For businesses globally, 2020 was the year that changed everything. As the pandemic wreaked havoc around the world, the Fashion retail industry faced its toughest battle with 80% of the European listed companies losing money. There have been seismic changes in consumption patterns, supply chains have emerged as clear winners in certain sectors and in certain sectors they have been heavily disrupted. The year is ending with many European countries facing the unfortunate second wave and many large economies facing the dreaded lockdown situations. We are living the biggest story of our lives this year and are searching for blue skies both in life and in business.
Various agencies ominously predict a steep decline in economic profits in 2020. Mired with uncertainties about the vaccination strategies, economic rebound and Brexit outcome there are two likely outcomes on which we can bet. One scenario being a successful vaccination drive, where fashion houses will see a minor dip compared to 2020 with a rapid transition to growth and recovery. This will likely lead to pre-COVID 2019 levels by 6 to 8 quarters. The second, more skeptical scenario would be the one where vaccination strategies don’t work, and the virus continues its mayhem. In this case the market contraction will be severe and the road to recovery would be rocky and long. The industry will be able to achieve earlier levels in roughly 10 to 12 quarters. Whatever scenario plays out, we can expect unfavorable conditions like bankruptcies, store closures, and job losses in the coming time. But it will also accelerate digital adoption and there will be a strong focus on circular economy.
With these parameters its foolhardy to make predictive statements for 2021. Instead the advice to business houses would be to tailor their strategies to fit individual priorities, market exposure and capabilities. Corporates should consciously try to find their “Blue skies” strategy to tide over the tempest. The ideal proponents which will propel them would be adaptability, resilience, and agility. Data will play a crucial role but the tables might turn from “Data driven strategies” to “Decision driven data analytics”.* Shifts in demand across geographies, categories, channels, and value segments will predominantly drive the overall strategic positioning.
Consumers
Societal behavior has seismically shifted in the last year, as lockdowns were enforced and uncertainties raged in personal and professional spheres. An oasis for businesses has been the digital channels, it has shown tremendous growth and is promising potential upside for 2021 as well. Companies are willfully investing on these platforms for an engaging and fulfilling experience for the customers. While in the past Digital channels were something of a “Good to have”, now it has become the “Must have” channel for most players. The shift has been so accelerated that businesses are now coming up with measurable KPIs for Digital sales. One less discussed topic is the customer mindset because its very probabilistic and businesses like deterministic reports with heavy focus on quantitatives’ rather than qualitatives’. With travel and tourism severely curtailed the touristic euphoria and spend has taken a hit. Imagine the serpentine queues of Asian customers lining up in front LVMH store on Champs-Élysées, that’s something we might not see for some time. With this segment dwindling fashion houses need to focus on demand generation in local pockets. When the first lockdown happened we received a slurry of funny memes on various messaging apps and social media platforms that the air is clean, wild animals are coming back to cities and you could potentially see Eiffel Tower from the Statue of Liberty (pun intended). But it also opened serious discussions on sustainability, circular societies, and societal equality. Businesses are expected to be the champions of ethical, sustainable and equitable societies. They should set standards for a “fairer normal” across the value chain. Decision makers must take courageous actions with novel strategies rather than writing this year off with massive discounts and volumes. They should strike a fine balance between the Digital and Physical while aiming for a truly Omnichannel experience for the customers.
Supply Chains
Supply chains have been enjoying tremendous adulation and criticisms during the entire time. We have all read the Toilet paper panic and the Sony PSP stock-outs but overall, they have emerged as clear winners. We rarely experienced empty shopping aisles as predicted by sensational media and we also managed to have a Black Friday and Christmas shopping with on-time deliveries. Having said that, the pandemic will continue putting supply chains under pressure and leaders should be prepared for future shocks. This crisis exposed the vulnerabilities of the system and gave a tabula rasa to build upon. The mind-set has changed from profitability to resilience. Invisible and exploited tier 3 suppliers have given way to supply chain visibility across the chain. Brand houses are making concerted efforts to secure high quality suppliers and make the long-overdue shift to a demand focused model to operate in these uncertain times. Forging strategic alliances with suppliers as partners will lead to alignment and volume commitments which in time will boost brand credibility and their societal commitments. It will reinstate the ideology in the psyche of the consumers that “Business is a force for good”.
Retail Revolution
Zara’s parent company Inditex said in early summer that the group will close as many as 1,200 stores around the world (16 percent of the total). It then saw a surge in online shopping that helped it post a healthy profit, as digital sales jumped by 74 percent between February and July 31, compared with the same period in 2019 — the company at one point sold a million items in a day.* Guess Inc. said in June that it was re-evaluating its brick-and mortar strategy as coronavirus-related shutdowns continue to impact its business, revealing plans to permanently shutter about 100 stores in North America and China, or roughly 9 percent of its global network, over the ensuing 18 months.**
Businesses have been on a mad rush for more products and collections for quite some time now and the pandemic has challenged this mentality to focus on profitability. Complexity needs to be reduced and strategies need to be formed to increase full price sell through which leads to inventory reduction. Taking a demand focus strategy while maintaining in season demand elasticity for products and replenishment might be the silver bullet we have been looking for. Data will play a pivotal role in assortment planning and demand forecasting. There is also a massive push for sustainability which gets addressed if complexities are reduced.
Future Forward
I believe 2021 will bring continuing opportunities in the fashion retail segment because of a strong Asian rebound and promising vaccination early reports. The market will witness a consolidation with stronger players acquiring peers and smaller players at bargain prices. In these highly turbulent times leaders need to reflect on their next decisions. Tough choices will have to be made be it supplier consolidation, dead stock management and store closures. A rationale and fine balance need to be maintained because crisis may have opened some doors, but they will not remain open forever.
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