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UK-based suppliers to the fashion industry are warning they face being wiped out as retailers extend payment terms and cancel orders.
“The majority of major retailers are extending payment terms and there are widespread cancellations even of orders in progress,” said Nigel Lugg, chairman of the UK Fashion and Textile Association. “Terms are routinely being taken from 60 days to 120 or even 150 days . . . it could take out a lot of suppliers.”
Suppliers to New Look, a fashion chain with more than 400 stores in the UK, last week received a letter informing them that they would not be paid for orders in production.
“I was horrified,” said one supplier who received the letter. “New Look is cancelling all orders where they haven’t taken ownership, without compensating for any deposit or raw materials purchased by the supplier, plus delaying indefinitely any outstanding payments to suppliers.
“This will destroy firms and factories all the way up the supply chain in this climate”.
New Look confirmed it was “temporarily postponing outstanding supplier payments until the situation improves”.
“We have not taken this decision lightly and have only done so out of absolute necessity . . . We greatly value our relationships with suppliers and are actively identifying opportunities where they can hold product for use for autumn-winter this year or spring-summer next year.”
Oliver Matei-Buhus, chief operating officer at family-owned Paragon Clothing, which designs, sources and supplies fabrics and clothes for fashion retailers, said that for the first time in his memory “we have witnessed the effective cancellation of an entire season”.
“Spring/summer 2020 is no more . . . I’ve told my staff that there will be only one quarter of business left this year and that’s what we’ve got to fight for,” he added, referring to the final calendar quarter of the year.
“The painful truth is that [retailers] . . . cannot absorb both a sudden revenue plunge and the cost of their liabilities”.
The mass closure of clothing shops is also creating a potentially large unsold inventory problem.
Some big retail chains — including Next — have suspended all operations, including online sales.
Arcadia, the fashion empire controlled by Philip Green and his family, is likely to permanently close dozens more of its UK stores. The terms of a rescue plan agreed with its creditors in June last year provided for the possible closure of many more stores than the 22 initially earmarked. The company on Sunday said that no decisions had yet been made.
Suppliers are wary that retailers that are financially distressed themselves could go out of business before invoices are settled, leaving them in a long queue of creditors.
Longer payment terms are also causing acute cash flow problems because many smaller suppliers are reporting delays in accessing the government’s coronavirus business interruption loan scheme.
“There will be short-term fights for survival among those in a parlous financial situation,” said Bill Gilliam, a partner at law firm Addleshaw Goddard.
Raffy Kassardjian, founder and chief executive of Parker Lane Group, which redistributes items that have not sold even after markdowns to regions such as eastern Europe and the Middle East, expected a sharp increase in unsold stock.
“One leading retailer that initially told me to expect 2m pieces in a quarter is now telling me to expect 10m or more,” he said.
Mr Kassardjian added that such stock normally accounted for about 3 per cent of a big retailer’s turnover but that this could swell to as much as 50 or 60 per cent this year, depending on how many orders could be cancelled and what proportion of stock sold online.
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