Digital Revolution: Key Lessons from the Crisis and How Fashion Can Navigate the Next Normal
The fashion industry is no longer what it once was.
Covid-19 has reshaped the entire retail landscape, as consumer priorities quickly shifted. It has transformed every step of the value chain, from where the products are sold to how they are marketed and delivered to customers.
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 become accustomed to the new normal of social distancing. Legacy retailers have cracked under the pressure – further affirming that change is not only inevitable, but essential.
While some companies have a tougher time surviving the crisis, others are pivoting, embracing digitally-driven ways to capitalise on hidden opportunities. The latter group will be in a stronger position to take on the market when it recovers.
We dive deeper into how Covid-19 disrupted the fashion industry’s system – and detail key action points for the now, to ensure business continuity, as well as for the future, to be in a stronger position to win the market.
Fashion Had A Vulnerable System
In early February, business was as usual in the industry. Legacy retailers continued to rely on brick-and-mortar sales. Brands and retailers were gearing up for SS2020, and at the same time, buyers were making trips across the globe to prepare for AW2020. Factory staff worked tirelessly to produce the orders that came in.
No one in the industry foresaw the threat that loomed – a pandemic that would upend how fashion operates.
Slow to Adopt Digital
The first issue was the industry’s priorities – moving online wasn’t the focus. Even before the Covid-19 outbreak, the digital revolution has been spearheaded by ever-changing consumer trends. But traditional mindsets and age-old retail practices have limited the acceleration of this shift.
But now, it’s do or die.
With shuttered stores, companies had to focus online to survive. Native digital-first brands, too, have had to scale online operations considerably, whether it’s improving the online customer experience or re-assortment.
This also impacted the fashion workforce. Virtual showrooms quickly became popular as fashion buyers could no longer travel to showrooms.
Going digital extends beyond the move to e-commerce. More importantly, it is about having access to data insights to navigate in times of great uncertainty. Consumer demands have shifted in unexpected ways, leading to the redundancy of historical data.
Simon Collins, former Dean of Parsons School of Design, said in our latest webinar, that there has been “an overreliance on calculations” in the merchandising and buying processes, where brands and retailers have grown accustomed to buying based on what has worked in the past, without considering target markets.
Without an eye on external markets, fashion companies are at greater risk of overstock, resorting in deep discounts.
Reliance on Seasonality
Fashion has strictly adhered to a four-season calendar, at minimum – even though it is problematic for brands and retailers to stick to the schedule.
But now, there will be a great reset. Gary Wassner, CEO of Hilldun Corporations and Project Runway: Fashion Start-up panellist, who joined Collins in the webinar, believed that “seasonality is a meaningless word at this point”, and is the reason behind rampant discounting 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 fuels overconsumption and waste, which contributes to fashion’s ongoing sustainability issue.
Currently, with the focus on essential items, the latest trends are losing appeal. Instead, consumers prefer seasonless products that can be worn throughout the year.
The supply chain in fashion is facing different problems.
For factories that are operating, the manual processes and fulfilment 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 and Vietnam. This created the knock on effect of brands and retailers scrambling to cut costs, without keeping long-term business relations in mind.
Bigger brands with production lead times of between 12 and 18 months pose some of the highest risks to the value chain. When a certain style misses the mark in meeting consumer demand, the remaining bulk orders are cancelled or existing stock enters deep markdown.
Covid-19 has exposed the vulnerability of the fashion system – and has forced brands and retailers to reinvent old processes.
“There were changes that needed to occur in the industry for many, many years and this [crisis] is now the catalyst. We can’t avoid these changes,” says Wassner.
Act Now: Immediate Measures
In an unprecedented situation like this, fashion companies are operating in a fight-or-flight mode, such as cancelling future orders to mitigate losses. Knee-jerk reactions often have short-term gains, but long-term consequences.
Brands and retailers must implement a clear set of strategies to not only ensure business continuity, but also to promote sustainability of the supply chain.
Optimising Current Inventory
Sarah Johnson, ex-Head of Merchandising and Head of Retail for China at Asos who now runs Flourish Retail, recommends first generating a base forecast to determine next steps. Consider opening stock position and realistically re-plan sales, markdown and Open-To-Buy for the immediate season, before layering on strategic planning.
“It’s important to understand where you are at the moment, analysing what is happening with your sales and stock, and then looking at stock management strategies and initiatives.”
Allocate sufficient stock for priority SKUs, especially for categories like loungewear, and simplify ranges – customers will be driven by personalisation and empathy, not the latest trends. Look into the product categories and price points that are working across your competitors and potentialise on areas of opportunities.
For seasonal items, push to a later date or reroute them to different channels. Colour trends, for example, vary by market. Tropical regions do not adhere to seasonality, so it’s important to understand demands by market and look into redirecting inventory accordingly.
“Once you can see the gap in the cash flow and what you need to be putting into the business, that’s when you need to switch up the initiatives.”
Key takeaway: With consumer demand moving towards a seasonless approach, strengthen core offerings and redirect seasonal trends to other markets. Reforecast realistically. Re-assort current inventory and future orders, as well as review distribution to move stock quickly.
Further reading: How to Re-Invent Existing Seasonal Stock
Smart Promotions and Tactical Discounting
For the past few months, brands and retailers have resorted to deep discounts in a bid to drive more traffic and conversions. But aggressive markdowns over an extended period of time will only harm brand image – and if lockdowns continue, brands and retailers must find new, creative ways to clear excess inventory and improve the balance sheet.
Giulio Xiloyannis, CCO of Zalora suggests developing a discounting strategy that factors in product margin, and to find a balance between permanent markdowns and short-term promotions.
“The data has shown that doing gradual discounting actually increases sell-through rates and reduces average markdown during a season, compared to doing flat discounts in a mid-season sale or an end-of-season sale,” said Xiloyannis.
Johnson agrees too. She suggests alternating between deep and shallow discounts, as this protects profits with the lower margin products on minimal discounts, while products that have more flexible margins absorb more. Another method recommended by Johnson is to create bundles. By offering extra discounts on top of full price purchases, volume is still driven without losing a large portion of the margin.
Xiloyannis also advises brands and retailers to markdown based on SKU performance, and not categories.
Key Takeaway: While deep discounting is more attractive to customers, it hurts the bottom line in the long run. Opt for gradual discounts that are driven by SKU performance.
Strengthen Relationships with Manufacturers & Suppliers
“At such a critical stage in history, companies that want to survive cannot do so alone,” says Michael Deng, CEO of DNJ Fashion, a growing manufacturing company with notable clients like Asos, Showpo and Revolve.
Brands and retailers across the globe are cancelling orders as consumer demand takes a nosedive. But severing all ties is a short-term solution. After Covid-19, it will be an entirely new retail landscape. Consumer behaviour would have shifted, relationships won’t be the same anymore, and the terms will be very different moving forward.
There are a few ways manufacturers and brands and retailers can work together, says Deng, such as being flexible with payment terms and structuring a new way of working (absorbing cancelled orders once the market recovers). Above all, constant communication and transparency is crucial.
Key Takeaway: “Don’t leave your supply chain behind. When demand returns, you’re going to need that relationship and you’re going to need their business to be intact, so you have to work together on this. Otherwise, it will be a short-term gain and long-term pain.” – Sarah Johnson
Further Reading: Manufacturers and Retailers Must Collaborate to Survive Covid-19
Plan Now: Strategic Moves for the Next Normal
The next normal will see a new wave of permanent changes – and brands and retailers must plan now to prepare for when the market shifts.
Demand Chain: Reinvention of the Supply Chain
Fashion brands and retailers must transform their supply chains into demand chains and acknowledge that market shifts are now controlled by the consumer.
“There’s a paradigm shift in the retail landscape – and the connection is more important than ever. Get right into the skin of your customer – really know who they are. How do you make an offer more special, more comforting, more appealing? How do you make everything connect?” challenged David Binns, former Head of Buying at Marks and Spencers.
To increase agility for a supply chain, start with range planning, with the following criteria:
- Reduce SKUs
Customers aren’t looking for quantity – they’re looking for quality. Creating smaller quantities not only means an increase in agility, but it also means higher accuracy and fewer markdowns.
- Compact seasonality
Saint Laurent’s recent announcement to not adhere to the fashion calendar will likely inspire more to follow. Keep assortments tight by prioritising essential pieces and shaving off trend-led items.
- Design what customers want
From luxury heavyweights to fast fashion, timeless and relaxed-silhouette pieces that can be worn any time in the year are seeing higher sell-outs. Opt for highly personalised and curated collections that resonate with customers and pay close attention to market demands.
- Shorter buying & development cycles
Having long lead times means the products have a higher chance of losing relevance by the time they hit the market. Cut fat from the supply chain and focus on getting the launch timing right.
Digitising the Value Chain
With a global shift towards e-commerce, the rest of the value chain must evolve too. The pressure to continuously innovate and create a competitive edge in an increasingly heated and fast-paced business environment is more urgent than ever.
The urgent need for speed and agility to respond precisely to market movements is evident. From product development to creating a seamless customer experience, fashion companies must channel investments into digitisation.
Internal sales data is no longer reliable, and merchandisers must look towards real-time insights to quickly gain visibility in market positioning.
“The concept of visiting trade shows and doing buying trips should be the last thing on a buyer’s mind right now,” says Xiloyannis.
With virtual showrooms taking precedence, the entire buying process will need to go digital – especially since the old ways are slow and highly-manual.
Customer-facing tools are just as important as back-end processes. At this stage of the crisis, customers easily switch between competitors, so brands and retailers must plan ahead to meet demands.
Act Now, Plan Now
Even when the market moves into the stabilisation phase, and eventually, recovery, brands and retailers must acknowledge that the old ways no longer work anymore.
These shifts towards digital that promote speed and agility are here to stay – and the industry must keep up with the times by acting and planning now.
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