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McKinsey Suggests 5 Strategies for Fashion’s Pandemic Playbook

With brick-and-mortar shut down and online sales insufficient to make up for the physical channel, fashion firms can do five things now to position themselves for recovery when the coronavirus pandemic fades.

According to McKinsey & Company, apparel firms should lead with compassion and protect its people, manage for cash, review in-year inventory positions and assess the supply chain, amplify digital initiatives, and maintain connections with consumers.

While a few of these seem aimed at retailers, they also apply to wholesalers that operate their own online websites and outlet stores. Guidelines on operating transparently with regard to payment terms and inventory reassessment also have an impact on the upstream supply chain.

In North America, the apparel, fashion and beauty industries generates about $600 billion in annual revenue and employ more than four million. By observing McKinsey’s suggestions, companies trying to navigate the COVID-19 pandemic with little cash in hand can better mitigate their risks.

What’s more, companies that execute a repositioning analysis can maximize their opportunities for the second half of 2020. And the same thought process will enable companies to consider now how to reshape their ecosystems and take longer-term strategic actions in shaping the “next normal,” which could see a focus on a more flexible, responsive supply chain over a low-cost one.

Leading with compassion

“Apparel and fashion companies must act quickly to secure business continuity, minimize downsize for the latter half of 2020, and get ahead of business-model changes that may be necessary coming out of this disruption,” McKinsey said in the “Perspectives for North American’s Fashion Industry in a Time of Crisis” report published last month.

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According to the management consulting firm, leading with compassion and protecting personnel means communicating frequently and clearly with employees, whether that’s setting expectations about the new working norms, safety precautions being taken or how to build morale. And while the health and safety of employees is the absolute priority, another top consideration is protecting customers, whether that’s strict hygiene practices in stores or new safety procedures for handling and delivering online orders.

Managing cash

When it comes to managing cash, the management firm suggests setting up a “cash control tower” that includes representation from both the procurement and sales teams. The team’s function is to take a closer look at spend and identify areas where there could be reductions in cash outflow. They also should take a look at governmental programs to find ways to ameliorate cash strains through public measures, potentially on a state-by-state basis.

Inventory and supply chain

An inventory review will help with reassessing the supply chain, helping to determine stock in each category and the ability to prioritize what needs to be done next to maximize gross margin and free up working capital. Companies should begin with spring and summer inventories and check to see what could be delayed for late summer, fall or the next calendar year, even if that means considering offloading product to an outlet channel. If storage space allows, some products could possibly be sold in flash sales during the holiday period.

McKinsey & Co. suggests some immediate priorities, and thoughts for beyond the pandemic, for fashion firms during the COVID-19 outbreak.
A look at how to evaluate inventory at hand to reassess the supply chain for the post-COVID-19 world. Courtesy Photo

The idea is to clear out inventory that’s left over as soon as possible to improve cash position. Managers then need to adjust buy quantities for the fall and holiday season, based on what’s carried over from the first half of the year and taking into account any expected category shifts.

McKinsey also cautioned that when making decisions on inventory restocks, companies should take into account the impact on the supply chain, such as upstream manufacturers that are already pressured by decreasing unit volume in some categories and channels.

The management firm advocates “being transparent in communications about payment terms. Support your long-term partners by consolidating volume and engaging in joint planning.”

Digital 

As companies consider shifting media spend to the online channel, they should also move from brand building to customer activation. That means focusing on conversion, basket building and repurchase triggers. While digital marketing can help with maintaining engagement and boosting online sales, it can also help with giving customers a reason to visit stores nearby when they reopen.

Connecting with consumers

McKinsey suggests keeping the conversation flowing, but in a way that is authentic to the brand and that resonates with the customer base. It could range from communications on how a company helps its warehouse workers stay healthy to candid conversations on how a new pair of shoes can bring comfort and joy in a time of chaos. “This is a time to use your brand voice to speak to consumers and forge community around your brand,” McKinsey said.

Beyond the must-dos: medium-term actions for 2020

After weeks of shutdowns, McKinsey anticipates that telecommuting, reduced travel and special events cancelations or postponements will continue, all having an upstream impact on sourcing and production. Brands should monitor sales data and review them with their vendors and suppliers. Together, everyone can collaborate on merchandising plans for fall and holiday, as well as next year’s spring season. Companies that find consumers have been gravitating towards different categories–and have funding to invest–might have opportunities to acquire new consumers.

As companies prepare for the second half, McKinsey suggests thoughtful store-by-store decisions when it comes to reopening the store network, both for the health and trust of employees and consumers, but also because most firms will be operationally constrained.

McKinsey suggests determining whether some stores should reopen in a different capacity, such as shifting to a more value-oriented consumer segment and using the location to clear out excess inventory, or even maybe not reopening at all. The management firm anticipates store re-openings occurring on a region-by-region basis. And it might also entail a gradual ramp up of staff if rehiring is needed, as well as compliance with local requirements in connection with cleaning practices and store density.

In addition, consumer behavior and preferences might have changed during the shutdowns, and that means firms should think about reopening with a new operating model centered around customer engagement and styling. That could involve floor-space resets to help with in-store pickup of online orders.

One way to jump start growth in the second half is through connections with brand loyalists. “It’s not uncommon for 10 percent of a brand’s consumer base to drive 60 percent of its sales, making activating these VIPs a must do,” McKinsey said.

Because these consumers are also getting bombarded by other brands’ offers, the key here to find ways to stand out. Tailored promotion, early access to new-product drops or limited editions can cut through the noise. And if consumers find themselves in a different financial position, detailed consumer segmentation and personalized promotions that deliver meaningful value could be key in retaining these loyalists.

Longer-term strategies for shaping the “next normal”

So how will the coronavirus pandemic reshape ecosystems and help fashion companies capture new opportunities? That’s what CEOs should start to think about now in planning for the future.

McKinsey believes companies will focus more on flexible supply chains instead of low-cost ones, given the impact from the initial outbreak in Wuhan, China, and the subsequent issues with inputs and factory shutdowns as the pandemic began to spread globally. That could translate into exploring possibilities for on-shoring or near-shoring.

And with the work-from-home option now, comfort could become a top consideration in future apparel purchases when workers head back to the office, helping to accelerate what was already a growing trend toward “casualization” in the work place.

Because crises can create new avenues for growth, many companies will find that they are looking at different go-forward opportunities based on their own financial strength at the start of the pandemic crisis. A clear-eyed portfolio review can help determine if brands are still playing in the most attractive channels and spaces, are set up to execute effectively to capture demand, and able to pursue opportunities to acquire new brands or consolidate assets. That kind of thinking will help guide which partnerships and organizational changes will move forward as well as what not to pursue.