Among the myriad impacts of the pandemic lockdown on human behaviour, including commercial consumption patterns, has been the fact that, whatever you do for a living and whatever your gender, chances are you’re not wearing a suit right now. That fundamental, unforeseeable fact has shaken Canada’s clothing manufacturers. Bob Kirke and Eliot Lifson of the Canadian Apparel Federation provide a case study from the front line of the pandemic recession.

Bob Kirke and Elliot Lifson

After months of difficult trading conditions, Canada’s apparel industry remains one of the sectors most impacted by the COVID-19 crisis. The industry has restarted operations, and is looking for signs of recovery and a return to some sort of “normal”. But it is equally true that substantial restructuring of the industry is looming.

When you put it in the context of the pandemic, and how it’s changed our lives, it’s not very complicated. The way we were is gone. And so is the way we wore.

Offices have been closed since March. Canadians haven’t been going to work, and they don’t need to dress up to work from home. Working on Zoom, you don’t even need a jacket, much less a suit. A golf shirt and shorts will do just fine. From kindergarten to graduate studies, nobody’s been going to school. No dressing up for the graduation ceremony or the prom. Weddings and funerals, when they haven’t been cancelled, have been limited to small groups of people sitting two metres, or six feet, apart. You don’t need a new suit for that.

You get the idea. A major industry is in big trouble, facing unprecedented and costly change. In Canada, clothing is a very big industry. The Canadian apparel sector (pre-COVID) employed more than 70,000 people and more than $31 billion in clothing is sold in Canada each year. Pretty good for an industry once written off for dead. More than anything, the clothing industry is diverse: On the one hand, the Canadian apparel sector is a global industry with domestic and offshore production, incredible product development, and strong supply chain management capabilities. On the other, we have dynamic local designers and innovators. Canadian global clothing brands are both global and local.

In previous years, government-industry sectoral groups were a prominent feature of policy-making. In particular, the Sectoral Advisory Group for International Trade (SAGIT) for clothing and footwear, played a major positioning role for the clothing industry in the talks leading to the Canada-US Free Trade Agreement in 1987. Under the FTA rules of origin, the content of finished Canadian-made clothing was considered Canadian, irrespective of where it came from.

In many respects, the government’s initial response to COVID-19 had to be broadly based: there was an urgent need at the outset to stabilize personal incomes and corporate finances. The government correctly rolled out benefits for individuals (CERB) and wage subsidies for firms (CEWS) plus a host of other programs. As we restart, it is becoming clearer that all sectors of the economy are not equally impacted, nor do they need the same policy responses.

While the apparel sector is among the most seriously impacted by the pandemic, firms with stronger balance sheets, deeper management skills, and stronger brands were able to move more of their business online or pivot to the manufacturing of personal protective equipment (PPE). Firms that retain significant domestic manufacturing have shown particular resilience through this challenging time. But the reality is that no industry can lose 30 percent of its annual sales, watch major customers fall into insolvency and not be affected. 

Canadian retail sales of clothing were down more than 50 percent in March, and nearly 90 percent in April. Sales for May and June showed signs of recovery, but only when compared to the complete collapse in March and April. The absolute decline in apparel sales has been compounded by the seasonal nature of the merchandise.

No other retail commodity has encountered similar sales declines. Prospects for the rest of the year are uneven at best, and the market will stabilize only in 2021. Canadians are prepared to avoid non-essential purchases and wherever possible minimize trips to non-essential retail stores. 

Canadian clothing manufacturers/importers finance Canadian retailers by extending credit. When fashion retailers restructure or close, their suppliers are the last to be paid. While we commend the government for measures to support Business Development Canada and Export Development Canada in lending to Canadian business during the pandemic, Canadian financial institutions have been less willing partners. Companies connected to retail have faced frequently insurmountable challenges in accessing financing—even when the federal government took on 80 percent of the risk. 

Another issue contributing to the liquidity squeeze facing the sector is squarely in the government’s court. Import duties charged on clothing represent a significant outlay for importers, one that is hard to afford in the present circumstances. In the case of Spring 2020 merchandise, many firms imported apparel six to eight months ago and were assessed duties of 18 percent at the time of import. It should be noted that imports represent 90 percent of clothing sold in Canada. 

These duty payments constrain firms trying to invest in raw materials needed for the development of new lines and prevent firms from extending credit to their retail customers.

COVID-19 is not the first challenge this industry has faced, nor will it be the last. COVID has accelerated the pace of change in fashion/retail, enabled by technology, and reinforced by consumer insecurity. This industry is changing at an incredible pace. Brands are moving to sell directly to consumers, stronger retailers are rebalancing their supply chains, diversifying their offerings, and boosting e-commerce capabilities. 

We need to confront all of these challenges and we need the government to be a partner in this. One of the reasons for this is the significant impact of government policies, current and planned, on this sector. 

While the government has many mechanisms in place for economic guidance and consultation with the private sector—the sort of restructuring likely to take place over the coming year within this sector does not fit squarely into the mechanisms the government has created. Economic Strategy Tables and the newly formed Industry Strategy Council focus on specific priorities. While the government rightly supports endeavours such as advanced manufacturing, the industry is facing sectoral challenges and this warrants a different type of action from government. It is time for the government to complement these longer-term initiatives with targeted engagement with sectors facing specific challenges, with a 12-to-24 month time horizon to help specific sectors through this crisis.

The apparel industry needs to become more agile, more sustainable, and more digital—but getting there is no small feat. It is important to align the needs of the industry with the priorities of the government. For sectors less impacted by COVID-19, this may not be needed; for ours it is. We have a skills challenge, international trade hurdles, demands from the government for new, more responsible sourcing practices, greater sustainability and challenges around digital transformation. 

As we move forward, it will be important to look ahead and be proactive. We need to bring about a meaningful recovery for the sector, while helping the industry work through a fundamental restructuring. The future of the Canadian clothing industry depends on it.  

Bob Kirke is Executive Director of the Canadian Apparel Federation.

Elliot Lifson is President of the Canadian Apparel Federation and Vice-Chairman of Peerless Clothing.