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Fashion Brands Could Lose $1 Trillion in Brand Value Over COVID-19

Coronavirus has forced a supply and demand problem for fashion, leaving it in a worst-of-both-worlds conundrum that will see sure contractions in the sector.

U.S. retail sales suffered the biggest one-month blow on record, dropping 8.7 percent in March, according to U.S. Commerce Department data released Wednesday morning. Stores and e-commerce sales, plus auto and gasoline purchases, are factored into that total.

From this vantage point, brand valuation consultancy Brand Finance says the world’s 500 biggest companies could lose an estimated $1 trillion in brand value, and apparel retail could be the category most ravaged.

“The COVID-19 pandemic is undoubtedly going to hit the apparel sector hard–Brand Finance has predicted that apparel brands could face up to a 20 percent drop in brand value,” CEO David Haigh said. “As these brands negotiate store and factory closures, broken supply chains and a customer base that is facing unprecedented economic uncertainty, they will have to prepare for a tough and turbulent journey ahead.”

As the industry has come to know in recent years, only the agile will survive, the consultancy said in its Brand Finance Apparel 50 2020 report released Wednesday, which looks at the 50 most valuable apparel brands.

So far, Nike continues to be the brand most adept at flexing its resilience.

For the sixth straight year, Nike has claimed the top spot in Brand Finance’s ranking of the world’s most valuable brands, its value increasing 7 percent to $34 billion as of January this year.

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“The sports giant has focused on implementing a pivotal distribution strategy move, drastically reducing the number of retailers selling its products, with the aim of regaining control of the brand customer relationship and improving profit margins,” the report noted. “Nike surpassed the US$1 billion milestone in quarterly online sales last year, a feat that not only demonstrates the brand’s sheer dominance in the sector but also puts the brand in a solid position to rise up to the challenge of current worldwide turmoil.”

Rival Adidas, however—though it ranks No. 3 with a brand value of $16.5 billion—didn’t fare as well, with its brand value dipping 1 percent year over year.

Gucci took the No. 2 spot as its brand value swung 20 percent higher to $17.6 billion. Louis Vuitton trailed Adidas, and Cartier, Zara, H&M, Chanel, Uniqlo and Hermes rounded out the top 10 most valuable apparel brands.

Though it ranked No. 6, Zara’s brand value is slipping. The Inditex-owned leading fast-fashion purveyor saw its brand value drop 21 percent to $14.5 billion. And things were similar at sister Inditex brand Bershka, which saw its brand value slide 26 percent to $1.6 billion. In 2019, Zara held the No. 2 spot, as its value climbed 6 percent to $18.4 billion.

“As with all brands across the sector, Zara and Bershka are negotiating a significant drop in visibility with store closures and consumers staying at home,” Brand Finance said. “Online shopping and e-commerce channels are vital to help alleviate some of the economic damage from COVID- 19. Zara has implemented an innovative approach to the pandemic, with models photographing and styling new campaigns from their own home rather than the studio.”

Challenges aside, the report pegs these brands as standing “in good stead” once stores reopen and some sense of normalcy returns.

Levi Strauss & Co., though it didn’t make the top 10, emerged as the fastest-growing apparel brand of this year’s 50—its brand value increased 38 percent to $4.1 billion in the year to January.

“2019 was a solid year for the brand, as it celebrated its highest growth rate in more than 25 years and undertook an extremely successful IPO after trading privately for over 30 years,” Brand Finance said. “The brand, which has traditionally relied heavily on its men’s clothing range, now boasts women’s wear as the fastest-growing segment of its business—a testament to the brand’s successful diversification strategy.”

For luxury apparel brands, the road to recovery after the chaos surrounding COVID-19 subsides will likely be a rocky one as consumers scale back on frivolity and travel, the latter of which greatly impacts luxury sales.

Valentino, according to Brand Finance, joins Gap as the fastest-plunging brand in the ranking. Both saw their brand values drop 39 percent.

“Italian luxury fashion brand, Valentino, has been negotiating slowing revenue and sales over the previous year, particularly in parts of its key Chinese market—which accounts for approximately 30 percent of the brand’s sales—in the face of civil unrest in Hong Kong and the general slowing of the Chinese economy,” the report said. “Similarly, Gap’s fortunes have been less than favorable. With declining sales, the abrupt exit of CEO Art Peck, and the plan to close 230 of its stores on the horizon, the brand is evidently taking measures to attempt to counteract its sharp drop in earnings.”

As none of the 2020 report yet factors in the impact of COVID-19 on sales and revenue amid store closures and depressed demand, how the top 50 rank in next year’s report will have everything to do with “how long this pandemic engulfs the world,” and how well brands are able to adjust to a new normal, according to Brand Finance.

“With new consumer behavior habits likely to be borne out of the pandemic,” the report noted, “brands will look towards greater innovation in their e-commerce businesses and the potential reassessment of their store business models.”