Rising energy prices are currently unsettling not only consumers but also the fashion industry. Today the Bundestag is again considering whether a gas price brake should be introduced. A summary of the situation, concerns and numbers.
Great uncertainty
There has been a lot of uncertainty since Russia invaded Ukraine. In addition to the security situation, people worry about the rising cost of living caused by rising energy prices.
For years, the energy industry had taken it for granted that Russia would ship natural gas to Germany and Europe, but that has been proven to be a fallacy since the war in Ukraine. Throttling of Russian natural gas deliveries via the Nord Stream 1 pipeline caused unrest and rising gas prices on the futures exchanges.
The European benchmark price for natural gas with delivery in November, for example, rose to just under 350 euros per megawatt hour at the end of August and last traded at 156 euros per megawatt hour on Wednesday. Although this value is still three times as high as a year ago, it is significantly lower than at the peak. The fact that Germany’s gas storage facilities are currently well filled also contributed to the recent fall in prices. On Tuesday evening, the filling level was 94.67 percent, almost as high as the 95 percent that the Federal Ministry of Economics stipulates in a regulation for November 1st.
Conflicting signals
On the other hand, there are also worrying signals such as the damage to the Nord Stream 1 pipeline, the cause of which has not yet been clarified. But Russia had not delivered any gas via this pipeline since September anyway.
“The situation is tense and a further deterioration of the situation cannot be ruled out. The gas supply in Germany is stable at the moment,” said the Federal Network Agency on Tuesday on its website. But she also points out that companies and consumers have to be prepared for significantly increasing gas prices due to the high wholesale prices for natural gas.
The consumer mood in Germany suffers from this uncertainty. Because nobody knows how high the bill will be in the end. For electricity, some estimates see cost increases of 30 to 50 percent, for gas 100 to 200 percent additional costs can be assumed, according to the consumer advice center, for example. It is still unclear to what extent a possible one-off payment by the state and a gas price brake can mitigate rising energy prices. The Bundestag will discuss these proposals on Wednesday.
Higher energy prices complicate textile production in Europe
“The energy crisis is having a significant impact on the fashion industry as the entire upstream supply chain is energy intensive,” said Carlo Capasa, head of the Italian Fashion Confederation to kick off Milan Fashion Week in September.
Energy costs used to be about 10 percent of the end product, but now they account for at least 30 percent, Capasa said. But apparel manufacturers often cannot pass on their increased energy costs indefinitely.
“Prices cannot be adjusted indefinitely, and that puts companies in the difficult position of wondering if it’s worth doing the work,” he said.
The German association Textil+Mode calculates the gas price at which it is no longer worth producing. According to an association survey from the previous week, the maximum gas price to maintain production and jobs in Germany is 8 cents per kilowatt hour. At 10 cents, further relocations of production abroad are to be expected, from 15 cents there is a risk of nationwide closures.
“As a medium-sized textile and fashion industry, we are looking forward to the winter with great concern,” said Uwe Mazura, general manager of the German Textile and Fashion Industry Association, in a statement on Monday. He also points out that after Recommendations of the expert commission from Monday, the industry has to make a larger contribution to savings than consumers. The German federal government still has no concept against “exploding” electricity prices.
However, rising gas prices also drove up electricity prices on the exchanges, because electricity in Germany is also produced using natural gas. Recently, however, prices have also fallen again here, but the fluctuations remain extreme compared to the past.
What do rising energy prices mean for fashion retail?
Energy costs in retail have risen by almost 150 percent on average since the beginning of the year, according to a survey by the German Retail Association (HDE) among 900 companies from all locations and sectors.
“Many retail companies no longer see a way out. On the one hand, energy prices are rising enormously, on the other hand, most of them cannot simply pass the costs on to customers due to the tough competition,” said HDE Managing Director Stefan Genth in a statement in September. In the survey, 86 percent of the companies stated that they rising energy costs cannot or not fully pass through to retail prices.
“This is a pincer grip that threatens our existence,” says Galeria Managing Director Miguel Müllenbach, describing the current situation in German retail, which is suffering from falling consumer sentiment. While people were still shopping at the sales at the end of the summer season, since the start of the new season many have been wondering whether they still have the money, said Müllenbach in a department store group podcast in September. Rising prices for electricity, gas and heat would put trade in an emergency.
Trading companies expect permanently high energy costs
According to calculations by the Textile Shoes, Leather Goods (BTE) trade association from September, sales in the shops were currently more than ten percent below the 2019 level on average.
On the other hand, people’s concerns also have unexpectedly positive effects on fashion retail. In Germany, he is currently doing good business with warm underwear, socks, gloves and slippers, as well as beaver bed linen and warm blankets. “A number of customers seem to have already taken precautions to best compensate for the recommended reduction in room temperature over the next few weeks and months,” said a spokesman for the BTE on Thursday.
According to an HDE survey, more than 90 percent of retail companies also expect higher energy costs in the long term. Accordingly, more than three quarters are planning increased energy saving measures. More than 20 percent of those surveyed see their very existence threatened by energy costs in the next twelve months.
The slump in consumption and energy prices seem to be causing problems for the department store group Galeria Karstadt Kaufhof. On Friday, the company announced that the collective agreement concluded after the merger with Verdi had been terminated. This put the wage level at current level frozen.
Tips from energy experts with fashion house
Fashion retailer Martin Bretterbauer presented other socially acceptable ways of reacting to rising energy prices during a BTE webinar before and during a web meeting. Before he opened his four stores in Lübben in the Spreewald, he worked in the energy sector until 2019.
Energy costs can be optimized through a systematic inventory of all power consumption sources. In this way, consumption can be determined and reduced down to the last lightbulb. Energy guzzlers such as glowing displays or devices in standby mode can be identified when fashion retailers walk through the store in the dark.
According to Bretterbrauer, individual companies have little opportunity to influence energy prices on the exchanges, but they could contractually create leeway. One possibility is, for example, to agree a minimum purchase quantity at a fixed price in a contract or to set up an energy purchasing group on site with companies from different sectors in order to negotiate a framework agreement with energy suppliers with favorable conditions.