Many fashion retailers had been making headway in their digital transformations before the COVID-19 crisis. But this “black swan” event has accelerated the digital divide and sparked unprecedented change in customer behavior and expectations. Now more than ever it’s clear: wherever they were on their digital transformation journeys, it’s time to step on the gas to meet these demand shifts.
As consumer activity begins to reawaken, we must understand how COVID-19 has impacted customer expectations for flexibility, value, and speed which are likely to sustain over time. That way, brands and retailers know which digital initiatives to adopt to meet them.
Shift 1: The customer journey requires an unprecedented level of flexibility
How we got here
Store closures, social distancing, travel restrictions, and confinements have accelerated the need for flexibility for customers across all a seller’s channels and for finding workarounds for continued sales and product availability.
Going forward, social distancing will continue to heighten the importance of digital channels even as stores reopen, with the online share of fashion and apparel in Europe and North America to increase by 20-40% over the next 6 to 12 months. This will likely result in an increase in demands placed on ecommerce operations for both speed and product availability.
To meet heightened customer expectations for flexibility, brands and retailers will have to leverage every single one of their channels.
How we can address it
Unfortunately, store openings don’t mark a business-as-usual scenario. Brands and retailers are already implementing modifications to physical stores in order to comply with health and safety regulations and to make customers feel safe. For example, more than half of retailers want to reorganize store layouts to accommodate social distancing.
But that’s only one piece of the puzzle.
Leverage omnichannel capabilities
Inventory must be as close to customers as possible when they want to buy it, whether that means they want to buy it online and pick it up at their nearest location or purchase it over a social media channel. This will especially remain true as they continue to be hesitant about spending extended time in stores.
On the other hand, as health measures are complicating in-store factors such as dressing room use and increasing online purchases, retailers should expect a higher rate of returns while allowing for more flexibility to do so.
Within a unified vision of inventory, retailers and brands can leverage omnichannel capabilities to enable flexibility throughout the customer journey. This is essential in buying and returns, as product movements and demands across channels become increasingly complex. In essence, omnichannel should be the only channel.
With omnichannel capabilities in place, brands and retailers can repurpose stores as fulfillment centers. This may be an important strategy as footfall recovers and for customers who have grown accustomed to blended purchasing processes such as click & collect, curbside pickup, and BOPIS.
Retailers can also take advantage of smart fulfillment, or sending out an online order for delivery from a physical store. This helps retailers save money operating online channels and provides more inventory to those physical stores acting as fulfillment centers, especially as they may continue to lag in terms of footfall.
The store chosen to fulfill this delivery is based on certain criteria such as its distance from the customer or how unlikely that store itself is to sell that same unit in order to avoid potential channel cannibalization.
Take a proactive approach to product movements
While omnichannel strategies in buying and returns, in addition to repurposed stores, will certainly make things easier for shoppers, they certainly add a new level of complexity for retailers.
For one, predictive systems can dynamically group products for new types of clusters within a current reality in order to make data-driven decisions where there is not enough data. Avoiding oversimplifications is always important, but is especially important now that traditional size and location clusters are likely even more irrelevant. As social distancing is likely to have a proportionally large impact on the footfall of flagship locations, for example, smaller locations grow in importance.
On the other hand, factors such as lower rates of tourism, increased social distancing, and other new behaviors have had an impact on lower product rotation and uneven demand. This is especially taking a toll on department stores. One strategy that can help both department stores and the wholesalers that work with them is the increasing trend toward stronger collaboration between brands and department stores.
Wholesale brands have traditionally measured “sell-in” metrics, or how much they’ve sold to department stores, which they would generally use as their revenue figure. This traditional strategy puts pressure on department stores to sell a certain amount, while wholesalers cede control over their brand and products.
We expect to see this metric change to “sell-out”, which measures the number of products sold to the end customer, and a figure closer to reality. By doing so, they also gain greater control over inventory which data and advanced algorithms can help them optimize. Without data and advanced analytics, it would be nearly impossible for brands and retailers to determine how to replenish or rebalance products.
Shift 2: Value will reign over volume
How we got here
As we’ve seen with past health and economic crises, consumer spending and attitudes largely swing between pent-up/revenge spending in luxury and discount/value-for-money purchases in the short term, meaning mid-market brands will take longer to resume normal demand levels.
In the long-term, however, this demand shift may turn into long-term behavior due to a change in the traditional value equation as consumption becomes more purpose driven. Almost 80% of consumers are valuing their purchases more than before.
In the same vein, customers have been calling on brands to up their sustainability game long before the crisis began. But as shoppers emerge more willing to spend at normal rates again, retailers will now be held even more accountable for their sustainability actions in exchange for customer loyalty.
How we can address it
Non-essential retailers such as fashion players, especially in mid-market ranges, will need to find new ways to strengthen customer relationships and reconsider product offerings to prove their value with less volume. This will allow them to:
- Tap into more purpose-driven customer spending
- Make more sustainable and responsible use of inventory
- Increase retailers’ own agility and reduce operating costs, especially as they’ll face new costs related to health and safety measures
Brands and retailers should consider adjusting the overall volume of their offering, ensuring that the pieces that they do release are truly those in demand.
Demand forecasting using near real-time data, advanced analytics, and algorithmic approaches can help retailers create store-specific assortments that are aligned with specific customer behavior to move away from simplifications of reality and intuition.
A clear, localized view of demand can also make it possible to adhere to less rigid calendar seasons, determine their own release schedules, or a shift toward capsule collections allowing brands and retailers to introduce fewer products in a given period but on a more frequent basis.
By reducing their collections to smaller capsules or through reduced depth, they will effectively produce less, reducing leftovers while also shortening lead times and speed-to-market (see point below).
As Arnaud Bazin, SVP of Merchandising at Versace wrote, “Who needs to review 90-120 looks to understand the seasonal message of a brand?”
Shift 3: Speed to market must be faster than ever
How we got here
Stores are coming back to life, but inventory disruptions on top of €140-160 bn of unsold stock globally, will continue to haunt many retailers into future seasons.
Such vulnerability is tangible evidence that retailers didn’t have the flexibility they needed in times of supply chain disruption and abrupt demand shifts. Limited visibility and control over offshore production, long lead times, and a lack of data made it almost impossible to pivot strategically to counteract an unforeseen event like COVID-19.
How we can address it
To prevent future vulnerability and increase agility, attacking this issue from many fronts:
Take a hard look at the supply chain
Before stores began shutting globally, many were already feeling the effects of COVID-19-related disruptions due to their dependence on affected distributors and suppliers. To decrease such supply chain exposure, brands and retailers will need to:
Reconsider supplier & distributor relationships
While retailers have benefited from the lower costs associated with offshoring and farshoring, bringing operations closer to home, while perhaps more costly, will provide more flexibility. In the short to medium term, we will see a reversal in the trend toward globalized supply chains as shoppers and retailers alike will prioritize the recovery of local economies.
Furthermore, instead of choosing suppliers solely on the basis of financial and/or quality considerations, brands and retailers should also consider their performance in moments of disruption within supplier performance metrics. Later, commercial agreements should include some degree of flexibility around the number of units they buy and timings – even though this will impact retailer margins.
No matter who they choose to work with, retailers and brands will need to build immediate response capabilities with suppliers to ensure alignment on contingency plans, an agile approach in handling logistics, inventory fulfillment, and data visibility and transparency.
Automation and digital technologies
The health emergency put a stop to travel, a fundamental element in fashion production. Bans and restrictions have shone a light on the need for remote capabilities on both retailer and supplier ends.
The adoption of advanced digital technologies such as automation and real-time visibility will reduce the need for physical travel in order to carry out activities like sampling, quality control, and inspections. For example, Tommy Hilfiger is planning to switch all design processes to 3D design by 2021. Everything from sketching through sampling and showrooming will be done digitally.
Drastically shorten lead times
Long lead times have exacerbated the woes of many brands and retailers, already grappling with supply chain issues like those mentioned above. The longer the lead time, the more likely products will be exposed to supply chain breakdowns and disruptions in consumption.
While increasing proximity through near-shoring and national production will certainly help speed up product development, retailers can also quicken lead times by investing in data. By applying data and analytics to their demand planning and merchandising processes, brands and retailers gain agility and a clear prioritization of focus areas and resources. For example, 3D technology, virtual sampling, and AI-supported planning will empower them to speed up lead times by capturing consumer trends and demand shifts more quickly.
On the other hand, data-driven product movements (i.e. from warehouse to store, from store to store, from store to warehouse, etc.) and dynamic reservations, based on actual demand as opposed to manual and guesswork, ensure that products are located where they are most likely to be sold. This means getting them to the customers that want them, faster.
What these demand shifts have in common: A data-forward imperative
As retailers and brands begin to open their doors to customers again, they will find that the necessary adjustments to a post-COVID-19 customer go beyond ensuring social distancing measures and providing health materials.
Consumer attitudes, and expectations will create major demand shifts in terms of flexibility, value, and speed, that will endure into the future. By taking a data-forward approach, retailers and brands will gain the flexibility they need to adapt.
Whether it is a matter of dynamically clustering for ultimate availability, creating store-specific collections to provide value over volume, or increasing supply chain flexibility to increase speed to market, retailers must put their ear to the data more than ever.
By gaining agility through data, brands and retailers can reduce vulnerabilities and continue to offer their best customer experience, whether it’s business as usual or during moments of extreme demand shifts.
Want to learn more about how Nextail is helping fashion retailers and brands apply data and analytics to capture shifts in demand? Strike up a conversation here.
