As 2020 gave way to 2021, vaccines and improved treatments for the virus provided grounds for cautious optimism. But the only certainty is that the retailers that survive and thrive will be those resilient enough to adapt their retail strategy to the new environment.
2021 Will Be a Challenging Year in Retail
For retail pundits and consultants, predicting that 2021 will be “unpredictable and challenging” was an easy call. Industry insider Greg Petro projects the year will bring a large number of bankruptcies and mergers and that customers may never return to previous levels of in-store shopping. Boston Consulting Group reports that more than half of consumers plan to spend less on fashion in 2021 and predicts that midrange brands will be especially vulnerable. Consulting firm McKinsey & Company, in its closely watched State of Fashion report for 2021 projected that sales would likely not return to pre-COVID-19 levels in the U.S. until 2023 (or even 2025, if the virus isn’t contained in a timely fashion).
Recapturing Sunk Inventory Cost
For many retailers, 2021’s first order of business will be dealing with 2020’s unsold inventory. For those with adequate storage capacity, the easiest option is to simply hold existing inventory through another seasonal cycle. In this model, for example, 2020’s unsold swimsuits supply 2021’s summer season.
For those without that luxury, there are other options. Discounting old stock is the traditional choice but a dangerous one. Aside from the immediate erosion of your margins, you may be unable to return your pricing (and perceived value) to previous levels. Selling to a liquidation chain or recycler would likely result in a higher initial write-down but could preserve your future margins.
Another option is to partner with a not-for-profit charity or nongovernmental organization, donating excess merchandise in exchange for a tax deduction against the new year’s revenues. Many consumers have become averse to “fast fashion.” So, any variation on waste reduction (whether it’s through recycling or donation) can also be cast as a move toward sustainability in your marketing materials.
Build a Retail Strategy Around the New Opportunities
The picture isn’t all bleak. Any radical change in the marketplace creates opportunities for new players to emerge, and existing players to grow and adapt. For example, retailers who control their own manufacturing can switch to a “manufacture to order” model, reducing the need for inventory forecasts and warehousing. Instead, garments can be produced and shipped on an as-ordered basis.
Additionally, new technologies have sprung up to replicate the in-store shopping experience virtually as shoppers in 2020 opted to stay home. Vendors who embraced change — using retail stores as distributed fulfillment centers, live streaming in-store events for customers and upgrading the user experience on their online shopping portals — fared better than competitors in 2020 and will be better positioned to capitalize on (and drive) changed consumer behavior as the pandemic subsides.
Resilient Retailers Double Down on Digital
In a 2019 article, Harvard Business Review analyzed reviewed the research on how companies survive and thrive during and after a downturn. One key finding was that companies that invested heavily in their technology tended to outperform their peers. For retailers who wish to rebound strongly, 2021’s retail strategy should be anchored by a significant digital upgrade.
McKinsey & Company urged retailers in 2018 to make data-driven personalization central to their marketing plans, citing research showing revenue growth of 5 to 15% for retailers who pull it off. In the context of 2021 with the COVID-19 driven acceleration of online purchasing, an investment in improved personalization might be the strongest single investment you can make in your company.
The crucial decision will be how to improve personalization in a way that resonates with your customers and helps them find their way to the products they want and need in the moment.
Our With Old Algorithms, In With the New and Improved
The problem with personalization, in general, is that it isn’t actually very personal. Most e-commerce sites can draw on a customer’s purchase history to conjure up a few “you may also like” suggestions, but those are innately limited. The simple reality is that every customer is different. Historically, algorithms have done a poor job of replicating the kind of individualized service that skilled store staff can offer.
Lily AI’s sophisticated machine-learning tools take a different approach. Our technology performs a deep dive on your inventory, deep-tagging every garment you sell with meaningful attributes that would be impractical to apply by hand. This creates a vastly larger set of data points for analytics purposes, revealing otherwise opaque relationships. This helps you improve your site’s search, filters, facets and more. Most importantly, it enables our algorithm to create detailed psychographic profiles of every single customer, identifying the emotional drivers that underlie their purchases.
Your customers won’t know or care about the technology or how it works. What they will notice is that your site understands them the way only the best retail employees can and shows them products they actually want. Simply put, your shopping experience will result in happier customers.
The Time to Act Is Now
Consultants love to throw around words like “nimble” and “agile,” (especially in times of crisis), and for good reason. The more quickly you can adapt to a new operating environment, the likelier you are to survive and thrive.
Upgrading your e-commerce site to improve the customer experience has traditionally been a tedious and time-consuming process, but it doesn’t have to be. Lily AI can be fully implemented and running in as little as four weeks. Contact us today to learn how we can help you help your customers feel valued as individuals.