Merchandising Through A Crisis: Key Lessons from Asos’s ex-Head of Merchandising, Sarah Johnson
The coronavirus pandemic has forced the fashion industry to rethink their strategies, especially for merchandisers and buyers. Historical data is no longer indicative of future performance. Seasonal deliveries are now in question. Bestsellers are not performing. Consumer demand has shifted in unprecedented ways.
This unprecedented event has shaken up the industry, leaving merchandisers and buyers to wonder: how can we re-strategise to survive the crisis?
Fashion in Crisis: 6 Merchandising Best Practices
Sarah Johnson, ex-Head of Merchandising and Head of Retail for China at Asos who now runs Flourish Retail, a merchandising consultancy for SMEs, answered that question here. She also broke down the key merchandising lessons at Asos China, how the global retailer grew through the 2008/09 financial recession, as well as the common mistakes in merchandising during this crisis.
*The questions below are derived from the webinar Merchandising Best Practices for Crisis Mitigation. To watch the full webinar, go here.
Past Leadership Lessons: Lessons from 2008/09
How did Asos grow in the 2008/09 financial crisis?
Johnson: We came in a point [in 2008] where everyone else was kind of crashing, but Asos took off. At that time, it had the benefit of the target market, as Asos were going after a market of twenty-somethings. This group of people would have been less impacted by the financial crash at that point, so from a disposable income point of view, they had that covered.
If you offer the customer what they want and in the way that they want it, that’s where their disposable income will go.
Adding to that, the platform Asos was offering, the customer offer that they had, and the way of shopping – they were able to tap into that. So that’s a strong key lesson. If you offer the customer what they want and in the way that they want it, that’s where their disposable income will go. So Asos wasn’t impacted by the financial crisis, because it offered the right thing at the right time.
Past Leadership Lessons: Asos China
What are the key merchandising strategies used to overcome Asos’s China Performance and Management?
Johnson: The initial buy for Asos China was very flat, therefore it didn’t reflect what was needed in the market. Unfortunately, the website also launched later than planned, so sales performance and stock were then impacted. It wasn’t cost-effective to return that stock to the UK, therefore, we needed to work on strategies to manage that through the business in China.
So what we did as a buying and merchandising team, we reworked the range, identified what we could carry over, looked at what gaps we had to fill and revised the sales strategy. We looked at what customers wanted, used discounts strategically, and managed to reduce our terminal from 52% of the stock to 19% in one year. The full-price sales mix went from 25% to 56%, so you could see the improvement that we made.
When you launched ASOS China, what is the structure you’ve put into place? Is this from a data standpoint or hierarchical?
Johnson: We got more of a handle on what our customer wanted and we used a lot of data. So for example, size ratios for womenswear were completely out of kilter with market demands. Initially, we assumed it would have been skewed one way, but actually, it was more in line with what Asos.com were doing – so we had to re-adjust it.
It was a gradual re-adjustment on things like size ratios, because you can’t suddenly just switch over. But we reworked the ranges, so for example, dresses didn’t work as well in the market but separates did, so we played more into that. It’s about moving into the areas that work for you.
During the crisis, it becomes much more about data.
We also relooked at things like Chinese New Year, a major part of the calendar in China. What did customer shopping habits look like coming up to that and past that? How do we work our way into it? It’s about looking at the ranges as a whole. First, the hierarchy and the product within that, then looking at the pricing and then understanding how to trade those products through discounting and sale strategies.
If you have to choose, what was the one key decision/strategy that made it for Asos China when you first implemented the change?
Johnson: It was moving our sales strategy, because that was the biggest thing we changed. We all knew that it was the right thing to do, as we could see the market, that the customers were moving in that direction and that’s what we wanted to try. Our mindset was we could drive more full price with this strategy, and therefore more profit would follow through that particular season. In the end, it did work.
A lot of Western brands in the market would have followed their usual trajectory or what happens in the UK or Europe, then implement the same thing in China. We completely went against the grain, but it worked out for us.
Do you think Asos will face the same crisis as it did in 2008-9? And why so?
Johnson: The crisis for Asos may be different as it comes out of this, because younger people may be more impacted on the back of this crisis. It is a key concern for retailers like Asos, and for anyone that is focused on the younger market, as with the rise of furloughed roles and unemployment rates, there will be less disposable income. Reviewing their sales forecasts and plans is a crucial task here.
Managing the Coronavirus Crisis
What lessons in the past can businesses apply in the current coronavirus pandemic, and how businesses can strategise to equip themselves in the future?
Johnson: A lot of businesses would have been through the previous financial crisis in 2008 or had their own downturns at various points – even businesses like Asos have encountered ups and downs throughout their history as well.
People are going to have less to spend, you want them to spend it with you.
One of the biggest shifts historically is when the industry moved online and there was less reliance on the high street. Brands and retailers had to fulfil what the customer wanted and understand how they wanted to shop moving forward. From there, it had an impact on the supply chain because it wasn’t necessarily all about mass production and filling physical space.
For the customers, what they can see is just the one product on the website, they don’t know how many units are behind, and this really started a mindset shift in the volume of the product. Sustainability is also becoming such a key focus. It will be interesting to see if there’s a more permanent mindset shift following this period, as consumers are now managing without certain products, so we will see how brands and retailers re-focus their spending.
This is where data comes in and you need to stay ahead of the competition because there is going to be a limited disposable income.
The switch from volume into smaller quantities is more sustainable, and it’s not so much about fast fashion, which means that prices will go up with the supply chain because they can’t do those production lines in such great volumes. So, it’s not all going to be on the intake margin, it’s going to be about exit margins too. Again, that’s where merchandising is really key, because you need to be strategic and use those merchandising skills to be able to manage the gap between the intake margin and the exit margin when you’re working on that basis.
This is where data comes in and you need to stay ahead of the competition because there is going to be a limited disposable income. People are going to have less to spend, you want them to spend it with you, and you also need to understand what the rest of the market is doing.
How does merchandising change during a crisis?
Johnson: During the crisis, it becomes much more about data.
Looking towards data, tools like Omnilytics can provide you with, will help you make the best decisions to not only maintain cash flow but also to secure profit in the long-term.
When trading is buoyant and everyone’s happy and poorer areas tend to fall under-the-radar. They don’t need to have as much attention placed on them, because the business as a whole is working well and can mask it.
So this is where merchandisers are really worth their weight in gold. Data here is crucial at this point too, tools like Omnilytics get data quicker and more accurately, which means merchandisers can make important decisions faster.
The immediate measures that need to be put in place are re-forecasting to get your base. 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. But what’s also important is working with the supply chain because they are a key part of your business as well.
Work on how to replan on top of your realistic base. Once you go through all of those, work on how to trade effectively. This is where merchandisers are really key, and again, the more data they have, the more effective at trading they will be.
What should retail do in a crisis? What should brands and retailers do to survive or exist?
Johnson: Again, it’s understanding where you are currently getting that base and then seeing where you need to be. 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.
There can be a tendency to knee-jerk and instantly just stop shipping stock, but what needs to happen is that you become more creative with how you think about it.
For some brands or retailers, they may need to do heavy discounting because they need to put as much cash flow into the business as possible. It really depends on where you are in terms of your business and what you can afford to hold on to. If you can afford to hold on to a product for longer to sell it at full price or at a lower discount, then that will protect your profit more, but it’s going to depend at what point you’re in at this present moment.
What are the common merchandising mistakes during a crisis?
Johnson: There can be a tendency to knee-jerk and instantly just stop shipping stock, but what needs to happen is that you become more creative with how you think about it.
The other key mistake is that we can be overly-optimistic when we replan and now isn’t the time to be optimistic.
Based on my Asos China experience, we didn’t have the option of cancelling stocks, we had to just manage it, so it’s important that you consider the long-term impact on both your business and your supply chain.
The other key mistake is that we can be overly-optimistic when we replan and now isn’t the time to be optimistic. It’s important to be realistic because otherwise, all that will happen is you’ll need to do another replan further down the line. Retail sales and margins are such an important part of the profit and loss, if you don’t get that right, it can have an impact on the wider business as you go forward – so it’s key to be realistic at this point.
Key Lessons for SMEs
How do you think such giants as Asos will survive the Coronavirus crisis and what it would be like for a small business?
Johnson: Asos has very robust planning, but I don’t think it’s easy for anyone. They’re going to employ the process that we just talked about [reforecasting] to try to mitigate the risk in the business. For smaller brands, I feel quite confident that you can get through this. Because smaller brands can pivot much easier than large brands, so if you can, think creatively about how you sell, about how you amend your ranges, and how you move things on and adapt what the customer needs.
For someone who is planning to start a new online fashion business after a global crisis, what are the important points to pay attention to and what should be prepared before or after launching the business?
Johnson: Understand your target customer. Tap into what they are looking for and how your brand will be able to fulfil that. Within that, set out your pricing strategy and architecture. Understand your cost price and what you need to retail at to make a profit and see where this positions you in the market, do you look expensive versus your competitors, or too cheap? It is important to be realistic about where your brand sits in terms of quality and design and how that translates into the price.
Create a range plan, so that you can see what you are buying in terms of product categories. You need to ensure that you have a balanced range; across products, colour and price; what your costs will be in terms of outlay and also ensure that it has the potential to be a viable business by reviewing your potential cash profit.
Once you launch, be prepared to trade and react, things which you thought would work might not and other areas might surprise you! Be prepared to change direction where you need to, adapt, evolve and stay one step ahead of the competition.
All of these things are covered in more detail on the Flourish Retail website in free resources, there are also templates which will help with all of these aspects too.
What’s the difference between merchandising in SMEs and in Asos?
Johnson: I come from very structured retailer organisations on the UK high street and they have a lot of data and reporting and best practices – those had been there for many years. Interestingly, if you look at Asos in 2008, when they really started to take off, they didn’t have those strategies in place.
I had to pivot my skills to be able to apply them to Asos because it was a new business and no one had ever worked that way previously. So, although it now has a great deal of structure and has built up all those best practices, at the very beginning, it didn’t. That’s what we (as merchandisers) went to put into place and again, when we went into the China market because it was a startup as its own separate entity, we had to go back and put all those processes in place for that business as well.
This means I am used to going into businesses that have very little structure, data or reporting and putting those in place and you can quickly see a tangible benefit when you do that. When I left Asos and started my own creative business, I saw a lot of very small brands that were making amazing products, but their pricing just wasn’t reflective of their time or anything else, and I helped to spot those gaps and helped people to learn how to price.
Helping to plan and analyse sales can be seen as ‘basic’ for a large business like Asos, but it actually has a dramatic impact on SMEs. These SMEs have phenomenal growth, but quite often they rely on gut-feel and their own creativity. I add a supportive structure that allows them to continue to grow.
What are some of the basic structures for a good merchandising team?
Johnson: In the UK, you typically have merchandisers, an assistant merchandiser and an admin assistant. The best way is to work together with the buying team. Merchandisers and buyers have to work closely together because if not, the results won’t translate properly. The product is always the key thing and merchandising needs to guide that in the best way possible.
What do you think is the optimal timeline for a merchandiser/buyers to plan products for a season?
Johnson: The optimal timeline is when you have seen the sales come through from the comparable season. For example, if you are planning SS21, then ideally you would want to see the whole SS20 performance and use this as a basis for the following year. This allows you to carry out lessons learnt, to see what worked and what didn’t and identify opportunities you have for the following year.
It also gives you the fullest set of data, understanding full price performance, sell-thru and the profit you made on any given line or product category. This, in turn, can help you decide which areas you want to grow or contract in the subsequent season. Obviously, at the moment, history is not going to be overly reliable as we’re in unprecedented times, but that doesn’t mean you should ignore it entirely, it can still offer some guidance and provide a base for you to layer back on opportunities for the following season.
Do you think the pre-order strategy can be a good strategy?
Johnson: There are two sides to pre-order. From a business perspective, it’s a great way to understand demand and produce what is needed, so theoretically, you can minimise the risk of having too much stock, as you only buy what you will be able to sell.
This, in turn, will mean your exit margin (what you sell it for) should be higher, as you are less likely to discount. But the customer mindset is that they want products quickly – often, yesterday would be preferable! Some may wait for the product, but others may be put off or may go to a competitor for the same or similar product. This could then mean that you won’t reach your full sales potential which could hamper your growth.
Be realistic but also be creative with what your ranges can look like, think outside of the box on how you can work with the stock and commitment that you have.
So while I wouldn’t recommend it as a long term strategy, unless mindsets shift, it can be useful if you have an initial reaction to a product, want to place a repeat, but will need to wait for the delivery.
Balance the use of pre-orders carefully with your customers and what they will be expecting.
Johnson: Try not to knee-jerk. Re-forecast to see what now looks like to get that base so that you understand where you are and what your trajectory looks like at the moment. Be realistic but also be creative with what your ranges can look like, think outside of the box on how you can work with the stock and commitment that you have.
Most importantly, 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.
Be ready to trade. Looking towards data, tools like Omnilytics can provide you with, will help you make the best decisions to not only maintain cash flow but also to secure profit in the long-term.
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