What Happens to Retail in Fall 2020?
As retail companies enter the traditional “back-to-school” selling season, we must acknowledge there is nothing traditional about BTS 2020. Organizations across the world have been forced to pivot selling and inventory strategies to address the many issues brought on by Covid-19.
Two lessons of the past 6 months:
1) Companies need more time to make decisions. This leads to the necessity of a robust chase strategy that focuses on flexibility & speed.
2) Shopping patterns have changed dramatically between the mix of store and online business. Consumers are now even more unpredictable than before.
Let us examine several areas where strategies need to be adjusted for the Q3 2020 & Q4 2020 selling seasons.
FOCUS ON CHASE STRATEGIES WITH THE SUPPLY CHAIN
While prepositioning raw materials (greige fabric, dyed fabric, garment blanks) is not a new strategy, the increased desire to delay product decisions until the very last minute has taken on a new level of importance. Shopping habits are more unpredictable now than at any other moment in recent memory. Delaying product decisions by an additional 30 days to get more selling information can dramatically improve sales information relating to product silhouette, color, and quantity.
The team that carries a significant portion of this workload is the product development / sourcing team. The relationships that they have within the entire supply chain are key to ensuring a fabric platforming strategy is successful. The general process for a successful fabric platforming strategy involves these steps:
1. Merchants identify new silhouette bodies to be used for platformed fabric
2. Merchandise planners adjust quantities and commit dates accordingly
3. Product development / sourcing team members work with supply chain to position raw materials
4. Cross-functional collaboration ensures trigger dates are achieved
One tool that should not be overlooked when putting together a fabric platforming strategy is the speed / chase calendar. In a time of unknowns, allowing for increased flexibility with decision making can produce a dramatic positive swing in revenue. The speed calendar is more than dates on a spreadsheet, it drives process accountability between merchants, merchandise planners, and product development team members. Focusing time and attention on fabric positioning, commit dates, call color dates, call cut dates, and call transit dates can produce valuable time back in the production process. Utilizing this time to further analyze sales trends to make more accurate business decisions is what chase is all about. Today, there are solutions available that include time-based workflow templates to ensure you can effectively manage the speed calendar to optimize your investment potential.
IT’S ALL ABOUT E-COMMERCE
The digital transformation of the fashion industry has been immense over the past 6 months. Almost all companies that I speak with are ecstatic over their e-commerce sales, but readily admit that the growth in e-commerce does not offset the decline in brick & mortar stores. This divide will only increase as we enter the make-or-break time period of Q3 2020 and Q4 2020 – as we have never experienced a “COVID Black Friday.” Traditional thinking would have teams placing deep buys of highly promotional items to be ready for the onslaught of in-store shopping starting the week of November 22, 2020. But recent sales data has shown us the public is still hesitant to return to malls, however they fully embrace the digital experiences offered by many retailers.
This creates a world of “haves and have nots” – those that have invested heavily in a digital experience and are able to generate significant sales penetration (e.g. >35% of total sales) vs. those that have invested more heavily in an in-store experience and are still lagging behind in the digital space (<20% of total sales). The reality is that the time is now for companies to throw all resources behind an improved digital shopping experience.
With 6 months of COVID selling data, we know several things to be true:
1. E-Commerce sales are showing massive growth YoY,
2. Customers are still hesitant to return to public shopping spaces en masse,
3. Ship-from-store capabilities have repurposed many store employees.
Collectively, this puts the pressure on allocation teams to be nimble with distribution center inventory. Avoid allocating too much inventory to stores and allow your e-commerce channels to dictate centralized inventory trends or ship-from-store inventory trends. The pressure is on for these teams in Q3 2020 and Q4 2020 as Black Friday is traditionally a big day for in-store shopping, but many (myself included) expect Black Friday in-store sales to be very weak. I do not expect a robust change in consumer confidence for brick & mortar shopping in the next several months.
HOW WILL COMPANIES APPROACH FALL 2020?
When apparel companies first started to react to the COVID business environment, they had several decisions at their disposal – each with a different outcome as it related to their view of inventory control. They could take a finance led approach and prioritize cash flow. They could take a merchandising led approach and prioritize their assortments. They could take a marketing approach and prioritize the messaging to their target audience. Most apparel companies chose to take a finance led approach.
The action at the center of this financial approach was to cancel on-order inventory and to re-cadence the assortments to mitigate the downside of an economic downturn. What has transpired since the beginning of March 2020 is the essence of the unpredictable nature of consumer shopping behaviors. Foot traffic to brick & mortar stores crawled to a halt, but online demand skyrocketed. When the dust settled, there was a need for newness and inventory as it took only a few months for sales to almost completely rebound to pre-COVID levels in some areas of the retail industry.
If you walk the mall today, the inventory levels are low in many stores. The presentations are disjointed because they do not represent the new product offerings we are used to seeing for the “back-to-school” selling season. Instead of newness, the inventory represents many of the programs from April/May that were re-cadenced. Companies reduced their inventory in March 2020 because of the unknown and the hindsight is that the inventory was needed.
What does this mean for Q4 2020? Retail experts tend to agree that foot traffic in malls will continue to be a challenge throughout Fall 2020. With explosive online demand, the perfect storm of uncertainty is once again facing companies – as Q4 includes the massive in-store shopping holidays of Thanksgiving, Black Friday, and Christmas. It also includes the massive e-commerce shopping holidays of 11/11 (singles day) and Cyber Monday.
This puts a laser focus on demand forecasting. In unpredictable times, how does an organization correctly assess the needs of their business? Most organizations rely heavily on past predictors to plan for future events – but historical data is worthless going into Q3 2020 and Q4 2020 where brick & mortar demand will be lower YoY and e-commerce demand will dramatically spike YoY. This is where enterprise solutions (utilizing advanced artificial intelligence & machine learning capabilities) can allow teams to create scenarios to plan more accurately.
We call these unpredictable elements causals. Teams that work closely with this technology can use COVID related causals (customer traffic counts, channel distortions, store employee counts, shipping delays) to more accurately get a sense for how demand will be impacted by these elements in each store and across the organization. This speaks to the continued importance of getting inventory in the right place, at the right time. And today, the right place is in a flexible location where e-commerce demand + ship-from-store logistics can reduce markdowns and ensure maximum sell thru of inventory – producing the best margin scenarios for retailers.