The fashion industry is among those hit hardest by the coronavirus outbreak. With shops closed, production ramped down and consumers all but completing the shift to digital channels, the aftermath has seen numerous retailers and department stores filing for bankruptcy.
Which fashion companies fared best during these troubling times? And how can those struggling bounce back, correct their course, and ready themselves to address future disruptions?
We spoke to Dr. Christoph Schröder, SAP SE Global Vice President, Industry Business Unit Retail, who provided his insights and observations about the last twelve months and a look ahead.
1. What makes you optimistic about the fashion industry’s immediate future?
I’m optimistic that we will see the industry coming out of this in a new format, and companies will have reinvented themselves. Fashion is known for it’s creativity and front running behavior and that’s why I believe the current situation forces the focus on key strengths and clear value proposition.
Before companies had three years of digital transformation on their roadmaps but because of the pandemic these roadmaps got really condensed and all of a sudden, digital transformation initiatives were deployed within a few weeks.
If that’s one thing I have learned and a common fact when I talk to our customers, they agree that companies with digital capabilities were better equipped to understand the massive change that came over all of us. We are seeing them actually coming out of these very challenging times, not just into recovery mode, but much stronger.
That’s why I’m optimistic and confident that fashion will come out stronger in this situation. .
2. Have you noticed a pattern in terms of which fashion companies fared best during 2020?
From my observation, I believe companies who are already on a good digitalization path, like e-commerce, fared best in 2020.
Focus on supply chains remained a key focus as companies with resilient supply chains not only survived but also sustained growth. In general, the last months have accelerated preexisting trends, and companies who were in a miserable situation started failing even more.
But again, companies with a clear value proposition, agile business model, and positioning fared better.
3. What changes in consumer behavior did you observe?
Consumers have become even more disloyal.
This has been driven in part by shortages due to supply chain issues. Research shows that 75% of shoppers have shown new customer behavior in recent months. When we look at Europe, for example, 4 in 10 consumers have purchased something online for the first time that they previously only bought in a brick-and-mortar store.
4. Has the pandemic changed or re-prioritized any mega trends in the fashion industry?
I don’t think so.
I see, of course, the need to accelerate. Sustainability seemed to be less important during the last months, with the increase in online business leading to more packaging and plastic being in circulation.
But I think that the pandemic will enforce innovation even in these areas. Although sustainability is on top of many agendas, it also became a differentiator.
Many brands are looking to become purpose-driven fashion businesses, which are truly appreciated by customers. What we’re seeing more of is the changing role of the store, where brands are repurposing their physical stores into distribution hubs and getting closer to customers. The trend is not new but has been accelerated.
Why would I source something from a faraway location when there’s a warehouse just down the street from me? In terms of customer retention, not being able to deliver an item both online or in-store is the ultimate bad experience for the customer and must be avoided.
It all ties back to the changing role of the store that we see more prevalent these days.
5. What should now be on top of every fashion company’s agenda?
The one thing I observed is that you need to actually get your brand in front of people, and be proactive especially when you’ve got loyal consumers.
You want to make sure that you maintain their loyalty and that they don’t discover another brand or retailer. That’s quite important – to be proactive as a brand at the moment.
Fashion brands in particular really need to get on board with making sure that they don’t give their space up to new brands. I urge those who are traditionally in-store retailers to really think about how to get your brand in front of people that are shopping online and consider the different touchpoints.
Don’t let brands take over that space. It’s your space as a brand and you’ve put a lot of time and energy into creating loyalty with your customers. This all ties back to how do you prepare for the unknown with the help of digital technologies? How do you come down to a segment in order to really approach your consumer in an individual way?
Digital technologies will help businesses prepare for the unknown and approach customers individually.
6. While many projects were stopped during the pandemic, what made some fashion companies continue their ERP transformation?
From an SAP perspective, with the enormous surge of customers moving online, there’s a need for a robust and scalable platform to support and execute the demand.
With the omnichannel nature of commerce, there is a very important connection to make between the back and the front office in order to deliver a seamless customer journey. This includes when the customer purchases online, fulfillment, delivery, manufacturing, planning, inventory management – connecting all those dots is of paramount importance.
The supply chain may have been in the shadow of its digital counterparts but was brought to the forefront with inventory visibility in the past couple of years. Customers want to be able to see how much of a specific product is at what location and want to know how fast they can get it. No matter where you are in the world, if you are out of stock, shoppers are going to consider trying an alternative store or brand. Some will wait for the items to be back in stock, but is that really a risk retailers can take at the moment?
The basis for all the new business models is combining your foundation with new ideas to surprise your customers and generate new revenue streams.
7. What’s stopping fashion companies to fully adopt digitization?
Fashion is about the balance between creativity and structure.
Maintaining a balance is important – overemphasizing one of these tends to run fashion companies into trouble. Where liquidity is lacking, brands don’t have enough breathing room to implement change.
I also see a lot of internal organizational challenges. If you implement new software, a new platform, you also need to make sure that the organizational change moves along with it. Only having a technical migration will not allow you to leverage the capabilities and values that come with an integrated platform.
When we talk about complexity, the biggest challenge is moving to the cloud. Some of our customers have very complex systems and processes, but it can be difficult to convince companies to standardize and simplify. They need the facts to prove that this can accelerate business processes and that this frees up resources to focus on customer service or innovation.
That’s why we at SAP came out with a new offering that we call RISE with SAP. We have the facts and data and we have the ability to model and simulate business processes.
8. What advice would you give to those lagging behind? Where should they begin their digitization journey?
It very much depends on the company itself – e.g. the company’s business model, size, markets, globalization status.
Fashion companies should ask themselves what their customer’s biggest pain point is, what they expect and how these can be addressed. That comes back to the program that we launched. I believe that we at SAP have come up with an exciting new offering that we call RISE with SAP, and that’s really the opportunity to grow into and we call it the “Intelligent Enterprise”.
The challenges today highlight truly how fragile our world and businesses can be, and that’s why business transformation can help companies adapt. This has to become an imperative.
Look at retail or fashion, for example. Consumers expect a seamless personalized shopping experience at every interaction and across all channels, delivery times of 24 hours or less, and flexible payment terms.
At SAP, we also believe that a company’s sustainability determines its success, as consumers want to know how seriously companies are taking the topic. Technology needs to be used to not only reduce CO2 but also reduce waste and help to move into the circular economy.
And this is where this new offering RISE kicks really in. Companies can decide individually which functions they want to use and when. Then they can also decide when to migrate their ERP system to the cloud and if necessary, continue to a hybrid environment.
9. Where budgets are limited, which smaller-scale IT investments would you prioritize?
I believe organizations need to find a balance between available tech spend versus chasing the next big thing.
Unfortunately, there’s no one size fits all, so I suggest determine what experience you are trying to enable with your technology, and then figure out which technologies and infrastructure architecture choices make the most sense for now and the future.
I would also urge fashion companies to prioritize investing in cloud, e-commerce, data analytics, customer experience, offering individualized products and services, user experience technologies, automation.
10. Where have you seen digitization done right?
That to me is always the combination of foundational work with innovation.
Implementing an end-to-end process without innovation is too little of an achievement. How do you bring robotics in? How do you bring 3D technology in? How do you automate existing processes? How can you accelerate design processes with the elimination of physical samples? How do you run a more effective and reduce emissions and waste at the same time? This is where the combination is.
Equally important is combining intelligent data analysis and machine learning with human experiences, which can lead to a powerful customer experience. Be aware that as soon as you have created this experience, customers will expect it everywhere.
There will be a constant need to innovate and reinvent to meet customer expectations and keep them happy.
11. How can the SAP portfolio help fashion companies navigate uncertainty?
From SAP’s large portfolio, one area to highlight is the Intelligent Suite and most importantly S/4HANA for fashion and vertical business and S/4HANA Retail for Merchandise Management.
The key value is how they bring all business models onto one single platform. S/4HANA is where innovations are developed.
Another solution to highlight is the Customer Activity Repository (SAP CAR), the intelligent brain on top of S/4HANA and the single platform for sales transactions, forecasting, and inventory visibility in real-time.
And third is the Industry Cloud: A modular portfolio of solutions built and run on the SAP cloud platform by SAP and partners.
The idea here is really to optimize and extend the end-to-end processes of the intelligence suite with best practices and ultimately enable customers to transform their business models.
12. What will a continued collaboration with SAP look like?
We build software for our customers and we put them in the center of everything we do from a development perspective, and consequently, we need our customers to help us get the right things developed to stay relevant and successful in the future.
Customers know their business best and SAP will continue to use this expertise. SAP invites customers to get engaged via User Groups, customer engagement initiatives, and co-innovation.
We’re also adjusting plans to make sure that we can tackle the current challenges of our customer base.