Some companies have benefited from loan facilitation measures and delayed tax payments, but many are struggling with liquidity and are actually fighting for survival, while the spectre of a long chain of bankruptcies is looming in the country. A few days ago, upmarket Los Angeles label Denim of Virtue announced it was winding up the company. In April, another well-known name in the denim sector, True Religion, filed for Chapter 11 bankruptcy protection under US receivership law. New York label John Varvatos went bankrupt in May.

The lockdown period is severely testing the financial solidity of major groups too. Nike reported a net quarterly loss of $790 million, while losses for PVH (owner of Tommy Hilfiger and Calvin Klein) totalled $1.1 billion. Another leading US fashion group, Centric Brands Inc., has filed for bankruptcy protection in order to restructure the business.Faced with a severe sales slump, Guess is set to close down 100 stores in the next 18 months, chiefly in North America and China. Lingerie giant Victoria’s Secret is also experiencing burgeoning difficulties, while in mid-June, Diane von Fürstenberg made 75% of its 400 employees redundant, and closed down 18 of its 19 stores. The efforts of LVMH-owned Marc Jacobs, which has been striving to revive its fortunes since 2017, have been severely undermined and, according to US media, the label has sacked nearly 60 employees. 

The majority of these ailing companies were actually overburdened with debt well before the pandemic broke out. The Covid-19 crisis exposed the failings of a business model focused exclusively on the short term, and needing constant cash-flow injections to cover operating costs and bank drafts. This is a problem felt chiefly by SMEs, while major groups already have lines of credit open with their banks, and are able to finance a large part of their business through indebtedness. ​Brooks Brothers, founded in 1818 and owned by Italian businessman Claudio Del Vecchio since 2001, is another venerable US fashion name currently on the brink of bankruptcy. It had been struggling for some time, owing to diminished consumer interest in formal wear, and has failed to rejuvenate its style. Brooks Brothers tried to broaden its range and clientèle, notably relying on outlet stores, but only succeeded in tarnishing its image. It was forced to discount heavily to maintain footfall in its many stores, some of them too large and with high rent overheads, and profitability has dwindled, eroding the label’s financial position. The majority of established US labels have extensively resorted to systematic price cuts to compete with fast-fashion retailers, further weakening a system that is now suffocating, caught in a vicious circle and made even more fragile by the rising power of e-tailers, whose sales have been further boosted by the lockdown.

At a recent conference, Luca Solca, senior analyst at consulting firm Bernstein, remarked that “15, 20 years ago, US mega labels like Michael Kors and Coach, and the European labels owned by luxury giants LVMH and Kering, were vying almost head-to-head in terms of retail productivity, generating nearly €15,000 per square metre. Nowadays, they are in two different categories.”Solca said that “while Gucci and Louis Vuitton are generating as much as €40,000 per square metre, the productivity of Coach and Michael Kors has shrunk by a factor of four. With very high fixed rent fees and weak profitability per square metre, these labels are increasingly struggling to earn money, and have slipped into a vicious circle of price reductions.” But younger, more flexible labels too have had to close down. Like luxe label Sies Marjan, launched in 2015 by designer Sander Lak, backed by millionaire businesswoman Nancy Marks. “The problem is that [Sies Marjan] was chiefly distributed via department stores. Last summer, Barneys went bankrupt, triggering a shock wave that negatively affected many fashion labels in the USA. Selling to department stores is the core business of US labels. The closure of countless department store branches has had a disastrous impact, especially for the less robust brands,” said Lucien Pagès, in charge of the communication agency that worked for Sies Marjan. 

“US labels are extremely dependent on distributors, and the latter are facing severe difficulties. Suddenly, businesses that were fragile found themselves in an even weaker position. Barneys, and even a retailer like Opening Ceremony, went out of business before the start of the crisis,” said fashion and luxury specialist Serge Carreira, a lecturer at Paris’s Sciences Po research university.“The situation in the USA is complex. Department stores have been responsible for pushing labels to multiply collections, inventory items and discounts, and plunging brands into a diabolically vicious impasse of mounting volumes and falling margins, simultaneously weakening the whole system,” he added. Last year, Barneys and Forever 21 were the first to throw in the towel, going bankrupt respectively in August and September 2019. They were both later acquired by the Authentic Brands group. In May, Covid-19 dealt a killer blow to three other leading US retailers: J. Crew, J.C. Penney and Neiman Marcus, whose Bergdorf Goodman department store is located on New York’s prestigious Fifth Avenue.The latest victim was renowned department store Macy’s: on June 25, it announced it is planning to cut 3,900 jobs in order to restructure. The health crisis has certainly accelerated the speed at which consumers are jettisoning retail chains in favour of e-tail. For a long time however, department stores have been faced with the deep-seated transformation of the US retail trade, notably prompting a decline in the fortunes of shopping malls, and the success of European-style high street stores.

A retail carnage that is casting a dark shadow over the USA’s economy. The situation is all the more explosive now that inequalities have been further exacerbated, in the wake of the recent race riots and while the health emergency is far from under control in the country. In the last few days, stores have been forced to close again in US cities where fresh Covid-19 spikes have occurred, fuelling fears of a further slow-down in the economy. When the pandemic broke out, the world’s largest economy was at full employment, but in May the USA recorded the highest unemployment level since 1929. The USA lost 5% of GDP in the first quarter and, according to analyst estimates, its GDP could slump by as much as 8% in 2020. As for the recovery, it could be being longer in coming, and tougher than predicted. According to US economist Nouriel Roubini, a five-year wait is on the cards before the country will return to business as usual.