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Lockdowns Sweep Europe—Putting Fashion Chains at Risk

Fashion retailers battle new pressures in the face of fresh lockdowns, as the U.K., France and Germany roll out restrictions combatting a crush of coronavirus cases.

On Thursday, new national measures took effect in the U.K. through at least Dec. 2. Elsewhere, France, Germany, Italy and Spain all began tightening restrictions last month, while Belgium imposed sweeping measures on Sunday.

The impact on apparel and retail, considered nonessential, is substantial. Primark‘s parent Associated British Foods plc on Monday estimated that a second round of stores closures would drive 375 million pounds, or $484.9 million, in lost sales. That projection includes stores already under lockdown across Europe, such as in Ireland, Slovenia and the Spanish region of Catalonia.

Data analytics firm Springboard projects that the lockdown across U.K. retail destinations for the four-week period ending Dec. 2 could drive foot traffic down 78.8 percent, with high streets suffering a 87.3 percent falloff. An extended shutdown during the key holiday selling season from Nov. 22 to Dec. 26 could see foot traffic plummet 62 percent from 2019 figures across U.K. retail destinations.

Nick Bennenbroek, international economist for Wells Fargo Securities, noted that new coronavirus cases are rising by an average of 157,000 cases daily across the Eurozone over the past week. “Even if the restrictions do not prove as stringent as earlier this year, those new restrictions could lead to a renewed decline in GDP as they begin to gain traction,” he said.

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Headwinds from Europe’s rising Covid cases spell bad news for retailers with a significant footprint in the region, according to Ike Boruchow, senior analyst at Wells Fargo Securities.

“Cooler temps driving people indoors and worse-than-ever Covid fatigue has resulted in a surge of cases across Europe in recent weeks, causing the region to once again become the epicenter of the global pandemic,” Boruchow said. “Lockdowns are planned for at least the duration of November—a key holiday shopping month—but could be extended depending on case counts.”

Ralph Lauren and Capri, both with a 25 percent to 30 percent European sales exposure, have aired the Covid issue in their recent earnings reports. Capri, which is prioritizing company-controlled retail stores, said its wholesale business would be impacted by department store closures and reduced retail travel. Hanesbrands, which has a 15 percent sales exposure, also pointed to a $70 million to $80 million sales headwind as a result of the lockdowns, Boruchow noted. Canada Goose also said this week that its three European stores have temporarily closed, accounting for 15 percent to 20 percent of sales.

Other firms within Boruchow’s coverage group that also could face significant impact from another round of temporary closures in Europe include Adidas, which has a 36 percent sales exposure rate, PVH at 35 percent, and Nike at between 25 percent to 30 percent. Other firms he cited as having significant exposure, although not necessarily within his coverage group, include VF Corp. at 25 percent, Ugg parent Deckers Brands at 18 percent and Skechers at 15 percent.