Fashion retailers in both luxury and fast fashion markets are in unchartered waters. It’s no surprise offline sales have plummeted due to closed stores, optimising e-commerce platforms amid stiff competition and weak consumer demand as pessimism persists. Going digital has never been more important as consumers become accustomed to the new norm of social distancing. Legacy retail brands that rely on bricks-and-mortar sales have cracked under pressure, which affirms that change to their business model is essential. Native digital brands were just as much under pressure to ramp-up online operations, whether it’s enhancing online customer experience and/or re-assortment.
Going digital doesn’t just revolve around e-commerce as much as it’s also about refining data insights to navigate consumer behaviour in light of a prolonged and devastating pandemic. Consumer demand is now highly unpredictable which effectively questions the relevance of historical data.
Consumer demand is now highly unpredictable which effectively questions the relevance of historical data
Simon Collins, former Dean of Parsons School of Design reckons there’s an overreliance on calculations in the merchandising and buying processes, where brands and retailers have grown accustomed to buy based on what has worked in the past, without honing in on target markets selectively.
Take fast-fashion retailer Zara, for instance. Inditex, the Spanish owner of the high street retailer wrote off $300 million inventory as a result of store closures and an overflow of out-of-date seasonal stock and very high collection turnovers that couldn’t be sold. Typically, retailers resolve the problem with discounts which really isn’t a long-term solution especially when you’re overly reliant on the bricks-and-mortar model.
The issue with seasonality…
Traditionally, fashion adheres to a four-season calendar even though it is problematic for brands’ and retailers’ supply-chain to stick to schedule. The pandemic amplifies why seasonality is proving to be pointless as it’s the reason behind massive discounts across the industry. It trains consumers to look out for discounts since stock will be placed on markdown by the end of each season.
Seasonality also sparks overconsumption and waste, contributing to fashion’s ongoing sustainability issue. With the focus squarely on essential items, the fast fashion trends are losing appeal. Instead, a drive towards seasonless products that can be worn throughout the year could shift consumer behaviour.
Saint Laurent’s recent announcement to not adhere to the fashion calendar will likely inspire more to follow. The new norm going forward might just be keeping assortments tight by prioritising essential pieces and shaving off trend-led items.
Supply-chain in fashion is facing different problems. For factories that are currently operational, the manual processes and fulfillment centers continue to pose high risks to employees’ safety.
At the other extreme, some factories are reporting orders worth billions of dollars either postponed or cancelled, effectively disrupting the livelihoods of factory workers in countries like Bangladesh, Vietnam, and Turkey. This creates a knock-on effect of brands and retailers scrambling to cut costs, without keeping long-term business relationships in mind.
Bigger brands with long production lead times pose some of the highest risks to the value chain as there’s a strong chance of losing relevance by the time stock hits the market. In other words, when a certain style misses the mark in meeting consumer demand, the remaining bulk orders are cancelled or existing stock enters a deep markdown.
The coronavirus pandemic continues to expose the vulnerabilities of the fashion industry forcing brands and retailers to reinvent methods that are clearly out of date.
State of the fashion market
Chinese consumers represent 33% of luxury spending, globally. This is mainly driven by millennials from a growing upper-middle class experiencing a rise in spending power. Pauline Brown, former chairman of North America at LVMH seconds this as the Chinese have been the single biggest driver in luxury and fashion in the last 10 years. That said, weak consumer demand for luxury is amplified in a survey by Italian luxury brand Altagamma, consulting firm BCG and asset management firm Bernstein, that luxury brands will lose up to €10 billion in profits.
Case in point, fashion powerhouses like Capri Holdings, parent-company owner of Michael Kors, and Versace including Tapestry Inc. owner of Coach and Kate Spade are a testament to this. Others like Prada and Ferragamo have massively scaled back in order to mitigate risks.
Chinese consumers represent 33% of luxury spending, globally
The luxury fashion market is going to have to rethink its strategies. All the high-touch, deeply personalised service among luxury retail brands has now become obsolete. In a pandemic, priorities change and it’s never been more important for the luxury market to rethink their operations.
So how can luxury brands stay relevant in a shrinking global economy?
Make no mistake, there’s a market-share up for grabs considering live streaming is a booming industry in China, reaching 456 million viewers and generating $4.4 billion in sales in 2018, according to Deloitte. Live streaming is a crucial part of Secoo’s (luxury e-commerce company) offering to premium brands. “We go to brand stores and multi-brand stores and use live streaming to help sell their inventory as a first step in the collaboration,” says Li Rixue, CEO at Secco.
Live streaming is a booming industry in China, reaching 456 million viewers and generating $4.4 billion in sales in 2018
Short-form video app Douyin is another popular choice for fashion brands and retailers when it comes to live streaming. Tommy Hilfiger broadcasted its new eco-friendly collection on the app and enabled viewers to purchase products online directly.
With 1.1 billion people opening the app in China every day, WeChat is the social media platform of choice for fashion brands and retailers to maintain one-to-one customer relationships during the epidemic.
It is interesting to see Shanghai’s IAPM Mall turn to WeChat to make up for the losses caused by Covid-19. On 21 February, IAPM’s service account announced that nearly 70 fashion brands, including Versace, Tod’s, Saint Laurent, Chloé and Stella McCartney, have established their own personal accounts. Consumers can add each brand’s WeChat to browse their latest offerings through their feeds and instantly chat with sales associates to place orders.
Brands must find new ways to connect with audiences. Not only should they pay attention to customer shifts in how they shop, but also how they consume content. The majority of the population will be online, but so will the rest of the competition – along with other industries. A tricky balance for marketers will be a cross between relationship-building and selling.
Brands beyond stores
Retailers, depending on their level of digitisation have a set of challenges to solve. For traditional brick-and-mortar stores, it’s going online; for omnichannel retailers, it’s staying competitive online. E-commerce brands, on the other hand, will face an influx of competitors as the landscape moves online to sell.
What retail and e-commerce would have looked like by 2030 has been fast-tracked in 2020 as we’re seeing more nimble and innovative players disrupt the fashion retail space. This was echoed in an interview with Shopify COO Harley Finkelstein, who had an interesting observation suggesting that e-commerce as a percent of global retailers sales activity took 8 years to go from 5% to 15% versus the pandemic super-charging this figure to over 24% over the last few months since the global health outbreak.
It’s pretty clear the world is experiencing a crash course in e-commerce. This leaves fashion companies with no choice but to adapt to the digital revolution, as old processes are rendered obsolete. Going digital is more urgent than ever as consumers also become accustomed to the new norms of social distancing.
It’s pretty clear the world is experiencing a crash course in e-commerce
The coronavirus pandemic is exposing huge weaknesses for some mid-tier retailers and could hasten their demise. The persistence of the current climate will impact businesses of all sizes, but older retailers especially those saddled with mounting debt will likely be the earliest retail casualties of this pandemic. In-store foot traffic is increasingly slim and old-fashioned brands are being forced to figure out a way forward.
Brands like J.Crew present a helpful example. They’re part of a group of mid-tier retailers that haven’t updated their product lines to fit with current trends, nor have they built out robust digital programs to stay competitive with other successful online players. Most importantly, they don’t have great balance sheets either.
The way forward?
The most obvious proof that the current model employed by fashion brands is the unsustainability of an age-old cycle of overstock and prolonged discounts. There’s millions worth of unsold stock sitting in containers, costing more to store than to dispose of.
Let that sink in for a moment.
Prior to social media, fashion has been characterised as a supply-led industry where retailers deliver products they wanted in stores typically based around seasonality. As consumers, we then buy up what was available at shops and pre-conditioned to purchase certain pieces of clothing based on seasonal trends.
There’s millions worth of unsold stock sitting in containers, costing more to store than to dispose of
However, now that social media and e-commerce is rapidly becoming a key source of revenue and engagement for many retailers, shoppers have access to information and choices on demand, intensifying competition among brands for consumers’ money. Streams of images continuously feed social feeds driving consumers’ desire for new stock, which they expect brands to deliver quickly.
Demand, not supply makes a stronger case in today’s consumer-led fashion sector.
To stay competitive, brands need to meet consumers’ appetite for newness by driving social media engagement and announcing new and anticipated gear much like street-wear brands do pretty successfully, where styles are comparatively versatile all year round.
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