Embracing digital: why it matters in retail and 3 tips on where to start
July 10, 2018
7,000. That’s the number of US retail doors that closed in 2017 - a record high - according to Fung Global Retail & Technology group. And for those hoping for a change in fortune this year, look away now. 2018 is shaping up to be just as bad, with a further 3,000 doors already closed through April. While stats like these suggest an apocalyptic endgame for retail, other figures paint a more optimistic picture. As WWD cites, global retail sales are expected to grow 4-5% this year, in line with (or slightly above) historic averages.
So what are we to believe when evaluating the state of our industry? Consumer shopping patterns and behaviors have undergone a fundamental shift, as technology and social media have created new distribution and access. They have also given rise to a new type of customer - she is savvier and more decisive for one, and also has higher expectations around speed and responsiveness. Perhaps nowhere is this reality more visible than fashion and apparel, where a given trend is in Vogue one week, and totally out of style the next.
While the pace of change in consumer opinion is increasing across retail, product development for most brands remains tethered to the same 12-18 month cycle of decades ago. This legacy operating model minimizes costs, but also requires that complex assortments are produced in large up-front quantities, with multiple rounds of iterations across a global network of teams and factories. All of this takes time. And taking time is very much at odds with the “see now, buy now” mentality of today’s purchaser.
There are exceptions of course - vertically integrated direct to consumer brands and fast fashion players like Zara are able to produce goods and react to trend far more rapidly. But these businesses are anomalies, not the norm, and they have their own operating challenges to deal with - whether it be the escalating cost of customer acquisition for digitally native brands or the materials wastage associated with fast fashion.
So how are brands meant to compete in this era of elevated expectations? And are these industries doomed to slide into pop culture irrelevance? Of course not. There are many options brands have for increasing speed - from reducing the steps between a product’s concept kickoff and its line lock, to upgrading systems that allow for faster decision making, to expanding access to consumer data that can enhance the ability to rapidly read and react to trend. At the heart of all of these opportunities is digitization.
To survive and grow in today’s new normal, brands must embrace the shift from analogue to digital across all aspects of their business. Rather than seeing digital as a threat to creative identity, it must be viewed as a necessary enabler for bringing the brand vision to life within the timeframe consumers have come to demand.
There are countless ways for brands to further their commitment to digital adoption. In fact, part of the problem I hear when speaking to retail executives about digital transformation is that there are too many options. This abundance of choice can create organizational paralysis. So where should you start? And how do you pick the right set of tactics? While there are no right - or even easy - answers, I’m going to focus on three areas I believe can provide leverage to brands of all shapes, sizes and creative dispositions, in their quest for increased speed and responsiveness:
1. Embrace 3D design technology
While virtual prototyping via 2D CADs has become commonplace in retail over the past decade, the adoption of newer 3D systems remains nascent - despite their many benefits. As pressure mounts to reduce time to market, 3D technology offers brands the opportunity to dramatically streamline design and supply chain processes (from concepting to creating tech packs). Older prototyping software lacked the sophistication to render life-like product representations, forcing brands to iterate on multiple rounds of physical samples to hone elements such as color, styling and fit. This is no longer required.
Tools like CLO3D, Optitex and Browzwear, allow for the creation of advanced digital designs that closely mirror their physical alternatives, but in a fraction of the time and cost. Instead of waiting weeks to tweak individual components on a concept, these systems enable designers and product developers to create tens (or hundreds) of versions of a SKU in real-time as they test and tweak. This software can also incorporate data from 3D body scans to enhance accuracy and performance around virtual fitting. Since these assets are produced and stored digitally, they can easily be shared with colleagues on different teams and across different regions in real-time and with the click of a button - increasing transparency, shortening feedback cycles and improving communication.
2. Leverage consumer data as a leading demand indicator
One of the most interesting outcomes stemming from e-commerce’s explosion is the proximity that now exists between brands and their customers. The depth of a brand’s customer relationships used to be dictated by geography and limited to individuals who walked through its physical stores.
Today, access to a consumer’s opinion and preferences is exponentially expanded and much easier to acquire. Whether it be online transaction data, on-site reviews, or social media likes and shares, customers leave a constant stream of rich insights that brands can use to personalize their product offerings and stay on pace with changing trend curves. Instead of relying solely on historic sales performance to inform future projections - an unreliable practice given how quickly consumer sentiment changes - businesses can incorporate these ongoing touch points to more accurately read where the market is going, as opposed to where it’s been.
While most brands acknowledge the importance of collecting this information, far fewer have well executed strategies for how to make it actionable. And it’s not surprising why. To take advantage here, brands must invest decisively in both the technology to collate and decipher data as well as the agility to adopt it into an already complex internal workflow. Companies such as Stitch Fix, Amazon and Zalando have excelled here, driving incredible growth and shareholder value. But they have invested billions of dollars in these areas - and have data built into their DNA. For more traditional brands, where science is often viewed as the adversary of art, adoption has been far slower. To add numerical color, the average US consumer brand allocates under 3% of its total spend to R&D initiatives such as new technology and systems. For Amazon this number is closer to 15%.
Encouragingly with recent advances in AI and predictive analytics, a new breed of technology partners have appeared, supporting the retail space and its product development needs. Edited (trend forecasting) and Custora (CRM activation) are two such business, as is (shameless plug) MakerSights, which enables retail brands to pair the voice of their customer with artificial intelligence to drive faster, more profitable product decision making.
3. Building a platform layer throughout your supply chain
The third, and final recommendation, centers less around a specific part of the product development lifecycle, but rather the scaffolding supporting the ecosystem. For brands that want to win in this new era of retailing, there must be a strong commitment to building an integrated and interconnected digital supply chain. According to a recent Accenture study interviewing retail executives, 86% of respondents agreed that creating a platform for their supply chain would be the centerpiece of their modernization effort.
Sounds great, right? But what does it mean in practice? In its simplest form, it means building the digital plumbing that connects the many disparate systems, processes and teams that make your business run. Depending on where your business is on the digitization curve, specific action items could include: uploading all customer, transaction and website data to a single, centralized warehouse accessible across teams and updated in real-time; or ensuring vendors and factories share your design and tech pack software to speed up iterations and reduce what falls through the cracks when ownership of assets changes hands.
In speaking with company leaders, the biggest obstacle impeding success in this initiative is a lack of internal change management. If brands can’t create a culture that embraces transformation and is inspired by the challenge of doing things differently, then broader digitization efforts will fail. Thankfully, most business I interact with are making major strides here. And, as with forecasting consumer demand, there are a number of partners that can (and should) be used to supplement internal efforts in building your supply chain platform. Some are established players such as Li & Fung (supply chain services) and Centric Software (PLM) and others are newer and more specialized companies like Looker(BI and data warehousing) and Backbone PLM.
As brands reflect on how to react to savvier customers, elevated expectations, and a need to move faster, the most important takeaway should be a need for decisive action. Digitization provides retail businesses with an opportunity to make meaningful in-roads in their efforts to become more agile and consumer centric. And while adopting these new practices and systems may result in some short-term pain, the long-term gains will be well worth the effort.
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