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The Future of Retail: Three Characteristics of a Resilient, Consumer-Led Brand

Out of sheer necessity, many apparel and footwear brands have transformed themselves over the last year. Now is the time for these brands to build on this momentum to grow and scale that transformation – and not slip back to old ways of working.

Even before the pandemic, many brands had realized that traditional, siloed operating models – as well as traditional product planning, product design and development processes – created friction and drowned innovation. Collaboration and product data management were a growing challenge as the industry became more distributed and more global.

This realization drove industry leaders to experiment with new technologies like digital product creation and advanced analytics. And with the pandemic in 2020 driving a rapid acceleration of direct-to-consumer business models, many others have started to transform. These efforts are aimed squarely at making companies more responsive to quickly changing consumer sentiment and demand, especially in times of rapid change.

Over time, the leading companies have exhibited certain characteristics, including a focus on the consumer, a culture of trust and transparency, and continuous technology investments aligned with an overarching and connected strategy.

Here are some of their important learnings as we all build toward a more resilient future.

Focus on the Consumer

Today’s leaders are passionate about their brand and what the brand means to their consumer. Their company culture fosters the same thinking and behaviors as their consumer. They use this deep understanding, as well as voice-of-consumer technologies, to deliver products that their consumers want – when they want them, how they want them, and at a price that makes sense.

Large retailers are starting to shift to more detailed data-driven models that evaluate every possible outcome and assesses which has the highest probably of occurring. Using a model like this to decode demand and forecast for the future provides the ability to reduce the amount of stock purchased by 20% and cut the incidence of stockouts of popular products by 60%. (Interline)

These brands see themselves as being in service to their consumer. As they live and breathe their consumer’s lifestyle, they identify new products and product changes that are truly innovative.

And this focus on the consumer and the product turns consumers into loyal fans.

Focusing on the consumer also means that traditional seasonal thinking needs to be thrown out. The traditional seasonal model creates artificial constraints that limit agility and responsiveness to changing consumer demands. Agile companies have adopted a continuous delivery-based model that can quickly respond to market needs. There are some companies that even have daily drops of limited quantities, which creates an aura of exclusivity and interest, and keeps fans returning for more.

Gartner recently predicted that by 2024, Tier 1 retailers in North America and Europe will reduce inventory carrying costs by 30%, dramatically improving free cash flow for digital investment, while revamping balance sheets. Much of this reduction will be affected in seasonal, short life cycle and apparel categories where manual processes and gut feel no longer are enough. (Gartner)

With numerous store closures in 2020, retailers have suffered, and many have filed for bankruptcy. With the remaining retailers investing in their own private brands, apparel and footwear brands must rethink how they engage with their wholesale channel.

Companies that understand their consumer can bring insights and data to their wholesale channel buyers. Based on these insights, consumer feedback and hindsight, brands can position consumer-correct assortments. Brands need to help their wholesale partners understand what will work and what will not.

Build a Culture of Trust and Transparency

An open culture is the foundation for agility and innovation. Leaders apply this practice to the way products are brought to market and how they engage with their supply chain partners.

The legacy model of ‘presenting’ a product line to stakeholders no longer works. Instead, leading companies factor regional and channel needs very early in the product planning process. By understanding these needs – combined with hindsight, insight, and a continuous delivery process – leaders bring reliability and agility into the product plan. This transparency means that brand, merchandising, design, and sales functions are always talking and are synchronized in bringing products to market.

This early collaboration between functions leads to a reliable product delivery plan, which unlocks seemingly elusive benefits such as pre-positioning raw materials and reducing lead times. This brings us to the second aspect of focus for trust and transparency: the supply chain.

Leaders bring trust and transparency to their supplier relationships. The legacy focus on squeezing every last bit from the supplier is not sustainable. Neither is keeping key product metrics from strategic suppliers. Leading companies are transparent with their strategic suppliers. These suppliers are treated as partners – they have a seat at the table. This early and frequent collaboration with supply partners allows suppliers to identify risk, bring innovation to the brand, and manage lead times.

Once a consumer demand is identified, companies now have 6-10 weeks to respond to that demand – not 12-18 months. These timeframes demand a responsive and agile supply chain. To achieve this kind of agility, leading companies are rethinking supply chain strategy with the right mix of near shore and traditional supply chain models; near shore for fast response products and traditional for the more predictable products.

The right supply chain strategy, combined with partnering with strategic suppliers, yields a responsive supply chain.

Invest in Technology – Continuously

Many companies continue to use Excel for analysis and planning. While Excel is a great tool for small scale work and for prototyping, it does not scale, and it cannot support the agility needed today. Continuous planning for 20 to 50 deliveries per year requires a scalable tool.

Leading companies have invested in planning solutions and some have built custom solutions to address unique needs.

To better support the planning process, leading companies are also investing in insights – not just hindsight analytics. These companies get real-time feedback through design and development from their consumers. Voice of Consumer (VoC) technologies – combined with Digital Product Creation (DPC) technologies – create a unique way to reach the right demographic and understand what products and price points resonate for each consumer segment.

In addition to consumer feedback, today’s leaders are incorporating influencer trends, economic trends, and more into these predictive models. This approach gives leaders a competitive edge and drives predictability and reliability into their planning process.

Selective and continuous investments in technology, aligned with an overarching strategy and combined with the right operating model, will accelerate the transformation to a responsive operating model.

UK brand River Island has recently made investments in real-time insights for their headquarters and store teams.

They have implemented data-driven, cross-channel forecasting, first allocation, and replenishment solutions. These have allowed them to intelligently automate key merchandising processes, which has led to a measurable decrease in stockouts and a reduced risk of overstock. And prescriptive analytics now power more granular forecasting and inventory management decisions at the SKU level. (Interline)

The Bottom Line

The COVID-19 pandemic has forced retailers and brands to fundamentally rethink business models, including how they discover, create, make and sell new products. Brands must move towards a consumer-centric, responsive model to be able to compete and remain profitable.

To take advantage of the momentum created in 2020, companies should:

  • Understand gaps in the operating model
  • Understand gaps in the technology landscape
  • Review the sourcing strategy
  • Develop a strategy and plan to address identified operating model and technology gaps
  • Develop a strategy and plan to scale digital product design and development

The benefits for the leaders are clear. A responsive, delivery-based operating model with a foundation of insight-driven planning has helped them achieve better full-price sell through, improve inventory management, increase margins, and decrease lead times.

To build long-term viability and resiliency, companies can no longer rely on historical trends to predict future demand. They must build on technology investments made over the last year to fully realize their digital transformation and become even more agile.

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