Insolvencies at fashion manufacturers jump on cocktail of cost pressures

Insolvencies at UK fashion manufacturers have risen by nearly a quarter in the past year as a combination of supply and demand pressures has driven firms under while customers switch to pre-loved clothing.

According to Forvis Mazars, the international tax and advisory firm, over 100 companies went bust in the year to July 2024, up from 86 companies in the previous year.

The UK has been battered by cost pressures since Russia’s invasion of Ukraine in February 2022, and the latest rise in insolvencies suggests that the problem is far from over.

Shipping costs have yet to come down as the crisis in the Red Sea continues, with the Drewry World Container Index (WCI) up 186 per cent in under a year. It has risen from $1,389.50 (£1,069.71) on October 5, 2023, to $3,970.49 on Sep 19, 2024.

Shipping disruptions have also continued to delay the arrival of textiles from Asia to Western manufacturers, with some fashion houses preferring to overstock rather than miss out on potential sales as a result of supply chain disruption.

The resulting overstocking has been exacerbated by a drop in sales as consumers continue to be affected by their own cost pressures.

While the fashion industry has previously boomed thanks to social media influencers, fast affordable fashion and the introduction of credit and financing services like buy-now-pay-later platforms, it is forecast to fall at a compound annual rate of 0.8 per cent over the five years through 2024-25 to £47.2bn, according to IBIS World.

Rebecca Dacre, Partner at Forvis Mazars, said: “In a cost-of-living crisis many consumers simply do not have the disposable income to spend on luxury clothing.

“That has now impacted from the affordable luxury end of the fashion market right through to prestige brands. Some fashion manufacturers haven’t been able to survive the slowdown in consumer spending.

Dacre added that “at the margins, the shift to pre-loved clothes, such as through Vinted, has also suppressed sales growth for clothing companies.”

Vinted is one of the companies offering a cheaper and more sustainable alternative to traditional retailers by focusing on second-hand selling.

Sales of pre-loved clothing and footwear are expected to make up 10 per cent of the global fashion market in 2025, according to GlobalData, which has predicted it will grow at an annual rate of more than 12 per cent.