Brace, Brace, Emergency Position – The Fashion Retail Industry in a Tailspin

ByDr. Michael Lukarsch,Manuel Farrokh,Dr. Christian Czernay

Time to read: 4 minutes22. May 2026Retail & Consumer Goods, Restructuring, Article

Restructuring in the Fashion Retail Sector: Why the German Fashion Industry Will Face Enormous Pressure in 2026

Every frequent flyer is familiar with this announcement:

“Brace, brace, emergency position”

No panic. No debate. No hope for better weather conditions. Instead: act immediately.

This is exactly where the German fashion retail sector — and therefore the fashion industry as a whole — stands right now. The question is no longer whether conditions will return to normal, but whether companies will be able to respond quickly enough to a market environment that has changed permanently.

The industry has been waiting for months for customer numbers to rebound, for consumer sentiment to improve, and for the next strong quarter. But the reality is quite different, and following a disappointing finish to 2025, 2026 is off to an equally dismal start for the German fashion retail sector. Through our clients and intensive dialogue with the industry, we are currently observing sales declines ranging from 5% to, in some cases, over 20%, and foot traffic declines between 15% and 35% compared to the already weak year of 2025. What is particularly critical is that these declines are not limited to isolated outliers but are evident across different formats, locations, and target groups. These are clear warning signs!

This development makes it clear: The good times are not coming back anytime soon, and it is time to act without hesitation.

And the effects have long since extended beyond the industry.

What risks are now emerging for private equity firms and banks

For private equity investors, current trends mean that many of the equity stories they had built their cases on are no longer viable. Revenue growth is stalling, margins are under pressure, exit windows are closing, covenants are being breached, and an exit bottleneck is emerging. Buy-and-build strategies are hitting operational limits when cash conversion no longer works and working capital becomes a risk. As a result, the focus of many investments is shifting from growth and multiples to liquidity, operational stabilization, and resilient value preservation.

On the banking side, reality is also shifting noticeably. Banks’ intensive care and workout departments are increasingly seeing cases from the retail and consumer goods industries where the cause is no longer just short-term liquidity bottlenecks, but structural market changes. The number of companies requiring increased support is rising, and with it the realization that many business models were built on growth assumptions that are unattainable under current market conditions. For financiers, it is therefore crucial to distinguish early on between temporary dips in earnings and structurally vulnerable business models.

The Current State of the German Fashion Retail Industry

GFK Consumer Confidence Index (Statista 2026)

The current consumer sentiment sends a clear signal. The GfK Consumer Climate Index fell to 33.3 points in May 2026 — the lowest level since February 2023. Income expectations and the propensity to spend have hit a two-year low, while the propensity to save remains at a historically high level.

GfK Consumer Climate Index: Survey in Germany on economic expectations, income expectations, and propensity to buy from April 2025 to April 2026 (Statista, 2026)

In other words:

Consumers are postponing purchases
Customers are shopping more selectively
Foot traffic remains under pressure
Price and promotional campaigns are losing their effectiveness
Inventory levels are rising due to lack of sales

The fundamental misconception

Many companies are still operating based on the mindset of the pre-crisis years. Their hopes sound familiar:

Hope is not a strategy!

“Business will pick up again.”

“Next season will be better.”

“If the weather cooperates, the market will turn around.”

The Critical Management Task

Securing liquidity, reducing inventory, and increasing speed — that is the core task. Those who fail to act decisively today will be overwhelmed by their own inventory tomorrow.

The fashion market is not only suffering from weak demand. Above all, it is suffering from structural inertia:

Excessive inventory levels
Processes and response times that are too slow
Insufficient transparency in key performance indicators
Too little operational control along the value chain
Now more than ever, there is a need for more intensive and structured dialogue between manufacturers and retailers. Collaborative planning is no longer an option — it is a matter of survival.

The New Order Logic in Retail

The era of traditional volume maximization is over. Shorter cycles, smaller volumes, rapid response—that is the new management model:

Smaller, more flexible purchase volumes
Shorter control cycles
Consistent focus on sales
Robust and honest scenario planning
Daily transparency regarding sales, inventory, gross profit, and liquidity

Restructuring does not begin in the event of insolvency. It begins the moment companies realize that the market has changed permanently. And that is exactly what we are experiencing right now.

WHICH COMPANIES WILL SUCCEED IN THE COMING YEARS

The winners won’t be the loudest brands, the largest retail chains, or the most aggressive discounters. The winners will be companies that:

have a firm grasp of their numbers
adopt a lean structure
consistently operate in a metrics-driven manner
actively manage inventory
make decisions faster than the competition
have the courage to question old models of success

Because one thing is clear: waiting it out is not an option.

Brace. Brace. Emergency Position.

The time to act is NOW!

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