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Fashion Retail in Europe. MUST HAVE: Omnichannel

September 18, 2017

Article by Virginia Lopez, Consultant at Osudio.

Fashion Retail in Europe. MUST HAVE: Omnichannel

The word disruption is not new in the fashion retail sector. Since the birth of Zara in 1975, fashion retail companies have seen how creativity is not everything, and that efficiency is key. Many are still struggling to deal with the revolution of Zara's rapid supply chain and the constant flow of new products to stores, changing processes and technology to gain efficiency and reduce costs.

“My dream is to see the clothes that people want to buy in the stores” Amancio Ortega, Inditex.

Fashion is one of the most relevant industries in the world. According to the study "The state of Fashion 2017" by McKinsey, it reached a value of $ 2.4 trillion in 2016. To put this figure in perspective, in terms of annual GDP, it would be the seventh largest economy in the world.

Despite the wider economic slowdown in 2016, fashion has been a key value-creating industry for the world economy. Nonetheless, most of the industry value is captured by a small percentage of players, the top 20 percent is creating 100 percent of total economic profit, the bottom 20 percent contributing an economic loss of 18 percent. Among the top 20 percent are: Adidas, Burberry, Chow Tai Fook, Richemont, Fast Retailing, Hermès, H&M, Inditex, L Brands, Luxottica, LVMH, M&S, Michael Kors, Next, Nike, Nordstrom, Pandora, Prada, Ralph Lauren and TJX.

Fashion is essentially a winner-takes-all industry—a handful of companies that make the right decisions and execute flawlessly are the ones that reap the lion’s share of the rewards. The rest of the business landscape is extremely fragmented, consisting of many small and medium-sized companies, and presented with serious problems of profitability, as well as little adaptation to the new trends that are transforming the global economy.

The major challenges fashion companies face are the internationalization, the application of technology to optimize processes, and the needed change of focus from product oriented companies to customer oriented companies.

This is more difficult to put into practice than it seems. It requires vision, planning, and structural changes that affect the entire company.

Companies in the fashion retail sector have been repeating for years as a mantra that they care for their customers; that is the message the consumer receives. However, the truth is the overwhelming majority are companies whose focus is on the product, not the customer. Still today many of them do not have the basic client data, or they have scattered data, which they are not able to analyse because they do not have the capacity (human, organizational, technological ... of all kinds), and make decisions based on feelings or perceptions, which usually are not valid.

The digital economy has given power to the customer they had never had before.

Today, the customer has a lot more offer to choose from, is always connected (through mobile devices, tablets, pcs, tvs ...), and has access to huge amounts of information instantly (however small). They have the ability to interact directly with brands through social networks, influencing the purchase of other consumers (and not only in his/her close circle of influence) and they are able to buy what they want from wherever they want 24/7, thanks to the mobile devices connected to the Internet. They are more demanding and more committed, seeking values ​​and authenticity.

Source: Getty

Nowadays, the customer demands brands much more than a kind of "cool" product. Customer demands quality and experiences, and demand them at any point of contact with the brand.

Fashion companies need to address a digital transformation that encompasses many structural changes. Being Omnichannel is one of the necessary tasks that must be addressed as soon as possible for their survival, but not the only one.

Cost effectiveness
Setting Zara and Inditex apart, which has achieved a high efficiency in the production, distribution and rotation of its products, bringing new products with very tight stock to the stores every 2 weeks, the usual dynamic in the world of fashion is that the product changes every 6 Months. It is a perishable product.

Within a collection, which in most brands is usually too wide, there may be 10 or 15 bestsellers that do not go on sale. The rest of the clothes, are brought with big stocks to the sales. Sales are a necessary evil to liquidate as much stock as possible, but in sales, the margin collapses to lows or to zero, and profitability fades.

To increase profitability, fashion companies need to sell the largest quantity of product at full price and not in sales, reducing the stocks that are brought to sales, outlets and private sales.

Being omnichannel is therefore key to profitability of the company. Having full visibility of the company's stock at all points of sale, allows not only physical stores to offer shoppers the size they lack for next-day store pick-up or home delivery, but it also allows the customer to access from the online channels all the products available, including the bag hidden on a shelf at a smaller store of the company that is highly successful in a different location...

This requires a key cultural and organizational change and systems integration, as well as one system governing a single stock and keeps the rest constantly and immediately informed.

Client
You cannot be omnichannel when the customer enters a different store from the store where they made the purchase, you do not recognize them. Omnichannel requires a unified view of the customer, because the customer will use the channel or store that suits them at that particular moment to get in touch with the brand, and will not understand you send them to solve their problems to the store where they made the purchase is different from the first location.

It is essential to unify customer databases and create a unique customer ID, so that we have a 360 degree view of the customer's relationship with the brand, and can give them the best possible service, even customizing the offer and experience.

The integration of channels will force a rethinking of the model based on the customer journey of an omnichannel customer.

Fashion is an absolutely experiential business and fashion companies must become obsessed with the customer, constantly reviewing the experience the customer perceives at each point of contact with the brand, in order to always make it positive and evolve towards personalizing that experience for the client.

The customer experience must flow from the physical world to the digital world without any change, conveying the same image and experience.

Even a negative experience is an opportunity to contact the customer and make it positive!

Source: iBeacon by estimote.com

Digital revolution is already here, and it is raging like a tsunami. Sales and margins have been falling for some years now. The digital economy has brought a speed of change hitherto never seen and which most companies are having difficulty to achieve. Do you know the story of Peter and the wolf? The wolf, this time, is eating sheep, and companies that do not have the focus on the customer, are struggling.

Osudio has been working for more than 20 years helping retail companies across Europe successfully face the changes needed to make digital transformation a success. You do not have to do it alone; we can help you!

Contact us here!


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