Sayonara, Status Quo: How Disruptors Are Rocking the Fashion Boat

11/16/2015
Today's retail fashion landscape looks vastly different from that of only five years ago.  Ralph Lauren's announcement to step down as CEO of his iconic namesake brand, following on the heels of GAP's decision to close 175 U.S. stores in 2015, is a sharp reminder of the rapid transformation occurring in fashion retail today. 

The 1980s and 1990s saw the rise of the fashion powerhouse. Vertical retailers and wholesalers such as Ralph Lauren, GAP and Abercrombie & Fitch enjoyed substantial growth over two decades during which consumers flocked to malls to purchase polo shirts and tees emblazoned with brand logos.

The new millennium brought a new wave of competitors into the fashion landscape that has disrupted the traditional powerhouses in the U.S. market. European brands Zara and H&M along with Japanese retailer Uniqlo found great success with their much publicized fast-fashion business model, stealing significant market share away from the established American brands.

Adding still more competition to the traditional fashion powerhouses, ultra-low price Irish fashion retailer Primark made a highly publicized entrance into the U.S. market in September. Primark's Boston location is already making consumers redefine “bargain” as signs advertise jeans for $7 and sweaters for $8. 

With Primark, Zara and other fashion disruptors gaining traction in the highly competitive U.S. fashion market, the traditional fashion powerhouses and their stakeholders are rapidly analyzing two key questions: what has made these disruptor fashion brands successful, and how should established brands respond?

What has made fashion disruptors successful?
Success in retail is driven by one primary factor: the consumer value proposition. In an intensely competitive fashion market, each brand must offer the consumer a compelling value across three areas:  price, product design and brand experience. Successful brands have a clear understanding of their customers' expectations across these areas and tailor all aspects of their brand and products to exceed these expectations. 

For nearly two decades the iconic fashion houses maintained the status quo around these three areas, then something changed.  Fashion disruptors entered the market and began offering an enhanced consumer value proposition that customers quickly migrated toward.

Primark is redefining low price fashion apparel, as consumers with extremely small budgets walk out of the store with multiple outfits for $30. Despite its low prices, Primark ensures it offers consumers appealing product designs and a pleasant shopping experience.  This unique customer value proposition has created a niche fashion market for highly price-sensitive consumers.

While traditional fashion powerhouses might have expected to be undercut on price, they likely never predicted the drastic transformation in product design from European brands like Zara.  As consumers began placing more emphasis on unique and creative designs over overt brand labeling, Zara was reinventing the fashion supply chain. Suddenly, consumers were able to purchase leading-edge fashion within two weeks of seeing it on the runway, at an affordable price. 

Finally, traditional fashion houses were challenged on the very foundation of their success: brand experience. The in-store shopping experience at the likes of Ralph Lauren, GAP, Abercrombie & Fitch and others remained largely unchanged over a 20-year period.  This left the door open for disruptor brands to challenge the status quo.

H&M is a prime example of a fashion retailer raising the bar on brand experience through merchandising and in-store experience.  On the merchandising front, H&M attracts more frequent visits with the regular turnover of product assortments.  H&M's spring and fall main collections (with relatively traditional lead-times) are complemented with sub-collections of trendier items developed through a fast-track calendar. These sub-collections build consumer excitement, driving merchandising turnover every couple of weeks. The in-store experience is also optimized with consumer-facing technology. In H&M's Times Square store, customers utilize iPad stations to pay for purchases in the dressing-room area, eliminating the long wait at the checkout counter. H&M also invites shoppers to strut down a virtual runway which projects performances on LED screens visible to other shoppers and tourists nearby.  Underpinning these individual experiences is H&M's essential message to consumers:  we are constantly innovating your experience with the H&M brand.

This confluence of consumer-centric innovation across price, product design and brand experience, combined with a decline in brand loyalty from Millennial consumers, has resulted in a steady migration away from traditional brands. 

How should established brands respond?
Just as the recent migration to disruptor brands was caused by a change in the consumer value proposition, any change to the current tide will need to stem from a similar change. 

A prime example of a well-established brand redefining the customer value proposition is Old Navy. Under the leadership of Stefan Larsson, a former H&M executive, the brand enhanced the two weakest legs of its customer value proposition stool: product design and brand experience. Larsson's team overhauled the image of Old Navy by transforming the product design process: focusing on ground-up original designs instead of adapting high-end designs and selling them a year later, often in poor form. Old Navy's enhanced product design capabilities, combined with its already low prices, resulted in a much improved customer value proposition.

Coming off the success at Old Navy, Larsson has been tapped to lead Ralph Lauren's global empire as the new CEO. While the challenges facing Ralph Lauren are significantly different from those at Old Navy, Larsson will likely take a similar approach, identifying the “stale” areas within product design and brand experience.

Larsson has been known to observe the changes in how the concept of prestige is evaluated. Particularly regarding high-end brands, he has criticized the way shoppers are evaluated and critiqued when they walk in the store. With Larsson at the helm, consumers can certainly expect a few changes over the next year at Ralph Lauren.

Ralph Lauren's competitors must keep a close eye on how Larsson chooses to inject his influence and will likely follow suit with similar leadership transformations in the near future, tapping executives with first-hand experience in re-defining the consumer value proposition.


Andrew Billings is an Atlanta-based strategy and operations consultant at North Highland focusing in the retail industry. Billings has led engagements spanning the product value chain, helping retailers, wholesalers and global brands drive profitable growth.
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