2020 was all set to be a great year for the fashion industry with global sales projections expected to grow 3-4 per cent year-on-year – but this was before the unforeseen COVID-19 pandemic hit the world and completely changed the way consumers shop.
Consumer priorities shifted towards essential goods, such as food and household supplies, forcing fashion to take a back seat. As economies suffer from unemployment and a massive decline in GDP, the future spending power of consumers will be impacted severely, especially in industries like fashion.
Current market projections show online global fashion revenue contracting by 27-30 per cent Y-o-Y and some fashion sectors being hit harder than others.
But not all hope is lost; although total consumer spending has pulled back, e-commerce has emerged as a lifeline for consumers still looking to shop.
According to Statista, online sales was projected to be 24 per cent of total global fashion sales this year, but now that figure could be far higher.
“With bricks-and-mortar channels closed off for months, inventory is going untouched and will be out of season by the time most economies open again. As a result, e-commerce has become the most pivotal channel. To invite new customers to fashion sites, unprecedented discounts are being promoted, along with expanded delivery and alternative payment options,” said Emilie Grunzweig – Director of Data Insights, Riskified, to Apparel Resources, in an exclusive interview.
As e-commerce becomes the main source of revenue for fashion retailers, and fashion manufacturers and merchants face the dilemma of how to engage consumers during and post-lockdown, this feature focuses on the impact that the COVID-19 pandemic is having on the industry and the best ways to navigate through it.
We explore the challenges faced by the fashion industry throughout 2020, providing insights into omnichannel optimisation, increased customer satisfaction and expanding revenue streams. With insights from Riskified’s data, we share ways that fashion merchants can recoup lost revenue and maximise growth without compromising on customer satisfaction.
An omnichannel strategy is a delicate balance between in-store and online retail, but in 2020, the scales have tipped entirely in favour of e-commerce. While the portal is not new to most fashion merchants, having to rely solely on the digital channel is an unforeseen challenge that the industry is now adapting to. New technologies and expanded delivery options can provide customers with an omnichannel-like experience when going into stores isn’t an option.
Virtual Dressing Rooms
When it comes to making fashion purchases, many consumers prefer to try things on in-store before making their purchase. In the case of consumers who frequently purchase luxury fashion, there is a strong preference for buying in-store instead of online.
Forced store closures are making fashion merchants more dependent on e-commerce, but it takes more than just having a website to make the most of this channel.
There has been a buzz about augmented and virtual reality in the past few years, but its practical applications for online fashion are becoming more essential now. With limited opportunities to try items on before purchasing, these new technologies are helping brands stay engaged with consumers when they can’t visit a store.
In response to COVID-19, Snapchat partnered with WANNABY to enable users to virtually try on shoes with their AR lens and then purchase directly within the app.
Helping consumers understand how a particular fashion product would fit, can also lead to a boost in conversions. To ensure the same, many brands have created online fit quizzes to enable consumers have a sense that their purchase is personalised. Not only do such quizzes create a more personalised shopping experience, but they also provide brands with millions of data points to better understand consumer preferences. This key information can further aid production and creative design strategies for the future.
Consumers expect speed when shopping online. Shoppers want their goods within a few days of placing the order, and they want assurance right away that the order was fulfilled and is on its way. Approving orders needs to happen instantaneously to not interfere with the customer experience, but that requires resources that might be strained during peak buying seasons.
Multiple delivery options at low to no cost is another growing expectation from consumers. Free two-day shipping from big-box retailers has put pressure on fashion merchants to offer similar complimentary services. As a result, some high-end fashion brands offer faster shipping at no extra cost.
Whether it’s the result of changes in retailer standards or growth in popularity, Riskified’s data shows that faster shipping has become the standard in more than 40 per cent of online orders within high-end fashion.
As consumers want goods delivered sooner or get options to have contactless delivery, more fulfilment methods are becoming mainstream. Buy Online, Pick-Up In Store (BOPIS), faster shipping and drop-point delivery have all experienced an uptick in order volume, but some options are riskier than others.
BOPIS is one of the safer options, followed by quickest delivery which has moderate risk.
“COVID-19 has changed shopping. Fashion retailers, along with most of the other industries, saw customers rapidly shifting from offline to online shopping, and e-commerce became an important source of revenue for fashion retailers. This resulted in whole new buying patterns and behaviour: peak times for online shopping have changed, there was a rise in mobile commerce and fulfilment methods such as BOPIS (which has changed), curbside pick-up, and expedited shipping,” Grunzweig said, adding, “This change in behavioural patterns, along with the rise in online customers, is stressing the need for merchants to adopt innovative methods and be prepared to handle the demand by investing more in their online platforms and expanding their services, without compromising on the shopping experience.”
Marketplaces have evolved beyond the traditional powerhouses of Amazon and Alibaba. Over the past decade, fashion marketplaces have become increasingly popular with consumers. Whether it’s high-end boutique sellers on Farfetch or household names like Adidas selling on Revolve, marketplaces provide fashion labels with the opportunity to reach a wider audience.
Especially now that most bricks-and-mortar locations are closed or running at less capacity, marketplaces are providing brands with another digital channel to grow revenue.
But fashion marketplaces take on a lot of risk. Between dealing with account takeovers and managing fraudulent sellers, there is a lot that happens behind the scenes to ensure that fraud doesn’t become a larger liability. Marketplaces are favoured by customers for the variety they provide, but brands also seek them out as channel partners because they increase online exposure. Allowing more brands and individual vendors to sell through their website helps the marketplace increase sales.
BUILDING YOUR BRAND
Fashion is such a crowded market that it’s getting harder to stand out. That’s why building a brand that consumers identify with, has become the secret ingredient to long-term success. Consumers make statements with the clothing they wear and so it’s important that the brands they choose ‘live their values’.
About two-thirds of consumers worldwide say they would switch, avoid or boycott brands based on their stance on controversial issues. The way fashion brands chose to communicate to their communities during the Covid-19 pandemic could be one of the defining factors of their success in a post-pandemic world.
The consumer-brand relationship is tense during times of crisis. One way to maintain a positive relationship with consumers is to offer them relief while they are in lockdown.
Activewear companies, like Nike and Gymshark, are promoting their apps that provide free at-home workouts for customers to stay active. Many others are offering unprecedented discounts on their inventory.
Luxury brands like Lacoste have offered 30 per cent, a first for the brand, with others like Anthropologie offering up to 50 per cent. Even marketplaces, like Verishop, have offered site-wide and brand-specific discounts to keep consumers engaged.
Fashion merchants that decide to introduce discounts should do so thoughtfully. Steep discounting can tarnish brand image or create a dynamic where consumers are only willing to purchase when prices are marked down.
Another way to create deeper ties with customers is to pivot and produce goods that are in line with what consumers and society needs. When the healthcare industry needed more PPE, several high-end labels shifted production to creating masks and developing hand sanitisers. Since consumers are more willing to support brands that contribute to society, initiatives that donate supplies and clothing to healthcare workers for every purchase made have garnered favour with shoppers.
Shoppers are becoming more conscious of their consumption, especially the environmental impact of material waste and toxic emissions linked to manufacturing. As a result, sustainable fashion is a growing trend and consumers expect brands to make a greater commitment to sustainability.
According to KPMG, 64 per cent of global consumers support sustainable fashion, but only 13 per cent of consumers are willing to pay more for it. It’s something consumers are interested in supporting but brands will be challenged to provide more environmentally-friendly products without a major cost differential to customers.
One way to achieve this is by shifting towards seasonless fashion.
Fast fashion is reliant on keeping up with consumer trends by producing new lines within a couple of weeks and leads to wasted materials if demand is lower than anticipated. In a seasonless model, fashion labels are focused on creating high-quality products that are timeless. As the impact of COVID-19 slows down supply chains, more fashion manufacturers are noticing how wasteful these production cycles are and can use this time to strategise towards more sustainable operations.
Even before the pandemic hit the globe, McKinsey found that 56 per cent of apparel companies feel that sustainability and transparency are their top priorities in 2020 with a particular focus on sustainable materials, traceability and supplier relations.
While gaining consumers’ trust in the brand is essential, learning how to trust the consumer in return is just as important. One of the biggest challenges facing fashion retailers today is friendly fraud. This involves customers taking advantage of return policies, promotional offers and complimentary customer services. Fashion merchants need to strike the right balance between preventing fraud and trusting consumers without compromising on revenue streams.
As e-commerce shopping increases, so does the volume of online returns. While shoppers return 10 per cent of what they buy in-store, more than 40 per cent of online purchases are returned and can cost as much as US $ 10 per return for the merchant, according to Forrester.
New technologies are improving the online shopping experience and limiting the need for returns, but plenty of customers still abuse the practice.
Although it’s the harshest option, 55 per cent of fashion retail decision makers in the US would permanently ban a serial returner from shopping on their website. Some merchants, such as Everlane, withhold about US $ 6 when customers make a return in order to cover shipping costs. Other merchants institute restrictions on just the biggest offenders – customers spending over US $ 10K in a six month period and returning 85 per cent of all merchandise.
Amid the pandemic, several merchants, including Gap, extended their return windows. Without the ability to make an in-store return, merchants are offering 60-90 day window which is great for bolstering spending.
With nearly everyone being forced to shop for clothes online, fashion merchants are targeting many new customers through this channel. Making more payment options available enables businesses to reach new audiences that want or need to pay in different ways.
Riskified’s insights show that e-wallets, such as Apple Pay, Alipay and WeChat, are being more readily used for payments in online high-end fashion orders since March 2020.
This uptick in e-wallet orders is happening probably for two reasons – first, e-wallets are a growth engine for new customers; and second, as mobile usage grows throughout the pandemic, mobile e-commerce has been on the rise.
Since e-wallets were designed for mobile use, and mobile orders made up 4 out of 5 online purchases at the start of the pandemic, fashion merchants should consider e-wallets as an online payment option.
Many fashion merchants have relied on unprecedented promotional offers during lockdown to encourage online shopping, but some offers are less safe than others.
When merchants offer new member discounts, such as ‘refer a friend and get 25 per cent off’, some customers may exploit this offer by creating multiple accounts with different email addresses.
While these types of promotions are cause for concern, especially without the internal resources required to prevent it, promotional code use generally indicates that a fashion order is safer than orders without one.
Riskified’s insights found that when no promo code was used during the first five months of 2020, fraud attempt rates were on an average 2x higher for mid-tier fashion, and 3x greater for high-end.
Promo codes aren’t just safer, they also usually lead to more order volume and can even create higher value orders. While promo codes are typically used to encourage shopping, some consumers will actually spend more than usual in order to hit the threshold required for the discount.
Even though promo abuse happens, data shows that promo codes are generally used by legitimate customers and can be a great way to maintain customer loyalty and satisfaction.
Online fashion revenue is expected to grow 43 per cent over the next four years in an industry that generates over US $ 2.5 trillion globally. As more consumers shift to e-commerce, fashion merchants will need to be prepared to handle the demand without compromising on online experience. This will require adopting new digital technologies and services, connecting with customers over shared values, and expanding promotions and policies that boost loyalty while mitigating risk.
Digital commerce is transforming quickly. Focusing on these themes will enable fashion merchants to maximise revenue streams and increase customer retention.