British fashion industry suppliers are warning they may be wiped out as retailers extend payment terms and cancel orders.
“The majority of large retailers are extending payment terms and there are widespread cancellations even of pending orders,” said Nigel Lugg, president of the UK Fashion and Textile Association. “The deadlines have generally gone from 60 days to 120 or even 150 days. . . this could remove many providers. “
Suppliers to New Look, a fashion chain with more than 400 stores in the UK, received a letter last week informing them that they would not be paid for orders in production.
“I was horrified,” said a supplier who received the letter. “New Look cancels all orders of which they have not become owners, without compensating the deposit or the raw materials purchased by the supplier, and indefinitely delaying any payment in progress to suppliers.
“It will destroy businesses and factories all along the supply chain in this climate.”
New Look confirmed that it “temporarily postpones unpaid supplier payments until the situation improves.”
“We did not take this decision lightly and we did it only out of absolute necessity. . . We greatly appreciate our relationships with suppliers and actively identify opportunities where they can keep the product for use in fall-winter this year or in spring-summer next year. “
Oliver Matei-Buhus, chief operating officer of Paragon Clothing, a family business that designs, sources and supplies fabrics and clothing for fashion retailers, said that for the first time in his memory “we attended the ‘effective cancellation of an entire season “.
“Spring / summer 2020 is no more. . . I told my staff that there will only be a quarter of business left this year and that is what we must fight for, “he added, referring to the last calendar quarter of the year. year.
“The painful truth is that[retailers]. . . cannot absorb both a sudden drop in income and the cost of their commitments. ”
The mass closure of clothing stores also creates a potentially significant unsold inventory problem.
Some large retail chains – including Next – have suspended all operations, including online sales.
Arcadia, the fashion empire controlled by Philip Green and his family, is likely to permanently close dozens of other stores in the UK. The terms of a rescue plan agreed with its creditors in June of last year foresaw the possible closure of many more stores than the 22 initially planned. The company said on Sunday that no decision has yet been made.
Suppliers are concerned that retailers who are themselves in financial difficulty may cease operations before paying invoices, leaving them in a long line of creditors.
Longer payment terms also lead to serious cash flow problems, as many small suppliers report delays in accessing the government’s system for disrupting coronavirus activity.
“There will be short-term struggles for survival among those in precarious financial situations,” said Bill Gilliam, partner at Addleshaw Goddard law firm.
Raffy Kassardjian, founder and CEO of Parker Lane Group, which redistributes items that have not been sold even after markdowns to regions such as Eastern Europe and the Middle East, expected strong increase in unsold stocks.
“A leading retailer who originally told me to expect 2m pieces in a quarter now tells me to expect 10m or more,” he said.
Kassardjian added that this stock normally represents about 3 percent of a large retailer’s turnover, but that it could reach up to 50 or 60 percent this year, depending on the number of orders that can be canceled and the proportion of stock sold online. .
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