As the COVID-19 pandemic unfolds across more than 140 countries, its longer-term impact on the retail industry becomes more apparent.

The immediate spotlight was on grocery retail as supermarkets worked hard, collaborating with governments, to ensure food supply was secured. Outside of grocery, many ‘non-essential’ retail stores have been closed for up to three months and even though state support has been delivered, store closures and the fall in consumer demand have had a devastating impact on the apparel industry. This article explores the immediate impact on the fashion retail industry and outlines how fashion retailers, from value to luxury, are preparing for life after lockdown across geographies.

Tracing back for many now struggling retailers, the challenge in fact started pre-COVID-19. Research has shown that at least 50% of the UK’s major retailers will deplete their entire working capital within six months. Now, following the 3 months of lock down that retailers have faced across many countries, the toll on their businesses is clear. Whilst Ecommerce sales have continued, consumer demand for apparel has seen a dramatic decline and a number of well-loved brands across the globe have fallen into administration.

Circles represent number of deaths in every country:

Coming out of lockdown

There are green shoots emerging.  While recovery may still take time, countries are lifting their restrictions and businesses are gearing up for the ‘new normal’.

Through this recovery, we can take lessons from looking at how countries recovered from other pandemics (SARS, MERS) and the 2008 financial crisis. Though not as widespread as COVID-19, the recovery post-SARS and MERS was quick in China and Korea and within 4 months the retail market had largely recovered.

The rapid recovery was due to pent-up demand and a strong economy. Based on growth patterns right after SARS and MERS, the indicators are that countries with stronger economies may see a surge in retail spending after lockdown restrictions have been eased.

-25%

The 2008 financial crisis and recession that followed had consequences around the world. Luxury retail sales in general dropped 25% and left high-end department stores struggling.

However, heritage luxury brands like LVMH, Kering and Richemont fared better than most with the latter even having shown an increase in sales of 2.4%. Some experts argue that the luxury industry is now better prepared for the next recession having become less dependent on wholesale, put in place better stock control, and increased their own ecommerce trading.

Examples of the luxury retail market’s buoyancy are also clear today as countries emerge post-lockdown; earlier in April, Hermès brought in $2.7 million on the first day that its flagship store reopened in Guangzhou, China and elsewhere luxury brands that have adapted quickly, using platforms such as WeChat, have stayed connected with their customer and bolstered their sales lines.

In the UK, Boris Johnson has just announced that non-essential stores will be able to reopen from the 15th June. In Germany, stores have been partially opened for two weeks with the obligation for staff and customers to wear masks, and in Sweden life continues as usual where there were no store closures in the first place. In France, where stores reopened three weeks ago, retailers quickly had to adjust to new policies and store regulations. As stores begin to open their doors across other countries, retailers will need to carefully plan re-openings and manage their store operations in keeping with the differing government guidelines and policies and to ensure that they create a safe environment for their customers to return to.

38%

Elsewhere, across their operations, retailers are thinking longer term about how to serve their growing online customer mix more sustainably. The lockdown has driven a substantial increase in online transactions with 38 percent of consumers buying more online through March and April than ever before.

As apparel retailers approach the recovery phase, operational changes to address new consumer needs and the shift in shopping behaviour will be critical to survival, as will retailers’ ability to manage their costs whilst they rebuild their sales line and sure up cash flow.

A concerted effort across both short term ‘Task Force’ focused activities to get back ‘up and running’, and the longer-term strategic planning for the business will be required.  Recovery focus should be across 3 key areas:

Be there for your customers – how and when they want

In the short term, as countries emerge from lockdown, it is essential for retailers to create safe store environments for their customers to return to. Whilst store footfall is expected to be lower initially, storefronts and window displays will still offer opportunities to gain brand awareness and attract customers whilst queuing systems outside of stores and malls are in place to manage the number of people entering at any one time.

Simple steps like one-way systems and making hand gel available at the entrance are important to reassure customers, and the introduction of contactless payment and mobile POS for faster checkout are practical steps that can be taken. Online booking systems can be implemented to reduce queues in front of stores and virtual appointments with sales assistants and personal shoppers offer a safe and efficient alternative for both staff and customers. A great example of this is John Lewis in the UK, where store-based consultation services were adapted to be carried out online through one-on-one video consultations with experts.

Besides this, dedicated click & collect areas will be needed to help manage crowding. One such example is KIABI in France where ‘Click & Drive’ has been introduced – the first drive through for fashion store. Amazon-style lockers could also provide an opportunity to reduce waiting times and limit touchpoints in stores.

Trying on is a huge part of the customer experience when buying apparel but fitting rooms present a hygiene challenge. Retailers, like ETAM in France, have set up a concept where customers can pick up products and try them at home – only paying for the ones they want to keep and with 12 days to return the rest.

133%

In the mid-term, apparel retailers should invest in digitising store experiences to create safe environments without compromising on store experience. Self-service checkouts, as seen across grocery retail, and Amazon Go-type stores, could see become a future norm. Elsewhere, investment in virtual fittings rooms and ‘try on’ tools will help customers visualise styles and colours virtually. Estee Lauder’s lipstick try on tool which helps customers pick their perfect shade, has seen a 133% increase in usage during lockdown.

Taking stock of the increase in online traffic and looking to their online touchpoints to boost sales, apparel retailers now must revisit their digital operating models, and the customer journey, irrespective of channel. The lockdown has served to drive not only increased online sales but importantly, a new online customer segment; think Baby Boomers, who previously chose stores over online now preferring to shop from the safety of their own home.

In the short-term, brands should ensure that any COVID-19 related delays in delivery are clearly communicated and compensated. Increased return periods and the removal of delivery fees even if just for a limited time will reduce barriers to purchase. Longer term steps to simplify returns processing should be taken by digitalising return slips and automating payment refunds.

As more consumers choose to interact online, retailers must ensure that the great experience customers get in store can be delivered digitally. Virtual try-on mirrors (MAC, Estee Lauder, Sephora) are one thing, as are 3D product visualisations, but let’s not forget the power of humans!  Conversational sales solutions connect customers during their online journey to store colleagues to answer all their questions and help them in their shopping. French boutique Roseanna offers one-hour calls with the Paris boutique manager to advise clients: the conversion rate is 70% and average basket has increased. This concept is already developed in luxury shopping, where brands use social media for direct messaging customers to advise them, and other platforms like Zoom, Google Meet and WhatsApp for virtual shopping sessions.

An increase in digital interactions will also provide retailers with valuable data. Now is the time for retailers to invest in technologies and systems that not only deliver an exceptional online experience, but also better analytical capability to increase understanding of the customer and their evolving demand patterns.

Manage costs, inventory, and complexity

In the short term, the immediate challenge facing apparel retailers is the build-up of unsold spring summer 2020 stock that will need to be liquidated to generate cash flow. Discounting is the obvious strategy across the board, the question being how deeply to cut prices and how widespread to discount. An assessment of stock lines for potential carry over styles that can be integrated into future assortments will protect margins today and reduce development effort for future seasons. For truly seasonal lines, historical analysis of item attribute sell through can guide decision making on the depth of the cut required to clear.  

Some retailers may adopt a more responsive approach to markdown pricing where digital price tags can be used to adapt prices rapidly according to market response, avoiding traditional manual relabeling. They also allow customers to access information such as stock availability and item variants. Where own outlets are insufficient to clear required volumes, retailers may look to open pop up outlet stores or turn to third-party e-commerce platforms, opening stock up to online marketplaces like Place des Tendances or Brandalley. Longer term, the pandemic has taught us all the value of a responsive supply chain and balanced sourcing strategy. Many apparel retailers will be looking to balance their supplier portfolio across sourcing countries and ensure that they invest in setting up short lead time, more localized production.

Complexity drives cost and across the board from luxury to value apparel retail the number of fashion collections is a hot topic and management of seasonal stock flows is at the heart of the debate on the future of fashion. Many designers have expressed their concerns regarding the excess of collections in respect to the real customer need (Cruise, Pre, Main, Catwalk and Haute Couture…).

Giorgio Armani is leading the way in suggesting that COVID-19 should be an accelerator for change in limiting the offer and matching the releases of collections to the seasonal needs of customers. Armani will keep the summer collection in store until September, holding pricing and pushing back any following seasonal newness. Though a bold move to take, the potential reduction in travel costs, material waste and inventory investment is compelling.

The need for visibility of stock by location is essential and, mid to longer term, all apparel retailers should be investing in this capability. Not only does this provide internal inventory efficiency gains (i.e. supports ship from store to liquidate stock – Decathlon / Kaporal), but it also gives customers access to stock information to allow them to access stocks when and where they choose to shop:

 

  • Real time product availability in nearest store visible on the e-commerce platform
  • Click & Collect with a short pickup lead time
  • E-reservation in store

Invest in long-term sustainability

77%

One thing that COVID-19 has brought to the fore is the importance of social responsibility and apparel retailers’ need to focus on building trust and confidence among their consumers in the coming months. Recent surveys have found 77% of customers value trust and reputation as much as price and convenience; perception is everything right now.

During lockdown brands like Nike and LVMH have amongst others spearheaded social selling and the creation of communities based on shared values. Coming out of lockdown colleagues in store will play a key role in ensuring customer wellbeing and building on that community feel.

Recommerce was already on the rise pre-pandemic and looks set to firmly establish its position in fashion retail spearheaded by the likes of Zalando launching their new “Pre-owned” category. Catering to both customers who want to shop pre-owned articles and those who wish to give their items a new life by selling, the new category offers a digital space for pre-owned items all with the look, feel and convenience of Zalando.

Elsewhere, customers looking for brand authenticity are turning their attention to brands like Everlane and Reformation promising radical transparency on company ethics, sustainability and pricing. Shoppers can see that Everlane’s original $15 American-made t-shirt costs $6.50 to produce—and that the company’s mark-up is significantly less than that of traditional designers.

Finally, RFID and track and trace solutions will be essential for all in opening up supply chains, delivering transparency and traceability upstream to raw material origins. No longer will it be acceptable for fashion retailers to focus only on tier one suppliers but rather to invest in sustainable practices for the whole ecosystem of which they are part.

Conclusion

The coronavirus crisis has accelerated major trends across fashion retail and highlighted the need for transformation. New customer shopping behaviour has been forged and brand expectations reset. At a time where consumers are focusing on necessities and are becoming increasingly purpose driven, they want to turn to responsible and sustainable fashion retailers. The fashion retail industry must demonstrate that it can adapt and rise to these new expectations whilst managing costs and complexity. We have summarized 17 levers that can help fashion retailers transform their businesses to build long lasting relationships with customers.

Across the globe there are great examples of the fashion retail industry forging forwards:

Farfetch (UK)
The global technology platform has just announced that its revenues increased 90% to reach $331 million, with 2.1M customers in 190 countries and offerings from 500 major luxury fashion houses and 3,000 small independent designers. During the lockdown, Farfetch has been crucial for the survival of these small designers with departments stores cancelling or delaying orders. A major advantage for the company has been the e-concession business model that operates without any inventory. 

Boohoo (UK)
has shown resilience throughout, leveraging social media to reach its customers and playing to the demand for lockdown leisurewear. The business as have just raised £200m and is now believed to be eyeing up failing businesses for possible merger and acquisition deals, much like when the company acquired other struggling high street brands like Karen Millen and Coast last year.

Bottega Veneta / Salvatore Ferragamo (Italy)
In Italy, luxury companies such as Bottega Veneta are placing leather orders which, according to the Italian Leather’s Association Unic-Lineapelle, almost exceed production capacity. Elsewhere, after a slowdown at the end of last year, leading fashion houses including Salvatore Ferragamo have been reporting an increase in orders.

KIABI (France)
were quick to react to the lockdown. The leader of low-priced family apparel set up a new delivery channel for e-commerce, after just a couple of weeks of lockdown. A Click & Drive concept was put in place, similar to online grocery shopping, enabling customers to order online and pick-up 48 hours later from the carparks of one of the three participating stores. The first drive through for fashion generated around 100 sales per day in the first few days and increased to quadruple its daily sales within a week. 

Zalando (Germany)
Zalando shares jumped 11% to a new record high after publicising an expected 10-20% increase in full year sales and a 39% year on year increase in new customers through April.  To help its brand partners Zalando has recently introduced its Connected Retail programs where physical retailers can connect with the Zalando platform to sell their products directly to Zalando’s online customers. Currently, more than 1,500 brick-and-mortar stores in Germany and the Netherlands are connected to the platform. Throughout the crisis Zalando has expanded the program to Spain, Sweden and Poland and offered to waive commissions as well as shifting from a monthly to a weekly pay out schedule.

Amazon (US)
…And who would have foreseen that Amazon might come to the fore at this critical time as a saviour of luxury fashion? The e-commerce giant has announced its initiative “Common Threads: Vogue x Amazon Fashion”. The platform supports designers at risk of bankruptcy to sell their inventory on Amazon. Stock, price points and imagery are chosen by the designer but most likely the majority will sell past season and current season stock discounted.The brands can choose between their own fulfilment or Amazon’s with typical fees of around 17 percent.

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