Top 10 Takeaways from the 2017 AAFA Executive Summit

Transcription

1 Top 10 Takeaways from the 2017 AAFA Executive Summit 1) Innovation is the way to adapt to disruptive forces in the retail industry 2) Personalization and customization play a key role in the customer experience 3) Coach exemplifies the massive change necessary to adapt to the shifting retail landscape 4) Off-price and fast fashion offer consumers a reason to keep coming back into stores 5) Fast fashion is driven by social media, and consignment and rental concepts may be taking share 6) Consumers are trained to wait for markdowns, given the abundance of product available 7) Alibaba set a new bar for shopping holidays with Singles Day 8) Social commerce is the next big disruptor 9) itunes: the largest store in the world 10) Trade transformers in the Trump era The Fung Global Retail & Technology team attended the American Apparel & Footwear Association (AAFA) Executive Summit, held March 1 2 in Washington, DC. Here, we share our 10 key takeaways from the event. 1. Innovation Is the Way to Adapt to Disruptive Forces in the Retail Industry Almost all of the presenters at the AAFA Executive Summit touched on the unprecedented rate of change the retail industry is facing, and many said that innovation is the way to adapt. Retailers need to combine shopping, entertainment and a social experience into one. Barry McGeough, Chief Innovation Officer at PVH Corp., 1

2 talked about the concept of innovation and how it applies to brands and retailers. He said the younger generations, the millennials and Gen Zers (or, as he referred to them, the Snapchat Generation), are brand agnostic. Consumer expectations are changing and brands and retailers are working to get closer and closer to what consumers want. Successful brands are using artificial intelligence and machine learning to identify realtime trends that are consumer specific. Stitch Fix is one example of a company that is doing this. The company says that eventually it will have more data about its customers than Amazon has about its own, which is an ambitious statement. Stitch Fix is using algorithms to put the right items in its subscription boxes in order to entice each customer to buy all the items in the box. 2. Personalization and Customization Play a Key Role in the Customer Experience Executives from a number of major brands including New Balance, Birchbox and Lululemon Athletica talked about the customer experience, and they all noted that a key part of the experience is customization and personalization. New Balance, for instance, created a shoe line called NB1 that enables customers to customize their footwear and have it at their doorstep within two weeks. The products are manufactured in the US and there are more than a quadrillion possible styles of shoes that can be custom-designed, according to the company. New Balance has been providing customization options for five years and started offering the service online in Birchbox uses the data it collects from customers about themselves and their preferences when they sign up for a subscription to tailor and personalize the items in the boxes it sends. Lululemon applies this concept by allowing store managers to tailor their specific store to their local audience, which may differ from others around the country. Overall, customized products have higher perceived value, and consumers are willing to wait to get them. Starbucks is another example of a company that has successfully created personalized products: each Starbucks customer has the power to create an individual, unique item, and the company has built a culture, complete with a unique language, around this personalization offering. 3. Coach Exemplifies the Massive Change Necessary to Adapt to the Shifting Retail Landscape Coach is an example of a company that experienced the shifts in the retail landscape and implemented significant changes in its business several years ago in response. The company has started to turn the corner, and saw comp increases in the latest holiday season. Chief Administrative Officer Todd Kahn discussed the bold path the company has defined for transforming itself. While Coach is now starting to see some positive results, Kahn noted that there is no silver bullet for successfully transforming a brand. The process of change began in 2013, when Coach reevaluated its brand, store fleet, promotional strategy and marketing. The company had gone public in 2000 and until about 2007, it faced no real competition in the accessible luxury category. Then, new entrants, including Michael Kors, Kate Spade and Tory Burch, became viable competitors. This happened just as Coach was losing some of its identity. The company did not know who its core customer was, and had taken its eye off the ball on the product side, as the Coach logo had become ubiquitous. Kahn stressed that Coach and other retailers need to continue to learn, evolve and respond to the new global consumer. 2

3 4. Off-Price and Fast Fashion Offer Consumers a Reason to Keep Coming Back into Stores Department stores are currently turning inventory at times per year. Meanwhile, fast-fashion retailers such as Zara are turning inventory at 5 6 times per year and the rate for off-price retailers such as T.J.Maxx is even higher, at 7 times. This helps explain why department stores are seeing so many challenges: both fast-fashion and off-price retailers offer more of a reason for consumers to come back into stores again and again. Off-price retailers also flow product into stores at least once a week, and so offer consumers a unique treasure hunt experience, as shoppers never know what they might find. 5. Fast Fashion Is Driven by Social Media, and Consignment and Rental Concepts May Be Taking Share The concept of fast fashion allows runway and real-time trends to be made available in stores within weeks at an affordable price. H&M and Zara are leaders in the space, and Zara sells 950 million garments per year. Given the prevalence of social media and the important role it plays in the lives of younger consumers (millennials and Gen Zers), it is important to many young people that they not be photographed in the same outfit twice. Social media has also increased the ferocious pace at which trends emerge. Fast fashion has allowed consumers to continuously purchase new, on-trend garments, even when their old ones are not yet worn out. The increasing popularity of consignment and clothing rental concepts means that consumers can continually wear new outfits, but can consume apparel in a more sustainable way. The resale market, which is expected to reach $25 billion by 2025, helps keep discarded clothing out of landfills, which is important, as textile waste has increased by 40% in the last 10 years. Sustainability used to be something that got in the way of the design process. Now, it is part of the process, driving inspiration and forcing designers to be more innovative. 3

4 6. Consumers Are Trained to Wait for Markdowns, Given the Abundance of Product Available The US is overinventoried and overstored, resulting in markdowns and promotions from many retailers. There is just too much stuff. Markdowns are so prevalent that consumers know that if they just wait, it will be worth their while, and they will be able to get the product they want at a lower price. One way to address this problem is for retail to shift to more of a scarcity model, with fewer malls, fewer and smaller stores, and less product and less inventory in stores. 7. Alibaba Set a New Bar for Shopping Holidays with Singles Day Consumers have been trained to shop around events or shopping holidays, such as Black Friday and the back-to-school period. In China, Alibaba set a new bar for shopping events with the launch of Singles Day (November 11), which is now the world s largest 24-hour online shopping holiday. Singles Day dwarfs Black Friday in terms of sales: in 2016, Singles Day generated $17.8 billion in sales, up from $14.3 billion in 2015 and compared with about $5 billion on Black Friday. Online sales in just one day in China were more than Brazil s total projected e-commerce sales for all of If Singles Day were a country, it would be the eleventh largest in the world, just ahead of Brazil and just behind South Korea. 8. Social Commerce Is the Next Big Disruptor The next big disruptor in terms of shopping will be social commerce, or consumers shopping on social media channels. Shopping has evolved from a single channel where consumers experienced a single touchpoint and retailers channel knowledge and operations existed in technical and functional silos to multichannel, where consumers make purchases across channels and formats. The ideal scenario is one of ubiquitous distribution, where consumers can experience brands not just within a particular channel, but across brick-and-mortar, digital (mobile and desktop, as well as social commerce) and interactive TV. 4

5 9. itunes: The Largest Store in the World itunes illustrates the potential of the store as a platform concept. Without offering any physical products, itunes has 600 million customers and $20 billion in annual sales. Other things that differentiate the itunes platform from a traditional brick-and-mortar store are its product ratings, customer reviews, best-seller lists, prioritization and popularity. Amazon is offering many of these functions, as well. Retailers can look to itunes and apply some of the platform s unique offerings to their own websites and stores. 10. Trade Transformers in the Trump Era The possibility of a new trade policy in the US has been a hot topic of discussion lately, given newly elected President Donald Trump s comments surrounding the topic. Tom Glaser, President of Supply Chain at VF Corp., commented that the president s tone has shifted from an offensive positioning to a more defensive positioning. Ultimately, there are more questions than there are answers on the topic of global trade right now. Details about proposed new policies are foggy, but the details are important, and will ultimately determine how companies and retailers respond. Some retailers at the AAFA Executive Summit commented that they were preparing for the worst-case scenario. There was also discussion about potentially shifting manufacturing to the US in response to changes in trade policy and taxes. Some attendees noted that certain parts of the manufacturing process, such as spinning and weaving, where the US is more competitive, could be more easily moved to the US than could some others. But complicated products, such as jeans, are difficult to manufacture and require more skilled labor and the difference in manufacturing cost between the US and China is significant. 5

6 Deborah Weinswig, CPA Managing Director Fung Global Retail & Technology New York: Hong Kong: China: Shoshana Pollack Senior Research Associate Hong Kong: 8th Floor, LiFung Tower 888 Cheung Sha Wan Road, Kowloon Hong Kong Tel: London: Marylebone Road London, NW1 6JQ United Kingdom Tel: 44 (0) New York: 1359 Broadway, 9th Floor New York, NY Tel: FungGlobalRetailTech.com 6