The New Retail Paradigm: Narrowed Expansion

If there was one common thread running through this year's 14th annual Apparel Executive Forum it was this: Retailers must offer consumers everything they might possibly ever want, in every channel, when and where they want it, while also compressing those endless choices into a thin band of exclusivity catered precisely to each individual.

Consumers are in charge, and retailers and brands are scrambling to keep up through omnichannel engagement, fast-paced design changes, new business models, personalization technology and much more, said speakers at this year's Apparel Executive Forum, held Sept. 29-Oct. 1 at the Ritz Carlton in Ft. Lauderdale, Fla.

Seeking limited infinity
Retailing has become an oxymoron, with the most successful apparel companies rising to meet the demands of the modern consumer through a strategy that might be described as limited infinity retailing.  Consumers have become like kids on Christmas morning ? if Christmas were 365 days a year — surrounded by a dizzying array of brightly colored packages full of goodies. They are thrilled and delighted by the eye-popping array, but by the time they've made their way through the abundance, they hardly know where to turn, or what to play with. What's needed at this point is parental intervention: clear most of the gifts away, and leave one or two totally rockin' toys that you know will entertain your child for days to come.

Retailers are now in the role of the parent, with proliferating SKUs extending the long tails of their product offerings ever longer, even as they scramble like mad to learn as much detail about their consumers as possible so they can present them with a curated menu of offerings ? online and in-store — that is most likely to please their tastes and needs and eliminate the laborious process of finding exactly what they want. Today, says NPD Group's chief industry analyst Marshal Cohen, women typically try on 10 items of clothing before finding one that works. That's a 10 percent success rate, and retailers that can move the needle closer to 100 percent have a greater chance of capturing customer loyalty.

Action sports provider O'Neill Clothing USA is achieving this sort of curated personalization by using technology that tracks consumer data and behavior online, learning what individual consumers want and then customizing its web pages to match those preferences, says Daniel Neukomm, CEO of La Jolla Group, parent of O'Neill as well as Metal Mulisha Clothing and FMF Clothing.

"Back in the heyday of retail, a salesperson could read a person's style, and could even take the weather into account, and make a recommendations for that specific customer," said Neukomm. La Jolla wanted to replicate that personal touch online, but found that solutions available on the market employed "average" merchandising that was deployed based on products you were looking at, or gender aggregations, but "did not go far enough." Ultimately, La Jolla partnered with an early-stage tech firm launched by a former Google employee; the opportunity to help shape development of the technology was a huge plus for La Jolla. The technology, Reflektion, works like having a salesperson who remembers everything every customer ever told you: every visit, what you picked up, what you left behind, what you purchased, in which geographic region, and allows the company to create personalized engagement across product, landing and community pages.

O'Neill primarily wholesales its well-known surf and skate wear in stores ranging from Nordstrom to Tilly's to mass market retailers, but also sells about 10 percent of its apparel through 10 of its own retail stores and online, where it can capture a significant amount of information about its consumer. Now, for example, if a customer ? typically a 17- to 24-year-old Millennial — always searches for board shorts, when he comes back to the site he will be presented with a customized page that not only features board shorts, but also provides a drop-down menu of styles and sizes that align with previous searches and purchases. (O'Neill also gathers information about its brand ? and the surf and skate wear industry in general — through its Killer Dana store in Dana Point, Calif., (and a Killer Dana online store) which sells O'Neill product alongside more than 100 competing brands).

Since implementation at O'Neill, which took just three days, the company has experienced a 46 percent increase in conversion and an 82 percent increase in page views, with people coming back more often to the site, while Metal Mulisha experienced a 67 percent increase in conversion and a 35 percent increase in revenue.

NPD's Cohen, too, described a retail environment characterized by an "era of more" that is expansive enough to include everything under the sun but that also strives for exciting innovation. It used to be, said Cohen, that trends came and went. You'd have a mini skirt year, and then a long skirt year; a panty year and then a bra year; a jeans year and then a pants year, and so forth, with items cycling in and out according to fashion or need. Today, says Cohen, "trends come and linger" and retailers must be prepared to deliver on the old while also tantalizing with the new.

"Obsolescence is obsolete," he noted, citing for example the fact that Apple still offers the iPhone 4s, because it offers features that some people seek out specifically and that are not available on the most recent editions of the iPhone. Color is another area where limiting choices can be detrimental. When the denim industry decided that color was done, they lost out, said Cohen. The consumer wasn't finished with color, even if the denim retailers decided the trend had played itself out. What's more, women are shopping more "like men" these days, finding something they like and then buying it in multiple colors. It used to be that women would buy eight blouses in different styles, he said. Now, they buy multiples of the same one, narrowing their selection of style, but expanding their selection of color. He emphasizes the need to go "long and strong," offering products that resonate and also making sure they are available when they're truly needed.

Plugging into passion
At a time when consumers are far more excited about electronics than clothing, apparel retailers need to step up their game by innovating through function, fabric, fashion, fit, comfort and diversity, to inspire passion in the consumer, says Cohen. "Innovation is not acquisition. It comes from within; it doesn't come from buying someone else." With advances in technology including 3D printing, nanotechnology clothing, the Internet of Things (IoT) and wearables, all of which seem on the cusp of breaking through to the mainstream, opportunities  abound, says Ken Silay, director, technology research and innovation of Chico's. What's important to remember, he says, is that innovation is not a "one and done;" it's a constant wave that must be kept in perpetual motion in a forward-thinking organization.

Mercedes de Luca, former vice president and general manager, e-commerce, Sears Holdings, says apparel companies could take a page from the fashion upstarts when it comes to capturing consumer passion. She highlighted several new innovations in wearables, including a glove with a built-in turn signal for bikers, as well as new business models ranging from boutique exchange JOORAccess and ThredUp (send in a box of clothing, receive a different box of clothing) to bag rental site BagBorroworSteal and consignment rental site Love me and Leave me.

Still, innovation isn't always a new product or business model. Sometimes it comes simply from finding a new market for an already existing product, says Cohen. Consider the base layer garment, whose popularity soared when it was first launched in the sports arena. Eventually that trend leveled off, but its applications have diversified. Today, 49 percent of base layer use comes from nontraditional wearings ? on the weekends and at work and school. "Workout wear is being used to hang out in," says Cohen. On the flip side, he notes, it has stolen momentum from the jeans business.

Likewise, innovation can come from putting a new spin on an existing product, he says, contrasting the restaurant industry, which uses language to great effect (on the menu: succulent, drizzle, fragrant, zesty, flambÉ) with the fashion industry, where common terms include: distressed, plus-size, classic, machine washable and imported.

Wowing the consumer
Whether it's through marketing or new products or new shopping options, "wowing" the consumer is more important than ever, given the rapidly expanding number of retailers, brands and products. As Sahir Anand, vice president, research and principal analyst of EKN notes, 40 percent of retailers are adding 1,000 or more SKUs to their offerings.

Distinguishing between what consumers expect and what will surprise and delight them is key to winning their loyalty. Consumers have grown to expect a wide variety of services and offerings that just a few years ago were unheard of ? everything from same-day delivery to buy online and pick-up in-store.
"Consumer expectations are much higher these days," says de Luca, noting that apparel companies need to ferret out which metrics will best help them identify the areas where they have the most opportunity to wow the consumer — whether conversion, total lifetime value, referrals, share of wallet, social sentiment and so forth — and then focus on ways to improve those specific metrics.

Maybe that means offering larger, rotating images online, live chat, or user reviews. Far more effective than a company-provided description of a waterproof watch is a user-generated review that reads, "I was washing dishes, plunged my watch into the water, and it is still working," says de Luca.

Technologies that assist consumers with size and fit can play a valuable part in wowing the customer and winning loyalty also, says de Luca, pointing to companies including MIPSO FIT (a B2B that allows women to enter a few measurements and tells them how apparel will fit), ClothesHorse (which matches what you have already in your closet to similar brands) and Fitsme (which uses a robot that expands and contracts to create all permutations of the body), to name just a few. "Ask yourself, are any of these things applicable, and could they help your business?"

Or take for example Sears, which recently launched its buy online, pick up curbside in your vehicle. "If you're the mom with the kid who just fell asleep in the car, you think that Sears is the Second Coming." We have to make sure we're wowing the customer, says de Luca, because it has never been easier for customers to switch loyalties.

Bringing the supply chain along
Managing the supply chain complexities that come with today's consumer demands also requires a corresponding narrowed expansion of the supply chain. Apparel companies must reduce waste while increasing SKUs; grow the number of channels of delivery while gaining one, transparent view of inventory; build upon collaboration with supplier partners while reducing costs through more narrow, centralized purchases of fabric or through deeper relationships with fewer factories or through a reduced U.S. store presence but an expanding global footprint, or through a smaller but more skilled workforce.

The retail enterprise must be continually reevaluated from farm to shelf, said EKN's Anand, noting that with the proliferation of SKUs comes an even more complex value chain of products. Retailers are looking across the chain to reduce cost; one of the most effective ways to do this is to reduce markdowns, selling more product at full price ? a goal that is more achievable when apparel companies can respond quickly to demand shifts in the market. Yet while the manufacturing portion of the supply chain is quite lean for most companies, the front-end decision making processes are still holding up the cycle, says Carlos Arias, president and CEO, WWA Advisors. "Buyers need to move faster.
There's too much revising of thought." 

In the DC, too, there is opportunity to reduce costs, says Krish Nathan, CEO, SDI Industries. Imagine if you could save just 25 cents on each garment by making your warehouse more efficient by, for example, automating more operations, or minimizing the distance that personnel must traverse during the picking process. Multiply that by large volumes of product and you are looking at millions of dollars in savings, he says.

Finding the right strategic balance and smart use of technology at each stage of the game is key. When e-commerce started to ramp up, apparel retailers scaled down labor, which was not the right response, said John Long, partner at Bain & Co. "Now they are building it back up," he says, particularly as fulfill-from-store is becoming standard practice. But retailers are getting smart, optimizing the workforce through better use of store trafficking technology, for example, to assess busy times of day and most-trafficked areas of the store. At Starbucks, new technologies are enabling the company to put employees "on call," so that they can ramp up quickly and easily when additional staff is needed, says Arias. 

Retailers must also grapple with the role of Amazon in the marketplace, which today claims a 10- to 15-percent share of all U.S. apparel sales, and which provides a lucrative outlet for many retailers to sell their products. Yet Amazon is in some cases now bypassing retail and going directly to designers to form partnerships, says Long, who adds that he expects Amazon to claim a 15- to 20-percent share of the apparel pie by 2025. Amazon also recently announced plans to open a brick-and-mortar location across the street from New York City’s Empire State Building in time for the holidays. Adds Arias: "Companies don't know if Amazon is their biggest competitor or their biggest customer."

Amidst the scramble, apparel companies are wise to keep their eye on the scads of free trade agreements whose duty-free benefits can make an enormous difference to the bottom line, says Tom Travis, managing partner, Sandler, Travis & Rosenberg. Today, there are 600 FTAs in play around the world, he says, providing trade incentives from one bloc of countries to another. Rarely now are FTAs just between two countries, he says, and it's a more complicated game, with all players along the supply chain jockeying for power. VF, Hanesbrands and Gap, he says, have been particularly skillful at navigating FTAs to their benefit, and he advises all companies to see how they can incorporate current FTAs, as well as those in negotiation ? including TPP and T-TIP — into their sourcing strategies.

For retailers, brands and manufacturers trying to sort everything out, it's best to remember that the market is in constant flux, and always will be. "Success is not a straight line up. It's a living, breathing organism," concludes Cohen.

Jordan K. Speer is editor in chief of Apparel. She can be reached at [email protected].

Editor's Note:  The 2015 Apparel Executive Forum will be held Sept. 28-30, 2015 in New Orleans. To learn more or for an invitation, contact [email protected] or Susan Nichols, publisher, at [email protected].
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