The real energy crisis of the fashion industry increases the price

For the best part of 2022, UK fashion businesses have been struggling to meet rocket-power prices, largely due to Russia’s squeeze on supplies to Europe and its invasion of Ukraine in February.

Rising gas and electricity bills pushed inflation to 10.1% in July – the highest level since February 1982. Last month, the Bank of England predicted that Britain would enter recession by the end of 2022 and warned that inflation would reach 13% in October.

Drapers explores the true costs of the energy crisis on the fashion industry and whether the new Prime Minister’s support has gone far enough.

Department store chain Beales told Draper last month that its energy bill had more than tripled from £45,000 to £150,000.

Many other fashion businesses have quadrupled energy costs and introduced various measures to reduce their energy use.

“Our energy contract is coming to an end and we think [the new contract] According to the CEO, a duplicate of a garment is worth three to four times what it used to be.

“Like other businesses, we’ve been looking at ways to cut costs, like increasing our LED lighting and air conditioning units. We’re lowering the temperature a little bit. But that’s outside. It’s out of our control.”

The CEO of a menswear brand whose energy bills have doubled is taking a similar approach: “We’re looking at all kinds of things that can reduce our energy use, like lowering the temperature. We hope our customers will understand if the stores help. You’ll feel a little cooler than usual.

“Also, we’ve been opening our doors as a welcome sign – that might have to go. For stores that don’t have central heating, we’re going to look at every free heater and see if we really need it.”

The Federation of Small Businesses estimates that between February 2021 and August 2022, a shop in London with an annual energy consumption of 30,000 kilowatt-hours (kWh) would see its electricity bill rise from £4,700 to £21,200 and its gas bill. It has risen from £1,350 to £7,050.

Martin Foster, managing director of Cumbria-based independent retailer Lackland Leather, has been looking at how it can reduce its impact across its 15 stores: “Many of our stores’ energy contracts ran out at the start of the year, so thankfully we are. He is locked in at a lower price for two more years with new contracts. But for some stores that recently had renewed contracts, the price is about two to three times what it was before.

“Usually if you sign a long-term contract with energy suppliers you get cheaper prices, but that has changed and now there is so much uncertainty that it is cheaper to sign for more than a year or two.”

UK Fashion and Textiles (UKFT) chief executive Adam Mansell said: “Many of our manufacturing members are reporting a five to six-fold increase in energy costs and this is an issue that affects all sectors of the industry, as well as the ability of consumers to spend. “

The fashion industry, along with other businesses and households, has been calling for government support over the past few months to help tackle the crisis.

In response to calls for support, new Prime Minister Liz Truss announced in Parliament on September 8 that energy bills for a typical home would be set at £2,500 for two years from October 1. Businesses will see their energy costs per unit – or kilowatt hour (kWh) – for six months, which households will pay under the government’s new plans.

After that six-month period, ministers plan to provide “focused support” to “risk-prone industries”, with a review to be carried out within three months. It is unclear whether retail is included.

Many businesses have welcomed the support.

John Basson, CFO at Primark Associated British Foods (ABF), told Drapers: “We welcome the announcement of energy price improvements for consumers. It was a grim sight for consumers as they saw rapidly rising utility bills and the price cap removed some major doubts.

“I think six months [price cap] It’s a great start,” said the owner of the womenswear brand.

“This means that we can move forward in a more positive way and is good news for fashion businesses. For us, especially in the coming season, we can spend more budget on our products and have more confidence for autumn. / Winter 22 Marketing [period].”

However, some have expressed concern that the measures are not going far enough and have called for wider action.

“I don’t think we’re going to introduce a power cap,” said the CEO of Dress Multiplier. [on businesses] To solve the root cause of the problem. The entire energy pricing system is broken and needs intervention. [to examine the make-up of the price]He said.

The CEO of a clothing and lifestyle retailer said, “Although [Truss] It’s driven up the price, consumers and businesses have gotten into a cautious mindset, and it doesn’t really solve that.

Matthew Sims, chief executive of Croydon Business Improvement District (BID), which is funded by and represents businesses in the south London city centre, said: “It’s a welcome intervention. But it is not enough. Time is running out, and businesses simply don’t have time to wait for reviews. Businesses need action, and they need it now.

Fashion businesses are also asking the new government to improve business rates, which require “a big change”.

In last October’s Autumn Budget, small companies in the retail, hospitality and leisure sectors were offered a 50% discount on business values ​​up to a maximum of £110,000. The scheme is open to businesses with a maximum turnover of £15,000 and covers the 2022/23 financial year.

In February, the government launched a consultation on online sales tax options to ease the burden of business rates on high street stores. A three-month government consultation on introducing an online sales tax closed on May 20. No update has been given since.

The chief executive of the menswear brand said: “I hope that Lease Trust will continue to offer discounts to retailers to offset the costs we pay to energy suppliers. I would like to see a big discount. [than the current 50%]. “

Andrew Goodacre, chief executive of the Association of British Independent Retailers, said: “The new Prime Minister must come up with a Covid-19 response by introducing 100% price relief for the rest of the tax year.

“There are so many reviews,” says Foster of Lakeland Leather. [into business rates] But shops continue to pay prices above their rents. I welcome the business rate relief that some of our small shops are eligible for, but it is undermining the issue and not addressing the real problem.

Bruce Finley, retail managing director at property owner Landsec, said: “Business prices continue to be a problem – and we welcome the move from the new government here. SMEs [small and medium-sized enterprises] It is useful in stopping the effects of stimulation on daily activities.

A government spokesman said of retailers’ concerns: “No national government can control global conditions that are driving up energy prices and other business costs, but we will continue to support businesses in the coming months.”

“We are currently offering 50% business rates relief to businesses across the UK, reducing alcohol duty on beer, cider, wine and spirits and reducing Employer National Insurance. This is on top of billions in grants and loans throughout the pandemic.

Energy costs will undoubtedly remain a concern for fashion retailers as the industry prepares for a harsh winter. However, the government’s energy price reform could boost consumer confidence and give some breathing space to retailers struggling to keep their stores running.