautionary tale 2 – poor footfall forces administration:
- Kesslers International is a major retail display business formed in 1888.
- It was put into administration by its owner, the Hexcite Group, in December 2021 after trading at a loss for several years.
- Sales for the most recent year were £20m.
- Out of 160 staff, 125 have been made redundant.
Cautionary tale 3 – luxury brand fails:
- Ralph & Russo, is a high-end fashion house with 450 employees.
- The business was set up in 2006 and opened stores in London, Europe and the Middle East. It sells couture, bags, accessories and shoes.
- The company went into administration in March 2021.
- Ralph & Russo was bought out of administration in July 2021 by Retail Ecommerce Ventures (owner of Dressbarn, Steinmart and Pier 1).
Download the Report: https://bakering.global/product/report-fashion-apparel-europe-2022/
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