Jump in insolvencies of UK fashion manufacturers

Insolvencies of UK fashion manufacturers have risen 23% in the past year, with 106 companies going under in the year to July 2024*, up from 86 companies in the previous year. The fashion industry has been hit hard by the cost-of-living crisis in the UK whilst the luxury end of the market has more recently been hit by a slowdown in spending from the key Chinese market. UK spending on fashion (adjusted for inflation) is still marginally below pre-COVID levels (source: ONS).

As well as a cyclical slowdown in spending on fashion, some individual companies in the sector have been heavily hit by supply chain disruption caused by the Red Sea crisis.

Rebecca Dacre, Partner, explains: “In a cost-of-living crisis many consumers simply do not have the disposable income to spend on luxury clothing. That has now impacted from the affordable luxury end of the fashion market right through to prestige brands. Some fashion manufacturers haven’t been able to survive the slowdown in consumer spending.”

“At the margins, the shift to pre-loved clothes, such as through Vinted, has also suppressed sales growth for clothing companies.”

“Post Covid, luxury goods were initially perceived to be largely immune to the fall in consumer purchases. But the weakening of the Chinese economy, one of the largest consumers of luxury goods, has seen many in the industry struggle.”

UK luxury fashion retailers have suffered from similar pressures, as well as their own idiosyncratic issues. Falls in sales have left some brands with excess stock, partly because some fashion houses have preferred to overstock rather than miss out on potential sales as a result of supply chain disruption.

As well as falling sales, fashion companies are being faced with increasing costs. Shipping costs in particular have risen sharply as disruptions and delays persist in the Red Sea. The Drewry World Container Index (WCI) is up 186 % since the start of the crisis in the Red Sea, rising from $1,389.50 on October 5 2023 to $3,970.49 on Sep 19 2024**. Shipping disruptions also continue to delay the arrival of textiles from Asia to Western manufacturers.

Rebecca Dacre adds: “Shipping delays are continuing to drive up costs for premium manufacturers in the fashion industry. That comes on top of what are already high shipping prices because of the crisis in the Red Sea.”

Premium brands that offer ‘affordable luxury’ have also struggled under the combined weight of rising costs and falling sales. To stay competitive, many are resorting to discounting their products. While this can attract more price conscious consumers in the short term, it can also undermine their perceived value and reduce overall profits from sales.

Adds Rebecca Dacre: “Premium brands are feeling the pressure to drop their prices to entice new customers, but this is harming their brand perception as exclusive retailers.”

This article was first featured in City AM and Credit Connect

Sources

*The Insolvency Service, Company Insolvency Statistics, year-end August 31 2024

** Drewry World Container Index [WCI]

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