The Growing Pains of Retail

Fashion retailing has been around for hundreds and hundreds of years and has been continuously evolving over time; but never before has the industry faced such a fundamental change as it’s experiencing now.

The Growing Pains of Retail

Fashion retailing has been around for hundreds and hundreds of years and has been continuously evolving over time; but never before has the industry faced such a fundamental change as it’s experiencing now.

The very first incarnations of retail involved bartering and trading - exchanging commodities that you were able to grow/make/catch for something you wanted that your neighbours had, in return for something of yours that they wished. This was obviously a severely limited form of retail as it relied on you having something to trade, knowing someone who wanted it and had something you wanted/needed in return. This then evolved with the introduction of payment systems whereby a monetary value was put on goods eliminating the timing and matching limitations.

The actual act of shopping hasn’t really changed that much since - it has remained a predominantly local supply driven activity - customers were only able to buy what was available to them in their local area (or on their annual holiday/work travels etc) - now with the advent and adoption of the internet over the last 30 years this physical barrier has also been removed. Consumers are now free to source and purchase items from absolutely anywhere in the world making shopping a global activity rather than a local one.

What does this increase in choice and globalisation mean for fashion retailers?

It changes everything; retailers used to be King, they used to hold product power - customers bought what was available to them locally and retailing was very much a supply led business. With the advent of the internet this has now changed and the customer has become King - their product choices are endless as are their choice of where, how and when to shop - this shopping freedom has changed fashion retail into a demand led industry.

As a result many fashion retailers are experiencing retail industry growing pains…

Growing pains - think of retailing as similar to the parent/child relationship; when children are little we, as parents, choose what we buy for them; what they get dressed in, play with and eat. But then as the children grow and engage more with the wider world; meeting others at nursery, watching TV etc etc they start to develop their own preferences and start asking for things….. relentlessly - all parents will be familiar with the term, pester power.

This analogy works for fashion retail if we think of shoppers as the children and the retailers as the adults. The retailers used to have control over which products shoppers had access to (as parents do with young children) but as shoppers are no longer limited to local bricks and mortar shops and have immediate access, via social media, to influencers and trendsetters - they have become far more discerning and knowledgeable about what they want and when they want it). If a retailer can’t supply what they want, when they want it and at a price they want to pay …..then they will go and buy it elsewhere. In terms of retail it's not so much pester power but more discerning power.

Consumers flexing their discerning power sums up the shift that fashion retail is currently facing as the industry is being forced to move from being supply led to demand led.

Discerning because today’s consumers expectations and horizons have expanded. They expect choice, and with the immediacy of the internet they want the ability to purchase emerging trends in real time. When you add into this mix the fact that consumer spending is lowering its easy to see why the consumer has become King and their discerning power is forcing a re-shape of the industry. Retailers can no longer design, build and stock products without customer opinion playing a part in the process, they cannot dictate this is what you will buy just through lack of choice.

Which (if any) retailers are handling this shift in power?;

The first retail category to identify and capitalise on this have been Fast Fashion retailers. They have empowered their customers putting them right at the centre of their product development process. Collecting real time sales data, introducing shortened lead times and working to smaller order volumes enables them to deliver shoppers product that they actually want right now and also successfully reduces their exposure to the understock and overstock issues facing much of the industry.

Zara have successfully pioneered this demand led model and now form part of the largest fashion group in the world but only through scale does this approach work for Zara. The advantages Zara leverages using this model are plain to see, not only in their profit figures but are also in evidence with a quick visit to one of their stores.

Unlike the majority of fashion retailers, whose response to the current tough trading climate has been to permanently offer some form of discount (some on up to 93% of all their products), in a bid to generate cash flow, Zara limits discounting to two sales periods per year and also limits the volume of product on offer, which also heightens a FOMO feeling for consumers.

How Can Zara Do This?

Zara’s systems are designed to capture real time data and order stock according to what shoppers in stores throughout the world are buying - their feedback loop and stock turnaround is fast - within two weeks. A opposed to traditional stock ordering processes which can take months and rely more on gut feel and historical data which in our rapidly evolving world is quickly outdated and no longer what the consumer wants - we are fickle progressive thinkers after all! But Zara does more than just rely on the purchase data, their staff are all trained to listen to and log any customer requests/feedback and this data is also collated. (There is the story of the pink scarf which is etched in retail folklore, basically at the same time in a handful of different Zara stores around the world customers were asking if they sold pink scarfs - they didn’t, but by centrally reporting these individual requests a trend was spotted quickly and within weeks there were pink scarfs in store).

H&M is the latest (getting faster) fashion retailer to recognise that to turn its fortunes around (it currently has over $4billion in unsold stock) it needs to change its product buying processes and culture and has announced this week that it plans to do this based on customer data. From now on the data from every purchase in store or online will be analysed and used to shape product design and buying decisions. H&M states that it isn’t trying to replace merchandising heads, who have customarily made such decisions, but rather is offering tools to better inform their decisions.

“It’s about empowering that gut feeling,” says Arti Zeighami, H&M’s head of advanced analytics and artificial intelligence. “We can now be sharper, more accurate and hyper-relevant”.

What Zara are doing and H&M is aspiring to, is harnessing consumer product opinion data in real time and sharing this knowledge with their product development and stock ordering experts to deliver what today's more sophisticated - discerning shopper wants.

To end on another empowering parenting analogy - when children become teens there is a shift in the role we as parents have to play. I’ve heard it described as thinking of ourselves as changing roles from being Managers to Consultants - basically with younger children we have ultimate control over where they go and what they do but as they develop into teenagers we need to give them freedom to learn to make their own decisions - in the ideal situation we become Consultants, whose teens come to us for advice and guidance to help make their own decisions. The fashion industry needs to become Consumer Consultants; retailers can no longer see themselves as the Managers of product, instead they should adopt the characteristics of a Consultant - working with Consumers to co-produce the items that they actually want right now.

Mallzee Insights help brands and retailers of all sizes understand what consumers really think of designs, products and trends. Through our Product Future offering we test products with real shoppers on the Mallzee apps. This approach has now generated over 500m customer opinions across 3m products and can through collaboration with buying, merchandising and marketing teams help increase gross margin by 2.8 to 6.1%.

Email us today to explore how you can become a Consumer Consultant and improve your product decisions.

Tags: Retail, Marketing

Cally Russell

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