What the industry must to do adapt to the new normal
Fashion has always been about change and cycles. There will be myriad opportunities to consider how to change and develop opportunities, but the how, the why and the structure of them will require entrepreneurship along with great collaborative enterprise. The COVID-19 pandemic has presented the fashion industry with many issues beyond health and well-being and has left all industries in a quandary with many questions and few practicable solutions until some semblance of normalcy returns. But no industry group is more at risk than the wholesale and retail fashion industries.
It is obvious that there had been a great deal of disarray within the fashion system long before it all shut down as a result of COVID-19. Monumental changes were in process; many department stores discovered that they were dinosaurs and change had escaped them; specialty chains financed with debt and by private equity were drowning, facing closure or already closed. Many fashion companies sought alternatives to selling to department stores in order to develop brand strategies and capture consumers. Many companies that focused upon private label production realized that theirs was a commodity and subject to being replaced by others with improved logistics and more competitive pricing.
Capable and thoughtful organizations embraced more timely business strategies, and effective sales and marketing campaigns focused on specialty retail and digital retailing, along with their own pop-up stores. They quickly adapted to usage of social media tools, brand ambassadorships and other direct-to-consumer strategies. Thus, this became the new norm.
Now, with most business closed or running at maintenance levels, the fashion industry has reached a level of disarray unlike anything ever experienced in history. Change is being forced upon the industry. Notwithstanding the present state of the fashion system (be it as a result of evolution or the revolution that was already upon us) as a result of COVID-19, fashion urgently needs to re-think and restart in a form built upon collaboration, knowledge, experience, know-how and leadership. Fashion brands and manufacturers must quickly focus on why their products and brands need to exist, how they will present new products and concepts to retailers and consumers alike, how they can discover and develop new resourcing strategies and embrace new technology and logistics. Fundamentally, business must not forget the need for secured sources of capital, credit and back-end support.
Fashion companies, in order to survive and succeed, must focus carefully on demographics and invest with greater caution. They must establish a stable core, work to have predictability and build out from there. Companies must focus on doing business at sensible and supportable levels and think about endurance, sustainability and performance as the guidance and mantra for the future.
To quote from the motivational speaker Simon Sinek, “Start with ‘why.’” Rationalizing the concept of “why” is the cornerstone for success. Businesses need to question each step of the process from design through revenue collection and not assume things or do things without forethought. They must reduce and eliminate costly errors attributed to inexperience or lack of know-how yet have the courage to take forward new ideas, products and concepts, making sensible, well-articulated choices.
Very few new firms are emerging in today’s fashion world, and those that have been fortunate enough to locate financial backing find themselves struggling to stay afloat. As stated earlier, strategic and tactical know-how is required. The costs associated with running a business have challenged even those that appear from the outside to be successful. First, it was the economy and/or the manner in how fashion companies were treated by their retail clients. Often, the greatest challenges are the economic mistakes caused by missteps from lack of experience or guidance. Most fashion designers and wholesalers lack operational, marketing, production and general business experience.
The obstacles faced by talented companies and their management are numerous. Markups are being eroded by retailers who have created a new art form in vendor payment deductions, “sell through” and markup guarantees. Supplementary discounts and return privileges are pervasive. Producing products, merchandising, marketing the product line and controlling the front-end of the business are essential. Small companies are penalized in a variety of ways because they manufacture small quantities and lack clout with their vendors and customers.
Technology is another hurdle, as it is expensive and difficult to master but required. As a result, only the fittest and most prepared companies will survive.
As stated, capital investment must have a strong strategic component and an understanding of fashion’s cyclical nature. It has become increasingly difficult for inexperienced investors to make economic sense of small, independent fashion companies because the level of intelligence provided by backers was not strategic or tactical enough to make a difference. When things were going well, investors paid themselves back or took dividends out with little or no cap-ex provided for brand building. When economic hurdles were faced, investments that were challenged were often discarded.
Although these conditions have depressed the fashion system and confused the marketplace, they also provide a unique opportunity for anyone capable of addressing the economic problems faced by young fashion companies.
The relationships between suppliers and retail customers must be re-thought; suppliers must now seek alternatives to the old way of doing business. The existing vendor-to-retailer system has been challenging, often by one-sided conditions set forth by retailers and governance from arbitrary performance rules which are often punitive to the supply side.
Old-line department stores have hit the wall, reaching critical economic peril. For the most part, the deck has been stacked against suppliers by an archaic system constructed by retailers almost as a game of pay to play, with little consideration of the actual downside costs to suppliers until too late in the game. Retailers have created and imposed many punitive categories of allowances and chargebacks set forth seeking economic parity which, in effect, have altered pricing to consumers.
Standards, for the most part, are well beyond the control of the supply chain and unreasonable at best. Many of the rules are one-sided, inexplicable and outright inconsistent with rational business. It seems that it has been forever the case that retail-partnerships have challenged their supply side, making many (if not all) transactions slightly lopsided, always in retailers’ favor.
To avoid the adversarial and non-profitable path, many new brands and companies not willing to play in this arena have migrated away from department stores. They have sought out alternative connections to consumers, accessing them online or in specialty stores. As stated, many changes were already in progress. Revolutionary changes occurred at a relatively fast pace, shifting the focus into the digital space and to content. The priorities became how and when targeted groups shop, how they communicate and of the variety of communication tools they use. Curated brands, social media, brand ambassadorships, sustainability, renewable resources and the speed to which information is processed has all contributed to new opportunities.
Early adapters are positioned for success, especially if they have the know-how, the tools, the benefit of experience, professional advisors and the ability to negotiate the in the new fashion world. Companies which are late to adapting are challenged, and those companies that did not adapt to doing business within the new fashion economy may be doomed.
The cornerstone of fashion has always been about change and the next idea, the next advertising campaign, the next icon or personality connected to a brand and the connection to consumers. Our fashion system was created mostly as the result of small wholesalers — true entrepreneurs learning the craft and exploiting opportunities. They developed critical relationships with their supply chain for production, their professionals and lenders and, of course, their customers. Over the past several decades, big brands have dominated the landscape. On a parallel track, smaller companies have succeeded with an alternative agenda, gaining experience, making their marks and living in specialty stores, pop-ups and online, getting to know about their consumers.
When will a recovery begin and what will it look like? No one can be quite certain, but there will be a recovery. The fashion industry is resilient. The fashion industry has been adaptable. The fashion industry survives because of products that consumers enjoy. Our fashion system has been through many iterations of evolutionary change. Fashion is about change.
Andrew Jassin is founder and managing director of the Jassin Consulting Group. To learn more about Jassin Consulting Group and its recent project, Fashion Central, visit jassinconsultinggroup.com.
