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Merchandising Strategies for the New Normal

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Merchandising Strategies for the New Normal M A Y 2 0 2 0 • STRATEGY Merchandising Strategies for the New Normal Introduction | Compact Seasonality | Full Price Opportunity | Dynamic Pricing | Deliver What Consumers Want | Use Data Analytics | Conclusion Written by Nur Atiqah Kamarudin, Senior Business Intelligence Analyst MAY 2020 • STRATEGY Introduction Key Insights • Shift in Comfort Dressing: Current lifestyles have created a renewed a surge in athleisure, as consumers prioritised comfort. • Opportunity in Full Price Sell-Out: We’ve identified high-growth categories and subcategories, which provide opportunity for brands to experiment with pricing and maximise full price sell-out. • Accelerating Demand-Driven Supply Chain: Seasonless collections and tight assortments will allow brands to create agile, demand- driven supply chain. We can’t understate the impact the coronavirus pandemic has had on the fashion industry. As retailers continue to face inventory issues, changing consumer preference has highlighted the industry’s deep- rooted problem – seasonality. Some brands have taken measures to cut back on assortments, while others decided to push deliveries to next year. This report aims to uncover the merchandising strategies adopted by fast fashion retailers in the UK and how they can move ahead to leverage on potential opportunities in embracing the new normal. More than 200,000 data points were screened from January to May 2020 against the same period in 2019 across womenswear categories on Asos, Boohoo, Zara and H&M. All data used in this report comes from products retailing online as tracked by Omnilytics, unless otherwise mentioned. Instagram @zara MAY 2020 • STRATEGY CHART 1: CHANGE IN SELL - OUT YOY BY CATEGORIES Compact Seasonality Key Apparel Categories Shorts With production cycles and deliveries in disarray, many designers and Activewear retailers are wanting to reset the traditional fashion calendar, bringing it in line with the weather seasons. Saint Laurent, the first major label Pants & Leggings to skip Paris Fashion Week and move off schedule for the rest of 2020, Intimates will likely inspire others to follow suit. Outerwear With excess inventory and rampant discounting at an all-time high, Tops retailers are in a better position to keep their assortments tight. Skirts Consumers, currently less interested in fleeting trends, are more likely Dresses to shop essentials and seasonless items. Jeans Shift in Comfort Dressing -50% -30% -10% 10% 30% 50% Despite low consumer sentiment, key apparel categories still observed positive YoY increase in sell-outs. The already-successful Activewear category benefitted from the growth in at-home workouts, with a C H A R T 2 : DEMAND FOR LOUNGEWEAR BY SUBCATEGORIES strong 43% growth in sell-out YoY. As lockdown measures started to ease in the UK, comfort dressing remained at the fore. Intimates, mostly dominated by Sleepwear, saw a whopping 41% increase in sell-out YoY. The bottoms category also saw a clear shift from formal styles to casual and relaxed silhouettes, indicating longevity post-pandemic. With consumers prioritising comfort, loungewear – a trend closely aligns with athleisure – is at its peak. The style was uptrending across most core categories. Hoodies & Sweatshirts, Joggers, Jumpers & Sweaters and Sleepwear Tops & Bottoms were the main subcategories that made up this new core offering (Chart 2). 3 MAY 2020 • STRATEGY CHART 3: CATEGORY PERFORMANCE BY ALL RETAILERS Full Price Opportunity The main Activewear, Outerwear and Pants & Leggings subcategories reported above average sell-outs at full price. Activewear performed best in both total sell-out and sell-out at full price, signifying the renewed popularity of the category. Drilling further into Activewear, we can see that Tops & T-Shirts was the most popular subcategory, which was made up mostly of Tank and Jersey Tops. In Outerwear, Hoodies & Sweatshirts garnered above average sell-out at full price, while Jumpers & Sweaters fell short by 0.5 percentage point. Casual silhouettes proved to be in high demand as Joggers and Leggings managed to record above average sell-outs, compared to more formal bottoms subcategories. Consumers’ increased willingness to pay for these products signals a huge opportunity for retailers to continue driving these subcategories at full price. It’s wise to look out for opportunities like this on core items, prolonging the product lifecycle. Retailers Championing Full Price Sell-Out Zara was driving full price sell-out for casual outerwear at 65%. The retailer leant into the popularity of the category, as it increased its offerings this year by 40% compared to last. With activewear on the rise and loungewear being the new essential, Asos was in a better position as it had the widest offering on these categories with nearly 10,000 SKUs. The retailer also led with above average sell-out at full price, signifying its strong position in these 4 categories. MAY 2020 • STRATEGY CHART 4: CHANGE IN MEDIAN PRICE FOR ZARA Dynamic Pricing Categories Subcategories 2019 (GBP) 2020 (GBP) Hoodies & Sweatshirts 22.13 23.40 Breaking down the median price by key subcategories revealed Zara’s dynamic pricing during the Covid-19 crisis. The retailer chose to Outerwear Jumpers & Sweaters 29.35 27.03 increase pricing for categories with high growth, capitalising on Cardigans 32.02 35.01 demand. Joggers 22.90 23.88 Pants & Leggings Leggings 16.85 19.92 Zara launched new Hoodies & Sweatshirts and Cardigans during the Covid-19 period with an average of 6% and 9% increase in prices Wide Leg Pants 34.36 27.57 respectively, compared to last year. Despite the higher price, the Bermuda Shorts 22.86 27.96 retailer managed to achieve an overall improvement in total sell-out at Shorts Denim Shorts 20.17 19.64 full price of 65%. Sell-out in April also increased following the rise in median price in Outerwear subcategories (Chart 5). Cheaper than 2019 More expensive than 2019 Similarly, the subcategories within Pants & Leggings also experienced CHART 5: OUTERWEAR SUBCATEGORIES SELL - OUT MOVEMENT FOR ZARA increased sell-out. The success of the pricing strategy was led by the relevant offering, as you’ll see next. 5 MAY 2020 • STRATEGY CHART 6: STYLE OFFERING IN 2020 VS 2019 BY ZARA Dynamic Pricing (cont’d) Hoodies & Sweatshirts (2019) Hoodies & Sweatshirts (2020) Relevant SKU Styles Digging deeper into the bestselling SKUs, minimal and relaxed- silhouette pieces were preferred by consumers this year. The pandemic has clearly shifted consumers’ preference, as transitional designs in core colours won them over. To tap into the ‘buy now, wear now’ consumer, brands not yet in this space could pivot towards this new demand in comfortable loungewear by starting with a small capsule collection. Given seasonless items stand a higher chance in the current climate, brands would be wise to evaluate the space in their assortments. At the same time, CEO of Hilldun Corporations, Gary Wassner, suggests brands go through the Joggers (2019) Joggers (2020) bestselling SKUs and find products that are emotionally compelling to consumers. It is the pairing of these product areas that will best serve retailers moving forward. 6 MAY 2020 • STRATEGY Retailer’s Marketing Activities on Loungewear Deliver What Consumers Want Agility is the critical tool in being able to respond to the shifting consumer demands of the moment. Nimble communications are a great way to achieve this. As consumers sought comfort dressing, Asos, Boohoo, and H&M promoted loungewear throughout the period. Tactical promotions and new style edits surrounding the theme were prominent on their landing pages and email newsletters. With summer approaching and WFH being the new norm, the interest towards this trend is expected to continue, but in lightweight, breathable fabrics. Besides investing in seasonless product, delivering personalised items that resonate well with consumers will also keep them enticed. As seen CHART 7: INCREASE IN DEMAND FOR FACE MASKS from the collaborations at H&M with designers such as Giambattista Valli and Maison Martin Margiela, the campaigns managed to create hype and in turn generate full-priced sales for the brand. Brands can also tap into a new category by paying close attention to market demand, as seen from the surge in face masks following the current pandemic. Face masks were one of the best-selling accessories in the UK and observed a steady rise in the market (Chart 7). As lockdown restrictions ease and more consumers venture into public, we expect to see further increase in demand and sales for this item. 7 MAY 2020 • STRATEGY C H A R T 8 : TREND PERFORMANCE FOR ACTIVEWEAR Use Data Analytics Demand-Driven Supply Chain As the Covid-19 crisis accelerates the transformation towards a demand-driven supply chain, brands need to rely on data analytics more than ever. According to Sarah Johnson, who is the former Head of Merchandising at Asos and Founder of Flourish Retail, it is crucial for brands to reforecast sales according to the current climate. With historical data now redundant, brands should be guided by current market insights to generate a base forecast when reforecasting, before layering on strategic plans. As consumer preferences change and the retail landscape gets increasingly competitive, brands should rely on data-backed analytics Stay At Home Outfits on Social Media especially in a demand-driven supply chain model, where being agile is key. Brands will then be able to reposition themselves better by putting out more relevant products consistently, and in turn reducing the risk of markdowns and excess inventory. They should also continue to pay attention to social media. The COVID-19 outbreak, which has led to the birth of several hashtags in the fashion circle, including #WFHFits, can be used to monitor the shift in consumer demand. The popularity of loungewear and relaxed, comfortable silhouettes were evident across influencers’ and celebrities’ profiles. The change in the post-pandemic environment has also forced brands to continually reassess their strategies, which places a higher importance on real-time market insights.
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