Debenhams, Shoes of Prey and Elleryland are some of the high-profile brands to announce the closure of Australian operations this year. Ferrier Hodgson practice leader James Stewart advises fashion brands on how to avoid a similar fate.
Nobody said the business of retail is easy.
A report from Coresight Research found retail carnage is still rife, with 5,994 store closings announced in the US this year compared with 5,864 in all of 2018.
Charlotte Russe, Family Dollar, and Abercrombie & Fitch are among these stores, announcing the closing of more than 1,100 stores in just 24 hours in March.
Victoria’s Secret, JCPenney, and Gap have also announced plans to shutter dozens of locations.
Australian players haven’t been immune either – think the collapses of Ed Harry, Ellery and even digital disruptor Shoes of Prey.
It is true that the retail industry is a tough place to be operating right now.
Long-term annual retail sales growth has not returned to pre-GFC levels of 6-8% and many predict structural shifts mean that slower growth rates are the new standard.
This, combined with rapid globalisation of major retail brands, digitisation and consumer empowerment, leads to a very volatile marketplace.
But in my experience most retail failures are caused by internal rather than external factors.
Over the last 17 years, I have witnessed first-hand some of the mistakes retailers made which ultimately led to their downfall.
There are valuable lessons to be learned from these failures, many of these I have used to help retailers develop a plan for success.
Let me share them with you.
In my view, the number one reason retailers fail is because their brand loses relevance in the eyes of consumers. Here are a few examples which I have been directly involved with:
Sportsgirl – An iconic brand of the 1980’s, however by the late 90’s it had become tired and stale and ultimately entered into administration.
Harris Scarfe – Once Australia’s third largest department store (behind Myer and David Jones). The business went into receivership in 2001 as a result of ‘accounting irregularities’. The reality is these irregularities masked years of underperformance as a result of an increasingly irrelevant business model.
Colorado – in 2011 the business entered receivership on the back of financial distress as a result of a significantly geared balance sheet. The core issue however was that the Colorado brand itself was losing sales because it had lost its zest. Towards the end of its life, its product offering was sometimes referred to as ‘aspirational BBQ wear’.
While each of these brands actually survived receivership and administration, among these examples are four common symptoms of a brand losing relevance.
These include a stale product mix impacting sales and margin performance; a confused business strategy and uncoordinated executives driven by balance sheet constraints or management denial; a lack of capital investment in technology impacting in-store experiences and critical back-of-house functions such as warehousing and logistics and; customer engagement drop offs as a result of poor product, in-store and digital experience.
Brands that lack strong positioning, a clearly defined product offering and communication through relevant channels, risk losing touch with their customer.
The key here is to understand who the customer is, what drives their purchasing decisions and how the brand can best communicate with them.
Brands that failed were often historically very successful.
Indeed, in my experience, these brands can be successful again.
The most important ingredient to long-term survival is constant brand reinvention to maintain market relevance.
The difficulty retailers face however is that consumers now expect more from you than ever.
Particularly when it comes to the fast fashion space, consumers now crave constant freshness and newness along with convenience and an overall better shopping experience in both the physical and digital worlds.
I believe that successful fashion brands should manically focus on changes in consumer behaviour as well as aligning their value chain to deliver a superior brand experience through a multitude of channels.
The next important phase is execution, the link between planning and results.
Even the best retail strategy will fail if it cannot be properly executed and this is often where retailers come undone.
Many of the mistakes I have seen around retail execution relate to either mismanagement of inventory or a lack of appropriate skillsets within the management team itself to deliver on the strategic plan.
Inventory management is crucial to being able to deliver on the omni-channel experience that underpins brand relevance. Poor planning disciplines and ineffective OTB (Open to Buy) controls can have a severe impact on a business.
Product and range planning is important for developing a range architecture, determining product mix and ultimately your sales and margin outcomes.
I often walk into retail businesses with little or no range planning. In fact, most of the time, their range plan is ‘do what we did last year’.
Weak product planning is evident at the customer level through poor merchandising in stores, a fragmented range and a lack of clarity around what the brand stands for. Ultimately it will cost sales and margin dollars.
A business’ OTB serves to monitor and manage the amount of stock within a business.
Too little stock risks losing sales and potential customers whilst too much stock ties up working capital and can lead to obsolescence and write-offs in the future. Far too often I see retailers experiencing these issues because their OTB disciplines are lax.
For example, buyers are encouraged to seek out ‘good deals from suppliers’ regardless of whether the products they are purchasing are the kind their customers want.
Ultimately, all of the above hinges on the capabilities of your management team in being able to properly implement planning tools and execute your strategy. It is critical to identify resource gaps and recruit the right talent as well as invest continuously in upskilling existing staff.
As much related to the need to reinvent to stay relevant is the need for management to continuously evolve their business model in order to successfully deliver a true omnichannel experience.
Management hubris borne of past successes can lead to complacency.
Stale business strategies based on what worked well in the past do not ‘cut the mustard’ anymore.
Successful retailers now create business models that seamlessly integrate both the digital and physical retail worlds.
The best omnichannel retailers will be the ones that successfully challenge and transform their business models by placing the consumer at the heart of their business.
For many retailers, this requires the internal silos of their business to be removed.
For example, logistics, customer care and store staff all need to communicate as one and drive solutions.
Enabled by mobile technology, consumers have become more sophisticated than ever and are now acutely aware of the value-equation paradigm (product, service, price and convenience) that once was the sole domain of the retailer.
This shift in power from retailers to consumers has required many retailers and consumer brands to rethink their business models and rapidly develop strategies to re-engage with their traditional customers.
The challenge to retailers now is to change and adapt to a mobile and digital world, with physical retailers becoming digital retailers (e.g. Neiman Marcus) and digital retailers becoming physical retailers (e.g. Warby Parker).
If they haven’t already, retailers have or need to transform their retail value chain across sourcing, production and logistics.
This doesn’t just mean cutting costs, but also improving value through speed to market, ethical standards and quality.
Whilst this story has addressed most of the common mistakes retailers can make, there are some other considerations which management should be aware of:
Capital structure and investment – Retail companies must have the right capital structure in place to ride the inevitable ‘bumps in the road’ that occur from time to time. Without an appropriate capital structure, once a fashion business becomes cash constrained it can lurch from season to season financially limited and without the necessary capital investment required to keep stores and systems current.
Financial control and reporting – Quality and timely business-wide reporting is critical to allow retailers to accelerate decision making in a fast moving world. At a minimum, this should include weekly reviews of actual performance against budget; performance of group and business unit KPI’s; underperforming stores (detailed review) and; inventory balances and mix.
Data analytics and customer insights – Best practice retailers are now running their business ‘by the numbers’. The evolution of digital technology has seen more data made available than at any other time in history. Best practice retailers are triangulating their loyalty programs, POS data and public data to deliver rich customer insights which drive decision-making around store locations, product mix, pricing strategies and customer engagement.
Many Australian retailers currently find themselves in a turnaround phase, whether to keep up with the pace of change or to correct a misaligned strategy.
The harsh reality is that with anything less than total buy-in and commitment to change, a turnaround attempt will ultimately fail.
In our experience, it can take up to two years to turn around a fashion business.
This is due to the need to clear obsolete stock (whilst minimising gross margin impact); the need to design and introduce new product ranges; the need to recruit new human capital with the right talent and experience and; the time to drive store profitability, through customer-oriented staff and the right product offering and mix to drive traffic.
Most importantly, change within an organisation needs to be owned and those responsible need to be made accountable for affecting the change.
This may necessitate the establishment of a ‘change office’ separate and distinct from senior management, who are often too busy focusing on the daily tasks required of their respective positions to allocate time and energy to pushing a change agenda.
Future-proofing your fashion business requires constant reinvention. As we all know, change is the only constant.