The Coming Revolution in the Apparel Business
The Coming Revolution in the Apparel Business
By Rita Gunther McGrath Published on April 10, 2017
Globally recognized expert on innovation and growth
strategies with an emphasis on corporate entrepreneurship.
Getting clothes on your back: A strategists' nightmare
I’ve often joked that apparel is the conventional
strategists’ nightmare. To put it in Porter's five forces terms, there are few
barriers to entry, race-to-the-bottom supply chain arrangements between buyers
and suppliers, lots of rivalry and few ways to sustain advantages. On top of
that, are major changes that affect apparel manufacturers and the retailers
whose fortunes rise and fall with them. The traditional model for mass market
apparel was to design and stock by seasons, mark down whatever didn’t sell to
clear out inventory and start again next season. That model appears to be
crumbling.
Disposable and fast
Many of the assumptions underpinning the apparel business
were based on seasons, long manufacturing cycles and a belief that people
needed to own the clothes they wear. But, lo and behold, innovators are showing
how those assumptions no longer hold. Inditex’s Zara taught consumers that if
they like an item, they better buy it because it may not be there later,
challenging the ‘stock once a season’ presumption that used to dominate the
industry. Their clothing, as well as that of other ‘fast-fashion’ retailers
such as H&M and Forever 21, is presumed by their customers to be more or
less disposable – certainly not a long-term investment. Instead, buyers like
the fresh looks of the latest trends and the fact that the inventory in the
stores is constantly changing.
Why buy when you can rent?
Rent the Runway pioneered the idea of renting and
returning designer clothes for special occasions. This has now spread to
everyday wear with many companies such as, Le Tote, offering what is
essentially a subscription model for clothes. Companies such as Stitch Fix and
Trunk Club promote wearing clothing chosen for you by an expert and coordinated
into a coherent look – no department store, changing room, over-eager
salesperson or inefficient hunting around for the right size, thank you very
much. Clothing is sent to you, keep what you want, return what you don't with
their convenient return service. And best of all, you have the opportunity for
a fresh look with every delivery.
The battle for share of wallet
The most significant competition many industries face
comes not from other entities within their industry, but from other industries.
Apparel is no different. While apparel companies compete with each other,
obviously, a far more insidious form of competition is for buyers’ disposable
dollars (or whatever currency you happen to use). Young consumers, especially,
won’t think twice about using money they could potentially spend on a new pair
of jeans for cell phone minutes, services and experiences. Moreover, the ‘fast
fashion’ trend has made clothing inexpensive, contributing to a decades-long
decline in the share of wallet that goes to apparel and footwear.
Trade under Trump?
Uncertainty surrounding President Trump’s changes to
trade arrangements could stack up to an existential threat to parts of the
industry. For instance, American factories churn out textiles, which are
shipped to Mexico for cutting and sewing, and then shipped back for final sale.
According to some sources, fully 40% of men’s jeans sold in the United States
are sourced from Mexico, adding up to a big number that could be affected by
changes in NAFTA.
Conventional retailers being clocked by discounters
Once dominant retailers, such as Macy’s, J.C. Penney and
Sears, are basically going out of business slowly, shuttering stores and
shrinking their footprints. Retailers such as Ross Stores, Burlington and T.J.
Maxx have been thriving, both in terms of their growth and in terms of
investor’s confidence in them. And, unlike the traditional idea that a
mall-based location created an advantage, shopping mall traffic is way down.
Abandoning shopping malls altogether, T.J. Maxx and Marshalls put their stores
in inexpensive, easy-in-easy-out strip malls, without the burden of expensive
real estate leases to cover.
While new retail formats grab share
On another front, business model innovators, such as
Bonobos, are figuring out that customers don’t need a store-full of expensive
inventory to meet their shopping needs. Devotees of the firm (including my son,
a big fan), can try on clothing in actual ‘showrooms’ but leave empty handed
with their purchases being delivered directly to their doors on the following
day. Bonobos was founded on the belief that men happily pay for the right fit
and the convenience of home delivery, and the bet seems to be paying off.
The onward march of “athleisure”
Who knew that yoga pants might represent a serious
competitive threat to jeans and Dockers? Well, not the people at Levi’s.
"We’re scrambling," Bloomberg notes
Levi-Strauss, & Co. CEO Chip Bergh told analysts last year. "I mean,
there is a big difference between the product that we’ve got on the floor today
and what the consumer is looking for. And we just flat-out missed it."
Missing that trend has cost the company big – sales of
jeans nearly halved from their previous volumes. Some observers predict that
the athletic leisure wear market will be in the realm of $83 billion in global
sales by 2020. This despite the fact that some people really should not be
wearing yoga pants…
The Future is Already Here – What’s brewing in Silicon
Valley today can turn up in your closet tomorrow
Given the size and ubiquity of the apparel business, it’s
only a matter of time before what seems like science fiction in Silicon Valley
today, can become a competitive threat tomorrow. Synthetic biology in textiles,
wearables, predictive analytics, 3D printing, artificial intelligence,
artificial reality and collaborative consumption are just a few of the new
technologies that could change the assumptions underlying how the apparel
business works today.
So what is an apparel industry executive to do?
The first step to figuring out your strategy in such a
hotly contested space is to get out of the fray for a bit. Step back, and
consider what your customer is looking for. To use the idea popularized by
Clayton Christensen and Tony Ulwick, what “job” are your customer segments
trying to get done? Do a deep dive to discover what are your customers pain
points? What taken for granted assumptions in your existing model need to be
challenged? Oh, and do this yourself – don’t delegate the critical task of
getting personal insights about your customers to someone else.
Then explore how you could help your customers get that
‘job’ done better than anyone else. Start with the question “how might we…?
Then follow up with engaging brainstorming sessions with people who can give
you honest insight (a process I particularly like is the Mach49 “blitz”
approach – see Mach49.com). Sort through the ideas generated to find a few that
might be sufficiently bold enough to capture more of that customer job. Then
create an incubation process to figure out what the idea really is and move it
to acceleration. For more on this process, see my book Discovery Driven Growth.
In the meantime, build up your pattern-recognition and
imagination ‘muscles’ by creating scenarios that look at the most significant
uncertainties you are facing, and seeing what strategies could be utilized in
the different possible futures. For instance, the Forum for the Future suggests
considering four different scenarios for how apparel will be consumed in 2025.
These are:
1. Slow is beautiful: A world of political collaboration
and global trade where slow and sustainable is fashionable.
2. Community couture: Where resource crises constrain
consumption in a world focused on local communities.
3. Techno-chic: Where high-tech systems deliver for the
speed-obsessed global shopper.
4. Patchwork planet: A world of fast consumption in
global cultural blocs.
The idea is not to predict – rather, prepare yourself to
recognize emerging patterns and adjust your strategies accordingly. We tackle
how to make these things happen in my “Leading Strategic Growth and Change”
class.
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