New fashion retail channels: how consumers will be buying clothes forecasts to edition

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1 New fashion retail channels: how consumers will be buying clothes forecasts to edition

2 Page i New fashion retail channels: how consumers will be buying clothes forecasts to 2016 By Malcolm Newbery September 2010 Published by Aroq Limited Seneca House Buntsford Park Road Bromsgrove Worcestershire B60 3DX United Kingdom Tel: +44 (0) Fax: +44 (0) Web: Registered in England no:

3 Page ii Single-user licence edition This report is provided for individual use only. If you would like to share this report with your colleagues, please order additional copies or sign up for a multi-user licence by contacting: Chris Clarke Research manager, just-style.com Tel: +44 (0) chris.clarke@just-style.com Copyright statement 2010 All content copyright Aroq Limited. All rights reserved. This publication, or any part of it, may not be copied, reproduced, stored in a retrieval system, or be transmitted in any form by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of Aroq Limited. This report is the product of extensive research work. It is protected by copyright under the Copyright, Designs and Patents Act The authors of Aroq Limited s research reports are drawn from a wide range of professional and academic disciplines. The facts within this report are believed to be correct at the time of publication but cannot be guaranteed. All information within this study has been reasonably verified to the author s and publisher s ability, but neither accept responsibility for loss arising from decisions based on this report. Incredible ROI for your budget single and multi-user licences We understand the pressure your research budget is under and price our reports realistically. You won t find our reports with four, or even five-figure price tags, but you will find that they make some of the competition look expensive. Each title is available to you on a single-user basis, supplied on the strict understanding that each title is not to be copied or shared. Alternatively, titles can be shared within departments or entire corporations via a costeffective multi-user licence. Multi-user licences can also save you money by avoiding unnecessary order duplication. To further add value, all multi-user

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5 Page iv Table of contents Table of contents Single-user licence edition... ii Copyright statement... ii Incredible ROI for your budget single and multi-user licences... ii just-style.com membership... iii Table of contents... iv List of figures... vi List of tables... vii Chapter 1 Executive summary... 1 Report theme and contention... 1 Traditional channels of fashion retail distribution... 1 Online retailing... 2 Social networking (sometimes referred to as Web 2.0)... 2 Estimates of channel share, Why emerging channels threaten the existing retail order... 5 Chapter 2 Introduction... 6 Chapter 3 Traditional retail channels and their historical evolution... 7 Retail channels of distribution: a definition... 7 Pre-industrial revolution person to person trade... 7 Early clothing markets... 8 Fashion retail shops, pre-organised distribution... 8 Fashion retail shops, post-organised distribution... 8 Mail order catalogues... 9 General traders (Woolworths to Walmart)... 9 More detail on traditional bricks-and-mortar channels Chapter 4 Channel evolution: The internet since How it started The dotcom bubble The second phase Social networking (Web 2.0) The success of business on the internet Channel 5 New retail approaches and new channels to market Social networking as a medium for attracting traffic Young-adult fashion and apparel sites New social networking retail approaches Chapter 6 Evaluation of channel evolution, Retail channels in

6 Page v Table of contents Retail channels in Retail channels in the current downturn, 2010 over Estimating channel shares by region Channels of distribution: Likely future scenarios Chapter 7 The USPs and characteristics of emerging channels The USPs of traditional fashion retailing channels Emerging channels and the internet The USPs of emerging fashion retailing channels using the internet Personalisation Swapping and swishing Q&A with Rani Ghosh-Curling of London Frock Exchange Q&A with Karin Sjosten of iswish Chapter 8 Retailers current obsession with multi-channel Multi-channel has grown up Multi-channel: Four key questions for retailers Multi-channel: Nirvana for brands and retailers? An evaluation of multi-channel in 2010 (Martec) Chapter 9 Cross-channel Multi-channel and cross-channel, what s the difference? How do shoppers find product in the age of cross-channel? Chapter 10 Selling through social networking sites The latest multi-channel format is social networking What makes a social company? Chapter 11 Evaluation of future channels Retail channels in Retail channels in the current downturn, 2010 over Retail channels in the future 2016 over Chapter 12 Why emerging channels threaten the existing retail order... 51

7 Page vi List of figures List of figures Figure 1: Nasdaq share index, Figure 2: Most popular websites in all categories, ranked by visits, 2010 (% of total hits) Figure 3: Sources of traffic to Retail 500 (the top 500 US retail sites)... 17

8 Page vii List of tables List of tables Table 1: Channel evolution trends at retail prices, 2010 over 2007 and Table 2: Market value by region at retail prices, 2010 (US$bn and %) Table 3: USPs (unique selling propositions) of traditional fashion retail channels Table 4: Channel evolution trends at retail prices, 2016 over 2010 and Table 5: Market value by region at retail prices 2016 (US$bn and %) Note: data in tables may not sum due to rounding.

9 Page 1 Chapter 1 Executive summary Chapter 1 Executive summary Report theme and contention The theme of this report is that the manner in which retailers sell fashion products to consumers is changing. It is changing at a faster pace than ever in its history. There has been as much change, as a result of the internet since 2000, as took place in organised retail distribution in the century that preceded it. Within the next ten years, the entire balance of the conventional structure of retail shops could be changed significantly. At just-style, we believe that this could be a seismic shift in the retailing of fashion products, not just a shortterm blip. Traditional channels of fashion retail distribution To comprehend what could be happening consumers approach to shopping, it is important to understand how retail distribution has evolved. There have been seven stages, each characterised by a dominant, or at least important, way to getting the clothing to the consumer. These are: 1. Pre-industrial revolution person to person trade. If you wanted to procure clothes in the 18th century, you went to a skilled artisan and negotiated a price for him or her to make it for you. The garments were unique to you, a bespoke trade. 2. Early clothing markets, such as Petticoat Lane in London. Clothing markets were a magnet for groups of people, often immigrants to create what in today s jargon would be termed a cluster of skills and experience. 3. Fashion retail shops, pre-organised distribution. Around the same period as the Huguenot immigrants were turning Petticoat Lane and Spitalfields into an apparel manufacturing and trading centre, individual shops selling made-to-measure clothing started to appear. 4. Fashion retail shops, post-organised distribution. The 19th century saw the rise of apparel mass production, and with it the start of what is called organised distribution, modern retailing as we know it. Prestigious retailers stared to sell off-the-peg standard-sized garments in numbers as well as made to measure. 5. Mail order catalogues. The same period saw the beginning of new organised retail distribution approaches. One that soon became big

10 Page 6 Chapter 2 Introduction Chapter 2 Introduction The theme of this report is that the manner in which retailers sell fashion products to consumers is changing. It is changing at a faster pace than ever in its history. Within the next ten years, the entire conventional structure of retail shops will be changed significantly. In order to address, analyse and forecast these cataclysmic changes, this just style report reviews the traditional channels of distribution over the last 300 years in Chapter 3, and then considers the internet selling revolution of the last decade in Chapter 4. The nature of these new retail approaches is considered in Chapter 5, and an estimate made of their various scales for 2010 in Chapter 6. Inevitably, this is a subjective estimate but one that is based on a wide expanse of anecdotal evidence. In Chapters 7-10, the main emerging channels of fashion distribution are discussed in depth, considering particularly the unique selling propositions of multi-channel, cross-channel and social networking methods of reaching the elusive and fickle consumer of This is followed by an evaluation of the future scale of traditional and emerging channels by 2016 in Chapter 11, and a considered opinion in Chapter 12 on whether this is a seismic shift in the retailing of fashion products, or just a short-term blip.

11 Page 7 Chapter 3 Traditional retail channels and their historical evolution Chapter 3 Traditional retail channels and their historical evolution Retail channels of distribution: a definition We think we all know what retail channels of distribution are. However the last decade has witnessed an enormous change to the old and traditional methods of reaching the market, in the case of this report taking clothes from the manufacturer to the consumer. Retail has a B2C (business-to-consumer) basis, but there have been many ways historically by which that approach has been executed. It would be possible to produce a list of retail channels in a multitude of different formats. Each would be correct. The list chosen for this report casts light on why the channels have developed the way they have. This is vital to understand in order to see the dynamics that are changing the way that retail channels operate now, and how they may well develop in the future. The list chosen is: 1. pre-industrial revolution person-to-person trade; 2. early clothing markets; 3. fashion retail shops, pre-organised distribution; 4. fashion retail shops, post-organised distribution; 5. mail order catalogues; 6. general traders (Woolworths to Wal-Mart); 7. minor traditional channels. The chosen list effectively covers three centuries of the fashion retail industry, from 1700 to Pre-industrial revolution person to person trade If you wanted to procure clothes for yourself or as a gift in the 18th century, you went to a skilled artisan and negotiated a price for him or her to make it for you. The deal was person-to-person. The garments were unique to you, a bespoke trade. The richer you were, the more flamboyant you could be in the styling of your clothing, which was immediately recognised as a mark of your

12 Page 11 Chapter 4 Channel evolution: The internet since 2000 Chapter 4 Channel evolution: The internet since 2000 How it started Online shopping pre-dates the PC, Microsoft and Apple, and started without the benefit of the internet. The first systems were probably as fast as 2010 internet shopping systems but were restricted to dial-up and leased telephone lines. There was no broadband. In 1990 Tim Berners-Lee created the first World Wide Web server and browser. It opened for commercial use in In 1995 Amazon expanded its online shopping service, and in 1996 ebay appeared. The dotcom bubble Online mushroomed and clothing companies such as boo.com expanded exponentially, were valued by the stock market at amazing share prices, but never made a profit. Front-ends and advertising were glitzy and very expensive. Back-end fulfilment (delivery to the consumer) was sadly wanting. The dotcom bubble car hit the wall in 2000, as the data given in Figure 1 show.

13 Page 15 Chapter 5 New retail approaches and new channels to market Channel 5 New retail approaches and new channels to market The biggest issue concerning new retail approaches is whether social networking offers a new retail opportunity for retailers. Moira Benigson, managing partner of The MBS Group, a retail executive search firm writing in The Times on 20 April 2009 clearly thought it did. She wrote: There are some bright people who are changing the way that we in retail do business. Most are young and virtually all use Facebook, YouTube or LinkedIn. Many also use Twitter, which has more than 6m users. Starbucks and Nike are two of a growing number of brands that tweet. The author is aware that many of us are also making friends with brands on our social networks. When he last looked, Marmite, a beef-based UK spread topping designed to eat with bread or toast had 231,093 friends on Facebook. According to Rachel Bristow, marketing, communications and buying director at Unilever, when interviewed in Internet Retailing, Spring 2010 Consumers are actively showing their loyalty to the brand. It s like wearing a virtual badge and belonging to a very large loyalty group. For Unilever, it means that they all chat together, share comments about their Marmite experiences and compare sandwich filling combinations. It also gives Unilever the chance to entertain a captive audience. There is no definitive answer as to whether these groups have a direct impact on sales, but Bristow feels confident that it is adding something. Proving it, however, is a challenge. Social networking will never take the place of advertising, she says. Push marketing is easy the costs of an advertising campaign are finite and methods of establishing return on investment are proven but pull marketing is more difficult, because generating ideas and keeping websites refreshed takes huge effort. Blake Chandlee, commercial director for Facebook, agrees: Progressive brands are seeing social networking as an opportunity to connect with

14 Page 20 Chapter 6 Evolution of channel evolution, Chapter 6 Evaluation of channel evolution, The year 2000 marks a watershed in the evolution of retail channels. Before 2000, the internet as a sales vehicle was restricted to a few trail-blazing companies such as ebay and boo.com. They were small, mostly loss-making and ludicrously overvalued. After most of them collapsed, the second phase of the internet started properly from around The historic trend figures explained and discussed in this chapter are given below as Table 1. Table 1: Channel evolution trends at retail prices, 2010 over 2007 and 2000 Date of estimates Traditional retail shops Markets Catalogue mail order Catalogue on the internet Social networking and other channels All distribution channels total Distribution US$bn values at retail prices W as 2000 xxx xxx xx xxx xxx xxx W as 2007 xxx xxx xx xx xx xxx Is 2010 xxx xxx xx xx x xxx Growth in US$ xxx x xx x x xxx Growth in % 2010/2007 xxxx xxx xxx xxxx xxx xxx Growth in % 2010/2000 xxx xxx xxx xxxxxxx xxxxxxx xxxx Distribution % share at retail prices W as 2000 xxx xxxx xxx xxx xxx xxx W as 2007 xxxx xxxx xxx xxx xxx xxx Is 2010 xxxx xxxx xxx xxx xxx xxx Change in % xxxx xxx xxx xxx xxx Source: just-style

15 Page 26 Chapter 7 The USPs and characteristics of emerging channels Chapter 7 The USPs and characteristics of emerging channels The USPs of traditional fashion retailing channels Towards the end of Chapter 5, some of the more well known emerging channels were listed. They included: o charity e-tail sites (donate and buy); o retro and vintage e-tail sites (buy but also share the experiences); o reusable sites; o swishing sites (swapping with a social and moral conscience). However, before looking at these in more depth, it is valuable to restate the USPs of traditional fashion retailing. This is so because emerging channels need to provide the consumer with a reason for switching from the traditional offer. Bricks-and-mortar retailers with shops come in a variety of guises, including the main ones which are: o independent retailers indies selling brands; o chains selling own label; o department stores doing both; o supermarkets selling clothing; o discounters offering low prices and/or ends of ranges. Each has their own set of USPs for consumers that relate to those values: o A consumer shopping at an independent boutique will be offered: o a limited range of brands, but brands which attract and then keep the loyalty of the customer; o a specific look and feel to the shop itself; o attentive, specific and strongly personal customer service; o deep knowledge of the benefits of the specific brand to the consumer. o In contradistinction, a consumer shopping at a multiple chain will be offered:

16 Page 35 Chapter 8 Retailers current obsession with multi-channel Chapter 8 Retailers current obsession with multi-channel Multi-channel has grown up Ten years ago, in the very early days of the second phase of e-commerce after the collapse of the dotcom bubble, multi-channel retailing was almost unheard of. But it has grown and developed within every retail product category, including fashion apparel. Today, in the developed world, xx% of organised retail (this excludes independent retailers and market stalls) have transactional websites, wrote Jason Shorrock, BT Expedite s business development director, in the 30 April 2010 edition of Retail Week. For most, he continued, their online store is their largest shop, acco unting for about x% of total sales. But in those early days, and in the case of some retailers, even today, the customers shopping experience can be very different. It s not just the look of the website offering as against the High Street store; it can be elements as basic as: o pricing; o stock availability; o ease of payment; o returns policy. These are areas that all retailers are now grappling with, because the consumer expects the same experience from a fashion retailer, whatever the channel that is being used. BT Expedite s Shorrock also states that, from BT research, it has found that onl y xx% of retailers already have a cross -channel order m anagem ent s ystem, in spite of the fact that it is central to managing stock, and providing any form of click-and-collect service. Multi-channel: Four key questions for retailers Most online retailers believe expansion of their sales and marketing efforts across multiple online channels is critical to their future growth. The wide array of channels used includes:

17 Page 39 Chapter 9 Cross-channel Chapter 9 Cross-channel Multi-channel and cross-channel, what s the difference? pod1 in a white paper of early 2010, stated that basically cross-channel is multi-channel joined up. It is where today s shopper does not have to register three times for the same company across its channels, and be counted as a different shopper at each. According to pod1, a multi-retail consultancy and software provider, some fashion retailers have started down that joined-up road. UK retail giants such as Marks & Spencer and John Lewis are investing heavily to create a seamless cross-channel customer experience. Both are encouraging the consumer to buy, collect and return goods through any one of the different channels they offer. They believe that such policies not only offer greater convenience to customers but also educate them to experience the brand seamlessly in their preferred way. Not every customer interacts in the same way. Indeed, whilst some consumers will only ever search and buy in stores, others will research online before heading to the store to buy, or they ll buy online or over the phone and collect in store. Some customers will only ever buy on the phone, or online, or in the shop but they are using those three areas to interact with the brand. To support this, a brand s stock system must be central, as just-style argued in the last chapter and this should also lead to a change in accounting procedures. At present for most retailers, the marketing and store managers for the website, for the catalogue, and for the stores are separate and are unlikely to want to work together. pod1 add that John Lewis has recognised that an online sale should be based on where a person a customer is. The company records online sales to the nearest store to where the item is being delivered. That means that in-store personnel are beginning to understand and advocate the importance of the online channel. They know that if it s not in stock in store but is online then that sale will be allocated to them. Just that one piece of accounting policy means that John Lewis is immediately thinking in multi-channel terms.

18 Page 42 Chapter 10 Selling through social networking sites Chapter 10 Selling through social networking sites The latest multi-channel format is social networking In Chapter 5, a reference was made to an article by Moira Benigson, chief executive of MBS, who stated: There are some bright people who are changing the way that we in retail do business. Most are young and virtually all use Facebook, YouTube or LinkedIn. Many also use Twitter, which has more than xm users. Starbucks and Nike are two of a growing number of brands that tweet. Many of us are also making friends with brands on our social networks. In Chapter 4, just-style commented that today, ebay and Amazon remain the most visited retail websites in the UK, even although they now face much stiffer competition from both online and multi-channel retailers than they did ten years ago. Social media has definitely been the big winner over the past ten years but whether that is just as media or whether it includes business also remains a moot point. There are a number of arguments that say that retailers that ignore social networking marketing are seriously missing today s hottest trend. Gone are the early days of social media, when employees at the office were busy adding friends to their Facebook page rather than doing any work. A recent (early 2010) surve y b y dotcommerce of 100 UK retailers found that xx% had som e kind of social media presence, but that only one-third with a Twitter or Facebook account actually promoted it on their website. Paul Dunay, global managing director of services and social marketing at Avaya, finds this astonishing: In an article published in a spring 2010 edition of Internet Retailing he stated that: Facebook has xxxm users, half of whom show up every day. It s a very engaged audience. If I could offer you a billboard in Times Square, New York or Piccadilly Circus, London for free, you would jump at the opportunity, so why not take advantage of this? Retailers cannot afford to shy away from this medium, according to Hedley Aylott, managing director of retail and digital marketing agency Summit Media. In Internet Retailing in Spring 2010, he stated that: Social media is happening whether they (retailers) like it or not, but most retailers are not even aware of

19 Page 46 Chapter 11 Evaluation of future channels Chapter 11 Evaluation of future channels Retail channels in 2007 It is worth repeating the point that by 2007, there had been a sea change in channel shares. The world total apparel market at retail prices for 2007 had grown to US$xxxbn (growth of xx%). The channels of distribution of wearing apparel (clothing) had been revolutionised by the internet. Within the apparel market in 2007: o Traditional retail shops (bricks-and-mortar on the High Street) accounted for US$xxxbn. This was dollar growth of US$xxbn but a loss of alm ost x% of m ark et share (down from xxxx% to xxxx%). o Mark ets accounted for US$xxxbn. This represented dollar growth of US$xbn, but a fall in m arket share from xxxx% to xxxx%. Mark ets are, of course, far more important in the developing world. Nevertheless, their share should not be overlooked in developed countries. In the UK, m ark ets are believed to account for x% b y value, m aybe xxxx% b y volume of apparel sales. In Italy, it is rumoured that markets account for xx% by value. o Catalogue m ail order accounted for US$xxbn (xxx% as against xxx% in 2000). Paper catalogues had been in decline since 2000, when the second wave of internet offers arrived. o Catalogues on the internet accounted for US$xxbn (xxx% share). This is a cautious estimate. The hype surrounding internet sales is deafening, and the reality may be lower, but, there is no doubt that this has been the channel to market of growth. The percentage growth figure (xxxxx%) look s im possible, but what it actuall y represents in a little less than a doubling of size each year; companies such as ebay, Amazon and ASOS have exceeded that growth rate. o Social network ing and other channels accounted for US$xxbn (xxx%). Although this was a small percentage, as a growth percentage since 2000, it is a m ind-bogglingl y enorm ous xxxxxx%. This effectively means growing by comfortably over two times each year.

20 Page 51 Chapter 12 Why emerging channels threaten the existing retail order Chapter 12 Why emerging channels threaten the existing retail order The theme of this report has been that there are dramatic, seismic, even cataclysmic changes about to happen in the retail industry. They will affect its channels of distribution models. These are models which, until 2000, only changed slowly and under controlled conditions. Today we are nearer a state of anarchy, in which entire business models collapse swiftly and spectacularly, much like the unpredicted collapse of Soviet communism in Eastern Europe around The author has personally experienced two much smaller, but equally dramatic business collapses, in a company in which he was responsible for product, supply and distribution: o The company manufactured pen nibs, the pens you used to dip into ink to write with. Most of the pen nibs were sold to the developing world, although many went to banks in the UK, which at that time, had pen nibs and ink on the counters to encourage customers to write cheques and paying in slips. A Hungarian, named Biro, invented... the Biro. Within two years, the company s pen nib business in both the UK and for export was finished. o The company held a licence for the Faber-Castell (German) slide rule. This was a clever device that allowed complex mathematical calculations to be done physically using a logarithmic scale on a ruler. Casio came out with the first pocket calculator. Slide rules were in the dustbin of history within a year. People tend to always believe that nothing dramatic will change their world. The author is sure that retailers would like to believe in the permanence of bricks-and-mortar shops. However, he is equally sure that a generation that is too young to even understand that there was life before the mobile phone, are ready to embrace alternative ways of shopping. So: o The author s head goes with the careful forecasts for o His heart is concerned about dramatic change.