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Home Lifestyle Fashion

The Year That Changed Retail Forever

by Staff Writer
December 19, 2020
in Fashion
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The Year That Changed Retail Forever
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For retailers, it felt like there was a lot of bad news in 2019. Little did we know what 2020 had in store. Except… to some extent, we did know. 

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Many of the legacy retailers that survived a particularly tough year — think: J.Crew, Neiman Marcus, J.C. Penney — were already hanging on by a thread before the pandemic, with sinking sales, reliance on physical retail and large amounts of debt coming up due. As “retail prophet” Doug Stephens put it to me in an email: “The early retail victims of Covid-19 suffered from a variety of pre-existing conditions.” 

These companies were in situations that would’ve been nearly impossible to rebound from even without a global public health crisis. Retail analysts had already predicted that some of them would declare bankruptcy in 2020 — add a nearly-worldwide lockdown that mandated temporary store closures into the mix, and their fate was sealed early on.

That being said, Covid-19 definitely made things even worse. So far, there have been an estimated 29 retail bankruptcies and 8,400 permanent store closures this year, with more predicted to come, meaning 2019’s record of 9,302 closures will likely be broken. According to Business of Fashion and McKinsey & Co.’s The State of Fashion 2021 report, fashion companies specifically are expected to post approximately a 90% decline in profit in 2020, after a 4% rise the previous year. 

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Most retail experts, however, would tell you that the events of this year merely accelerated trends and changes that were already in motion pre-pandemic. That means 2020 was an especially pivotal year for the industry. As our lives changed dramatically, we witnessed the rapid decline of what wasn’t working — and maybe also the birth of what will.

“Retail is a reflection of life and our lives have changed enormously and in some respects, permanently,” explains Stephens. “Hundreds of millions of us are working remotely. Twenty-six percent of businesses are looking to cut their real estate footprints. Technology companies are allowing their people to work from anywhere. We’re educating from home. There are exoduses from cities to surrounding suburbs. The airline industry may take five or more years to recover to 2019 levels. All of these life changes have implications for retail. Where, how, when and even why we shop has been fundamentally changed.”

Below, we break down some of those fundamental changes, from the definitive shift online to the new ways brands and retailers are working together to the innovative shopping concepts gaining momentum.

The Shift to Online

The most obvious of those already-underway trends was consumers’ shift to shopping online, which they did a lot of this year thanks to that whole stay-at-home thing. 

Per the BoF McKinsey report, luxury e-commerce sales rose by at least 50% in the United States, Europe and China. “2020 may be remembered as the year in which fashion retail made a definitive shift online,” it read. “Over a period of just eight months, e-commerce’s share of fashion sales nearly doubled from 16 percent to 29 percent globally, jumping forward six years worth of growth.”

Overall, e-commerce sales rose 30% in the U.S. in the first half of the year, according to Census data. And that trend isn’t expected to reverse once we’re all safe to leave our homes again: According to a recent report, Moody’s Investors Service expects online sales as a percentage of total retail sales to exceed 25% over the next five years. As a result, retail chains will likely continue to reduce their store counts (if they don’t go under entirely, that is).

Looking forward, online shopping concepts are likely to become more advanced, and we’re already seeing how. Instagram launched in-app checkout, even for features like Instagram Live and Reels. TikTok has hosted shoppable livestreams. Shopping through video games and VR are also likely to become more common — though, it probably won’t find widespread adoption anytime soon.

The New Retailer-Brand Relationships

Something that 2020 is likely to change forever is the way in which retailers and brands work together. 

Those first few months of the pandemic were harmful, if not devastating to brands that relied heavily on wholesale brick-and-mortar accounts, particularly those without the backing of a conglomerate. Some were able to quickly pivot to an online direct-to-consumer model, but that only helped if they were offering product that felt relevant to consumers mid-pandemic. Meanwhile, some retailers protected themselves by reducing buys, cancelling orders or even failing to pay invoices, to the detriment of the brands they carry, many of which then couldn’t afford to pay factories, leaving already-vulnerable garment workers in the lurch. Then, there was the fact that the whole ecosystem around the buying and selling of clothes — traveling to Europe, attending showrooms and crowded trade shows, etc. — couldn’t happen. All of this exacerbated frustrations that already existed among brands that may have felt forced to bend to wholesale partners’ every whim without always seeing enough of a return.

Logistically, 2020 accelerated the rise of online wholesale platforms and tools that allow buyers to see everything and place orders digitally. More broadly, we’re also beginning to see brands and retailers work more closely together on terms, with brands aiming to maintain more control than they’ve had in the past.

“If you were a bestselling item at Macy’s and they’re no longer carrying you, you have no say in that; I think people are going to be looking into: How do I control that experience a little bit more for my livelihood?” says Selene Cruz, founder of San Francisco-based retail-as-service concept store Re:Store, which was recently acquired by B8ta, another retail-as-service platform.

Hillary France, founder of Brand Assembly, which operates tradeshows and helps with backend operations for brands, has noticed brands being more flexible with when they release new product instead of working on seasonal wholesale calendars. “Companies through this feel that they can release collections when they have the time, when they feel it’s ready and there isn’t necessarily this defined date that everybody has to release a collection,” she explains. Retailers, too, seem increasingly open to buying in-season based on demand, rather than making orders months in advance and ending up with excess inventory. France argues this will give brands more control over what they give retailers access to.

The BoF McKinsey report advises: “Companies need to reduce complexity and find ways to increase full-price sell-through to reduce inventory levels by taking a demand-focused approach to their assortment strategy, while boosting flexible in-season reactivity for both new products and replenishment.”

The Retail Survivors

The pandemic has put a bigger spotlight on newer, more innovative retail marketplaces that don’t rely on the typical wholesale model. 

Retail-as-service platforms — which don’t buy inventory but instead offer space to brands for a fee and/or commission — have been especially hot in 2020. There was B8ta’s acquisition of Re:Store, as mentioned above, plus the opening of its New York outpost and rebranding of its San Francisco location under the name Forum. Neighborhood Goods, which operates stores and an e-commerce site, began the year with significant VC funding and 600% year-over-year sales growth, which put it in a position to help small brands for free. Then, we saw launches of mobile versions of this concept, such as Shopify’s Shop, The Yes and Behold. (The latter counts Julie Gilhart and Tomoko Ogura as brand curators and sees celebrity stylists personalizing outfits for shoppers.)

Another new shopping app, FastAF, delivers a well-curated assortment of essentials by status-y millennial brands (think Aesop, Skims, Ouai, Le Labo and Everlane) to your home within two hours. It does buy inventory — held in fulfillment centers powered by parent company Darkstore, which fittingly takes advantage of vacancies left by businesses that have had to shut down. (A “dark store” is one that used to be used for physical shopping that has pivoted to become a fulfillment center for online shopping.)

The pandemic has created plenty of available space, according to Darkstore and FastAF founder Lee Hnetinka. He says the concept appeals to brands because of the company’s ability to reach shoppers so immediately, but also because of its curation of brands that have a certain cool factor and also aren’t widely available on other digital marketplaces: “It’s all over Instagram as this insanely cool selection, so we kind of have this movement we’ve created and brands have come to us and said, ‘Hey, we really want to be on there.'” Since launching in New York and Los Angeles, the app has seen 1,100% MoM in sales growth.

As FastAF grows, these differentiating factors — speedy delivery and cool curation — could spell success. “Any merchant, in any format, that adds significant value to the products they sell, has a place in the future,” says Stephens.

One of the big e-commerce success stories to come out of 2020 was that of Farfetch, an online platform that wasn’t new, but managed to really capitalize on the year’s events. Second-quarter sales at the site, which offers inventory from designer boutiques around the world, were up nearly 75% from the previous year.

While all of these models hold promise, Stephens warns that not all retail-as-service platforms will ultimately survive as the market gets crowded. “When that happens the novelty factor for investors, brand partners and even consumers will begin to die,” he says. “For investors and brand partners, it will really become more about true revenue and profitability. For consumers, the expectations of the experience they have will be significantly higher.”

Stephens poses Nike as an example of a single-brand retailer that proved itself as a survivor this year because it had already “laid the groundwork to weather this kind of storm.”

“They became geniuses at digital retail,” he continues. “They fired all their suboptimal distribution partners. They focussed their direct-to-consumer effort. And they built really cool stores. Coupled with the fact that their early action to close their stores in the interest of staff and customer safety turned out to be a remarkable PR play.” 

Getting Local — and a Future for Physical Stores

In addition to becoming more digitized, several experts we’ve spoken with think retail could become more localized moving forward. 

The pandemic has been devastating to travel- and tourism-dependent retail, but it’s been a boon to local neighborhood businesses. France has noticed founders and designers fleeing big cities like New York and L.A. to live and open up shop in smaller towns, like Hudson, NY or Ojai, Calif., where they can operate inexpensively but still harness their digital presence to connect with (and sell to) the world at large. With consumers expected to remain cautious about travel, companies are likely trying to find ways to engage people more locally. “I think small town retail will see a huge uptick,” she notes.

And while we will continue to see closures of underperforming stores, that doesn’t mean the concept of the physical store is dead. Per the BoF McKinsey report, stores will be more important than ever. “Stores are really going to have a heyday,” Elsa Berry, founder of luxury M&A advisory firm Vendôme Global Partners, said, in the report. “[Changed consumer behavior] is going to put pressure on the stores that do exist to be super interesting.”

“There’s still big belief in the physical space but there is this urgency to: How do you scale it out?” Cruz argues, who feels that stores need to be fused with digital in such a way that people who aren’t physically there can still experience them.

Per Stephens, brick-and-mortar success will be all about “remarkable” experiences. “I call it SUPER experiences: Surprising, Unique, Personalized, Engaging and Repeatable,” he predicts. “Brands that can deliver all five will be bulletproof.”

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Source by fashionista.com

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