Rethinking the future of retail operations in fashion

Jasper Zeelenberg
19 July, 21

Retailers had to deal with considerable constraints on their business as the COVID pandemic unfolded, and some of these will remain dominant factors in the retail business environment for many years.

Although we like to think of these events as the exception rather than the rule, retail operations should include resilience and contingency planning as a part of their overall strategy. Market-wide disruption can be expected to wipe out one year’s worth of trade every decade, so it is a definable risk with a high degree of uncertainty around the specifics.

During the pandemic we saw the big shift towards online shopping and digital retail experiences. Within Europe, online fashion sales went from a 16% share of the total in 2019, to 26% in 2020, during the pandemic, and this level is expected to remain at around 22% even after customers joyfully return to physical shopping. Before the pandemic even hit, some 42% of millennials reported that they preferred online shopping to physical retail, so we can expect this shift in shopping habits will continue.

Successful coping strategies in fashion retail during COVID

Retailers in fashion and similar industries found several ways of leveraging their physical spaces and other assets to form makeshift revenue streams. Some of these have been very successful, and some retailers even see a benefit to keeping some of these adaptations after restrictions ease.

As one example, ‘De Bijenkorf’ in Amsterdam, which has offered shoppers a luxury shopping experience since 1870, has chosen to retain the appointment and personal shopping services it offered during the pandemic period, including virtual shopping, even after the pandemic period, because it suited their niche luxury service offering and their customer expectations.

Some examples of creative COVID-era retail space use include:

  • Luxury spaces – focusing on the luxury segment, providing individual shopping experiences
  • Appointment shopping – across all segments, shopping appointments proved profitable with a concentration on shoppers who are there to buy.
  • In-store fulfilment/Digital fulfilment – Online orders are filled in local stores and delivered to local customers.
  • Flexible working spaces – several retailers have opened their store spaces to remote workers as flexible workspaces.
  • Additional services (shoe repair, key cutting) – several stores have experimented with revenue-stacking approach of offering additional and related services such as shoe repair in shoe stores.
  • BOPIS (Buy Online Pickup In Store), a.k.a., ‘click-and-collect’ – customers can order online and pick up from a store of their choice, making the experience efficient and convenient for all parties.
  • Co-retailing – similar to the additional services (above), but with a broader range of services and other retailers who are not directly related to the ‘main’ service.
  • Microboutiques – Harrods has started to experiment with smaller boutique stores in out-of-town locations.
  • Digital – Physical Hybrid experience – this can encompass a wide range of possibilities including a virtual personal shopping experience, or physical stores that convert to an online order with home delivery.

It is reasonable to wonder how many of these innovative retail concepts are just quick-fixes, and how many are long-term solutions to an ongoing problem.

The trend towards online and omnichannel shopping was already in force before the pandemic, so the consensus view seems to be that 2020 was merely an acceleration of a pre-existing phenomenon. High-street shopping was already showing signs of strain and market consolidation of retail space is a likely scenario in the coming years.

How will retail operations look going forwards? What will become of sprawling physical retail spaces, and how can brands offer real value to consumers – so that physical retail spaces can pay their own way?

The future of retail operations

“…what is now really clear when we re-open the stores [is that people] really want to meet us in both channels, physical stores and online. They want to do both.”

  • Helena Helmersson Chief Executive, H&M Group

What is patently clear is that the equation needs to be balanced. Retail space comes at a premium, and it needs to have a good business case to remain a part of a brand’s service portfolio. Customers want the convenience of online shopping, but also all the possibilities of physical shopping too.

Omnichannel sales will become a vital part in balancing this equation, because it adds value for the customer, while also using the physical retail space to the maximum possibility.

Why a customer-centric approach to retail is necessary?

Each organization needs to form a solid foundation for their new retail strategy by looking at what they can offer the customer. Brands need to be ‘customer-centric’ as the starting point.

For those readers familiar with Eli Goldratt’s Theory of Constraints, you will recognise this prioritisation of only those tasks that overcome constraints, and the primary goal of business being to ‘make money now and in the future’.

A critical part of making money in the future is to not shoot yourself in the foot today, by being preoccupied by short-term cost efficiencies and small thinking.

It can be a significant challenge for a large organisation to abandon rules and behaviours that have become deeply engrained but being able to change these habits is equally important as setting out a new strategy in the first place. Deeply engrained mindsets are actually one of the most significant constraints that need to be overcome, as these prevent new and better methods from being effective.

By starting with a customer-centric redefinition of retail operations priorities (with the customer as the centre of this new cosmology), retailers can start to rationalise other approaches such as product range and real estate strategies.

But this must start with the customer-centric approach at the root.

How can we build-in lasting operational resilience?

Retail space costs money. As physical sales diminish, a rationalisation of real-estate strategy has to be on the cards. Given the total contribution to overall operational cost, you might see this as a high-priority. It certainly is a high priority, but we can’t make meaningful changes to strategy without first addressing the topics already discussed.

After becoming customer-centric, it becomes possible to simplify and refocus on products that sell and how customers want to buy. Then we can employ technology to facilitate this – so customers can shop the way they want to. Now we are in a better position to understand how to use our physical spaces, considering the new business model.

In the coming years, consolidation of retail spaces is a very likely scenario; space comes at a premium price, but this may shift as businesses fold and cheap spaces become available. From a real-estate perspective it is very possible that the shrinking requirement for physical retail space will be displaced by other market demands such as office space or housing, and mixed-use spaces may become more common.

It is also possible that many of the stop-gap measures used by brick-and-mortar retailers during the pandemic will become standard business models, including flexible workspaces and co-retailing.

Reducing retail space will come with a reduction in operational costs. When this is combined with the synergies of omnichannel retail, the operation can become much more profitable. However, all this will be for nought if the core business model has not been optimised with a customer-centric approach to begin with.

By abandoning the old cost-based thinking and short-term perspectives, your hands are free to use better tools.

The development of a customer-centric supply chain strategy then becomes possible, and it is the foundation of omnichannel supply chain that can meet customer needs. We can’t predict those needs, but that is no longer necessary because overstock and understock is avoided with a more agile and responsive supply chain, powered by technology that automates re-ordering, allocation, and replenishment.

The technology-enabled responsive supply chain is not a solution in itself, but it allows for more flexible possibilities for fashion retail operations, including omnichannel. A demand-led model like this also helps to reduce the total number of SKUs, meaning you produce less and sell more. So however your fashion brand differentiates itself with its retail operation, you can be sure the right stock is always available, whenever and however the customer decides to buy.

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