For British fashion retailers today, the only certainty seems to be uncertainty. In this climate of currency fluctuations, ever-tighter margins, and growing competition from pure-play brands, how can retailers grow and thrive online?
There’s no escaping the reality of the financial markets’ reaction to the EU referendum. In the wake of the referendum, the pound remains at an almost 31-year low, and currency fluctuations are having serious implications for manufacturing and buying costs.
The fall in the pound means that manufacturing and sourcing clothing overseas has become a lot pricier. And – with more than 70% of their stock purchased in US dollars – the likes of M&S [IRDX RMAS], New Look [IRDX RNEW], and Matalan [IRDX RMAT] are particularly vulnerable.
On top of this, retailers are bracing themselves for higher duties and taxes connected with importing from and selling to overseas markets.
Fashion retailer Next [IRDX RNXT] has already suggested that it will need to bump product prices by around 5% as a result, and others are likely to follow or take other measures to protect their margins.
Whilst Asos [IRDX RASO] has vowed not to raise its prices and to seek more cost-effective practices, John Lewis [IRDX RJLW] has set a £30 minimum order level for its free ‘click and collect’ service to help minimise operational costs.
Is digital strategy still a priority?
As fashion retailers grapple to understand the longer-term impact that Brexit could have on their businesses, some may be asking whether their digital investment should take a backseat.
The answer is ‘no’, because investing in digital and online strategy is what will help retailers differentiate through the experiences they provide. And with recent surveys suggesting that 63% of customers are planning to spend the same on fashion in 2017 as they did in 2016, demand from consumers is still high – and their expectations cannot be ignored.
Sector leader Asos has planned to double its capital expenditure to nearly £170 million in 2016 / 2017 in order to invest heavily in digital, technology and operational infrastructure. Meanwhile ‘affordable luxury’ brand Radley [IRDX RRAD] is an inspiring example of how to grow through global ecommerce expansion. Investment in its online business and international growth was the impetus behind a 4% revenue rise to £67.1 million in the year to 30 April 2016 and the retailer’s fourth consecutive Christmas with an increase in comparable sales.
Radley has proven that developing a digital strategy and investing in it pays off. Its online sales grew 20% in the year to 30 April 2016 with its products now shipping to 47 countries. Aiming to double its global online sales in the next three years, Radley is a testament to the rewards of making careful, business-goal-oriented investments in your web presence.
But with all eyes on cutting costs and inefficiencies, how can fashion retailers prime themselves to grow online in these uncertain times?
Think big, start small
International ecommerce leverage is not only about protecting market position and gaining international presence – it’s about unlocking the new growth opportunities that come with operating on a global scale.
For many fashion retailers, emerging markets like China and Russia remains their ‘next big thing’. And for good reason. The increasing weight of emerging markets is expected to account for 60% of growth in the women’s apparel market by 2025, according to McKinsey.
These markets come with a lot of complexity – from legal issues to taxation – and gaining traction isn’t easy. For this reason, it’s key to think big and start small. If developing markets like these are key to meeting your strategic goals, it’s important to do your homework first – to understand local buying trends, fulfillment options, and payment methods – and to partner with a well-qualified consultant to identify the best entry strategy for your business.
In many high-growth markets, online marketplaces are the dominant channel for shopping and starting small may mean first selling a few items on a regional marketplace, or on a global marketplace (set to represent 39% of the online retail market in 2020) that serves your target market. Likewise, it may be beneficial for your brand to consider a B2B strategy to help you gain traction through an established regional player.
Manchester-based fashion etailer Glamorous was quick to recognise the opportunity to increase market reach by integrating its ecommerce store with Shangpin.com – a leading online fashion retailer in China, a market with a famous appetite for international fashion.
Backed by a powerful supply chain, Shangpin gives its 30 million registered customers access to more than 600 international brands, and it’s a tempting proposition for retailers looking to break into an unknown market – retailers like TOPSHOP, which is now an official Shangpin.com partner and is set to open five stories in China this year as part of the partnership.
Choose the right partners
Despite the current economic uncertainty, your competitors and your customers won’t sit still. It’s widely expected that spend across the retail sector as a whole will be stronger in 2017 than 2016, fueled mainly by inflation rather than volume, according to PWC. With changing consumer habits, emerging technologies, and disruptive competitors on the scene, your digital products need to continually change and evolve to maintain a competitive advantage in a challenging market and to continue to serve your business goals.
That’s why it’s crucial that your technology partner builds flexibility into your digital strategy. Instead of trying to go to market with a fully-developed solution, work with a partner who will help you address your greatest business challenge with the simplest digital product. This will enable you to move faster than your competitors, and use data insight to learn what creates value for your customers and what has the biggest impact on your business goals.
From an operational perspective, your technology partner should invest time in understanding your current and future operating model, which will undoubtedly surface additional considerations for your digital product.
Simple changes to improve or adapt your operational processes can often be uncovered during a Discovery – a series of workshops designed to identify the simplest way of addressing a business challenge and deliver business benefit before you make any further investment in a digital solution.
Despite uncertain times and tightening margins, ecommerce remains a crucial growth opportunity for many fashion brands. But at a time where retailers will struggle to compete on price, the battleground is shifting towards building loyalty through initiatives that drive sticky growth, and on customer experiences as the one true differentiator.
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