Retailers may be tempted to focus solely on the challenges they face due to the rapid rise of Amazon into a dominant leadership position. This would be very short sighted of them. The impact to their businesses from the digitization of consumer shopping behaviour and a growing culture of bargain hunters are not to be so quickly overlooked.
A closer look at those retailers that are not making gains highlights that the fashion retailer is having the roughest time and does not place among the National Retail Federation’s Fastest 50 Growing Retailers for 2017. It tends to be non-fashion retailers that top this list with compound annual growth rates of more than twenty percent (20%) for brands like Albertsons, Nike, Apple, Sprouts Farmers Market, Ulta, and Dollar Tree.
Also, our analysis, focusing on North America, indicates that over 5,700 retail stores are slated to close in 2017 and the next few years – and this is based on what’s been announced in the first half of this year alone. Department or fashion retail stores make up seventy percent (70%) as nearly four thousand stores (3,998) were identified within these two categories.
But why are fashion retailers in particular struggling? Here are a few of our observations:
Specialty retail categories like home improvement, electronics, and beauty have evolved to be fairly consolidated with only a few national or super-regional chains for each category. This is not the same for apparel, shoe, and accessories stores, which have multiple brands competing heavily within each category.
Retail footprints exploded in the US in the late 90’s and 2000’s with developers excessively building malls and shopping centers to take advantage of perceived demand. Urban Outfitters Chief Executive Officer, Richard Hayne, suggested in March to Bloomberg that, “retail square footage per capita in the United States is more than six times that of Europe or Japan.” Unfortunately, this oversaturation comes at a time when consumers are changing their purchasing behaviours to include more online research and even ultimate purchase. We are now witnessing the burst of a bubble developers created and many stores will need to close to balance out the market.
This correction will not go well for middle-tier clothing retailers that are all offering similar products. Companies that stand out are doing something different, like those in athletic wear like Nike in how they have integrated experiences into their stores, such as running clubs and areas to demo their products in-store. Others are selectively marketing their brand to a niche customer group, such as upscale luxury brands like Nordstrom with a core focus on middle to upper-class women and only more recently trying to also target millennials.
As generational preferences shift, so will fashion. The top trend with Gen-Z’s and Millennials that has been sweeping the nation for a few years now is “Athleisure.” A trend has emerged among younger consumers for wearing clothes designed for fitness in their everyday life. Comfort and function have become just as important as being fashionable. Most notable is the regular occurrence of yoga pants worn anywhere and everywhere outside of the yoga studio. Moisture wicking fabrics taking the place of cotton and synthetics are driving a more casual approach to getting dressed in the morning.
This trend is not likely to change soon. In 2016, US active-wear sales totaled $45.9 billion, up 11% from the year prior, and is expected to continue to grow. Morgan Stanley’s global projection of active wear sales is around $300 billion in 2017 and will near $360 billion by 2020.
Those retailers not offering a selection of this specialty product may find themselves being left in the sweat-wicked dust.
Not only are shoppers becoming more interested in function, they’re also becoming more frugal with both their time and their money. This consciousness for how they’re using these two assets has fueled attraction to retailers with a “fast fashion” mindset.
Fast fashion is clothing that is trendy, refreshed often, and offered at a low price, and most recognized in stores changing their displays regularly. Retailers Forever 21, H&M, and Zara are constantly monitoring trends and are quickly updating their products to reflect them. This requires them to manage a faster supply chain and adjust their store operations to move quickly from ideation through to delivery. Retailers who haven’t updated their processes in a decade or more just cannot keep up.
Change can be good and from change, irrespective of what is driving it, there always comes opportunity. This means that not all retailers are going to fail after this massive wave of store closings. Instead, some will shift their focus to e-Commerce, such as Bebe which recently decided to focus their offerings entirely online to where their younger customer basis is actively prevalent.
Additionally, niche online retailers that specialize in products for specific segments, like eyewear specialists Warby Parker and the vintage fashions of Modcloth, are gaining ground. This has caused heavy-weight retailers to take actions that don’t leave them out, such as Wal-mart’s acquisitions of outdoor wear retailer Moosejaw and, even more recently, men’s clothier Bonobos.
For all companies that remain interested in keeping their physical store locations we believe they must also boldly embrace the use of technology. This will require many of them to invest in tech that enables them to gather incredibly insightful information about their customers and then reach out to those customers in a personalized way. One means to this is by utilizing machine learning to make better business decisions to improve their bottom line.
The fashion retailers that will survive in this new world will be those that move quickly to upgrade their tech and insights to stand out and understand their customers better. They will be the retailers that recognize the need to respond to all of the factors affecting their market. Finally, the winners will also know that they control their future state and that blaming Amazon is futile. Visionary leadership in retail is really what’s needed most.