Top trends to watch in 2018 in the fashion and home furnishings sector
INSIGHT ARTICLE |
The outlook for 2018 is positive for the fashion and home furnishings industry after a retail upswing closed out 2017. According to the National Retail Federation, holiday sales during November and December increased 5.5 percent over the same period in 2016. This is the strongest gain since the recession. In 2018, consumers will likely have more money in their pockets to spend due to higher wages, continued lower unemployment and reduced corporate and individual tax rates, all boosting buyer confidence. Despite this positive outlook, however, there are a variety of issues and trends to consider as well. Middle market manufacturers, designers, wholesalers and distributors in the apparel and home furnishings sectors will face shifting consumer preferences, a disruptive retail environment, new regulatory and tax changes, brand challenges and more.
Watch Uri Minkoff, CEO of Rebecca Minkoff, and Carol Lapidus, RSM consumer products practice leader, and fashion and home furnishings sector leader, as they discuss the key trends affecting the fashion industry.
Consumer engagement through technology
It’s become clear that it’s not just the millennial and Generation Z consumers who purchase via digital channels, but rather all consumers have become increasingly comfortable buying through channels other than in-store. However, the millennial and Gen Z consumers will continue to be the driving force and largest customer segment for fashion brands. In 2018, smart companies should be mindful of important influencers, such as bloggers and social media celebrities, as millennials are more inclined to be swayed by opinions from these provocateurs and social channels as opposed to direct advertising. Likewise, millennials and others, such as Gen Zs, will continue to use social media as a means to gain information and interact with the brands they choose to buy from. Fashion brands must cater to the preferences and needs of a variety of consumers in order to stay relevant with their buying community, and that includes Baby Boomers and Generation Xers as well.
Technology will have a significant interplay between brands and consumers as fashion companies must leverage big data, shopping history data, social media profiles, visual search and other forms of artificial intelligence to better target customers and, ideally, to provide a curated mix of products, specifically for individual consumers. These technologies will enhance companies’ relationships with their consumers and hopefully forge brand loyalty.
Regulatory and tax issues
Now that tax reform has passed, companies can plan ahead and decide if the new law impacts the way they conduct their business. For instance, while fashion businesses can expect a reduced corporate tax rate, there may be limitations on business interest deductions and entertainment, and changes to the net operating loss deduction rules to consider. Likewise, there may be multiple changes applicable to foreign earnings and income of foreign affiliates to assess. Companies that operate in several countries must be familiar with the tax and other regulations of each country they do business in, as well as value-added tax and customs and duty regulations. In addition, new accounting guidance around revenue recognition and lease standards can have significant impact on companies’ financial status.
Selling direct to consumer
In 2018, we’ll yet again see a decrease in the number of department stores and traditional malls. Brick-and-mortar locations will also continue to reduce their store footprints affecting the amount of inventory that stores carry. Retailers are re-envisioning their traditional brick-and-mortar and online presence and leveraging an omnichannel strategy to engage and serve customers. Further, as malls continue to struggle, fashion businesses will need to look at other channels to connect and sell to their consumers. Companies should learn from disruptors such as Amazon and subscription-based internet sellers, as they are changing the way consumers shop. Smart brands will engage consumers directly through a combination of online presence, distribution through channels like Amazon and opening their own stores to serve as showrooms so consumers can see, feel and experience the product before buying online. And of course, connecting to their consumers through the use of Instagram, Snapchat and other forms of social media.
Security and privacy
As companies become more reliant on technology, data security risks and privacy vulnerabilities continue to grow. Intellectual property such as proprietary designs, employee information, customer data and more provide a valuable source of information for cybercriminals. Further, for brands that have their own stores, as card-not-present transactions grow, so does the risk of fraud. In addition, brands that offer goods abroad and exchange data with European Union members must also be aware of privacy rules like the General Data Protection Regulation. Failure to comply with this new regulation could mean significant financial penalties. Understanding the emerging challenges and proactively planning for these risks and threats will be an endless challenge for many companies.
Brand is key to successful fashion and home furnishings companies, but it’s not the sole loyalty driver it once was. Due to changing demographics, such as the rise of the Gen Z consumer, shoppers have made it clear that quality and affordability are as or more important to them than logos and luxury. Smart shoppers remain loyal to those brands which provide great designs, value and quality, but only if those brands are innovative and speak directly to the consumer or the people who influence these consumers. Ethical sourcing (both social and environmental) continue to be important to consumers as well as retailers. Younger consumers will seek out brands that authentically speak to values that are important to them, whether it’s protecting our water supply, enforcing animal-free testing, providing healthy work environments or developing organic products. The big question is whether these consumers are willing to pay more for these attributes. Smart brands are addressing these demands and making important decisions to differentiate themselves in the marketplace.
2018 is starting out as an interesting year for fashion and home furnishings companies. As the United States and worldwide economy continue to grow, unemployment decreases and consumers have more money to spend, there is a potential for a successful year. Smart companies will use this success wisely, investing in technology to better engage consumers, better understand their business and make keener business decisions.
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