Demands of the German fashion industry for emergency aid 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 eV (hereinafter referred to as “FCG”) has prepared the present needs analysis.

‍

The Fashion Council Germany eV submitted this document in a letter to the Federal Chancellery, the Federal Ministry for Economic Affairs and the Federal Ministry of Finance.

‍

We join the numerous voices of other industry associations and brand groups in expressing our desire to collaboratively mitigate the negative effects of the crisis. In particular, the participation of FCG members in a comprehensive survey will ensure that the needs of the entire German fashion industry are taken into account. The FCG's membership represents a cross-section of the German fashion industry, encompassing companies from three key sectors: fashion manufacturers and distributors, retailers and suppliers, as well as trade fair organizers and publishing houses. Our primary goal is to support emerging designers and small businesses, especially during this challenging time.

‍

The global economic crisis, which will establish itself on the basis of the pandemic, will in the future lead to a range of previously unforeseeable as well as unavoidable consequences for the German fashion industry.

These effects will continue to impact employment levels and economic output beyond the immediate crisis, particularly affecting small and medium-sized enterprises. The sector faces an unavoidable wave of bankruptcies of unimaginable proportions, and this must be countered with a concerted effort.

‍

The German fashion industry is shaped not only by globally operating companies (e.g. international sportswear manufacturers) and corporations, but also and especially by medium-sized and owner-managed businesses.

Since fashion is a so-called cross-cutting industry, composed of a multitude of sub-sectors (not only manufacturing and distribution, but also other satellite industries such as shoes, accessories, cosmetics, trade, textiles, ingredients, trade fairs, events, agencies, logistics, fashion and trade magazines), and these sub-sectors are in turn strongly intertwined, the collective impact of the necessary state support is significant.

‍

From a macroeconomic perspective, the current and future support needs of the German economy are essentially identical across all sectors. However, each sector also faces individual challenges it must address to remain competitive in the future. The FCG's needs analysis aims to examine these challenges in more detail.

‍

Goal

The aim of this analysis is to propose concrete measures to the federal and state governments to support the German fashion industry.

‍

Situation!

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, fashion companies that produce and distribute clothing, emerging brands and freelance fashion and textile designers, retailers and online stores, fashion and textile trade fairs, publishing houses with fashion titles, sales and public relations agencies, fashion photographers, stylists, hair and makeup artists, support agencies, etc.) are experiencing massive revenue losses due to the crisis, resulting in a significant decline in employment. Established and emerging companies alike are therefore facing a multitude of challenges.

•  

  Current production is at a standstill or significantly slowed, mostly due to a lack of supplies or other issues in the upstream supply chain. International supply chains, in particular, are heavily impacted by varying local situations and problems. This leads to delays in delivering to customers or even to a complete shutdown. A general sense of pessimism prevails, trapping the industry in a vicious cycle. Active countermeasures are needed to break this negative cycle.

• Developing new collections is difficult or even impossible because the necessary materials, resources, personnel (product sampling is usually done using traditional craftsmanship) and/or service providers and suppliers are not available as usual.

• Textile retailers are currently closed nationwide. An end to this closure is not in sight. This has significantly disrupted the distribution cycle. Retailers' inventories are high, and there is no immediate way to sell them off.

• Orders are being cancelled with suppliers (brands), and valuable reorders with access to immediate items are not being placed.

• E-commerce (independent online retailers or shops run by textile retailers) is not compensating for the sales slump in brick-and-mortar stores. For brands without an online presence and physical stores, there are no sales opportunities whatsoever during the crisis.

• Inventory levels cannot be reduced as planned, neither in retail stores nor at suppliers (brands). Stock levels are significantly higher than the industry's recommended trading volume. Collections currently hanging in retail stores will be virtually unsellable by summer. It's important to note that the fashion industry, in its current dynamic, is characterized by seasonal products and deliveries (ranging from two to twelve times a year).

• Consumer purchasing behavior and purchasing power are declining sharply. Consumers are saving and household incomes are reduced due to short-time work or similar measures.

• Textile and fashion trade fairs, sales events, showrooms, etc. are currently not possible. Uncertainty about further developments prevents predictable distribution strategies.

• Both directly and indirectly involved companies and freelancers have become economic victims of the crisis – these include, for example, 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 structured 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 for young, emerging brands, which are indispensable to our creative economy.

• Manufacturing and distribution companies in these sectors typically have a high need for pre-financing. Traditional instruments require collateral, which cannot currently be provided.

demands

New funding instruments already announced or implemented, as well as the reduction in the accessibility of existing formats, are currently having a significant impact on leading the industry out of the crisis. From the FCG's perspective, the following measures already need to be supplemented and extended:

• The already relaxed option of short-time work is essential to preserve jobs.

• Direct subsidies are an important instrument for German companies, small businesses, and the self-employed. This should also apply to businesses that have been in existence for less than three years and are currently experiencing financial difficulties due to the coronavirus crisis. An increase or extension of direct subsidies should be planned as sector-specific support.

• Flexible, interest-free guarantees and financing models support the industry in ensuring that projects and productions are not jeopardized. Extending payment terms to retailers, for example, would provide significant relief. This should be secured through guarantees or similar instruments. This could also serve as a tool to prevent premature discounting.

• Guarantees and other instruments for pre-financing production and thus closing financing gaps should be introduced in addition to the "payment target guarantee".

• The call for promoting regionally produced goods within the fashion industry is growing. Especially in times of crisis, regionality is highly relevant for supporting distributors and manufacturers and should be promoted through tax incentives for the production of " Made in Germany " products.

• Tax deferrals should be granted at short notice if applicants are affected by the crisis and can demonstrate this in an unbureaucratic manner.

• Reducing the tax and social security burden would lower personnel costs and provide additional support to companies – even with an increase in employment in the second half of the year, relief is essential to reduce economic damage.

• The suspension or deferral of rent payments should be legally acceptable during the crisis and facilitated by bank guarantees or other related instruments. Brick-and-mortar textile retailers are suffering from outdated cost structures coupled with a significant drop in sales.

• Government instruments for promoting the economic situation should be made uniformly transparent and accessible in order to guarantee a fast and simplified application process.

• Accelerated and simplified payment procedures for public funds should be implemented. The industry needs fast and unbureaucratic disbursement of the promised funds.

• The deadlines for submitting annual financial statements and tax returns should be relaxed, as no immediate improvement in the industry's economic situation is expected.

• Reduction of deductions for the artists' social security fund .

• Fashion and textile trade fair locations should be able to activate specialist buyers and media through financial support.

Once the immediate crisis has been overcome, the federal and state governments should also provide new funding programs for the marketing and promotion of the German fashion and textile industry. This could take the form of flexible market development programs and new presentation and promotional formats, for example.

‍

Further ideas

Emerging from the current crisis, the fashion industry must quickly organize itself to question systemically relevant mechanisms:

What is the economic significance of the fashion industry for the German economy?

Are established seasonal rhythms and delivery windows still relevant today?

How can price wars be positively influenced in the interest of the industry?

What relevance should "Made in Germany" have in the future?

A platform for discussion and voting is needed to help shape the future of the industry.