Strategy consulting company McKinsey & Co, in partnership with digital fashion media experts Business of Fashion BoF, recently issued their "State of Fashion 2020 Coronavirus Update" report. They identified 5 key industry survival strategies for fashion brands and included their predictions for global fashion, changes in customer behavior, and creative approaches to selling fashion - even luxury goods - in the midst of a bad economy.
How is it even possible to for fashion companies to survive, when the average market capitalization of apparel, fashion, and luxury companies declined almost 40 percent in the first quarter of 2020?
In previous reports, McKinsey and BoF identified fundamental consumer behavior shifts:
- Gen Z pays increasing attention to brands' environmental and social responsibility - “getting woke,” - Millennials do not trust brands with blurry backgrounds, so companies have to be transparent, and put sustainability first. These trends were happening even before the pandemic.
This chart by McKinsey, below, shows how consumer behavior is changing again as the pandemic keeps stores closed and people start conserving cash.
We're all in this together - McKinsey calls for more collaboration among companies in fashion—even competing companies— sharing data, strategies, and insights; as well as cooperation among brands, suppliers, contractors, and property owners.
“Navigating this uncertainty will not be easy for fashion leaders,” the report says. “Players need to be decisive and start putting recovery strategies into motion to emerge with renewed energy. The crisis is a catalyst that will shock the industry into change—now is the time to get ready for a post-coronavirus world.”
1. Intervene Rapidly
In the event that collateral economic damage from the pandemic continues for an extended period of time, brands should review cost bases to identify measures for quick wins, set up employee plans to assess workforce decisions, and rationalize overhead spend to plan for potential store closures. On the supply chain side, fashion companies should learn from this global trade disruption that the value chain must be re-invented. This includes reviewing production regularly to identify potential disruptions before they happen in order to cushion the blow when they come to pass and strengthening regional integrated supply chains. It also means exploring near-shoring activities to bring flexibility and autonomy to their production facilities. Broadly speaking, non-core assets and activities should be divested or even halted to streamline current offerings and ensure efficient execution.
Speed and adaptability are of the essence for this crisis. But when the first signs of normality begin to emerge, companies are cautioned to not to be complacent. Instead, they must focus on recovery and resiliency measures. This will be a time of transformation for the global fashion industry. Only by accepting this can companies begin to decipher what their “new normal” actually looks like.
2. Clear Overstock
The end of “extreme consumerism” is upon us. According to a McKinsey survey, 15 percent of consumers in the US and Europe expect to buy more ecologically and socially sustainable clothing. Brands that are able to reorient their missions and business models in more sustainable ways will be able to cater to a more captive audience than ever before.
Fashion industry may also turn to more innovative ways to reduce stock and infuse value into their products, such as accelerating sustainability trends. For many players, repurposing existing stock for new seasons will be a more viable option than recycling or upcycling with fabric additions or extractions. Other opportunities include personalization and mass customization, customer experience, and a re-evaluation of the company’s fashion calendar, such as moving monthly drops into later seasons.
To improve their long-term outlook, brands will need to tailor future discounting strategies by aligning promotions to their various channels and putting in place a revised product calendar to reflect fashion’s “new normal.” They will also need to reinvent "value" to make it worthwhile for consumers to shop at full price. The solution is not just about reducing overstock but gaining back the trust and enthusiasm of cash-strapped consumers — that cannot be achieved by discounting alone.
3. Double Down on Digital
For consumers, the rapid and recent pivot to digital will continue long after the immediate crisis, but for most fashion brands, it will come at a cost. Since digital channels can be less profitable than physical retail, players need to establish a balanced approach.
However, it is important to remember that digital channels are not a “silver bullet” to compensate for the shortfall in revenue from stores — in making this switch, some businesses may become smaller, which will open up the need to revisit their operating model as they adjust to the new reality.
Source: Time Magazine
4. Watch M&A
"During this wave of consolidation, M&A activity, and insolvencies, fashion players must be alert to opportunities concealed in market gaps that open as other companies shutter, be it in real estate or revenue potential or talent. This will pave the way for post-pandemic prosperity. Companies that struggled before this crisis will be hit especially hard. But some resilient players and private equity firms will emerge even stronger. Ultimately, the success of most opportunities seized during fashion’s big "Darwinian Shakeout" will demonstrate how prepared companies were before the pandemic — and how fast they will evolve to prosper in the new environment."
5. Scale Innovation
More and more, brands innovate by integrating emerging consumer trends. "For example, Chinese brand Cosmo Lady developed an antibacterial intimate wear line which capitalizes on a niche product concept that now appeals to mainstream concerns for health and safety - a move that boosted its stock price by 21 percent."
Also, sustainability credentials will be employed as one method to regain consumers’ trust and wallets as they emerge from discounting and dumping overstock. At the same time, ''alternative business models not based on generating virgin products, such as resale, upcycling and recycling, may see a boost from high levels of overstock in the system". However, consumers hit hard by a global recession will be more cost-conscious than ever and may consider sustainability in their purchasing decisions much less than before. Whatever the outcome, sustainability messaging will need to be grounded in authentic behavior and rigorous internal practices.
Innovative strategies have to be established in all stages, from product development to sales. Here McKinsey and BoF identify relevant examples:
To conclude, the pandemic has not had only a destructive influence on fashion. It is pushing people to innovate and rethink a wide range of industry issues. It is a chance to reset the entire value chain. After the main crisis passes, industry leaders have to build a more resilient model, one that is able to respond more rapidly to change and thrive in uncertainty.