Executive Summary: Investing in a future forged by adversity

The pandemic has fundamentally changed retail – maybe forever. Suddenly, as consumer spending plummeted amid store closures, inventories had to be meticulously planned to save costs and avoid pileups of unwanted clothes and fabrics. Add logistical and other supply-side challenges to fluctuating consumer demand; and delivering the right product to the right place at the right time became almost impossible. Producing excess, as a rule, was no longer going to work. The big lessons from COVID-19, apparel executives agree, is that there is an urgent need to change the industry’s foundational business model.

Early in the pandemic, factory closures and delayed shipments out of China held up production at global factories relying on raw materials. Remote product development and manufacturing management forced companies to trade in manual oversight for digital tools. At the same time, companies reassessed their overreliance on a single country for inputs or production. A global freight crunch wasn’t the only fallout of the virus’ continued spread. Rising costs added to the challenge of securing materials. Fashion’s sourcing map had already been evolving as tariff pressures prompted companies to diversify away from China. But COVID-19 further forced brands to confront the risks of relying on just one supplier, sourcing country, or region. When asked to rank the biggest challenges for the next two to five years, 40 percent of respondents ranked moving the sourcing map in the top two. Trade-related challenges remain a top-of-mind supply chain problem. But apparel executives did say that they continue to see the most potential in Asia for alternative emerging sourcing destinations.

One of the top tactics companies are considering to become nimbler is better supplier collaboration. Twenty-three percent see the potential to integrate suppliers through joint venture models and are looking to adopt technology that guides business decisions. Technology also plays into the need to speed up product development. More than half of apparel executives are focusing on releasing minimum viable products in service of better efficiency and an improved customer experience. Streamlining at the design and assortment level is under consideration as well. Companies are cutting back on their SKU count, and 45 percent are developing a greater number of core styles that can have a longer shelf life. As they strategize around logistics issues and aim to restore inventory levels, it is unclear whether sustainability will still be a focus.

Retailers engaged in a variety of omnichannel strategies to meet increased online demand and offer options to each customer’s shopping journey. BOPIS/curbside pickup was added as a pandemic convenience. And many deemed stores important enough to open more, even amid industry closings. According to apparel executives, less than 25 percent of online demand is fulfilled from the store. While stores serve as showrooms for potential future digital purchases, they can’t compete with digital’s endless aisle.

Apparel executives understand that learning and improving as they go is key to agility. Seventy-four percent believe “data-driven decisions support their ability to turn test-and-learn findings into concrete improvements in customer experience, engagement and conversion” and they are investing in digital tools to improve operations, speed and/or customer experience, and to regularly assess and prioritize new investments. Will better use of data be enough to mitigate what’s hampering agility in planning and fulfillment? Even if a process is highly digitized, human insight is still essential. Brands and retailers are learning that accurately gathered, measured, and acted upon customer input is invaluable.