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Struggling Apparel Retailers Have Five Paths to Profitability

How are profits won and lost? What investments should take priority? What strategies will bear financial fruit?

The answers to these questions, and more, vary depending on which of the five “archetypes” describes each individual fashion company, according to Deloitte.

“Apparel and discretionary retailers should seek to keep current with consumers and, importantly, understand which aspects of convenience their customers are willing to pay for so they can target their investments accordingly,” wrote the research team who compiled the consulting firm’s report, “A new formula for retail recovery and growth: The five paths to profitability.”

Technology trend-setter

Deloitte defines the “technology trend-setter” as an established brand, omnichannel mass retailer, with value-driven customers and a traditional buy-and-sell model. The profit model is high-volume, targeted algorithmic advertising with white -abel products—generic products manufactured by third parties under different labels—and a diverse, efficient supply chain. Strategies for success include an emphasis on multichannel digital shopping, offering one-click order and subscription service, expansion of complementary services for one-stop shopping, establishing store-in-store model for adjacent brands and redefining returns processing such as one-click, prepaid and labeled.

Emerging threat

Companies that can be classified as emerging threats are market-disrupting brands, direct to consumer, or attract price-sensitive customers with a minimal warehouse model. These businesses have a profit model based on scaling with limited infrastructure, vertically integrated supply chains, low cost to consumer, and highly targeted advertising. To succeed, these players can establish alliances to pursue omnichannel opportunities or shop-in-shop models, implement frictionless returns processes like home pickup, employ stripped-down showroom-style locations and use artificial intelligence to drive bundled pricing and loyalty programs.

Brand loyalist

“Brand loyalist” retailers have established their brand, and built an omnichannel empire with flagship stores, a devoted base of shoppers, a close cadre of distributors and important inventory hubs. Their profit model hinges on high brand loyalty, high-quality mid-priced apparel, outsourced manufacturing and revenue growth through innovation. These companies can get ahead by figuring out their best stores and shutting down the rest, while launching experiential locations in important markets. Deloitte says brand loyalists should look into carving out in-store space at mass retailers, focus on maximizing direct-to-consumer digital sales, upgrade their digital platforms and adopt AI-driven loyalty programs.

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Fast fashionista

The fast fashionista is an established, omnichannel player whose trend-obsessed shoppers drive high foot traffic. They make their profits through high volume, relying on a tightly integrated in-house, supply chain and cost-efficient production. Deloitte says fast fashionistas should shed their weaker stores, invest in e-commerce with in-store services such as virtual showrooms. They should offers consumers curated content after logging in or purchasing, and incorporate white-label basics to pad their margins.

Social-savvy

Who is the “social-savvy” retailer? This non-established specialty player hawks higher-priced wares in a boutique-style format to loyal and social media-based consumers, earning its keep through premium pricing and service that enables them to steal market share from more mature rivals. These companies, Deloitte says, should consider partnerships with adjacent businesses such as athletic apparel and digital workout platforms, and personalize the customer’s experience whether digital or in stores. They should also create high-quality goods at aspirational, but attainable, price points, rationalize their boutique footprint with highly targeted locations and hone a social media- and influencer-focused marketing strategy.

Retailers that rethink and restructure stand a better chance of outpacing competitors, exceeding consumer expectations and emerging as leaders in the future apparel market, Deloitte says.