As retailers and fashion apparel brands ready themselves for the fall selling season, the macroeconomic environment presents challenges for the health of consumer spending, which include the longer-term impact of Brexit and ongoing concerns over China’s economy.
Meanwhile, companies are still trying to crack the code on Millennials to unlock the largest demographic age group’s spending power. But Carol Lapidus, partner and national leader for the consumer products industry at RSM U.S. LLP, said there are opportunities in this market.
Lapidus noted cheap gas, an increase in the minimum wage and new products in the pipeline as positives. Here, Lapidus discusses these issues as well as the impact of the presidential election on consumer spending and the expansion of the see-now, buy-now trend.
WWD: As the market heads into the fall and holiday shopping season, what are some of the opportunities and challenges facing retailers and fashion apparel brands?
Carol Lapidus: For challenges, there are three notable events occurring, which together could be the perfect storm. First, the difficult global economic environment we’re in right now could keep consumers out of the stores. There is uncertainty regarding Brexit, and as a result, currency issues throughout Europe. China is still struggling economically as they continue to face a slowdown in growth. This global unrest coupled with our own uncertain election this fall makes consumers uncomfortable. They’re likely to hold onto the cash in their pockets until they know the outcome. The next challenge is the weather.
The industry felt this last year and may feel it again this holiday season as we are having one of the hottest summers on record. If it isn’t cold in November or December, consumers will not be ready to purchase winter coats, cold-weather accessories and boots. If it isn’t cold until February, they will simply wear their coats from last year. Lastly, the Millennials. They are one of the largest employed demographic groups and will continue to be a challenge this season because they do not want to spend money on apparel and shoes, but rather on travel, food and other experiences. Just look at their Instagram feeds; it’s filled with photos of food they’re eating at restaurants or cooking at home, along with their travel adventures.
With these challenges also comes opportunity. First, certain economic conditions are favoring the consumer; the low gas prices, the overtime rule change, and the increase in the minimum wage throughout the U.S. will put more cash into consumers’ pockets. Hopefully, this leads to more spending. Another opportunity we’re seeing is for companies that are offering a new and exciting product. Millennials value innovation and disruption, and it doesn’t just apply to technology. Brands that have reinvented themselves so they could successfully answer the question, “what do Millennials want?” will succeed. Aligned with Millennials’ needs, there will also be opportunity for discount retailers. As we already know, consumers, especially Millennials, want value for their hard-earned money, so they’ll spend the money where they can get a deal. Many brands and retailers have already realized this opportunity as Macy’s and Lord & Taylor were the final department stores to enter the off-price store game last year.
WWD: What impact is the presidential election having on the retail market?
C.L.: The vocal and divisive presidential campaign and upcoming election are causing consumers to feel uncertain about our country and its leadership, which results in lower consumer confidence. We may see deferred shopping on big-ticket items, like furniture, as well as nonessential fashion and gift items. Shoppers will sit and wait until after the election when they know for sure which way the wind is blowing.
WWD: How do brands and retailers respond to these challenges and uncertainties? How do they differentiate themselves in the market?
C.L.: Brands and retailers can respond by offering value and engaging directly with the consumer. Consumers, especially Millennials, want value for the price they’re paying. Amazon is an example of this as they just had their biggest sales day ever thanks to their second Prime Day event. Brand logos matter less to them than quality and value — along with a fast, safe, connected and seamless shopping experience. The Millennial consumer demographic drives the evolution in retail with their preference for digital shopping, ever-growing use of social media and requisite research of purchases before buying. Smart fashion and retail executives engage the consumer and share information about their products as well as their core values. They research products before they buy, so it is essential for companies to put out relevant, reliable information about their products the consumers will want to share with their friends.
For example, instead of putting out 1,000 tweets, they need to create a thousand conversations from one tweet. In addition to engaging with consumers on social media, brands need to look to digital influencers to help sell their products. Brands need their products to be showcased by a blog, or promoted by a celebrity in their Snapchat story or Instagram to their millions of followers. This will help them create 1,000 conversations from one post, which is a much better result.
WWD: In an earlier interview, you noted that in a consumer-centric environment, the dynamic between shopper and retailer and/or brand is a “two-way relationship.” What does that mean?
C.L.: The retailer and/or brand needs to look at the consumer as a co-creator of the brand. The only way to do that is to listen to them. An example of this is customer service. By 2020, more than 75 percent of all transactions will be completed through mobile. As smartphone usage has increased, so has social media usage. Therefore, brands must communicate with their consumer on social media for customer service and other needs by responding to their tweets, Facebook comments, and Instagram tags. They will know you are not only talking at them on social media, but listening, too. Brands should not only promote their own products, but also ask consumers what they want. For example, if consumers see a product on Instagram and comments that it would be great to see that same product in a different color, size or fabric, the company should listen, respond and react accordingly.
WWD: How have recent security breaches impacted the relationship between consumer and retailer/brand? Is there less trust?
C.L.: Quality and reliability are core values that consumers want and that fashion brands and retailers must exemplify. These core values become even more important when the quality of the product, or any other corporate issue, comes into question. The consumer wants to know that the brand is upfront and open about its plans to correct a problem, such as a security breach. For example, Home Depot’s security breach was as bad, if not worse, than Target Corp.’s, but they didn’t experience the same outrage. This is because Target waited too long after learning of the potential breach to address the issue and inform its customers, while Home Depot acted much more quickly. Consumers appreciate transparency and honesty. If a brand is honest with their customers about the issue and plan to correct, they will more likely not lose their trust when things go wrong.
WWD: Any other notable trends you are seeing in the market?
C.L.: A trend that we’re still seeing in the market is the rise of young branded fashion companies. These companies have new, exciting products that consumers want. They also have a good social media strategy that includes celebrity endorsements, and not just people who are on TV, but celebrity bloggers, too. This is their go-to platform for interacting with consumers. As early-stage companies continue to bring new products to market, we’ll continue to see brand extensions. Traditional brands are entering the market with different products, whether owned or licensed, just as Kate Spade moved beyond handbags into housewares and clothing.
As value becomes increasingly important to consumers, retailers and brands are working harder at innovation and differentiating themselves to gain consumer loyalty. With this trend, we’ll continue to see disruptors, such as Rent the Runway and Amazon, grow faster than traditional fashion and retail. Experts predict that Amazon will displace Macy’s Inc. as the number-one U.S. apparel retailer by 2017. These online companies provide value, but also speed and ease of shopping. They’re reinventing what retail looks like.
If interest rates stay low, mergers and acquisitions activity will continue in the marketplace. Private equity firms continue to be strategic as they look to buy growing, exciting brands. Plus, it’s still a sellers’ market. We’ll also continue to see international expansion whether it is through opening stores, selling to foreign retailers, global e-commerce, or international franchising. Global expansion will still be on companies’ minds. There are fewer and fewer U.S. retailers to sell to. As long as the European and Asian economies stay afloat, they are great targets for U.S.-based brands.
Lastly, fast-fashion is another trend we’re seeing, and it is not just for the value shopper, but for the designer shopper, as well. Consumers don’t want to wait six to nine months from the time they see fashion on the runways until they can buy it at retail. Designer Rebecca Minkoff became an industry disruptor when she was the first to announce the introduction of “see-now, buy-now,” presenting her spring 2016 collection at her February New York Fashion Week runway show. She also invited top customers and bloggers. Thanks to social media and e-commerce, consumers want more than just information at their fingertips; they want instant gratification.