Solutions adopted by fashion retailers to face the pandemic

As everyone knows, the The Covid-19 pandemic had a huge impact on the economy. The intensity with which each sector was penalized it varied a lot from segment to segment, however. While supermarkets, pharmacies and certain public services managed to reduce the damage, sectors such as aviation, tourism and restaurants were greatly affected due to the social isolation adopted to contain the pandemic. When it comes to retail, the most affected sector was fashion retail (clothing, footwear and fabrics), as indicated by latest monthly trade survey released by IBGE, referring to the month of April (Figure 1). The crisis caused by the coronavirus has reduced the income of many families, which has had an impact on the consumption of superfluous items, such as clothing and shoes. In addition, the practice of social isolation further curbed the purchase of clothes, since socializing is one of the aspects that most stimulate fashion.

Figure 1: Retail and expanded retail sales volume. Source: IBGE - PMC Setorial - April/2020

With physical stores closed in most cities in Brazil and around the world, many brands saw in virtual retail the chance to stay alive in the market. According to the Brazilian Association of Electronic Commerce (ABComm), until the beginning of actions to contain the coronavirus in the country (beginning of the second half of March) the average was 10 openings of virtual stores per month. The number jumped to 50 per month shortly after the social isolation decrees, that is, an average increase of 400% in the number of stores that opened e-commerce per month during the quarantine period in Brazil. In just over 2 months of quarantine, 107 new establishments were created on the internet. The footwear and fashion sectors are in the Top-6 of segments with the greatest increase in the number of online sales, according to a survey by ABComm and Konduto, with growth of 99,44% and 18,38% respectively.

In this same movement, many micro and small businesses joined the marketplace of large companies to be able to earn during the crisis and sell their stocks. One of the main initiatives in this regard came from Magazine Luiza, which launched the Parceiro Magalu program in March, at the beginning of the quarantine period, to attract these small traders who were left without customers due to the closure of their physical stores. According to company information, more than 20 shopkeepers have already registered on the marketplace and started selling goods through the platform.

Another company that expanded its marketplace in the period was B2W, responsible for operations at Americanas.com, Submarino and Shoptime. The company also created a hotsite to encourage local trade, expanded the offer of credit, anticipated sales transfers and intensified logistics and distribution support, in addition to training and qualifying 2,8 salespeople.

Considering the stores that already had their e-commerce before Covid-19, many reported a big change in the consumer's purchase portfolio. The adoption of social isolation caused many professionals to start working from home, which resulted in the replacement of clothes usually used: instead of social clothes and shoes, comfortable clothes, such as sweatshirts, leggings, pajamas, socks and slippers.

With the increase in the number of videoconferences being held, another curious phenomenon was observed: as in general only the upper part of people's bodies appears on camera, many workers dress up only from the waist up. This resulted in an increase in the number of purchases of blouses, shirts and coats compared to the purchase of pants and skirts, as reported by Walmart vice president Dan Bartlett during an interview with Yahoo! Finance. This trend was even mocked by the menswear brand Suitsupply on their social networks. Posting a photo of a partially dressed model, the brand wrote on its Instagram: “Working from home doesn't mean compromising on style. Keep your appearance professional – at least from the waist up” (Figure 2).

Figure 2: Suitsupply advertisement during the quarantine period. Source: Suitsupply's Instagram

These changes in consumer purchasing patterns and the impossibility of predicting this during previous demand planning cycles had a major impact on the inventory of many companies, as ILOS manager Beatris Huber wrote in her post Effects of the pandemic on cycle stock. While certain items in the stores' portfolio ran out of stock due to the unexpected increase in demand, others have inflated inventories due to the drop in consumption. To tackle this last problem, retail fashion brands such as GAP, Calvin Klein, Carter's and Ralph Lauren said they intend to save part of their inventory for the next seasons. Taking advantage of the fact that the closure of physical stores prevented customers from seeing the current collections in the catalogue, these brands seem to have opted to carry their inventories longer so that they could later sell their pieces at full price. This strategy, however, demands a large financial investment, since fashion retail companies will need to produce new collections without having the money from the sale of the old collection, since this could take up to 1 year to be sold if the brand waits the same season of the year to make the items available, for example. In addition, fashion retailers will demand greater physical space in their distribution centers and stores to accommodate this additional stock, which may result in an even greater investment.

For brands in the fast fashion segment, this inventory packing strategy is more difficult to adopt, since fashion trends have a great influence on their collections, which means that clothes suffer more from the effects of obsolescence. As a result, stores such as Zara and H&M have promoted large price discounts in order to reduce their stock levels and reduce the number of pieces left for the coming seasons. If, on the one hand, this strategy reduces short-term losses, on the other hand, these brands may find it difficult to markdown prices in the post-pandemic period and ensure that consumers adhere to the new level of item values. There is also the risk of reducing the brand value perceived by the customer, which can have major consequences in the long term.

After the end of the quarantine, brands will also need to work on their sales bases to eliminate the effects of the pandemic on their historical series and be able to use them again to make their sales forecast. To learn more about this, see the post How to make adjustments to demand planning in the post-pandemic published by ILOS consultant Henrique Alvarenga.

Faced with so many unexpected challenges, this moment demands resilience and innovation from fashion retailers. As the quarantine becomes more flexible and the flow of people on the streets increases, the companies that survived the crisis should experience a better situation. However, it is hard to imagine that old buying habits will persist after humanity has faced a setback of such proportions. Whoever can anticipate and adapt faster to this new “normal” should have an advantage in the market.

References:

- The State of S. Paulo – Impact of the coronavirus on sectors
- IBGE - Monthly Commerce Survey - Apr/2020
- IstoÉ Dinheiro – Coronavirus pandemic makes e-commerce explode in Brazil
- Época Negócios – With the pandemic, Brazil registers the opening of more than one virtual store per minute
- Market and Consumption - Magalu's e-commerce registers growth of 73% in the first quarter
- Valor Econômico – Magazine Luíza has once again achieved exceptional results, says BB Investimentos
- Valor Econômico – Marketplace gains space and changes profile of deliveries
- CBS News – Coronavirus: social distancing work from home Walmart tops pants sales
- Yahoo Finance – Amid coronavirus, Walmart says its seeing increased sales of tops but not bottoms
- Wall Street Journal – Sales are going out of style at these retailers
- Instagram SuitSupply