Consumer and Shopper Insights September 2011

Fast fashion: Navigating the global apparel market

By Achim Berg

Changing consumer preferences and the need for speed are complicating the apparel business along the entire value chain. Here are the most important challenges. 1. Eliminating bad complexity: Doing business, particularly in a fastchanging, global and hypercompetitive business like apparel, is necessarily complicated. But that is no excuse for creating unnecessary complications. Bad complexity might be designers who are so lost in the creative clouds that they do not take into account what consumers are willing to pay for. Another example is going out of your way to localize styles for a specific marketeven though consumer preferences are basically the same. According to our research, the bottom half of apparel articles typically account for just 5% of sales; they represents a ton of bad complexity. 2. Finding loyal consumers: Lots of luck on this one. Emboldened by a world of choice, shoppers are also displaying a hybrid fashion sense. In every market surveyed, we saw that consumers are shopping at both the high and low end of the market, sometimes combining items from both ends in a single outfit. And this includes luxury consumers: There is significant overlap between those who shop at Dolce & Gabbana and also at H&M, the low-priced fast fashion

flagship. Almost three out of four German customers who shopped at Esprit in 2008 also shopped at much-cheaper C&A and H&M. In short, they are ever less loyal not just to stores, but to brands. One way to draw in consumers is to be seen to be, well, nice; being caught being dirty or mean, at any rate, is a good way to lose them. Consumers continue to say that they want apparel companies to abide by their implied social contract in terms of both environmental and labor matters. Some companies have placed more emphasis on corporate social responsibility than others, but most are taking actionsranging
Exhibit 1:

from greener packaging and transport to supporting organic cotton farmers . 3. Strengthening the supply chain: Think globally, for a start. By that, we mean that companies should ask themselves the big, basic questions, staring with: What is the best place to produce this item? Surprisingly often, this doesnt happen. Companies tend to go back to their comfort zones; a French company is more likely to look to, say, North Africa and an American one to Mexico. Instead, apparel players should take a category-by-category perspective. If the category is cotton dress shirts, for instance, the company should

The costs of complexity

Share of total articles, summer season 2008 Percent Sales 80 80 15 15 2 5 <1 <1% Success factors
DISGUISED CLIENT EXAMPLE

Volume

15

16

5 <1 8 49

Clear differentiation between good (value-adding) and bad complexity (non-valueadding) Transparency on complexity KPIs (article efficiencies, country overlaps, minimums, etc.) Identification of root causes of bad complexity Continuous management of trade-offs (e.g., economies of scale vs. lost sales)

45% of articles account for 5% of sales volume

SOURCE: McKinsey

consider sourcing from places that are big cotton producers, have efficient fabric mills, and offer low-cost sewing capabilities. Using these criteria, Egypt or Vietnam, say, might be the best choice. 4. Adapting to next-generation technology: Because everyone needs clothes and they are sold in so many different channels, the opportunities to deploy interesting technologies is almost unlimited. Electronic shelf labeling; digital promotional displays; selfcheckout; sales kiosks all of these and more could change how retailers relate to their customers. So far, no one has taken a clear lead in race for the top technology. 5. Finding the online market: Shopping is not just about buying; particularly in richer markets, it is about excitement and companionship. Almost of third of German women surveyed, for example, said that having fun is part of a shopping day. In Britain, more than half of teenagers say they love shopping for clothes. How does online shopping fit with this trend? A McKinsey survey of 20,000 consumers in Britain, France, Germany, Italy, and the US suggests some answers. Not surprisingly, those who like the shopping experience most are among those least attracted to the web. But the web strongly attracts two very different types of consumers: 1) fashionistas who want to be able to

Exhibit 2:

Segmenting apparel consumers

Online shoppinginclined segments

Open to online experience Time-pressed optimizer (11%) 24-hour fashion lover (12%)

Uninvolved shopper

Reluctant shopper (21%)

Brand-focused service seeker (14%) Price-oriented bargain hunter (14%)

Involved shopper

Anxious store shopper (14%) Traditional store user

Store-loving loyalist (14%)

SOURCE: Experian; 2008 McKinsey survey of 20,000 consumers in France, Germany, Italy, UK, and the USA

shop somehow all the time (24-hour fashion lovers) and 2) the time-pressed optimizerspeople for whom shopping is something of a chore, a task to be completed as efficiently as possible. The research shows that a significant percentage of customers continue to want a bricks-and-mortar experience, while a similar number are happy to shop on line. And these groups are not mutually exclusive; most people do a little of both. For companies that want to build their online presence, then, one key is to draw in the folks in the middle the bargain hunter and the service seeker. Another is to figure out how to reassure the 14% whom we categorize as the anxious store shopper people who are nervous

about online shopping and want to pinch and squeeze their purchases. Yes, apparel is among the oldest of industries; that does not make it old fashioned or unchanging. Rather the opposite: As trends turn over and fashion becomes more important to more people, it will be companies who sense the future first who will do best.

http://csi.mckinsey.com Achim Berg is a principal in McKinseys Frankfurt office.