They say the best way to predict the future is to study the past. World wars, economic downturns and growth, and high waisted jeans alike, have all come, gone, and eventually returned. Some we hope persevere (low waisted just don’t flatter) and others we hope never return. As demonstrated by the uncontrollable pandemic that has taken our world by storm, it seems like we have as little control over economic stability as we do our future fashion fads.
In September of 2008, the stock market crashed. The downfall was fueled by the burst of the real estate bubble, an economic recession, and bankruptcy of some of the nations previously most established and seemingly infallible banks at the time. The Dow declined 53.8% from its peak. This was the worst bear market seen since the Great Depression in 1929. At the time, it seemed like the worst it could ever be (after all, not all economic downturns earn the title “great”). The unemployment rate more than doubled the pre-crisis rate and recovery seemed like a far away dream.
Today, our current economic state looks a little different from past financial crises with “social distancing” becoming the new norm and Zoom replacing face to face interaction but similar in many ways nonetheless. However, as the future unfolds, it may be referenced in tandem with past depressions and recessions. Confined to our homes with no known end in sight, COVID-19 has drastically uprooted our lives and our stability. As quickly as COVID-19 has spread from person to person, our economy has crippled. Forced to close all non-essential businesses, over 30 million people have filed for unemployment in the US (and that statistic doesn’t account for the thousands who have not been able to file due to the overwhelming demand). This number means that, in a month, we lost all job gains made since the Great Recession and then some. Brick and mortar stores, with compiling overhead and halted income over the past few weeks, are being forced to close after decades of business. With every additional day we wake up to stay inside, more businesses are having to face the dismal truth, that recovery is becoming more and more unattainable. The stimulus package, the Paycheck Protection Program and Expanded Economic Injury and Disaster Loan are a few of the government backed offerings available to struggling small businesses. However, the demand has proven to be much larger than the supply, leaving many without any help at all. The restaurant industry has hope with takeout and to-go offering a way to earn income, even if business is minimal. For retailers without online platforms, unfortunately, scouring racks and trying on new shoes have tragically been deemed non-essential.
In comparing the past to the present, it’s important to understand the fundamental differences that impact our ability to predict assurely. First, the Great Recession was caused by financial issues, namely real estate problems tracing back to 2006. The immense risks and lack of regulations take a majority of the blame and in looking to rebuild, we had direction. The Coronavirus is a completely external factor, differentiable from 2008. This leaves us with less of an idea of where to direct blame and more uncertainty of the future because, frankly, we won’t know until it’s over. We have no idea whether COVID will strike again, whether our efforts to quarantine will help in the long run and if or when we will be able to produce a vaccine. However, on the flipside (and the view I like to take), we don’t know if this is the worst it’s going to get. What we do know though is our current state can’t be categorized as a recession or a depression just yet. In order to be recognized as a recession experts agree the economy needs to shrink for about 6 months, a number we have not hit. To be considered a depression, you can think of it as two or more recessions linked together with no recovery in between, a position we are even further from at this point. Our indefinite and unstable future lends us little to no certainty in which economic categorization this period can be considered.
The government mandated call for social distance, unemployment, tightening of wallets and closing of brick and mortar stores poses a different set of economic challenges than faced prior. In 2008, the effects on retail were more evident in clearances than foreclosures. In November of 2008, Saks 5th Avenue, a notoriously established luxury department store, cut prices nearly 70%. Competitors, like Barneys, quickly followed by forgoing profits in order to break even. Retailers were forced to be more financially conservative going forward and restructure their approach in attracting consumers. Fashion was able to scathe by, not making a profit, enduring some financial hardship but overall, able to overcome.
Today, stores without ecommerce options aren’t able to sell, even at extremely discounted prices. It’s not a matter of breaking even on inventory, the new challenge is how deep retailers’ savings really are and how long they can last without any income. In some areas today, businesses are surpassing 7 weeks without income. JPMorgan Chase estimates that the median independent retailer has a cash buffer of 19 days, a far cry from the quarantine timeline so far. With less loans available, and a bigger hole to dig out of, it has become a matter of not if, but how many, retailers will be forced to close permanently. What we do know is the impact will be immense and we can expect a consolidation of retailers. However, this may bring some positivity as this dramatic consolidation will result in surviving retailers gaining leverage over their manufacturing partners. This is a trend that was prominent prior to COVID-19 and is predicted to accelerate. The future remains unknown of who will file for chapter 11 (bankruptcy which allows for restructuring and reorganizing), but the same is true for who may rise out even stronger and prosper in a post quarantine world.
In 2008, retailers were forced to focus on minimalism and personability as power returned to consumers. And today, not if, but when we emerge, consumers will want something new and different. Fashion and retail will always assume a portion of our paychecks and a fascination in minds but what will change, is how it will deliver to the future market share. You never know, maybe sweatpants will become the new slacks.
I choose not to fear what lies ahead retail, but to see the future as an inevitable response to a change in the cycle. Fashion for centuries has responded to economic changes, depressions, and peaks and this is no different. With belief that the end is near, the hope is small businesses and big retailers alike will be able to come out the other end is high in our minds. We can be sure of one thing though, across the board, consumers, producers, retailers, visionaries, and the fashion industry is ready to get back to business, and so are we.