Market Movers Fashion Industry: Physical to Digital & Challenges Caused by the COVID-19 Pandemic

Al Lalani, CEO of Annex Cloud, and Maria Morais, Global Industry Principle at SAP, return to discuss how SAP has supported the Fashion industry, an industry designated as a non-essential business, through its change from a physical to a digital environment due to the tumultuous conditions caused by the Covid-19 pandemic.


Al Lalani:

Welcome to another discussion of Annex Cloud Market Movers. This version is industry insiders and we are going to focus on fashion as an industry. I am extremely excited to welcome Maria Morias. Maria is the Global Industry Principle for CX at SAP. Welcome to the discussion, Maria.

Maria Morias:

Well, thanks for having me. Pleasure.

Al Lalani:

Wonderful. Maria, if you can tell people a little bit more about your role at SAP and how you help within the fashion industry for customers at SAP.

Maria Morias:

Yeah. So I've joined SAP to look at this segment. It's a very important segment for us because it is not just the retail aspect, you also have an entire value chain with well wholesale operations manufacturing in many cases. So it's a very complete industry with a diverse group of use cases that we need to look at. So that's one of the segments that keeps me really, really busy and one that, I mean, it's changing all the time. A big appetite for innovation as well. So very interesting to see the usage of AI or the usage of 3D immersive experiences and how fashion brands are trying to innovate in this space and bring new ideas in. So of course, with our CX portfolio of products, I try to make the best match that will guarantee that brand a differentiation in the market, an opportunity to go further than just to have a catalog of products to sell. It's all about the experience.

Al Lalani:

Perfect. And the challenges that we are all seeing over the last six months, especially in the fashion industry are severely more pronounced, right? With the ability not, or the inability to shop in person, which is a big challenge for fashion in general, if you can talk a little bit about the, how you categorize fashion and to kind of different types of verticals, whether it's sort of luxury fashion or fast fashion or others. And then how are these different categories dealing with the current challenges with coronavirus and the inability to do in-person shopping?

Maria Morias:

Yeah. So you bring a good point, of course, that in three months, and particularly during the main time that we were in lockdown worldwide, fashion was not... The stores were closed therefore the fashion brands that were not digitally mature had a little bit more issues than the ones that were. So, for the fashion brands that had a good digital operation, they were still selling. But it was not a first need for people. There was a, as we remember, the rush to go and buy groceries and all of those things. So that is a very different event, right? This is what economists would classify as a black swan. So it's not the type of thing you, hopefully that we have every year. It was very disruptive, but I think the key element is how can fashion brands navigate disruption?

How can they look at the situation like that, which is extreme, a black swan, and understand that maybe there are other disruptive events without this level of consequences, but other disruptive events that we need to account for. And that's interesting when you think about, okay, there are different types of fashion brands. I look at three mainly. And at SAP we tend to have these three big segments within fashion that we look at. There's luxury retail and in a situation where, with the recent events, stores closed, et cetera, relying on digital is a huge thing for luxury brands, because the luxury brand is all about the experience of you going in store and having this personalized curation of a look that makes you... I mean, you pay a higher price point so the service is expected to be different. How you translate that online.

And also luxury tends to be about creating the trends that others follow. The digital experience seems to be a lot about offering something that connects with the trend. So there are two main use cases here that I think may have been problematic. And I have been hearing many, many brands in the luxury space talking during this period, and my take is that there is a high concern with second hand re commerce, let's say, because how do you guarantee the authenticity of the product? Was this an issue that came only with the lockdown? Of course not. This was not an issue or a situation that happened now, but when we look at stats and when we look at what the analysts are saying, McKinsey, BCG, all of them, in three months we were able to bring 30% more people online that will not disappear after this period. As we get back to normal, what we are seeing is that people are still buying online and they were probably not online users before.

So that is what is accelerating digital transformation is that the demand is bigger than ever. It's not just the lack of opportunity to sell in a store, it's also this increasing demand for a digital experience. So for luxury, the authenticity use cases of course will be concerned because if the brand is managing their power in the market based on what is the digital perception, things like authenticity which were always an issue are even bigger now. They can not let that happen.

So RFID as a technology becomes important, having really loyal bays that really tackle loyalty properly, know their customers, not just the 1% to 5%. I was talking with the CEO the other day of a big curve luxury group. And we were talking about loyalty and how well they know their customers, because we have this impression that luxury, they really know their customers. And they know. They know really well the people that spend highly on the products. And that tends to represent between 1% to 5%, depending on the brands. And so the issue is, and what about the other 95? That's what I need to know more about. The ones that are probably occasional buyers, or they make savings to buy from that brand, that product that they really want once a year or twice a year. And so, yeah, authenticity is of course key.

Then when we look at specialty, another segment, so specialty medium price, usually. Good quality, medium price, group of collections, very specific to a segment. It tends to be about lifestyle, what sports brands I would put in this category quite a lot. But it could be other brands. But normally a high price point than fast fashion, which is the third segment I'm going to talk about. But definitely not to the level of what a luxury retailer would be charging for a product.

So the main point here is really about the pricing. Because it's a difficult proposition for the digital world. Medium price, I mean, people tend to either buy lower price or high price. The medium prices there was a lot of competition out there, and the only way is really differentiation. Any differentiate, by the way, particularly that's what I'm talking about. There's this lifestyle element normally connected with specialty fashion. It's really about how you create that lifestyle for your customers. It can't be transactional only. It needs to be about the experience. And I'm not just talking about the physical experience, the digital experience as well. What is that this brand has that makes me feel part of that tribe? And so I don't see many... I mean, I see an opportunity for many specialty retailers, for example, to develop and build on this isolation economy concepts that we're having where we're all working from home, or more at home than usually.

And wouldn't it be great to see behind the scenes? How are you creating that product? Can I have a class? Can I learn how to make that type of product you're creating there? I mean, they could embrace slow fashion so well, and I don't see that happening. And it's such a huge opportunity. I would love to see more of that.

Then third point, fast fashion, consumer pressure for sustainability. And we could speak hours about that one because it's a topic I'm really passionate about. We see that there's a huge pressure with regards to sustainability and it's easy to attack the fast fashion retailers on that. Because, oh, this price, what was the supply chain to get to this price? And all of these considerations about, the product is not built with enough quality to last. And people buy just for one shot on Instagram and then never use it again.

So consumer behavior is interesting on this one, because on one side you have consumers demanding for more sustainability and on the other side, when it comes to the point of where do I spend my money? We'll still see fast fashion being needed because of the price point. Right? So I don't know. I've seen a lot of good initiatives around, bring back the products. We recycle the product. Or bring back the fabric and we will try to do something out of this to basically recycle or re assemble, create a different product. So there are some initiatives around this, but we need to see probably a change in terms of assortment, planning, range. Typically when you go into a fast fashion retailer, you see lots of product. And maybe it's not about the quantity of products you have exposed in places, big huge catalogs, maybe become more specialists on, okay, we're fast fashion for this category of products. That could probably help. But it's not an easy transformation at all.

Al Lalani:

Absolutely. And you know, I think as we start thinking about all these transformations or things that people have to think about, the big sort of outlier or putting it all together. We're calling it digital transformation or digital acceleration. In some capacity that they have to incorporate across their experience as industries have gotten disrupted and so on and so forth. And you touched upon a few points that I really like which is specifically in the specialty fashion retailers, the need of creating this tribe to create a differentiation. And at the same time with the luxury segment, knowing your customers even better than you were before now that you can create a direct experience or a direct connection with those customers.

And then the third part of the fast fashion, the sustainability element. And all of those three pieces can be solved with a loyalty or retention engine or program that is part of your customer experience design moving forward. As you think about these loyalty and retention programs that these different types of companies have to adopt, what is your take on how these companies and brands should be thinking about loyalty and retention in the next few years to come?

Maria Morias:

Yeah, absolutely. I think, if you look at loyalty, it normally comes as part of a transformation that it's a customer experience transformation. So the need to design a customer journey that it's more engaging, more fit for purpose, more personalized as well, because we're in the world where there's so much messaging online for absolutely everything. You need to be very crystal clear about, what are you trying to say? What are you trying to get people to do? And if it's just, hey, buy this with that, that is not really working too well anymore. It needs to be a little bit more than that.

And so loyalty plays a role, I think, across all segments. I think loyalty is necessary in all fashion segments, but there are differences in terms of the type of engagement you would be doing. So, I mean, overall, any omni-channel initiative, or customer experience initiative that is considering a transformation in the company. The way that people are operating normally means to buy this software, to consider different options. And it's fundamental as far as the budgets, fashion brands consider loyalty as part of that.

So 80% around that of all the initiatives in CX are about redesigning a customer journey. It's very rare that someone goes into a digital transformation project at the moment for customer experience. That doesn't go through that exercise. So loyalty must be part of it. It's an absolute key. Otherwise you may end up having great experience for your users internally, for your employees, and very simple ways to use the systems, brilliant photography, good product catalog, good content management system. Then you need something that goes outside and really gets your customers and nurtures them. And customer acquisition we know it's so much more expensive than customer retention.

So in many brands you still have these two teams separate. That's what I observe. Customer retention and customer acquisition. And there are some cases where I don't see a customer retention team. What you have is really the acquisition, and then maintaining the operation. The customer retention team is such an important part of any team structure at the moment. And I see that the brands that have that and invest in creating the loyalty program, that goes beyond transaction. Because that's the key. It is not about, here's a voucher with a discount. I mean, particularly in fashion, that may be the case for some propositions in grocery and other segments of retail, but in fashion the differentiation comes from the experience you're providing. From how you get that person to be part of your tribe. Right? And identify with the brand.

So in practical terms, what this means is, designing an experience that considers rewarding behavior. And I think you guys did that brilliantly. I think it's really hitting the nail with what this needs to be. It's not about a voucher with a discount. It needs to be about what rewarding behavior, rewarding being part of something that the brand is, a cause that the brand, for example, is supporting. Customers buy because they understand the purpose of the brand. It's not just the rational decision about, "I need a pair of trousers. What do I choose?" The best rational decision, quality versus price is one. It doesn't happen like that. It's like, "Oh, nice trousers. Hey, I like that. Can I have it?"

Al Lalani:

Yeah. And fashion, you're not buying commodities. Right? And it's very, very different than electronics or some other places where you've got comparison shopping. Well, no two items ideally are as comparable to each other. Right?

So I think I really like the points that you made around the experience of the customer journey incorporated inside of the loyalty program. Before we dive deeper there because I want to talk two minutes about that specific topic. I do want to mention, there's a lot of industries that fashion can learn from. I mean, there's industries like airlines, for example, which are in severe trouble, even more than fashion now, but we got the reports where American Airlines and United Airlines and a ton of other airlines have raised a significant amount of capital against their loyalty programs. So it's so mature that American Airlines was able to raise about $6 billion against the loyalty program with valuing their loyalty program higher than the entire company.

Now the rest of the company now is worth less only because there's no one flying, but it just shows you that the decades of focus on that customer journey and building the loyalty piece is so important. Specifically turning this around from a fashion perspective. I really like the point that you mentioned around the customer experience and fashion so much about that experience. What is your take on incorporating social and other behaviors that you just alluded to? Because what I've seen over the past that some fashion brands have dealt with the loyalty, but it's been very transactional. And that might work to a certain extent, but it doesn't provide the differentiation. Not now. Right? What do you think?

Maria Morias:

Yeah, I agree completely. And I think the question is, why are they not doing that? I mean, there's a level of digitalization that happen in other industries perhaps first than in fashion. Fashion has been very centered in digitalizing a touch point that connects directly with customers. The website. But the B2B digitalization, I think, was a little bit behind other industries and take on that. So airlines, beauty, they have normally more developed loyalty programs. And that is possible because there is a digitalization in the operation in the B2B side of things. Which in fashion, what does that mean? That means wholesale. That means to sell to third parties. Being that a pure player or a store that sells that product as well, that brand. Retailers like department stores. That relationship has been running with Excel spreadsheets.

And that is something that is changing. And even before the beginning of 2020 and all of this period we had, it was picking up already. But I think it's accelerating now. It's this need to empower the workforce in fashion beyond this channel that goes directly to customer. But also the entire operation in the company, this B2B side. Pre season, reorder during season, getting all of that digitalized is really key for fashion retailers at the moment, because this is what will then give them the opportunity to understand the importance of customer retention, and really have that as a central point in their operation, as opposed to have the direct to consumer on one side and the rest of the operation running completely in different systems or no systems at all. There was a lot of manual processes in there in some of these things.

So that's really... To reward behavior there's the need for single customer view, for visibility of stock. Again, we're talking about supply chain, we're talking about digitalizing a part of the operation that normally was not digitalized. But I believe, and I'm hopeful because I see a lot of transformation happening there that as this happens, we see more sophistication in the loyalty schemes at fashion brands. And there are some good examples. I mean, Brahmin, it's a client of yours. A good example of fashion brand using points that the customer can accumulate points based on behavior on social media. It's not rocket science. It's there. You just need to have this perspective as a company of digital... There is no online and offline. There is online everywhere.

Al Lalani:

Perfect. Maria, this was very, very interesting. Thank you so much for giving us this insight. We will continue more talking to you about other industries, but we really appreciate you taking the time with us today. And with everyone else, if you want to hear more such videos, please go to annexcloud.com/marketmovers or annexcloud.com/industryinsiders. Maria, thank you again.

Maria Morias:

Thank you.

Al Lalani:

Bye for now.

Featured Speakers

 Al Lalani

Al Lalani

Co-Founder, Annex Cloud

John Bartold

Maria Morais

Global Industry Principle, CX, SAP

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