While computers are not immune to viruses, the digital channel was largely left unscathed and operational during the COVID-19 pandemic — a lifeline for fashion companies.
Yet on a scale of 1 to 10 for digital transformation — 10 being a best-in-class technological company — Bain & Co. partner Claudia D’Arpizio rates the most advanced fashion players at 7, and stragglers at 4, underscoring the need for further progress.
Indeed, while some players flexed their digital muscles and eked out revenue growth in the first quarter, including Revolve and Zalando, scores of designers and brands scrambled to ready virtual showrooms, widen online sales bandwidth and brainstorm non-physical ways to unveil new collections.
Proponents of end-to-end digitalization see swaths of fashion still mired in time-sucking manual processes, including a back-and-forth of physical samples from factories. Indeed, one of the reasons most fashion brands have yet to define contingency plans to unveil new resort and spring 2021 collections — almost two months after it was announced that European fashion weeks were canceled — is because locked-down designers had yet to view any completed samples or conduct fittings.
Boston Consulting Group estimates an end-to-end digital transformation at a fashion company can squeeze the product-development calendar by up to 40 percent, and reduce staffing needs by up to 20 percent.
Experts agree fashion companies overall are further advanced in digitalization with marketing and e-commerce, with product development and AI-powered decision-making among the laggards. Several experts also cited shortcomings in digital content, particularly recently.
“Technology on the customer experience side has grown a lot faster than operations, and with limited budgets, companies make difficult decisions to invest in anything that makes them appear tech-savvy through the experience they offer the customer,” said Simon Butler, vice president and head of retail at Capgemini in the U.K. “But in most cases they leave the back-office operations still running manually.”
To be sure, the health crisis has been a wakeup call, and “this moment is going to be a catalyst for the industry to embrace digital more,” said Drake Watten, BCG’s California-based managing director and partner.
Here, experts offer perspective and advice on key areas:
“Relative to other categories like CPG [consumer packaged goods] or groceries, fashion is actually highly penetrated online. But that’s more due to favorable economics for home delivery versus best-in-class digital capabilities,” said Watten.
The consultant estimates e-commerce pre-COVID-19 accounted for nearly 25 percent of fashion sales, compared to less than 5 percent for groceries. “If you buy one garment or a pair of shoes in fashion, the margin you make typically outweighs the cost you have to incur to get that product to a consumer’s home, relative to groceries, which have more lower-priced items and lower margins,” he explained in an interview. “It’s also favorable when consumers make returns in store: They typically buy more.”
Still, Bruno-Roland Bernard, an independent consultant in corporate and financial communications based in Paris and a lecturer in finance at Institut Français de la Mode, noted that online shopping was hardly a bonanza during coronavirus lockdowns, except for essentials like food and pharmacy.
“Clients have resorted to digital distribution but not to the extent that the servers are overloaded,” he said. “There is an irony that a McDonald’s drive-through reopening creates traffic jams when no digital fashion distribution channel manages to stand out — not forgetting certain retailers which even stopped delivering because of their warehouses.”
Indeed, Butler noted that many companies struggled with operational issues in recent months.
“Warehouses have been overrun with demand, struggling to redesign processes and workflows to meet social distancing requirements and ensure the safety of their staff,” he said, citing British high-street chain Next as an example. Despite its robust supply chain, the retailer closed operations for two weeks while the company implemented safety mechanisms for staff. Many retailers, most notably on the high street, have even struggled to set up their teams Bruno-Roland Bernard or home working in a quick and efficient way.
According to him, pure players fared better, with Asos ramping up its use of augmented reality, giving customers “a realistic view of up to 500 clothing items per week on six real-life models while allowing Asos to adhere to social-distancing restrictions.”
Boohoo.com also powered through during lockdown with swift sales of jogging wear, hoodies and tops due to its agile supply chain, and focus on speed to market.
But these are exceptions, Butler said. Due to closed stores and bulging inventories, most retailers did not have the agility or cashflow to “scale up digital operations quickly enough.”
The consultant lauded players like Revolve and Stitch Fix, e-commerce pure payers that behave “as a hybrid of fashion and tech start-up companies. With low expenditure on physical assets, they have the advantage of investing in new technologies and leveraging the power of artificial intelligence and augmented reality,” Butler said.
Bain-Altagamma’s recent spring update trumpeted that digital shopping habits built during the outbreak are likely to stick — especially if brands raise their game in online assortment, user experience and digital marketing.
“It’s not just investments in technology and digital marketing to bring traffic to the store, but also on supply-chain reinvention to support the growth of the channel, in particular making available the right stock for the channel, good synergy with the retail network globally,” D’Arpizio said.
She urged brands to accelerate their dot-coms, particularly in China. While there are challenges there — with gray market and counterfeit goods present on some platforms — companies should focus on their own channels and operations to ensure traffic, visibility and brand protection.
“China is becoming a big local market. Chinese customers will travel less in the next months and will buy less while traveling also in the mid-term because as we know, price differentials have been reduced and there is a strong push by government to increase local consumption,” she said.
DESIGN AND PRODUCT DEVELOPMENT:
According to D’Arpizio, it’s critical for firms to invest in processes from product creation to showroom in order to “gain time to market,” mitigate situations like the coronavirus outbreak, and reduce travel.
“The lockdown has for sure sped up the digitization of some working practices, starting from virtual showrooms up to trying to digitalize as much as possible the product development process that as you know, is one of the most critical in the industry — a very human-based, artisanal way,” she said. “This is an area where they can gain a lot of competitiveness in trying to digitize some of the steps. The technology is there so you can do 3-D design in really high quality.”
“The current product development cycles are just too long, which will limit fashion companies’ ability to respond to the changing consumption patterns and quickly evolving trends,” Watten agreed in an interview. “So things like team travel to suppliers with physical samples co-developed on site, or selling it to wholesalers if that’s your business model — those things are just disappearing right now.”
Butler said retail brands that invested in digital product development and selection capabilities should have an advantage this fall-winter season. “Technologies such as Browzwear will allow product development processes to continue despite lack of travel, sample-room closures, etc., and these are the opportunities retailers should be focusing on,” he said.
Singapore-based brand Browzwear is a technology firm whose 3-D prototypes can replace physical samples throughout the design, prototyping, fitting and sales processes, according to the firm.
“Driven by sustainability, there is still a lot of opportunity to shorten the lead time for product creation for luxury brands with the use of 3-D prototyping — fashion companies at early stages of product development can use this technology and then produce based on the design of the final prototype only,” Butler said, while acknowledging that luxury and designer firms will have a hard time weaning themselves off touchy-feely practices.
“Designers, buyers and product developers prefer to see the fabrics in person, match the design to the exact fabric color, and feel the quality and finishing. The fit is also very important, especially when customers are spending a lot on an item, so the fitting stage is still quite manual with physical samples,” he said, also noting that “a lot of luxury items are handmade, therefore digital adaptation is a much harder.”
“Consumers have been massively dislodged from their traditional shopping experience. But a lot of fashion companies just lack the data-driven marketing capabilities to intercept them, and personalization capabilities to draw them in,” said BCG’s Watten. “It’s only going to get more and more difficult as privacy concerns increase and information overloads persist.”
D’Arpizio said brands that invested in areas to increase client knowledge and consumer understanding reaped the benefits during retail lockdown.
“The knowledge of consumers and the ability to stay in touch with consumers was a strong mitigator of this crisis,” she said. “It‘s important to know them and understand their behaviors and shopping behavior across different touchpoints.”
Within luxury goods, digital clienteling is a big opportunity, according to Capgemini’s Butler, citing Harrods and its remote personal shopping services as an example.
“Burberry has already seen success and exceeded sales targets in many areas using this technique,” he said. “Personalization is another area with significant scope for improvement. Being able to identify what customers are looking for and the digitization of customer experience driven by advanced analytics and AI will be the key area of opportunity for retailers.”
Watten stressed that much of customer service derives from operational capabilities, and these are what often prevents consumers from getting what they want. “I’m very bullish on the more we can digitize the supply chain, the more it’s going to enable really great consumer experiences,” he said.
The consultant, who works in Silicon Valley, said even tech companies haven’t yet figured out “how to enable consumers to transact at the point of inspiration. That’s really an operational challenge with connecting the dots between content and sku-level data, so you can actually transact and making sure that you have the delivery network in place to efficiently get the product from a warehouse or store to the consumer’s doorstep.”
Watten said many companies in fashion, meanwhile, struggle to centralize their data. “They don’t have a digitized supply chain to have end-to-end inventory visibility, understand the true cost to serve, and where to move inventory depending on where the demand is. So I think the back-end is also an issue,” he said.
“It’s taken a pandemic for many fashion companies to finally realize that science should have a seat at the table with art. I hope that there’s a little bit of a silver lining from a digital standpoint in the industry,” Watten said.
Butler recommended companies should have “ongoing data cleansing and governance in their day-to-day rather than when migrating to new systems only. Culture will need to change at the core of the organization for everyone to think more digitally, drive and trust technology more for tasks that have traditionally had a high degree of manual input.”
Many companies trying to embrace digital capabilities simply buy software off the shelf, somewhat at their peril, Watten warned.
“They forget the change component required to really drive adoption, because oftentimes you need to customize these types of capabilities to make it work for your category,” he said.
One glaring gap in many fashion firms is AI-powered decision-making across the value chain, particularly in planning, merchandising and pricing, Watten pointed out.
“It’s hard to justify big tech and infrastructure investments and high-priced AI talent when you’re a small-scale player. Even some of the biggest players out there have difficulty competing against the FAANGs of the world for top talent,” he said, using the acronym for the five biggest American tech companies — Facebook, Amazon, Apple, Netflix and Google, which now operates under the name Alphabet. “I think that is a structural issue.”
Watten noted that even the most digitally advanced companies still embrace the artistic side of fashion. Stitch Fix, for example, is “probably one of the most advanced from an AI standpoint” in its use of algorithms and data-driven decisions, yet the California firm still employees thousands of personal stylists.
According to the independent consultant Bernard, digital in many companies operates “in a bit of a silo, and senior management has never really made the effort to understand how it works. They haven’t spent enough time understanding what digital is going to bring them,” he said. “Everyone involved in digital hasn’t stepped in as a substitute to traditional channels in a time of crisis. Everyone had the processes and know-how to seize the opportunity. It’s up to management to decide how innovative they want to be.”
For many big brands, “all that matters is the [fashion] shows,” Bernard argued. “Now they have to really consider digital for what it means and realize that it’s a crucial tool.”
According to BCG, companies often create a stand-alone digital business that operates outside of the traditional organization, or focus their efforts within specific functions that are limited in scope and business results.
“Most fashion companies recognize that digital matters, but few have real digital talent at the ceo leadership table, which makes it difficult to access tradeoffs at the highest level. I think from a structural standpoint, many of these companies are still organized and even more importantly, incentivized by channel. Which is just not how consumers shop anymore,” Watten said.
Butler noted that many companies still separate the stock for brick-and-mortar and digital channels, and compete with each other for share of sales.
“Digital should not be seen as a separate entity, rather it should be seen as an organic part of operations and it should be everyone’s responsibility to innovate and find efficiencies in their day-to-day jobs,” he said. “Operationally, creating a unified approach in setting KPIs and fulfilling the stock as one pool will have to be the first step in optimizing online sales, and also unifying the back-office operations.”
According to Concetta Lanciaux, a luxury goods consultant based in Switzerland, the answer lies in recruiting many talents across the organization “as it will rarely come from the top” — and empowering those talents to propose projects. She said hiring a digital director is not a panacea, though that person can help coordinate efforts across departments.
Digital transformation must be integrated in all functions, not only the marketing function: “Brand reputation can be made and protected on digital,” she said in an interview.
Lanciaux suggested it might take a generational change before fashion completes its digital transformation, noting that most of the “people in charge” are either Baby Boomers or from Generation X, and “these are not digitally native people.”
“The new generation wants to discover these products and buy these products through technology,” she said. “The consumer has moved from passive observance to enabled dominance by using digital channels.”
What’s more, many top luxury brands are overly reliant on their artistic directors, many of whom are tethered to more traditional forms of image building and fashion messaging, such as fashion shows and ad campaigns. Exceptions include Virgil Abloh, who is hyperactive on social media and proficient at the video medium.
Butler agreed that a designated digital officer can set up competing behaviors. “Instead, digital should be in everyone’s bloodstreams and as with anything strategy, ceo’s and commercial directors should be the ones driving the digital agenda, unifying channels and making digital performance everyone’s responsibility,” he said.
BCG’s Watten noted that the digital channel can get short shrift in fashion companies when most revenues derive from wholesale.
“When you have a very nascent digital business in a legacy wholesale business it can be tough to get preferential online assortment or competitive given the competing channel goals,” he said. “If you are a very nascent digital business, then I think you need to have that head of e-commerce have a seat or at least strong voice at the ceo leadership table, as they represent a key growth engine for the company.
“As digital businesses develop, a forward-thinking commercial chief can take into account both digital and brick-and-mortar, direct-to-consumer plus wholesale — so he or she can make those type of tradeoff decisions,” he explained. “But I would say strongly, having incentives and structure that is only by channel… is a thing of the past. Because consumers do not shop that way, and you start making sub-optimal decisions based on people’s incentives rather than doing what’s best for the consumer.”
D’Arpizio suggested fashion and luxury conglomerates are likely to increase investments in start-ups and incubators, “helping develop what could be leapfrogging for the industry.”
Examples already exist. In 2018, PVH Europe founded a tech incubator called Stitch, whose team of software engineers, 3-D design experts and transformation specialists has developed tools for a fully digital design workflow.
Similarly, LVMH Moët Hennessy Louis Vuitton is a key partner in Paris tech conference VivaTech, where it offers an innovation award and hosts a “luxury lab” showcasing immersive in-store technology, virtual reality and augmented reality.
And Prada Group recently unveiled a partnership with software firm Sprinklr to optimize its digital communications and consumer engagement efforts.
Lanciaux said that 5G technology will offer another step change in digital transformation, particularly in industrial processes. “It will offer a new level of efficiency,” she predicted.
According to the consultant Bernard, most fashion companies failed to produce engaging content and create excitement during the lockdown period.
“Brands could have accelerated their digital content production, influencers could have had something to say, but nothing has happened. Designers seem to be shell-shocked, or ashamed of hiding in some holiday homes. Anyway they are just mute, as if just short on ideas,” he lamented. “Whereas digital is meant to be more flexible with younger creatives whose job is to generate fresh ideas, this value chain didn’t prove to be a solution when the physical world was stuck.”
Lanciaux noted that the industry has employed a perfectly tuned but closed system of fashion weeks for decades, which relies mainly on the press to relay information about the runway shows to the public. “Fashion is a prisoner of its own system, speaking only at special times and speaking to only to special people in a special way,” she explained.
That system is hinged partly on the conviction that fashion must convey emotion, and that live events are the best vessel for that transmission. “There’s been a fear that technology would degrade and democratize the image,” she said in an interview.
Echoing other observers, Lanciaux noted that fashion has made good progress in digitalization with e-commerce, but so far, this channel has demonstrated “no intent to create some emotion,” despite some personalization efforts.
In her view, many brands have become over-reliant on influencers to talk about their brands in the digital space, some of whom take a creative approach, while others sell fashion in a banal way. “You wonder why fashion brands could not do it themselves,” she said, likening the influencer economy to a newfangled type of licensing. “The brands are going to other people to spread the message.”
Lanciaux suggested Marlow’s famous hierarchy of needs must be expanded to include amusement. “Fashion never thought of itself as having to entertain,” she explained, “and the digital channel provides entertainment.”
In her estimation, the food, music, art and lifestyle categories did a much better job engaging and amusing during coronavirus lockdowns, and dominated digital media with clever, witty and informative video content that was widely shared on social media and via messaging apps.
“Fashion was largely absent from the Internet in this confinement period,” she marveled. “It’s as if fashion does not feel part of lifestyle. It’s a missed opportunity.”
Exceptions included Bottega Veneta’s virtual residency program and online video sewing lessons from Dolce & Gabbana, plus efforts by Dior, Louis Vuitton and others to retool factories to make masks and sanitizing gels.
“The sell approach-only doesn’t work anymore,” Lanciaux said. “What’s interesting is not fashion itself, but what’s around it. It’s a whole world, and that’s what can attract people to the product itself.”
BCG’s Watten applauded Nike’s “Play inside, play for the world” campaign as spot-on. “I think that captured the essence of what their brand stands for, and what society needed,” he said. “You need to back up purpose with tangible actions. So they backed it up with taking down the paywall for Nike training club, which enabled many more people to be able to experience that offering.”
He also lauded as unique Zappos’ “customer service for anything” hotline that helps consumers, regardless of purchase. “You can discuss any topic, from the weather to social distancing. And I think there’s just an interesting way to say, ‘We are such a customer-first company that we just want to be there for you, for anything,'” Watten said.
Watten predicts a rapid pivot from physical fashion weeks to digital ones, citing Shanghai’s pioneering edition in collaboration with Alibaba’s Tmall last March. Besides these, he also forecast more hybrid events with a physical manifestation and a “digital twin,” just as advanced companies have a digital twin in supply chain in order to run hypothetical scenarios on it.
“There could be more frequent digital fashion weeks as well, because right now it’s typically just a couple of times a year, which doesn’t really follow the rhythm of the seasons,” Watten said, noting that these would go beyond simple livestreams, the bulk of content on early digital events like Shanghai’s: “Something more sophisticated, with more functionality and a roundness as opposed to just a one-way stream of it.”
Butler said the traditional industry calendar based on seasonal fashion weeks is under pressure and swiftly becoming irrelevant, citing Saint Laurent’s announcement to withdraw from Paris Fashion Week and set its own timetable.
“Buyers will then start buying and selecting products from digital catalogues or augmented reality and virtual showrooms, as and when the brands decide to launch a new collection,” Butler said.
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