The new fashion retail landscape emerging in the wake of the Covid-19 pandemic is already leading to dramatic and permanent changes in the way brands and fashion retailers plan and work. Here, Malcolm Newbery shares his views on some of the practical steps that surviving businesses should consider as online becomes the dominant way of doing business.
Writing earlier this year about the future for fashion retail after coronavirus, I identified dramatic and permanent changes to the way brands and fashion retailers plan and work. The fashion industry will never be the same as it was before the virus struck. Certain ways in which we work, in marketing to the consumer, in planning, in our supply chains and in stock control, will never return to pre-Covid methods.
At the end of March three things were clear:
• Consumer demand for fashion bought in shops was already falling, as online grew.
• Some retailers were in deep financial trouble because of high fixed property costs (rent and rates), especially those that were heavily indebted as a consequence of private equity investment.
• Fashion supply chains were nervous about Brexit, and its continuing uncertainty on trade deals.
In the April article, I said:
• We shall have a fashion world in which online has become the dominant way of doing business, and there will be many fewer shops.
• Putting merchandise in shops and waiting for the consumer to “turn up” physically is dead. We must put the merchandise online and “point” the consumer at it.
• Planners must accept that the way of doing things, which was stores first and online as a second thought, should be reversed.
• The purpose of stores (at least for those that are left open) will change. They will become both places from which customer online orders are dispatched, and places where poor sellers and unsold stock are sold at marked down prices.
• Brands will increasingly try to sell direct to consumers online. Relying on retailers with physical shops will be like Canute trying to stop the tide coming in.
We are at the end of July and:
• Many large retailers in the US, UK and continental Europe cancelled outstanding production orders for late spring/summer and early autumn/winter. Some cancelled orders placed but not yet in their warehouses, using force majeure clauses in their buying contracts.
• We have large quantities of old stock in shops and warehouses, dating from March to end June.
• As a consequence, there is little no new supply arriving from April to October or later. The best we can do is place some orders for Christmas trade.
Three future scenarios
There are three ways a fashion business can forecast the likely scenario of this situation.
1: The best case bounce-back scenario, the V-shaped recovery.
2: The middle case, “it will recover to something similar to now, but slowly.”
3: The worst case, “the model is broken. When we recover, the industry will be different.”
“Bounce backers” included, until recently, those two always optimistic world leaders, Donald Trump and Boris Johnson. The former said “We are in great shape” whilst many states closed down and their virus cases grew to be “world beating.” Johnson promised to “turn the tide on coronavirus in 12 weeks.” No-one knew what “turn the tide” meant, and it certainly was not going to happen. They are wasting their time and our patience.
I would like to believe the middle case, but cannot. Nobody likes to think about the worst case scenario, but that is what I believe any sane business leader should do. So this is my personal view on what will happen to the fashion retail economy in most of the industrialised world.
• Consumers have lost so much income that, even if they wanted to go back shopping for fashion, they would not be able to.
• At least 20% of the shops will never reopen. Just think about the recent redundancy announcements by Boots (pharmacies) and John Lewis (department stores) in the UK, and JCPenney in US.
Because consumer behaviour is changing:
• The convenience experience of more home deliveries will accelerate the percentage of clothing, as well as food, bought online.
• The experience of doing without not-needed clothing will put people off returning to their previous shopping patterns of behaviour, as will social distancing and mask wearing in shops.
• The shock of seeing the world crippled by a virus will change attitudes towards saving the planet by travelling less, and buying clothing in a more sustainable manner – which means throwing away less, and hence buying less.
• Decide which shops will never re-open, and which will become delivery points for click and collect, and as markdown outlets.
• Concentrate on our website and, if you are like Boohoo, buy distressed physical retailers and convert them to online.
• But, most of all, change the way we operate.
Here are my suggestions.
Business operational changes. Time to rethink the planning paradigm
At the end of the pandemic, we shall see a fashion world in which online has become the dominant way of doing business.
We know that we are going to have many fewer shops. It has always been my contention that the UK is over-shopped. It has more square metres per one million adults than almost every other nation on earth.
The purpose of many stores – at least for those that are left open – will change. They will become both places from which customer online orders are dispatched, and places where poor sellers and unsold stock are sold at marked-down prices. The shops themselves will morph into something that looks like factory outlet stores. Not very beautiful. The high street will look and function in a very different manner to now.
So how does that affect operational planning?
Because the purpose of stores will change, planners will pay even less attention to fixed seasonal calendars than they do now. Seasons will morph into streams of garments arriving at our warehouse at different times, and being on sale from the date when they are live on our website. Only then will attention be paid to how many (if any) will be allocated to stores.
This approach will be forced on a lot of businesses, for the simple reason that there will no longer be many physical fashion trade shows. They have mostly been cancelled or become virtual and will be so until at least next spring, when they will be showing autumn/winter 2021. With no physical fashion trade shows, there is no pressure to have ranges all available at the same date, or in the stores at what is now a “fictional” beginning of a season. The seasonal rules will be thrown out of the window.
Businesses will also rethink their long lead time supply chains. Covid-19 has brought to the forefront of the planning process the fragility of some of these. Even such conservative supply chain planners as Marks & Spencer are openly questioning the status quo and talking about “near shoring.” I remain cynical. Buying prices are still paramount.
The consequence of the last three paragraphs is that everything will, in future, depend on a sales forecast. Sales history, unless you are selling exactly the same garment as last year, will become much less important; in some cases irrelevant. And also, because of the point about the future purpose of stores, stock density as a measure of store allocation will also become irrelevant.
Range parameters will be superseded by timing control of streams of similar garments. As the garments arrive and are put online, this will be accompanied by marketing measures designed to “point” them at the consumer, because he or she will not necessarily see them in physical stores any more.
But option and SKU management will not just die. They remain important for stock control and cash flow reasons.
Fast fashion will still follow trends. But the trends will be set by designers and brands online, not by the pressure from trade shows, because their raison d’être has gone.
The conclusion about following trends is bad news for the trend forecasting industry, as was the prediction of the demise of physical trade shows. Predicting to retailers and brands how to be “on trend” will still exist, but will be much less influential. This is because the trend forecasting companies will find it harder to function with fluid seasons as against fixed ones. It is also bad news for fashion journalists, but better news for short term bloggers of individual items as they arrive and go online. However some things never change. Being loyal to your handwriting (look) will continue to be a constant in the world of buyers and merchandisers.
Sales forecasting will become more centred around ranking and percentage participation within groups of linked garments (ranges). This will be in spite of the fact that the linked garments will be going on sale at different times.
Lead times will, nevertheless, still matter. Consequently, how to understand how mass production works in clothing factories remains essential for buyers and merchandisers. And understanding work content (standard minutes) will remain a critical skill for the pricing of garments. This applies to what we buy them for and what we sell them for.
As explained earlier, the allocation routine will be reversed. So, first you will decide what to keep in your warehouse for online customers. Second you decide what, if any, quantities are put into physical stores, which will look less beautiful, because they will be dumping grounds (outlets). And the importance of visual merchandising will therefore diminish
The “in-ratio” approach to buying will just wither away. If the majority of a purchase order is to be left in the warehouse for online customer ordering, in-ratio is an obstacle, not an advantage, because it was invented for easy store allocation. Direct to store deliveries from suppliers will simply fade away, except for little boutiques selling brands. Replenishment will become more haphazard, because the stores have become delivery points and the receptacle for ends of lines.
The rules for multichannel, which are currently a minefield of confusion, will have to be completely rethought. It’s going to be an interesting time to be a merchandiser.
Finally, let’s consider in-season stock control and markdowns. KPIs will need redesigning. As yet, I do not know how. And the WSSI (weekly sales, stock and intake) data as a merchandising tool may be past its sell-by date. Under and over stocks will be controlled, not from the head office centrally, but from stores individually. In the UK, Ted Baker has announced the sale of its head office in London, and 500 head office redundancies. The emphasis will shift from supply-push from the centre to demand-pull from stores.
The failure to avoid gross margin erosion will remain the cardinal sin for both buyers and merchandisers. Markdown and promotion decisions will be taken more on the basis of what is selling badly online, than on what is selling badly in store.
To summarise this long list of predictions for operational changes:
• Trends will not be set at trade shows (many of which will never reopen).
• Seasonality will be dramatically diminished.
• Long lead time supply chains will be avoided where possible.
Working practices such as
• analysing sales history will look outdated;
• as will receiving goods in ratio for allocation to stores;
• and the control of over and under stocks centrally from retail head offices (if any are left) will go.
Finally, markdowns will be based on what is selling badly online, not on what is happening to sales in shops. It will be a case of; “O brave new world that has such people in it!” – Shakespeare. Fashion managers had better learn to be brave, and change their habits.
That is a lot of predictions. Who wants to argue them through, as they affect your business.
Click on the following link to read Malcolm Newbery’s earlier assessment on: What’s the future for fashion retail after coronavirus?