At first look, it may seem like the Covid-19 pandemic (and the limitations it has placed on brick-and-mortar operations) has been responsible for fashion’s digital transformation in 2020 (e.g. moving to e-commerce and digitizing their operations).
In truth, while the need for these drastic changes may have been highlighted by the pandemic, the retail industry has been decisively moving to adapt new technology for a while.
The bankruptcy of notable fashion retailers like Neiman Marcus, J.Crew, and Pier 1 were an inevitability (sped up by the circumstances of the pandemic), because these giants were not adapting fast enough to the digital age.
In fact, the McKinsey & Company report “Fashion’s Digital Transformation: Now or never”, emphasizes the importance of adopting new technology in order to remain competitive and even viable in the industry as we enter the industry digitally transforms.
The McKinsey report outlines 4 important adjustments retailers must make to thrive in the digital age:
- Focus your priorities
- Leverage analytics solutions to manage your supply chain
- The transition into e-commerce must be holistic
- Successful digital transformation relies on empathetic customer engagement
Applying these adjustments have documented advantages. McKinsey found that retailers who introduced advanced analytics and digitally transformed their supply chains have outperformed their competition by 68% over the last several years with the gap growing.
1. Focus Your Digital Transformation Priorities
McKinsey’s report outlines the need to make necessary investments without wasting time on doubt and caution in an effort to gain quick wins, “Reset your digital and analytics priorities and budget and adopt them to a post-coronavirus world.”
McKinsey strongly urges a “zero-based” approach.
This means retailers need to identify their critical projects, focusing on core digital and analytics priorities. Efforts and funds need to be diverted toward maximizing GMROI by investing in the management of the supply chain. All other projects that are not deemed critical should be delayed.
2. Leverage Analytics Solutions to Manage Your Supply Chain
The key to gaining these wins is leveraging big data and analytics to manage the supply chain. A major issue that retailers face, which has recently been spotlit by the pandemic, is overstock of inventory due to difficulty in forecasting demand. Temporary store closures caused by Covid-19 definitely heightened the issue, with McKinsey noting:
“The value of excess inventory from spring/summer 2020 collections is estimated at €140 billion to €160 billion — more than double the normal levels for the (fashion) sector.”
While some retailers were hit hard, others were able to weather the storm. Industry leaders relied on advanced data analytics software to drive top-line growth and improve speed, cost, flexibility, and sustainability across the supply chain.
Moving forward, McKinsey asserts, retailers must use data more granularly. Making decisions across the entire omni-channel business or the category is ineffective because of the creation of exceptions and errors that inevitably lead to costly inventory distortions.
The report elaborates on the fact that the industry leaders are using AI-powered analytics solutions to bring localized and personalized assortment that matches demand, which allows for a more precise approach to supply management, essentially stating, “Use data and analytics to tailor the assortment in each store and to streamline and optimize assortments overall.”
In short, automating logistics, or digitizing warehouse management, allows for better product availability and faster, cheaper, and more accurate deliveries. The report sums up this process by recommending that retailers follow 3 core principles.
- Having a strong and secure cloud infrastructure
- Collecting and maintaining clean data
- Developing an effective and functional technology stack to increase smooth omni-channel functions
3. The Transition into E-commerce Must Be Holistic
Once the retailer has an effective back-end system in place they can smoothly integrate their e-commerce operations with the brick and mortar stores. With the digital transformation being so important for retailers’ survival McKinsey reports that “A digital and analytics transformation is typically an 18 – to 24 – month journey.” Which is not as daunting as some may expect. McKinsey outlines the necessary elements retailers need to have in place for the transformation to be successful.
Namely, retailers need to have a supportive CEO, a pragmatic approach, a clear road map, developing a dedicated team, striving to have a MVP (minimal viable product) within 2-3 months, and defining KPIs (key performance indicator) to measure success.
The digitization for retailers should include everything from digitizing steps in the value-chain to new customer acquisition. McKinsey illustrates the effects of digitization as having a great omni-channel experience for both retailer and customer. Uniform visibility across the digital and brick & mortar spaces for both retailer and customer allows for better business and higher customer retention.
4. Successful Digital Transformation in Fashion Relies on Empathetic Customer Engagement
The integration of online shopping with brick and mortar stores is not only essential in creating a seamless shopping experience for the customer but will allow the retailer to develop empathetic customer relations which are integral for fostering customer loyalty. The report stresses the importance of empathetic customer outreach as a necessary arm of the digital transformation.
Retailers need to engage in personalized and frequent outreach across all customer touch points. The article provides a number of actionable examples, such as providing flexible fulfillment options and targeting customers based on data collected using analytics solutions.
The Takeaway
McKinsey’s report for fashion retailers is a strong reminder to the retail industry that the challenges which they were confronted with during the peak of the Covid-19 pandemic were not a result of the pandemic, and as such, are not going away. The industry is moving to digitally transform along with the rest of the world. It is time for retailers to advance by using new digital tools and analytics software or remain stagnant and fade into history.
If you want to learn how retail AI and advanced analytics can help you digitize your specific retail business, click here to schedule a personalized demo on your own data. OR download this inventory management buying guide.
