Costs and turbulence in retail are weighing on sentiment

The German clothing manufacturers can look back on a “still satisfactory” year 2022. But the rising costs and turbulence in the fashion trade are causing concern.

The turnover of the clothing manufacturers – including leather and other clothing – rose by 19 percent compared to the previous year from 5.2 billion euros to 6.2 billion euros. “Even though we can report an increase in sales of almost 20 percent compared to 2021, there have been few real gains due to the increased costs along the entire supply chain,” said GermanFashion President Oliver Seidensticker in a statement on Monday.

These increases in revenue are “a satisfactory sign in view of the severe losses in the Corona years,” he said at a press conference. But the pre-corona level of 2019 was missed by 3.4 percent.

Sales of workwear and professional clothing rose by 12.9 percent year-on-year to EUR 577 million and were already above pre-pandemic levels. In the hosiery segment, the increase in sales was 2.4 percent, and 19.3 percent in lingerie.

Bankruptcies in the clothing trade

The insolvencies in the fashion trade are currently causing major concern for clothing manufacturers. The department store chain Galeria has been in bankruptcy again since last autumn, and the fashion retailer Peek & Cloppenburg Düsseldorf surprised the industry with its protective shield proceedings at the beginning of the month.

The member companies are more affected by the protective shield procedure from P&C than in comparison to Galeria Karstadt Kaufhof, said GermanFashion Managing Director Thomas Lange during the press conference. At P&C, wholesale contracts were mostly concluded, and whether receivables are serviced also depends on the extent to which they are covered by trade credit insurance. In this situation, things can go differently for fashion manufacturers. According to Lange, some receivables could be serviced in full, while others could fail in part or in full. “That depends very much on the will of the management, with which suppliers one wants to continue doing business and with which ones not… But it is clear that there will be shortfalls.”

Seidensticker is not expecting insolvencies on the scale of P&C or Galeria this year, since these two large companies have already been hit. He also points out that these are protective shield proceedings, not liquidations of companies. A total failure, i.e. bankruptcy, of Peek & Cloppenburg or Galeria would be a “tougher thing”, according to Seidensticker. “But I don’t see that coming.”

China is again the most important sourcing country

The People’s Republic of China is back in first place among the sourcing countries for German fashion producers. The increase in import sales was almost 30 percent in 2022. During the pandemic, Bangladesh briefly ousted the country from its position. Here, too, import revenues grew by 35 percent compared to the previous year.

In view of the calming down in the supply chains and the easing of corona restrictions, Seidensticker expects imports from China to stabilize at the current level. In the future, procurement from other European countries and neighboring countries will increase. The increase in import values ​​from Romania and North Macedonia could be explained by the relocation of production capacities from Ukraine, Lange said.

Imports from Vietnam rose by 45 percent last year due to favorable tariffs, and the politically less stable country of Myanmar is again among the top 10 sourcing countries. Imports from Pakistan also increased.

Exports support fashion manufacturers

Export remains the mainstay of the German fashion industry. Despite the decline in exports to Russia, manufacturers achieved an increase of almost 10 percent overall. Fashion companies were able to partially offset these declines with export increases to the United States of around 44 percent year-on-year. Exports to Canada also increased.

With the exception of France, which fell by one percent, export sales from the ten most important export markets such as Switzerland, Austria, Poland and the Netherlands developed positively. Exports to the United Kingdom also stabilized with an increase of almost 5 percent.

The prospects for 2023

In terms of prospects, the rising costs of energy and raw materials are clouding the mood of German clothing manufacturers. These can only be passed on to a limited extent and in 2022 they only increased their prices by an average of 3.7 percent. But increases of this magnitude would not be enough in the long term to cover the rising costs, said Seidensticker.

The euphoria that existed in the fashion industry in early 2022 was halted and contained by the Russian attack on Ukraine and the devastating war. The protective shield proceedings at two Peek & Cloppenburg Düsseldorf companies are worrying the industry and are not sending any good signs for the current year, said Seidensticker. The Association of German Clothing Brands did not dare to make a sales forecast for 2023.

This post was updated at 4:33 p.m. on March 20, 2023 with further information on bankruptcies in fashion retail and the outlook.