Consumer Demand is Invading Retailers' Walled Garden
October 10, 2022
In previous eras of retail, brands had immense power. They were the tastemakers and controlled the conversation, paying top prices to air their ads on TV and cover the glossy pages of major fashion magazines. And consumers would flock to the limited number of brick-and-mortar stores where they would happily purchase the latest fashions.
The eCommerce Disruption
Much has changed since then. The introduction of e-commerce tore down the walls of the retail garden, making it accessible to all. Digitization of the retail industry led to innovative platforms, tools, technologies, and merchandising partners, making it easier and less expensive than ever before to start a retail business. Competition grew, consumers had choices, and trends began to be determined more by consumer demand than traditional tastemakers. Now, anyone with an Instagram and a following can become a trendsetter, as confirmed by their millions of followers.
Brand Awareness Shifts from Traditional to Digital Media
The way shoppers learn about brands has also shifted to channels that are much more accessible to brands of all sizes, budgets, and experience levels. While traditional marketing like television and magazine ads still exist, digital marketing in the form of pay-per-click (PPC), SEO, content, and influencers are examples of highly engaging strategies that can come at a lower cost than traditional campaigns and are far more targeted. While 58% of consumers still learn about brands through TV advertising, 55% become aware of brands through social media. That number jumps dramatically to 78% for Gen Z. As the younger segment of consumers continues to gain purchasing power, companies will have the ability to reach the vast majority of potential customers without investing in expensive or restrictive traditional media campaigns.
Brand Reputation is a Click Away
Brand reputation has also become subject to the power shift. In today’s market, customers can easily support, recommend, and refer people to a company when they are happy with their purchase. On the flip side, they can significantly damage a brand’s reputation with just a few clicks. Keeping customers happy is more important than ever when their feelings are immediately visible on e-commerce and digital marketplaces, including Shopify, Amazon, Google, Facebook, and more.
The power in the retail market has shifted to consumers as their choices continue to grow. Factors such as globalization, e-commerce, social media, DTC brands, influencers, and digital marketplaces have resulted in a highly saturated market with endless options for shoppers. To compete in this environment, retailers must keep up with demand trends and focus on a consumer-obsessed approach.
Consumers are savvy. They have the ability and resources to investigate the companies they buy from and the products they purchase. Modern fashion brands must consider that at each step of their production cycle and lean on their customer base to help determine:
Which products and styles to produce
What types of materials to use and their sources
Where they manufacture the items
How many products to order
What to do with any unsold goods
Chasing consumer demand has led to substantial detrimental effects on our environment. One of the ways the industry responded to the power shift was by fulfilling consumers’ changing tastes as quickly as possible. Fast fashion was one way that companies could maintain consumer interest, meet demand, and still turn a profit. Unfortunately, the inhumane impact on global labor forces and environmental degradation resulting from massive waste and cheap and toxic materials leaching into our air, water, and ground, cannot be overlooked any longer. Also, fast fashion resulted in production levels exceeding consumer demand, which has taken a massive environmental toll.
With increased media attention being drawn to these issues, consumers across all generations are prioritizing sustainability as one of their core values. Nine out of 10 Gen X consumers are willing to spend an additional 10% or more on sustainable products. Two years ago, that number was just 34%.
While consumers appear to feel a sense of urgency, the retail industry has been slow to respond and greenwashing accusations – meaning that they present an environmentally-friendly image to the public while falling short of their ethical promises in reality – appear in the news regularly. For example, one international fast fashion has claimed that fifty percent of its products will soon be made of recycled material or ecologically grown cotton. But savvy consumers — especially the younger generations — understand that they must examine the garment's entire lifecycle. That means shoppers must assess everything from the production of the source material to the disposal of the items to determine whether or not the brand is staying true to its promise.
A key aspect of environmental stewardship is the appropriate management of production. Overproduction is rampant in the fashion industry and is one of the most critical factors when discussing waste and environmental pollution. This is true for the vast majority of brands, not just fast fashion labels. Companies routinely fail to anticipate consumer demand for particular products, order far too much supply and then deal with selling these items for minimal profit margins to discount stores like Marshalls and TJ Maxx or toss or incinerate whatever remains.
The issue of overproduction has become so commonplace that companies just expect a percentage of loss and deal with the consequences. But, the results of that policy have gone too far. Planning for overproduction and destruction of items results in significant financial impacts on sales, margins, profits, and brand reputation, in addition to the harm it causes to the environment.
Company culture and job satisfaction also take a hit as the rapid production schedule and negative results lead employees to continuously put out fires. Designers, product managers, and merchants are expected to work on unreasonably tight deadlines, deal with supply chain issues and long production lead times, and focus on multiple seasons at one time. This often results in rushed decisions that hurt profitability and the planet.
Resistance to Change Threatens the Longevity of Brands
Product creation teams often need to work with competing priorities, leading to frustration and rapid burnout. For example, they may be under directives to grow the business while cutting SKUs by 20% and simultaneously expanding wholesale distribution, which reduces the company’s margins and makes it more challenging to hit revenue targets. They may also receive conflicting feedback from various stakeholders – regional markets, retailers, and brand leadership – adds to the confusion. Leadership may want to push fresh products that are more fashion-forward and help the brand stand out, while markets and retailers may want to keep the tried and true products that consistently sell. Product teams are tasked with keeping all parties happy and need to figure out a way of reconciling divergent requests.
The nature of the product development cycle means that product teams have to make wagers on what will work early in the process. For example, they must select materials, prints, patterns, and colors well before they have the necessary information to make those decisions. This can have adverse effects on inventory down the line.
Often, the result of all of these challenges is defaulting to the safer bet. Brands often end up with a lackluster assortment of products because they fear what a new approach may do to their bottom line. Other brands may opt to develop a bunch of different SKUs to cover all of their bases. However, the over-assorted product line often leads to cannibalizing SKUs and overproduction, which eats into margins.
Empower Your Business with Consumer Data
How can your product creation team overcome these issues? Data. Consumer data support early decisions around product directions and reconcile competing requests based on feedback from target consumers. Data empowers your designers, product managers, and merchants by getting ahead of consumer demand rather than chasing after it. Understanding your target consumers, their unique preferences, and intent to buy is vital when creating effective strategies—from marketing and sales to product development and operations.
MakerSights enables brands to test new concepts and products throughout the product creation and merchandising process, starting as early as seasonal direction, using mood boards, images from the competition, and more. Here are some of the critical stages where MakerSights adds value:
At seasonal direction with mood boards, competitive imagery, and swatches
At sketch review with drawings, CADs, and sample photography of products that are in development
At line adoption, when product managers decide which new and core/carryover products to bring to market
At investment review, when merchants determine how many of the styles should be produced
At the go-to-market (GTM) stage, when sales teams are preparing to sell to retail partners and marketers are planning campaigns
The first three stages involve consumer sentiment tests that gauge if consumers like a product and which aspects appeal to them or would dissuade them from buying. The sketch review process may include questions about colors, design details, logo placement, belt loops, pockets, and more.
MakerSights leverages conjoint analysis and consumer sentiment data to power its Line Efficiency graph, which gauges how many new consumers will be reached with each additional product added to the assortment. The Line Efficiency graph makes it easy for companies to identify cannibalizing items and cut the long tail of products that won’t attract enough new consumers to the line. This allows product managers to reach the most consumers with the fewest number of items and drive SKU productivity.
The fourth stage, investment review, measures consumer demand for each product. While consumer sentiment focuses on how much a consumer likes or doesn’t like a product, investment review determines a consumer’s likelihood to purchase a product. This step is crucial to deciding how much of each SKU is needed. Both consumer sentiment and demand data can then be leveraged during GTM by marketing teams for retargeting and campaigns, as well as the sales teams to support sell-in with key accounts.
The Benefits of Consumer Data
These are just a few examples of the tools and insights available to help teams throughout the product development and merchandising process better understand target consumers and operate more efficiently, effectively, and profitably. Imagine if you could:
Effectively manage inventory—avoid wasted products or lost sales opportunities due to out-of-stock items
Achieve consistent sales by providing the exact products your target consumers want
Cut features (and costs) that hold little to no value
Eliminate products that cannibalize margins and profitability
Substantially reduce waste and minimize your company’s carbon footprint
All of this is possible when you have the correct information and are empowered with the technology you need to use it effectively.
It is time to accept that the retail industry is now largely driven by consumer demand. The longer executives deny this reality, the more at risk they will become as competitors meet consumers where they are with products and purchasing channels. This presents a substantial opportunity for e-commerce and brick-and-mortar brands to rise to the top using innovative solutions and consumer-obsessed strategies.
The future leaders in the industry will be the brands that clearly understand their consumers, what matters to them, and how to delight them with products and services that meet or exceed their expectations. They will commit to a version of retail that mitigates damage to the environment and societies by creating a responsible product lifecycle. And they will leverage data and technology to achieve their goals efficiently and effectively.
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