By Melissa Fares and Sonya Dowsett
NEW YORK/MADRID (Reuters) - As virus-wary shoppers stayed home in the United States and Europe, apparel retailers braced for a blow to sales and a potential inventory glut. Some slashed orders at garment factories while others began discounting merchandise.
U.S. retailers including Macy's Inc (N:M), Saks Fifth Avenue and Gap Inc.'s (N:GPS) Banana Republic sent notices to shoppers late Thursday saying they were open for business in a move to stem losses due to a steep decline in traffic.
In Europe, Zara owner Inditex (MC:ITX) said on Friday it would temporarily close stores in the areas of Spain worst affected by the coronavirus, including Madrid. In Italy, most shops were shuttered on Wednesday.
In New York, stores in some of the world's most heavily visited shopping districts like Fifth Avenue and Madison Avenue were practically empty on Friday despite pleas to customers.
"Our stores are open for business and continue to be a safe place for you to shop," Saks President Marc Metrick said in an email to shoppers late Thursday.
Kohl's Corp (N:KSS) said it had experienced softer demand, especially in areas most affected by coronavirus. On Thursday, Gap Inc. said it expected a $100 million revenue hit this quarter due to the coronavirus outbreak.
LVMH's (PA:LVMH) Sephora beauty chain, Ulta Beauty (O:ULTA) and MAC Cosmetics, owned by Estee Lauder Companies Inc (N:EL), have all ordered employees to cancel makeovers of customers, to avoid touching faces with hands, which can spread the virus.
At specialty and fashion apparel stores in the United States, retail transaction velocity, a measure of sales, fell nearly 10% from Feb. 15 to March 9 from its year earlier level, according to a Customer Growth Partners LLC report.
In China, the world's biggest apparel-buying market, consumer demand remains a major concern even as shoppers begin to venture out of quarantine.
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Further up the supply chain in Bangladesh, the world's second-biggest apparel manufacturer after China, brands are asking for cuts in orders of up to 30% and seeking discounts, said Rubana Huq, head of the Bangladesh Garment Manufacturers and Exporters Association.
Even as retailers begin to repair broken supply chains due to recently closed Chinese factories, they must now scramble to avoid a glut of unsold stock.
"Our supply chain is not the issue and it's not the concern. It is consumer demand in an environment where you have 80% of the stores being closed," Adidas (DE:ADSGN) Chief Executive Officer Kasper Rorsted told analysts on Wednesday.
Adidas, which makes nearly a third of its sales in Asia, said it would clear excess inventory in China by selling stock at a discount in outlet stores.
H&M said on Friday it was in close contact with its suppliers and evaluating the situation together with them.
"I usually do shop half online and half in stores, but I am avoiding malls and stores for the last few weeks," said Sarah P., 42, of Rockville, Maryland, a legal assistant who requested that her last name not be used.
She said that prior to taking a break from going out and shopping, she spent most her dollars at Nordstrom Inc (N:JWN), Macy's, J. Crew, Banana Republic, Sephora, and Zara stores.
"It started because of flu and cold, but now it is nonnegotiable with coronavirus. Too risky." Luxury leather goods maker Salvatore Ferragamo, known for its Vara shoe and Ferragamo Studio bag, said it had started shifting products between regions. "Of course when the virus starts spreading everywhere that becomes much more difficult," Chief Financial Officer Alessandro Corsi told analysts on Tuesday, adding any discounts would be strategic so as not to tarnish the cachet of its star products.
The bottom line is that slump in demand for apparel and accessories that happened in China had now spread to the rest of the world said Siddiqur Rahman, a Dhaka-based garment exporter who supplies brands like H&M (ST:HMb), C&A, Gap, Walmart (N:WMT) and Mango.
"There is no appetite for garments from European and American brands. Cities are locked down. Who will buy clothing?" he said.