Will omni-channel strategies save fashion retailers?
Online spending on fashion has risen by double digits in the past years. More than half of the online shoppers buys clothing in Europe. Business research company yStats predicts that in Germany, online sales of apparel will account for over one third of the country’s total apparel sales by 2025 (source: ecommercenews.com). Led by German-based giant Zalando, the fastest rising clothing companies are all online stores although some shopping street retailers manage to reach the top-20 of the list. Will brick-and-mortar clothing retailers survive in our shopping streets and, if so, what are the winning business models?
High-end or down-under
The rise of online clothing stores has turned the fashion industry into a red ocean. Sales and prices in the traditional retail shops have declined rapidly, forcing many fashion companies to close their doors. The few that are successful and grow fast have a crystal clear reputation. What you see, is what you get. They are discounters that target the low-end of the market (like Primark), international clothing chains that exploit economies of scale to combine affordable prices and fashionable design (like H&M or Zara) or niche-players that look for high-end buyers who appreciate brands, quality and service (the likes of, for example, Ralph Lauren). The ones in between that offer a wide assortment to a broad public are mostly struggling and see their sales and profits decline year-on-year. They either try to become more competitive by lowering their prices, extend the periods of sales or, if their financial pockets are deep enough, try to reignite their brands and increase the attractiveness of their stores.
Beating your neighbours
Few people in the fashion industry will debate the future growth of online clothing sales, not even that it will show double digit growth for many years to come. Innovative fitting technologies that allows consumers to see how specific clothing items look on them will further boost online sales in the coming years. Maybe even more important, this will reduce the cost and complexity of return logistics, a burden to all online stores. As a result, it seems inevitable that consumers will spend less and less in the declining number of stores in city centers and shopping malls. Why do all those struggling clothing chains then keep on investing in their brick-and-mortar shops in an attempt to turn the tide?
First and foremost, it is what they do and have been doing for decades. They do not want to close their business and cannot stop their operations overnight. Aware that the offline slice of the clothing pie is shrinking, all of them think they can outsmart their competing neighbours. It is like as in the joke of the two friends who are exploring a forest and suddenly see a tiger in the distance heading towards them. They immediately start running until one of them suddenly stops and takes his running shoes from his bag. "What are you doing?” asks the other, “do you think you can run fast than the tiger with those?” “I don’t have to run faster than the tiger,” he says, “I just have to run faster than you.” True, unless it is not just one tiger.
In addition to renewing their stores and only with a few exceptions (mainly discounters), the shopping street clothing retailers warmly embrace the omni-channel strategy and business model. Omni-channel assumes that customers prefer an integrated shopping experience and combine online and offline shopping. They may explore new fashion trends on a notebook, search for specific items on their mobile, shop on a sunny Saturday to try different outfits and either buy it immediately in the store or the next morning online. When done well, it may work out and offline retailers can gain their part of the online fashion sales. There are no guarantees, however. Like Amazon.com is nowadays a main search engine next to Google when people search for books and products, the largest online fashion stores may attract all the attention and invite thousands of offline stores to join their platforms. In fact, there are signs that this is already happening.
The official future
The key point is that an omni-channel strategy of brick-and-mortar retailers holds a number of critical assumptions that may not all come true. For example, it assumes that the combination of offline and online sales will reinforce each other. But what if offline sales drops so much that it becomes loss-making and only survives in the best shopping venues? Who will then be among the winners? The most successful omni-channel strategies now seem to be the top-brands with flagship stores in a few selected places and 24/7 online sales if customers decide to buy later.
Whereas flagship stores are a part of a brand's marketing efforts and costs, for the big clothing chains the costs or stores are huge expenditures that they need to earn back from offline sales. When these sales drop while, at the same time, they also have to fund a fully online business model, their profitability will be inevitably squeezed. Furthermore, an omni-channel strategy presumes that consumers shop online and offline in the same shop. As indicated above, fashion platforms may emerge that bring online shopping together of thousands of online and offline stores making it easy to search and explore fashion across stores. Instead of being a well integrated offline and online giant, they become one of many.
So, then what?
It is remarkable and alarming at the same time that companies put their (hundreds of) millions on pursuing a particular strategy without a clear view on how clothing retail may developed and look like five or ten years from now. Time, analyses and discussions spent on bold solutions and strategies oust exploring, testing and monitoring different future scenarios. Instead of first exploring how the future of clothing retail may develop in different directions in the future, they rely on their own views and those of consulted industry experts. Quite often, part of the assumptions behind these future views remain implicit and untested. 'Omni-channel is the future!'
By exploring different future scenarios, companies become more skilled in 'reading' the changing signs of clothing retail. By testing their strategic intentions, and hence the assumptions behind it, in different future scenarios helps to learn their (inherent) strengths and weaknesses. It is essential to know when to stop or pursue key elements of any strategy and business model. In fact, the business model of the future may not have been designed yet but emerge over time with new technologies coming and changing customer demands and preferences. Reigniting brands and renewing stores may well be necessary today but keep on looking for the success formulas of the future is equally important. After all, nobody wants to take a deep dive in a pond without knowing how deep the water level is. Omni-channel may only be the start of something new and different. The winning business models of the future may not be here yet.