As retailers are aware, COVID dealt a crushing blow to the already unpredictable industry. The repercussions will continue to be felt even as global marketplaces reach various stages of recovery - turning data into your best defense to drive sales and increase margins.
Following EDITED's recent acquisition of DynamicAction, we combined our data and analysis to understand the pandemic’s impact on fashion retail. Powered by Market Intelligence with Enterprise Intelligence, this report assess shifts in channels, category mix and the profit impact of heavy discounts and promotions.
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EDITED’s key takeaways
- Stores closing accelerated the urgency for ecommerce innovation, leading to a dramatic YoY improvement for KPIs such as dead stock units and average days to ship.
- Quarantine and work-from-home (WFH) lifestyle shifts led nimble retailers and brands to quickly adjust their category mix away from formalwear to comfort dressing.
- While some brands are restructuring to offer accessible prices, luxury brands continue to get more expensive as investment pieces outpace 2020 and 2019 levels.
- Early pandemic days saw a discounting frenzy, which was not kind to profitability or selling efficiencies. 2021 discounting levels have returned to closely mirror 2019 and are improving on profitability.
27 fashion bankruptcies
The Fashion Law publication reports 27 fashion bankruptcies since April 2020. Bankruptcies hit department stores such as Belk, JCPenney, Neiman Marcus and Lord & Taylor, as well as many high profile brands like Arcadia, Lucky, Brooks Brothers, Ascena and Tailored Brands. For an industry already struggling to lure foot traffic into stores, the pandemic was a severe blow that left fashion retailers with massive overstocks, mounting debt and an urgent need to accelerate their ecommerce strategies.
160% increase in online purchase frequency
The early days were bumpy. Many retailers had to scramble to adapt to an overnight channel shift. Stores were closed and ecommerce was exploding, driven by an Accenture estimated 160% increase in the frequency of digital purchases by those who rarely shopped online pre-pandemic. Retailers quickly needed to figure out how to move stock into shippable locations, ramp warehouse inventory, expedite shipping and avoid costly split shipments. They also needed to implement Buy Online Pickup In Store (BOPIS), Buy Online Return In Store (BORIS) and curbside strategies. All while furloughing staff and keeping remaining workers healthy.
38.7% decrease in dead stock
We are now over a year removed and can see the progress made. In analyzing like-for-like fashion retailers and comparing April 2021 to April 2020, we learn that the inventory value associated with dead stock* is down 38.7%. This is due, in part, to increased demand for fashion as vaccinations roll out and consumers shed their loungewear. The US also recorded the largest ever jump in disposable income (67%) in Q1.
Additionally, retailers are becoming more surgical with their assortments. They have successfully reduced product counts in categories that house formal or occasionwear items that struggled last year (such as dresses and all-in-ones were down 13% and 17% YoY) in an attempt to limit inefficient stock liabilities.
21.4% faster time to ship
Beyond minimizing dead stock, fashion retailers and brands have seen their warehouse investments pay off with a 21.4% reduction in the average days to ship*. These are all very healthy signals for an industry that was forced to innovate its supply chain and reduce its assortment to merchandise stronger selling items.
3 major category shifts
In August 2020, McKinsey & Company reported global consumers expected more mindful shopping and a pullback on spending across key retail categories such as apparel, footwear, home furnishings, skincare and makeup. Groceries, home entertainment and household supplies were to be the beneficiaries of this shift in demand.
With no weddings, parties, business meetings, conferences or ceremonies to attend, nimble fashion retailers and brands responded to new WFH trends and virtual engagements by contracting formalwear in favor of casualwear. Unsurprisingly, sleepwear, activewear and loungewear emerged as category saviors.
We take a look at the three most impacted products as comfort became the pandemic's defining fashion trend.
1. Flats over heels
Comparing April 2020 to April 2021, retailers reduced their assortment of women’s heeled shoes by 23%. In contrast, flat shoes saw an assortment increase of 7%. This was driven by the evergreen demand for sneakers and the resurgence of comfort and casual brands like Crocs and Ugg, which enjoyed strong performances despite the pandemic.
2. Hoodies over blazers
With workwear on hold, retailers executed a 19% reduction on blazers between April 2021 vs. Apr 2020. In contrast, they leaned into hoodies; a product that transcended the cash cow categories of loungewear, activewear and streetwear. The essential item saw a 32% YoY growth in investment.
3. Sweatpants over trousers
Retailers cut trousers assortment by 2%. To complement hoodies and cater to the Zoom dressing trend, buying and production were heavy for sweatpants, which saw a 67% increase.
13% rise in luxury pricing
With fashion deemed a non-essential category, many businesses had to rethink their pricing architectures to offset losses or ensure accessibility in the new normal.
Victoria Beckham plans to merge its mainline with its more affordable diffusion brand and lower its dresses' average prices by 40%. Forever Unique will shift away from occasionwear to focus on lifestyle products and drop its average price tag to approx $100 vs. $230.
Despite this shift, true luxury is going in the other direction and becoming more exclusive - a pricing trend we've previously called out. The total advertised average price point of categories combined at luxury retailers shows a 13% lift compared to 2020. Price hikes for luxury items are most notable on classic, investment pieces with longevity. Jewelry, outerwear and handbags are all priced on average above 2020 and 2019, tying into the post-pandemic mindset of “buy well buy better.” This trend is set to continue as Chanel recently announced its most iconic bags would experience a price hike between 10-15%.
65% of ranges were discounted
As stores closed and consumer demand waned, apparel retailers were left with high inventory levels. To clear stock and improve cash positions, retailers dramatically increased online discounting levels. In March 2020, the average percentage of assortments discounted reached 65% in the US and 54% in the UK. To counterbalance 2020's aggressive discounting, markdowns in March 2021 fell below 2019 percentages. This trend has continued in the US, while the UK has remained well below 2020 levels.
40.1% increase in profit per view efficiency
The heavy discounting witnessed at the start of the pandemic had a significant impact on the profitability of fashion retailers. The data indicates that strides have been made when comparing the like periods in 2021. Global retailers reduced the depth of weekly discounts by as much as 8%, which has continued to drop below both 2019 and 2020 levels. Orders using promotions* fell by over 15% while simultaneously improving the effectiveness of products merchandised on sites.
As a result, two key profit efficiency metrics, gross margin per order* and gross margin per view*, are up 26.7% and 40.1% YoY, respectively - more evidence of the industry bouncing back.
As COVID vaccine distribution increases and governments begin to allow more free flow, we are seeing category shifts again to embrace pre-pandemic categories. While comfort still remains at the root of trends, EDITED Retail Intelligence data indicates high heels are landing, swimwear is back and blazers are selling out at full price.
We’re seeing ecommerce channel gains return to stores, especially in the UK with total fashion like-for-like sales up 39.9% in the week to June 27th with footfall increasing 48.1%.
That said, the pandemic has prepared surviving fashion retailers to run online operations more efficiently, operate DTC businesses more seamlessly, manage assortment more nimbly and place more scrutiny on the types of discounts and promotions offered. Time will tell if annual ecommerce and profitability gains can be sustained, but early signals are encouraging.
*Glossary of metrics
Average days to ship - The average number of days between order placement and order shipment from warehouse.
Dead stock - Items that haven’t sold in the most recent four weeks.
Orders % using promotions - The percentage of orders to which a promotion was applied during the analysis period.
Gross margin per order - The average product profit per order during the analysis period.
Gross margin per view - Online product profit divided by product views during the analysis period.
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Contributions by Brian Tomz and Kayla Marci