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Independent American Fashion Businesses Are Unravelling. The Government Must Help.

If something is not done, large numbers of independent fashion labels and stores are going to go bankrupt.
Calvin Klein American Flag Sweater | Source: Coltorti Boutique
By
  • Lauren Sherman
BoF PROFESSIONAL

NEW YORK, United States On Wednesday afternoon, American designer Rachel Comey was in crisis management mode. "The state of panic is pretty high," Comey said, never one to mince words. "It's a bloodletting, basically."

Comey's 20-year-old brand is independently owned and operated, a modern American success story. Her clothes remain coveted, as does an invite to her exclusive, sporadic, fashion week gatherings. She's survived multiple recessions, the digital disruption of the early 2010s, the major European conglomerates boxing the little guys out. But nothing she has endured up to now could possibly have prepared her, or any fashion label, for the global outbreak of Covid-19 and the breakdown of the fashion system that has come with it.

Entrepreneurship is one of the cornerstones of American culture. Our fashion industry may be recognised for big names like Calvin Klein and Coach, but it also includes hundreds of independent labels, some of which make just $1 or $2 million a year (sometimes less!), others that have annual sales in the tens, or hundreds, of millions.

But right now, many of the industry’s small businesses are on the verge of collapse. On the supply side, designers who manufacture in the US face the stark reality of local factories shutting down. Others who rely on Italy and China for production are similarly paralysed. But there may not be anywhere to send the product anyway.

For a start, consumer demand has all but disappeared. And unlike many of their European counterparts, brands here, in both the designer and contemporary categories, still rely heavily on the wholesale channel, a source of weakness long before the coronavirus outbreak became a reality.

The problem is that American department stores, already under immense pressure in recent years as consumers shifted spending to other channels, are now at a virtual standstill and cancelling pre-fall orders, cutting off cash flow to brands. (They've also started marking spring items down. Bergdorf Goodman is currently advertising a 15 percent off sale.)

Many labels have already produced garments that were soon supposed to ship, but there’s no place to liquidate the unwanted goods.

Entrepreneurship is one of the cornerstones of American culture.

It doesn't end there. Independent specialty stores across the country, many of which do not have e-commerce operations, are attempting to reach customers via social media platforms like Instagram. These small stores, too, are now unable to pay brands, which, in recent years, have come to rely on them more and more as department store sales wane.

“I went through the 2008 financial crisis, but we were still able to stay open, work with no layoffs and manage. This is different. Every single person will be impacted in some way and as a small business, I know how it will impact us,” said Sherri McMullen, owner of the Oakland store McMullen, which carries Khaite, Jacquemus, Petar Petrov and others. She closed both of locations on Saturday, forced to temporarily lay off her retail staff. While McMullen has not cancelled orders from brands, she has asked for some to be put on hold. In the meantime, she and her limited staff are using Instagram to drive her e-commerce business. She's also offering local delivery and sending packages of goods for customers to try on in their homes.

"Many of our clients have been supportive buying online or allowing us to send them packages," she said. "That is helping — and greatly appreciated."

Independent labels and retailers alike are doing what they can to increase sales online — currently the only source of income for many. But the channel, sluggish at best in these uncertain times, will not fill the gap. McMullen is also hosting Instagram Live sessions with some of her designers to discuss their latest collections, but also to just check-in and discuss what it's been like navigating this crisis as an independent company. "My business is all about supporting independent emerging designers," she said. "This is the time to show why it’s important to share our message around our work."

The New York jewellery line Lizzie Fortunato did something similar with one of its retail partners, the Charleston, South Carolina-based Hampden Clothing, on Wednesday. “If our retailers close, we couldn’t support our current team just by moving that business online,” said Kathryn Fortunato, co-founder of the jewellery brand she owns with her sister. About 75 percent of the Fortunatos’ sales come from wholesale, a balanced mix of boutiques and department stores. “It’s scarily intertwined,” she said. “All of our risk is so shared. We need to keep them in business to keep us in business. When a recovery happens, we need to make sure there’s a relationship to go back to.”

For brands that do operate their own stores, there's also the matter of making rent. (Comey, who has a shop in New York's Soho neighbourhood, on Melrose Place in Los Angeles and was hosting a pop-up in Paris, said one landlord was willing to work with her, while others pushed off her request for a break.)

The reality may be that, without widespread government assistance, many... small businesses, both brands and stores, are going to go bankrupt.

And then there are the employees. Much like restaurants, which rely on hourly wage workers, fashion retail is a service industry. The corporate office is just one piece of the puzzle. On the front lines, there are the shop-floor managers and sales assistants, many of whom these small brands simply can’t afford to keep paying when they shut their doors.

So, what’s a small, independent brand to do? If they have an e-commerce operation, they can double down on it — so long as warehouses stay open — and refuse order cancellations from department stores if they are in violation of a contract.

They can apply for loans. Or start selling to places they never seriously considered before... like Amazon, which consumers have flocked to order essential items.

But the reality may be that, without widespread government assistance, many of these small businesses are going to go bankrupt.

Comey wishes for a coronavirus vaccine — and free rent. But should she get more? “Airlines and banks have bailouts,” she said. “We’re a huge industry that employs a lot of people: domestic manufacturing, retail associates are on the ground.”

For now, the Trump administration has proposed a $1 trillion plan that would ask Congress for $500 billion for direct payments to taxpayers and $500 billion in loans for businesses.

One idea, floated by New York Times financial columnist Andrew Ross Sorkin, would be to offer a no-interest "bridge loan" to every business and self-employed worker to sustain them until the outbreak is over and people are safely allowed to return to work, rather than singling out specific sectors for bailout. (They'd have five years to pay it back.)

“The only condition of the loan to businesses would be that companies continue to employ at least 90 percent of their work force at the same wage that they did before the crisis,” Sorkin wrote. “And it would be retroactive, so any workers who have been laid off in the past two weeks because of the crisis would be reinstated.”

That might sound like a utopian arrangement. But the government needs to do something — and fast. Consumer spending is 70 percent of our gross domestic product. At the end of this global tragedy, even if we are fundamentally changed as a people, we will still be buying things, because that is what we’ve been conditioned to do. Supporting the industries that provide those things — like fashion — should be a priority.

We’re tracking the latest on the coronavirus outbreak and its impact on the global fashion business. Visit our live blog for everything you need to know.

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