Fashioning a Winning Strategy: The Top 5 Trends for Apparel Retailers in 2016
The resounding priority among retailers has been accelerating their integrated omnichannel offering – which has meant everything from merging online and store teams to measuring the in-store impact of digital campaigns. Recent innovations include mobile app and in-store technologies, multichannel fulfillment solutions, and coordinated cross-channel promotions. These kinds of initiatives will continue to be top of mind in 2016, particularly as consumer expectation for a seamless and personalized experience – and deep discounts – continues to grow. 2016 will also bring new approaches to evolve on these dimensions and a focus on enhancing the brick-and-mortar experience. Based on APT’s work with leading apparel retailers, here are the top trends to watch in 2016:
1. New categories find a home with apparel
While product innovation is constant in the sector, apparel retailers are increasingly aiming to establish themselves as “lifestyle brands” – a hefty undertaking but one that can pay dividends if executed correctly. This trend has manifested itself in new collections like plus size and “athleisure” lines, as well as fundamentally new categories. Kate Spade recently launched its home furnishings collection, complementing the brand’s recent additions in cookware and activewear. Similarly, H&M is becoming a one-stop shop for customers – launching a beauty collection this past fall, which sits beside their new home goods selection.
The idea of growing share of wallet and gaining new customers is attractive, but not all innovations will be profitable. Customers may substitute new products for other items (e.g., yoga pants for leggings) or simply drop one item to find budget for another. Further, while a new selection of products may attract new customer segments, it may not resonate with a retailer’s highest-value, existing customers and cause them to shift to competitors. Within the store channel in particular, making room for new products can also mean losing sales on products that are displaced, putting a high opportunity cost on reallocating floor space.
To profitably introduce new categories, retailers will need to test them in a subset of locations (often across channels) and compare performance to similar locations that don’t receive the change. Only the results of these in-market tests can tell retailers which moves are the best for their businesses, as well as how their product offering should vary across channels (particularly in-store versus online).
2. Unique in-store experiences bring longer visits
As consumers place more importance on overall experience, retailers are introducing new attractions to drive visits and earn more time with their shoppers. Urban Outfitters, one leader in the space, is introducing in-store pizzerias. Club Monaco is adding libraries, cafes, and floral shops to some stores, and Lululemon continues to offer in-house perks like yoga classes, all to extend the shopping experience and become a destination spot for consumers.
While these in-store programs are cutting edge, their success will vary widely. At a minimum, retailers will need to ensure that sales increase enough to pay back the capital expenses, new employee training, space allocation trade-offs, and other costs in each location. Some retailers may find that some stores need a tailored approach or don’t benefit from a new attraction at all. Rollout strategies should be developed based on how the success of these “experience retail” concepts vary by location, format, and scale to generate the best results.
3. Store associates take a leading role
Executives are focusing on staffing and training to optimize costs without hurting the customer experience. Many retailers are using traffic-based staffing models to determine when more associates should be on the floor. Other leaders are equipping associates with better training and technologies. Victoria’s Secret – who paves their way with innovation – continues to invest in training associates to give style and fit recommendations. Another innovator, Chico’s, is enabling their associates with tablets to keep better record of their deep customer relationships.
Even the most central labor changes (e.g., adding associates during peak times) come at a high cost, which means that retailers can’t afford to adopt programs that seem great on paper but don’t drive sales. It’s likely that some stores will require more attention than others, both in terms of the number of associates and the mix of roles, which puts a high value on understanding program impact on a store-by-store basis. Next, retailers can experiment with other ideas to improve performance, such as introducing call buttons to dressing rooms or enabling associates with mobile devices to look up styles.
4. Outlet and off-price stores quench thirst for discounts
Last year we talked about promotional right-sizing, which again ranks at the top of the list for retailers. As retailers continue to fine-tune their promotional strategies, many are relocating their discounted goods by introducing off-price formats. These new banners or outlet stores attempt to segment shopping occasions by price sensitivity. Nordstrom is planning to aggressively expand Nordstrom Rack, and Lord & Taylor recently introduced its Find @ Lord & Taylor concept. Meanwhile, seasoned retailers in the business are growing their off-price presence – take J.Crew’s Factory Store, for example.
A challenge with off-price stores is that some customers may switch completely to shopping at the new concept, which means that retailers are cannibalizing sales rather than growing profitability. This potential interaction between a retailer’s concepts makes store location critical. The best way to introduce off-price concepts is to predict how a new store will perform based on spend potential in the nearby area and the sales that will shift from nearby locations. From there, retailers can understand how to conduct business in each store by testing everything from what products to offer to pricing and markdown strategies.
5. Campaigns become custom-fit
With a myriad of marketing strategies at hand, apparel marketers are challenged with determining the ROI of each campaign both online and in-store. Solving this challenge is only becoming more complex as innovations like Facebook’s shopping section and more advanced mobile apps emerge. Some of the top retailers are using these platforms to send personalized offers, requiring an understanding of which customers should receive which messages, through which channels. A key risk with sending rewards and offers is that retailers may be giving away margin to customers who would have purchased anyway. Another potential danger is campaign over-communication (e.g., daily emails) and losing relevance and attention with some customers.
Navigating this world requires much deeper customer understanding, which is no easy task. There are a few ways to do this–the most common is to grow a loyalty program, collect data about customer behavior across channels, and test offers based on that behavior. In 2016, the most sophisticated retailers will incorporate third party data to create more targeted offers (e.g., which customer segments have high industry spend?). To leverage these expansive data sets, retailers will need to invest in tools to rapidly uncover opportunities, understand which campaigns work best, and craft more effective strategies. Iterative scientific testing should be part of the process of discovering and continuously evolving the most powerful message, channel, and frequency of engagement with each individual customer.
From large-scale initiatives like introducing new store concepts to day-to-day marketing campaigns, apparel retailers need to vet each idea to understand exactly what’s right for their businesses. With the necessary tools and a list of innovative ideas, retailers will be ready to create a winning strategy. The first step is to understand where your analytics stand today and how they can be improved. The second–to build a funnel of ideas to test in 2016. What better time to start than now?
John Howard is a senior vice president with Applied Predictive Technologies, a leader in helping large-scale organizations achieve data-driven insights that drive enhanced decision-making.
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