Berta Escudero: “After the crisis there will be fewer players competing for a smaller market”
The executive, who is a supply chain expert and has been Managing Director Retail for Gordon Brothers since 2019, believes the sector must continue to transform swiftly once the COVID-19 crisis has passed.
Date April 27, 2020
Originally published in modaes.es
Berta Escudero has been working in the fashion industry since the 90s, so she has seen a few crises in her time. This one, she says, is different from the rest, because it was sudden, fast and totally unexpected. Escudero, a supply chain expert, has worked for Chupa Chups, Puig, Procter&Gamble, Tendam and El Ganso, and since 2019 has headed up the retail division at Gordon Brothers. The US company, which recently acquired Laura Ashley, specialises in asset management both for third parties as an adviser and directly through its own investments. Escudero believes that, once the crisis has passed, the sector must focus on doing what it needed to do even before the COVID-19 crisis: greater differentiation and value for consumers. Who will remain standing after the crisis? “Fewer players, in a smaller market”
Question: You have worked in the fashion industry since the 90s and have seen a few crises. What is different this time round?
Answer: This crisis is different because it was totally unexpected. It began as a supply crisis and quickly evolved into demand crisis as well. In a matter of weeks people went from requesting air freights to cancelling orders. The downturn was also sudden and very fast. What’s more, we still don’t know what the outcome will be, as it depends not on financial or economic constraints, but health factors. I believe this is going to last for a long time: until we have a cure or vaccine we won’t be able to lift the current measures, and that could take years. This new reality will last for a long time.
Q.: Are fashion companies better prepared for this crisis than in 2008?
A: On one hand they are, because the previous crisis filtered out a lot of businesses. Companies cut excess costs and reduced leveraging. But on the other hand, they are not, because the sector was undergoing a transformation. After the 2008 financial crisis, consumption did not return to the same level for all sectors. We saw a change in consumer interest towards fewer possessions and more experiences. At the same time, retail channels were changing, with an increase in ecommerce and the decline of traditional channels, such as multibrand and department stores. We witnessed a drop in store footfall and price wars, to a certain extent. But above all, there was a saturation of the fashion offer, and this offer was not sufficiently differentiated. And all of that was reflected, for example, in the reluctance of banks to support the fashion industry. The sector was already under pressure. Companies that had pre-existing difficulties are going to have a very hard time.
Q: Will consumption rally after lockdown is lifted?
A: No, because there will be a period of consumer spending containment. Fashion sales are closely linked to employment rate and consumer confidence index, and both have plummeted. In addition, social distancing measures and fear of contagion will result in less footfall and fewer visits to stores. We must also consider the impact of the fall of tourism, which in Spain’s case drives a significant proportion of fashion sales.
Q: If you led a fashion company right now, what would you do?
A: In the short term, the same as many others: protect cash flow and support with the emergency as much as possible. But I would also protect talent, which is vital at the moment, and I would seek help from companies like Gordon Brothers; we have over 100 years’ experience in difficult situations and restructurings, and we provide liquidity for retail companies, helping to generate value from unproductive assets. Businesses are going to have to accelerate pre-existing restructuring plans. They will have to adapt to the new reality in terms of costs and size. Then they will have to prepare for reopening and the new normal. They will need to forge partnerships and invest, where possible, in technology and tools that might be of use.
“The crisis may accelerate diversification of sourcing, but I don’t expect any radical changes”
Q: What timeframe are you expecting?
A: Several European countries are starting to de-escalate their measures, but all next year will be deeply affected. Beyond that, it will depend on whether or not we have a vaccine. If we don’t, things will improve gradually, as the population adapts to this new way of life. But this year and next year we can expect change and difficulty.
Q: What is the main emergency that companies in the fashion sector need to address?
A: The main priority is to protect people during this pandemic. After that, the lack of liquidity. Companies will be overstocked and will need to buy the new season’ collections before they have sold the current ones. And after that, they will be facing a drop in footfall at stores.
Q: What would you do with all that excess stock?
A: Knowing that fashion products have limited shelf life, I would try to obtain liquidity as quickly as possible from the stock I had. The good thing is that many companies were already buying inter-seasonal collections, rather than clear seasonal pieces. That will help. But whatever is currently in the stores and warehouses should be turned into cash. A small part could be used in autumn, but I would try not to hold on to stock for next year, because it’s just self-deception. I would also work with suppliers to find solutions to provide the necessary supply within the current context.
Q: And in autumn?
A: Reduce purchasing and adapt the assortment. See what I think consumers are going to want. It is vital to stay relevant for consumers and provide an attractive, differentiated value proposition. Having the same as everyone else will not work, especially if it has a higher price. This crisis will make us rethink our lines and seek to provide value through products that better respond to customer needs.
“In the short term, there will be sales to free up liquidity, but to attract consumers we have to have a different, attractive value proposition”
Q: Do you expect a transformation in fashion sourcing? Will the sector reduce its dependence on China?
A: There won’t be a radical change. As always, the solution lies in diversification and balance. Companies have been seeking to reduce their dependence on China for a long time. We must find a balance between margin, quality and lead-times. But in some segments, like lingerie and costume jewellery, it is very difficult to find that quality, price and quantity outside of China. The crisis may accelerate that diversification, but I doubt there will be a radical change.
Q: After the last crisis, retailers used prices to attract consumers. Will it be the same this time?
A: In the short term, there will be lots of sales to free up liquidity. But in order to attract consumers we have to offer a different, attractive proposal; we have to be relevant and create emotional engagement, and show that we share the same values: customisation, sustainability, a human touch. People want to feel that again, rather than just shopping for the basics. All of these factors will be very important.
Q: To what extent will we see a destruction of the fashion industry landscape in Spain?
A: There will be fewer players competing for a smaller market. We will see many businesses go into administration and lots of short-term problems. But there will also be opportunities to buy; even we are looking at certain projects. It will be an opportunity to bring new life to brands that are worth the effort.
Q: How important will size be in weathering this crisis?
A: It will be relevant insofar as it will facilitate access to financing and better conditions with suppliers, but that can also be achieved through trust and a close relationship. Sometimes a supplier might feel that they owe you, because you helped them out when they were in a rough patch. Things are not improvised, nobody suddenly becomes something they are not. If a company has weakened its ties because it has been too arrogant, it won’t have that kind of collaboration, no matter how big it is. We will all reap what we have sown.