Demands of the German fashion industry for emergency measures to avert profound structural damage as a result of precautionary measures against the spread of the novel coronavirus Sars-CoV-2:
In view of the current health situation (spread, consequences and protective measures of Covid-19) and the already measurable as well as predicted effects on the German economy, the Fashion Council Germany e.V. (henceforth abbreviated to "FCG") has prepared this needs analysis. (henceforth abbreviated to "FCG") has prepared the present needs analysis.
The Fashion Council Germany e.V. has submitted this document in a letter to the Federal Chancellery, the Federal Ministry of Economics and the Federal Ministry of Finance.
We join the numerous voices of other industry associations and brand groupings - and want to cooperatively avert the negative effects of the crisis. Especially through the participation of FCG members in a comprehensive survey, the needs of the all-German fashion industry are taken into account. The membership structure of the FCG is a cross-section of the German fashion industry with companies from the following three sectors: manufacturing and distributing fashion, retail and supplier companies as well as trade fair organisers and publishing houses. Our concern is to consider especially young designers and small companies and to support them in times of crisis.
The global economic crisis, which will establish itself on the basis of the pandemic, will in future bring with it a range of hitherto unforeseeable as well as inevitable consequences for the German fashion industry.
These will have an impact on employment levels and economic performance even beyond the immediate crisis, especially on small and medium-sized enterprises. The industry is facing a wave of insolvencies of unimaginable proportions that can no longer be averted. And this must be countered with joint forces.
The German fashion industry is not only shaped by globally active companies (e.g. international sporting goods manufacturers) and corporations, but also and in particular by medium-sized and owner-managed businesses.
As fashion is a so-called cross-sectoral industry, made up of a large number of sub-sectors (not only manufacturing and distribution, but also other satellite industries such as footwear, accessories, cosmetics, retail, textiles, ingredients, trade fairs, events, agencies, logistics, fashion and trade magazines) and these sub-sectors are in turn highly interdependent, the collective scope of the necessary public support is large.
From an overall economic perspective, the current and future needs of supporting the German economy are essentially identical across all sectors. However, each industry also has individual challenges that it must face in order to hold its own in the future. The FCG needs analysis would like to take a closer look at these:
The aim of this analysis is to make concrete proposals to the federal and state governments for industry measures to support the German fashion industry.
The German fashion industry is facing an unprecedented challenge in the history of the Federal Republic of Germany. The players in the German fashion industry (including manufacturers and suppliers, manufacturing and distributing fashion companies, young brands and freelance fashion and textile designers, retailers and online retailers, fashion and textile trade fairs, publishing houses with fashion titles, sales and press agencies, fashion photographers, stylists, hair and make-up artists, supporting agencies, etc. pp.) are experiencing massive drops in sales due to the crisis, which are resulting in a significant drop in employment. Established as well as young companies are therefore facing a variety of challenges:
- Current productions are at a standstill or significantly slowed down, mostly due to lack of supply or other upstream supply chains. Especially international supply chains are strongly influenced by different local situations and problems. This leads to delays in being able to supply customers or even to total failure.There is a pessimistic prevailing mood, which puts the industry in a circular loop.There is a need to actively counteract this negative cycle.
- New collection developments are made more difficult or even impossible, because the required materials, resources, personnel (product samples mostly classically handcrafted) and/or service providers as well as suppliers are not available as usual.
- Textile retailers are currently closed across the board. There is no end in sight. The distribution cycle is significantly disrupted as a result. Retailers' stock levels are high and there is no immediate possibility of selling out.
- Orders are cancelled with suppliers (brands) and valuable repeat orders with access to instant articles are not placed.
- eCommerce (independent online shop providers or shops managed by the textile retail trade) does not compensate for the slump in sales of the stationary trade. For brands without an online presence and stores, there are no sales opportunities during the crisis.
- Inventories cannot be reduced as planned, both in retail and at suppliers (brands). Inventory levels are significantly higher than the industry can handle. Collections currently hanging in the retail trade can hardly be sold in the summer. It should be noted that the fashion industry in its current dynamic is characterized by seasonal (from two to twelve times a year) products and deliveries.
- Purchasing behaviour and purchasing power of end consumers is in sharp decline. Consumers are saving and household incomes are reduced due to short-time work or similar.
- Textile and fashion fairs, sales events, showrooms, etc. are currently not possible. Uncertainties about further developments prevent plannable distribution strategies.
- Directly but also indirectly involved companies and freelancers have become economic victims of the crisis - these include sales and press agencies as well as hair and make-up artists.
- Young designers are running out of money. Most contracts between retailers and (primarily) smaller brands are set up in such a way that if delivery is not made on time (within 30 days), acceptance and consequently payment can be refused. This poses a high, existential risk to young, emerging brands that are vital to our creative industries.
- Manufacturing and distribution companies usually have a strong need for pre-financing. Traditional instruments require collateral, which cannot currently be provided.
New funding instruments that have already been announced or introduced, as well as the reduction in accessibility of existing formats, are currently having a not inconsiderable influence on leading the industry out of the crisis. From the FCG's point of view, the following measures already need to be supplemented and extended:
- The already relaxed option of short-time work is unavoidable in order to preserve jobs.
- Direct grants are an important instrument for German companies, small entrepreneurs and solo self-employed. This should also apply to ventures that have also existed for less than three years and are currently experiencing economic difficulties as a result of the Corona crisis. An increase or extension of the direct grants should be planned as an industry support.
- Flexible interest-free guarantees and financing models support the industry in order not to jeopardize projects and productions. An increase in payment terms to retailers, for example, would provide significant relief. This should be secured by guarantees or similar instruments. If necessary, this is also an instrument to prevent early discounting.
- Guarantees and other instruments to pre-finance production and thus close financing gaps should be introduced to complement the "payment target guarantee".
- There is a growing call for the promotion of regionally produced products within the fashion industry. Especially in times of crisis, regionality is highly relevant to support distributing and manufacturing companies and should be promoted through tax incentives for the production of products "Made in Germany".
- Tax deferrals should be granted at short notice if applicants are affected by the crisis and this can be done unbureaucratically.
- A reduction in the tax and social security burden would reduce personnel costs and provide additional support for companies - even with an increase in employment in the second half of the year, relief is essential to reduce the economic damage.
- The suspension or deferral of rent payments should be acceptable under rental law in the crisis period and made possible by bank guarantees or downstream instruments. The stationary textile retail trade is suffering from unadjusted cost structures coupled with a significant slump in sales.
- The state instruments for promoting the economic situation should be made uniformly transparent and accessible in order to ensure a fast and simplified application procedure.
- Accelerated or simple payment modalities of public funds should come into force. The industry needs fast and unbureaucratic disbursement of the promised funds.
- The deadlines for filing annual accounts and tax returns should be relaxed, as no immediate improvement in the economic situation of the industry is expected.
- Reduction of the deductions for the artists' social security fund.
- Fashion and textile trade fair locations should be able to activate trade buyers and the media through financial support.
Once the direct and immediate crisis situation has been overcome, the federal and state governments should additionally be given new support programmes for marketing and promoting the German fashion and textile industry. This would be possible, for example, in the form of flexible market development programmes and new presentation and promotion formats.
Emerging from the current crisis, the fashion industry needs to regroup in a timely manner to challenge systemic mechanisms:
What value does the fashion industry have on the German economy?
Are learned seasonal rhythms and delivery windows up to date?
How can discount battles be positively influenced in the interest of the industry?
What relevance should "Made in Germany" have in the future?
A platform for discussion and coordination is needed to help shape the industry for the future.