What business issues are fashion and apparel companies facing in 2021? Whether it’s addressing changing consumer preferences and supply chain challenges to mergers and acquisitions, there’s much for companies to tackle during a year of both uncertainty and promise.
Meeting changing preferences via direct-to-consumer e-commerce
Even as pandemic restrictions ease and the marketplace reopens to normal capacity, consumers will likely continue to shop online in 2021 due to the convenience and established behavior. Many fashion brands have traditionally used the department store channel as the predominant way to reach consumers, mixing in e-commerce to a lesser extent. Now the swing is moving toward maximizing direct-to-consumer strategies. No longer seen as the bolt-on solution to get the business through the pandemic, the e-commerce strategy is a necessity for successful fashion brands, not only to reach customers, but also to glean valuable data to better understand needs and preferences. From color trends and cozy leisure wear to preferred silhouettes and sustainability, direct-to-consumer technology delivers a wealth of data to track and forecast what’s on the consumer’s mind.
After the pandemic shut down department stores and traditional retailers, fashion brands adapted by engaging e-commerce platforms and standing up their own direct-to-consumer sites. With easing restrictions and promising vaccine distribution opening up the opportunity of consumers returning to work, restaurants and malls in 2021, these companies will need to reevaluate their sales channels and recalibrate their relationships with legacy brick-and-mortar partners. While the ease and convenience of online shopping likely means those habits will remain into the future, brick-and-mortar stores offer a unique experience where consumers can interact with brands and products. Coming out of the 2008 recession, retailers flexed their influence, and brands were forced to swallow open order discounts and other margin eroding protections; however, the e-commerce alternative gives brands the upper hand in 2021. Strong brands should work with retail partners to co-develop a strategy and utilize and share data analytics to understand their customers better. Innovative concepts like retail-as-a-service and upcycling existing products give brands new ways of engaging and interacting with consumers while protecting their brand identity.
How consumers purchase fashion and apparel products isn’t the only facet forcing companies in this sector to evolve. What consumers are purchasing will also be changing in 2021. Consumers sought out functional and practical clothing over high fashion and trends during the pandemic. Those preferences are expected to continue even as consumers return to offices, schools and events. With a reopening expecting to occur in 2021, the importance of understanding what’s driving consumers to purchase products will be key in merchandising, logistics and inventory planning.
Social responsibility: Valuing values
Consumers are making purchasing decisions that focus on values in addition to value. Many fashion and apparel companies are adapting by incorporating environmental, social and corporate governance (ESG), philanthropy and sustainability into their brand strategies. Leading a fashion company in a post-pandemic world requires a broader mindset to develop strategies based on building a community of customers around environmental, charitable and other social causes.
There are opportunities for companies to publicize and capitalize on the transparency of their socially conscious, environmentally friendly, sustainable and ethical sourcing practices. An investment in sustainably sourced materials that go into higher quality, longer lasting clothes can speak to the growing population of consumers who care about the values upheld by their favorite brands. This type of investment also allows consumers to feel good about the products they purchase.
The pandemic saw consumers increasingly spurn fast fashion businesses with heavy carbon footprints in favor of higher quality brands with strong social messages. Some brands have leveraged consumers’ social consciousness by tying individual purchases to specific social causes such as planting trees, cleaning rivers or outfitting the homeless. Others have tied a cause directly into their product by using sustainable or recycled materials or touting the people and production practices that make their products unique. No matter what the strategy, the underlying movement is only growing. Consumers aren’t the only ones with a focus on social impacts in fashion. The investment community has placed a new emphasis on ESG goals. Fashion companies seeking capital may find it easier to attract new investors and see higher multiples if they can prove the integrity of their business model. With much of the sourcing and production in low-income and impoverished areas of the world, fashion and apparel companies should be vigilant in understanding exposure their supply chains have to areas with questionable labor practices as seen in Myanmar and China. This is critical to the health and success of their business, as consumers continue to heavily factor ethical practices into their decision-making when it comes to choosing which brands to purchase.
Supply chain: Considering alternatives
Amid the worldwide pandemic and the disruption fallout affecting supply chains, fashion and apparel companies adjusted and looked to become less dependent on traditional supply chains, particularly those based in China. In 2021, some companies will continue this path and consider supplier alternatives, such as those in other Asian countries or even in other parts of the world. Some companies may consider other options due to ethical, environmental and geopolitical concerns. However, in all cases cost efficiencies and margin squeeze must be weighed. A majority of the world’s supply of fabrics and raw materials comes from China; trade and policy changes may also be necessary to support improved supply chain strategies. Lastly, a shift to improve SKU management in product assortments as well as adapting a leaner supply need may be another way companies will look to optimize overall supply chain management.
The global pandemic revealed the flaws of an antiquated supply chain. Over the course of the pandemic some companies needed to weigh sitting on unsalable inventory until some sort of return to normal or selling off at steep discounts, thereby putting their brand value at risk. Others couldn’t keep their hottest athleisure items in stock, causing them to risk losing sales and in some cases customers. Long lead times and bulk orders won’t fit an environment of dynamic consumers whose preferences may change on local governments’ fluctuating decisions to re-open or stay closed. Furthermore, the global shipping container imbalance signals the friction on the existing system will be around for the foreseeable future. Bringing production closer to the large consumption economies in North America and Europe could help companies adapt quicker to changes and carry less inventory; however, the benefits would need to be weighed against higher costs of production and/or technology investments to make such a move sustainable. Consumer preferences can be forecasted and even influenced by using a data-driven approach to deploy a demand-generated merchandising model, allowing companies to make strategic investments while remaining nimble.
Fashion M&A: “Robust” in 2021
At a fashion executive roundtable sponsored by RSM and the American Apparel and Footwear Association earlier this year, attendees were asked to share in one word their expectations for the mergers and acquisition environment in the fashion sector in 2021. “Robust,” “busy,” “hopeful” and “exciting” were just some of the positive characterizations provided. After a difficult 2020, private equity firms will be ready to buy in 2021 due to pent up demand and cash reserves. Strategic investors looking to optimize their brand portfolio or hunting for bargains will also be M&A players in 2021. Finally, we expect the theme of vertical integration to continue as retailers look to acquire brands and brands look at manufacturing targets to drive supply chain synergies.
Sellers must be ready with strong balance sheets. Company culture fit will also be essential between buyer and seller. As one roundtable participant said, “Before you talk price, talk culture,” highlighting the importance of shared values, complementary capabilities and a strong management team. These adjacencies are appealing and can make integration easier. As for areas of focus, health and wellness will be prevalent this year as well as fashion active wear and casual footwear. Likewise, look for digital companies to partner with legacy fashion companies to enhance business operations and consumer reach.
Innovation: Boosting the buyer experience
In this hypercompetitive market, fashion companies will need to be creative and innovative to offer the goods and buying experiences consumers demand. With the increase in direct-to-consumer, fashion companies will need to develop online shopping capabilities, using augmented reality and other technologies that mimic traditional in-store experiences. Likewise, brands will need to leverage innovative digital transformation solutions for processes like delivery and returns to optimize speed and accuracy for seamless experiences. And, extensive use of social media and influencers will need to be creatively used to connect and transact with consumers, building community as well as loyalty to brands