Driving higher loyalty through intimate engagements at the store and digitally will be a key. Experiential buying will be the norm with leaders having a loyal set of customers, a community that relates to the brand philosophy.
- By Neelesh Hundekari, Siddharth Jain & Pravin Devanathan
With the lockdown expected to ease across the country, albeit at different levels of intensity, businesses are waiting with trepidation to be back in operations. Fashion brands and retailers can, however, not breathe easy yet. Going forward getting demand back will be the biggest battle. For the section of the population that has affordability, factors like work from home and lack of access to restaurants and social gatherings greatly reduce the “wear occasions” and for the rest of the population, basic survival takes precedence over discretionary spends. So, what happens to a brand that has bet big last year on trendy bomber jackets and high-ankle sneakers? What is the outlook for this sector that was already saddled with hyper-competition, unsustainable rentals, discount seeking consumer behaviour and an archaic planning process leading to low inventory turns?
It is not all gloom and loss that lies ahead for those in this sector – the first two quarters of this fiscal year most certainly will be impacted but there is a strong likelihood of a slow recovery from the 3rd quarter, coinciding with the onset of festival season. With already strong cries to boost the economy by encouraging people to spend more and a slew of other planned reforms, apparel sales will most likely return to FY20 levels by early to mid FY22. Navigating this tough 18-month passage and to be ready to capture share when demand revives in FY22, requires a 2-pronged approach – execute with agility, while in parallel, drive long-term changes to the entire business model.
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Navigating the rough seas
From the operations side, companies need to save every single penny that they have – rental waivers, shutting down non-performing stores, variabilized model of retail staff deployment, freezing all discretionary spends are some of the many initiatives that need to be put in place to survive this phase. And what do you do with the inventory? Be smart in planning Autumn/Winter20 (AW20) – barring the winter exclusives, companies should ideally not order anything else – with near 3 months of no-sale, the inventory that is already sitting in warehouses from the SS20 collection should be carried over as stock for AW20. And any summer exclusives that won’t find market later should be given a push in July and August through intelligent pricing and markdowns.
On the demand side, consumers across price segments will react differently when lockdown eases – the customer for luxury (and bridge to luxury) is likely to seek retail therapy as a break from this lockdown monotony. Across premium, prestige and masstige segments, there is bound to be downtrading and postponement except for select categories (like innerwear and loungewear will drive some of the sales. However, fear of crowded places will hamper footfalls. So how do you tap into whatever little demand that will be there over the next few months? A 2-fold answer again – i) Enable e-commerce quickly (store collection available online, door-delivery through tie-ups with hyperlocal delivery companies etc.) ii) Tap into opportunistic categories (fashion masks, protective wear, work-from-home collections etc.).
Preparing for the future
This crisis will certainly result not just in some temporary changes in the interim but will lead to permanent changes in the buying habits of consumers. Therefore, while tactical changes will help companies stay afloat, winning in the long-term will require four key strategic moves:
- Driving engagement: Driving higher loyalty through intimate engagements at the store and digitally will be a key. Experiential buying will be the norm with leaders having a loyal set of customers, a community that relates to the brand philosophy. Having a “direct to consumer” model and not relying only on e-marketplaces will be imperative.
- Shop from wherever: A truly omnichannel offering, with seamless movement of inventory across offline stores and online, will be the norm. At present, most of the large brick and mortar retailers in India have a single-digit percentage of sales coming from e-commerce. We expect this to change with up to 25 per cent of sales coming from online.Also, for several leaders, it will be critical to balance the sales from marketplaces and D2C (direct-to-consumer). The latter offers higher margins, better access to customer data but albeit comes with a much higher cost to generate traffic. Giants like Amazon and Myntra are not to be taken by the horns, more so if you are a sub-scale brand. It simply will not be possible to match the reach that is offered by marketplaces – the judicious strategy is, therefore, to plan for 60-70 per cent of online sales coming from marketplaces and the balance from D2C. But this requires careful planning – sales from marketplaces, inherently, come with lower ASPs, margins in addition to the potential threat of your popular styles being aped by others.So, brands need to carefully think through the merchandize & assortment plan for marketplaces, the margin objectives and ensure that these are tied to the overall objectives. Strategic partnerships and joint business planning with leading marketplaces will be critical to prevent the downgrading of ASP and unviable discounting in the long run, which can simply kill a brand. The underlining theme, though, is that you will have to make yourself accessible to the customer everywhere – the time to start redesigning back-end operations to be ready for this is, now!
- Calendar of ‘No Seasons’ or ‘Several Seasons’ and commercially viable, agile supply chain: Seasonless buying is another change that is slowly taking shape and can be expected to sweep across the industry in the future. The era of designing a range 8 – 10 months ahead of the season, will be replaced by a closer-to-season trends-sensing and buying model. In simpler words, companies will have several buy cycles and need to buy in smaller quantities each lot. Daily sales/clearances will also become common reducing the strain on “end-of-season-sale” in liquidating inventory. Merchandising and planning will have to become fully digitalized to adapt to this change.Further companies will need to substantially cut lead times for design-to-shelf. There will be a strong need for 4, 10 and 20-week cycles to respond to market suitably. Currently, few companies have these shorter cycles, albeit they run at very high costs, meant only to prevent opportunity losses in select 1 – 2 categories. They can never meet margin objectives.
- Miser for life: This crisis has again taught companies the need for having tight control of costs – the ones which were riding simply on heightened consumerism with little regard to leakages across the value-chain are the hardest hit. And this won’t be a temporary phase. With so many changes to the operating model, there will be constant pressure on margins – companies will need to have a structural reset of their cost structure. Variabilized assets and workforce, no wastage, zero-based costing for all purchases are few of the themes that will help companies sustainably control costs.
Neelesh Hundekari, Siddharth Jain are Partners and Pravin Devanathan is the Principal at Kearney. Views expressed are the authors’ own.