Next PLC’s (LON:NXT) online operations opened for business again on Tuesday morning but by 8.30am they had already reached full capacity.
The fashion retailer restarted activities with heightened safety measures, meaning it could take fewer orders than usual, after workers complained they were not able to practice safe social distancing measures.
READ: Next restarts online sales ‘in a very limited way’ due to coronavirus safety measures
The FTSE 100-listed firm now can, at least in part, address the issue of stock piling up in warehouses.
“With the industry likely to be swamped by unsold seasonal product, we believe Next will benefit as a useful clearance channel,” analysts at Peel Hunt commented.
Several other retailers are active on their websites, such as Joules PLC (LON:JOUL), Ted Baker PLC (LON:TED) and John Lewis alongside purely online players such as ASOS PLC (LON:ASC) and Boohoo Group PLC (LON:BOO).
Online demand is lower than usual
However, most are engaging in mid-season sales with discounts up to 70%.
Demand has been subdued as customers lose their jobs or take pay cuts, cancel plans or simply prioritise spending elsewhere.
Quiz PLC (LON:QUIZ) was hit particularly hard due to its focus on occasionwear, and was swamped by returns when lockdown measures were announced.
Analysts wonder how much appetite there still is for new clothing as most European governments asks people to stay home.
Sophie Lund-Yates, analyst at Hargreaves Lansdown, told Proactive sales “are going to be lacklustre at the very best”, even with the shift to online.
In fact, ASOS has been flagging subdued demand, and Liberum estimates gross margin to decline by 2.5% over July and August.
Clearance will be painful
Once shops are allowed to reopen, only those companies with an already healthy balance sheet will be able to stomach clearance.
“If margins and profits are already struggling then slashing prices for an entire season’s clothes will be very painful,” Lund-Yates commented.
“This will be a particular dilemma for bigger, department-like stores, where profits have been hammered in recent years by the onerous costs of running their large high street shops.”
Discounting would also be an issue for brands that usually avoid promotions because they fear devaluation, Patrick O'Brien, research director at GlobalData, told Proactive.
Staples can wait
According to both experts, alternative solution could be to sit on summer stock for a year and roll it out in 2021.
Many fashion shows have been cancelled amid the pandemic, “so trends are unlikely to move as fast as usual,” Lund-Yates pointed out.
Peel Hunt said Next and Joules are well-placed to ‘overwinter’ summer collections to next year because most items are not high fashion - that could apply to Marks and Spencer Group PLC’s (LON:MKS) staples, too.
On the other hand, companies with high turnover such as ASOS and Boohoo will have to deal with the upcoming autumn/winter orders.
Summer ranges have already been paid for, perhaps bills have been deferred or relationships with suppliers have been ruined by ruthless cancellations, so problems (and extra costs) are not likely to end after the lockdown is over.
In this scenario, customers can only expect big clearances and for retailers competition may be more fierce than ever.