Jirsch Sutherland partner Andrew Spring, who has handled voluntary administrations for a number of fashion groups, reveals what's happening under the hood.
While Crowded House’s Four Seasons in One Day was penned 30 years ago, the song’s theme – changing seasons – is one of the biggest challenges currently facing Australia’s fashion retailers today.
Many retailers have been forced to make changes to the way they operate, not only to meet the demands and desires of their customers for greater variety but to compete with foreign-owned fast-fashion corporates and international online retailers. One example is the constant release of new ranges throughout the year, in addition to traditional seasonal ranges.
The benefits and risks of overstocking
A constant evolution of ranges comes with more than just design risk. The acceleration of the fashion life cycle means that overstocking can occur, tying up the business’s working capital and hurting cash flow. Take Ksubi for example. Before it went into receivership in 2013, it stocked six seasons in a year – that’s 10,000 SKUs – to meet market demands. The overstocking created a logistical nightmare, one the company couldn’t recover from.
Striking the right balance between bricks and mortar and online selling is one challenge, but predicting demand to avoid overstocking is equally important to surviving. With multiple ranges each with a variety of sizes and colours, it’s easy to quickly generate a high number of SKUs, as in Ksubi’s case. Many retailers overestimate demand, a problem that has led to pop-up stores and websites that sell excess stock such as BuyInvite, Hush and Catch. This can result in a devaluing of the brand that the business has worked so hard to create.
Additionally, the access to international manufacturing cost savings has meant that retailers must also become savvy logistics operators. Understanding the logistical order cycle to avoid overstocking is important – but it’s only one logistical challenge. International suppliers may have alternate seasonal downtimes, such as during Chinese New Year celebrations or India’s Diwali celebrations, which may delay delivery times. Alternatively, extraordinary events, such as the Coronavirus, can unexpectedly sever supply chains indefinitely. Retailers should always consider options to diversify their manufacturing resources to maintain supply or risk having demand go unfulfilled.
The State of Fashion 2020
A cascade of fashion brands, including large and high profile ones, have shut up shop in Australia in recent times, and the prevailing mood for the fashion industry in 2020 appears to be one of anxiety and concern as competition increases and economic growth softens.
According to The State of Fashion 2020 report produced by consulting firm McKinsey & Company, fashion industry growth is forecast to slow to 3% - 4% this year, slightly below that predicted for 2019. The reasons for the slowdown include consumers being increasingly cautious amid wider macroeconomic uncertainty, global political upheaval, and the omnipresent threat of trade wars. Coupled with a rising cost of living in most Australian cities and stagnant wage growth, the concerns for fashion retailers are well founded.
Achieving the right mix of bricks and mortar and online selling is crucial
International fast-fashion ‘disruptors’ like H&M and Zara, which have the edge over smaller brands due to their strong buying power and ability to quickly turn stock around, are not the only ones creating a challenging and uncertain environment.
Local retailers are also competing against more nimble, online-only retailers like ASOS and The Iconic, which have left many struggling to adapt and find the right balance between having a bricks-and-mortar store and a digital presence. According to the McKinsey Global Fashion Index, the future role of brick-and-mortar stores is front of mind for many. “Although they are written off by some as “too 20th century”, we take a more constructive view,” McKinsey stated. “We see local stores in particular building a role as partners in the digital revolution, helping customers touch, feel and experience in convenient locations as they browse online and offline.”
Knowing that customers still enjoy visiting stores is heartening for retailers, however with associated running costs such as rent and wages, also having a successful online ‘store’ is now essential to their survival.
Sadly, many retailers haven’t sufficiently invested in their e-commerce platforms or are being left behind by savvy competitors entering the market. This may be due to many reasons, such as a lack of knowledge of e-commerce, or simply that they’re unaware that the increased prevalence of online shopping has expanded their competitor base. Today, there are no geographical barriers to selling; making a sale isn’t determined by where you’re based, but your customer reach.
Three years ago, Jirsch Sutherland handled the liquidation of a women’s clothing group which experienced a ‘perfect storm’ of issues. The company had four bricks-and-mortar stores across Sydney before attempting an online presence. However, their platform didn’t work and the performance of their stores became inconsistent. The company was forced to rationalise its operation to the point of having just one store and a warehouse. Unfortunately, the failure of its e-commerce and the seasonal nature of clothing meant the company ended up with a large amount of obsolete stock it couldn’t clear.
Boosting sales with Influencers and social media
Fashion retailing has long relied on brand development through creative marketing and product placement. But now, with the power of social media and influencers growing, smart retailers attract new customers and nurture ongoing loyalty with engaging pages on Instagram and Facebook and add another selling arm to their websites with Instagram Shopping and Facebook Shop accounts. However, choosing the right influencers to pay to promote your store can be tricky, with their number and type of followers and reputation all important considerations. I believe retailers need to diligently track the ROI of their marketing spend on influencers and social media, but it can often be challenging to attribute sales and measure improvements in brand awareness to social media activity and influencers’ posts.
What to do if you get into the red
Over the years I’ve helped many fashion retailers restructure their business or navigate insolvency; success hinges on being able to read customer trends to avoid overstocking and create in-demand ranges, and with the costs of a bricks-and-mortar presence alone being too high, think of e-commerce as a necessity, not a point of difference.
And for retailers who find themselves in financial trouble? Seek help early from a specialist like your accountant or an insolvency specialist, so you have more options and the ability to achieve the best outcome.
Andrew Spring’s top 10 tips for retailers to consider when starting or running an existing business:
1. Understand what’s happening in the market – e.g. changing product demand
2. Understand the barriers to entry
3. Know who your target audience is
4. Develop a strategy for going to market and attracting customers
5. Have a strategy for retaining customers
6. Work out what you want to be known for or great at and know how to “tell the world”
7. Know how to create brand loyalty
8. Know how to use data that you gather (e.g. through loyalty programs)
9. Ensure you have strong back office management and logistical capabilities
10. Always take time to know your numbers and accrued liabilities such as taxes