While the fashion industry is still reeling from the global economic conditions of 2020, the impact of currency fluctuations has been brought to the fore.
Many founders spend years establishing and building their fashion brands, and watching them grow from the ground up can be satisfying.
Unfortunately, the truth is that one can never truly foolproof it against unexpected global situations. To reference recent events, this was the case in 2020, when the whole world was shaken and life as we knew it completely changed. We witnessed the closure of small and long-standing businesses, while many others were forced to pivot and explore new ways of doing things. For many, this meant switching to digital operations as a way to sustain themselves and cut down on operating costs.
Understanding factors that impact your operations
The fashion industry is like a complex web that is woven from several pieces that play an equally important role. The importing and exporting of materials, for one, often requires international relations and trade. Therefore, it can be said that fluctuations and unexpected changes in the global economic environment are also to be considered. The logistics surrounding international trade are many, and fashion brands that pay suppliers from different countries have an added consideration in terms of the relevant exchange and interest rates. It is therefore important for fashion brands to stay informed on the conditions of the countries they do business in, as this directly affects the cost of goods and operations. Therefore, it will also impact the selling price of items and profit margins.
As known by many, the Euro and US Dollar remain currencies of interest because they infiltrate several markets and industries, due to the fact that these two countries’ economies are active contributors to many others across the globe. One of the most prominent European brands affected by EUR/USD is Christian Dior, which had approximately 210 stores in 2019, some of which are located in the US. Naturally, this marks a trade connection between the two countries. Despite being a global leader, Dior recorded a 17% decline in revenue in 2020, due to the unprecedented economic climate. With international trade having been restricted, this comes as no surprise. This is further proof of the impact of currency fluctuations and limited international trade on the fashion industry, even for some of the most iconic brands.
While business owners can do their best to prepare for and manage internal factors, the macro environment is one that they have less control over. In the current climate, with many losing their jobs or being fearful of gathering in crowded places such as clothing stores, fashion brands are being forced to think out of the box in order to stay afloat.
Expecting the best, but preparing for the worst
One way for small fashion brands to put effective contingency plans in place and prepare for adverse situations is to thoroughly interrogate current trade conditions. These include, but are not limited to, imports, exports, global economies and the Forex market. The fashion industry as a whole is facing rather uncertain times because of the fact that for some, even just ordinary clothing is becoming a luxury spend. This is due to the need to prioritise other living needs and expenses, leaving many with little to no disposable income.
According to the McKinsey Global Fashion Index (MGFI), “Successful companies will be the ones that make moves early, focus on boosting earnings over revenue growth, and work out how to improve productivity while ensuring operational and financial flexibility.”