Online fashion at a crossroads: how retailers can take the right direction

Online fashion has been one of the 21^st century retail’s greatest success stories. From Asos to Boohoo, through to Yoox Net-a-Porter and Zalando, the A-Z of online fashion can talk of a golden period of growth since the dawn of the millennium, when the big digital shopping boom began its rise to prominence.

But this sector is now arguably more challenged than it has ever been. The wider online fashion space is at a crossroads and the route companies operating in this arena take today is going to define their future – that calls for serious strategic planning.

5 reasons online fashion is at a crossroads

• IMRG data signals a challenging landscape. According to the e-commerce trade body, which tracks the online performance of more than 200 retailers in the UK, online fashion reported year-on-year (YoY) sales declines every month in 2023 as the sector battled for consumer conversions. The start of 2024 did not bring respite, with IMRG’s Online Sales Index reporting in January the steepest fall for clothing retailers for 16 months, at -10.8% YoY.
• Ongoing economic disruption. The pandemic drew a stark line under what retail sectors were deemed essential. Despite those at the heart of fashion knowing what they bring to the table in terms of joy, freedom of expression, and shaping people’s individual style, governments put the sector on the “non-essential” list of shops. Online boomed during the period, of course, but the dye was cast – in emergencies, be they health related, economic, or a combination of the two, consumer spend goes primarily on food and sustenance. Fashion has been battling for its bounce back moment but remains curtailed by the squeezed consumer discretionary income in an inflationary environment.
• Sustainability pressures. All businesses are under pressure to reduce carbon emissions, eliminate waste, and become better global citizens – but the production and manufacturing processes and end-of-life environmental footprint associated with clothing and accessories puts this sector firmly in the spotlight as an industry ripe for change. To keep consumers, employees, and legislators satisfied, fashion retailers know they need to tackle this head on.
• Retailers need to be more than retailers. With e-commerce maturing, the question arises for retailers: what next? Online fashion retailers have reached new levels of sophistication, and now they are starting to work out how to sweat those high-traffic assets. One way is through launching retail media propositions, which effectively involves providing more opportunities for brand partners to get their message in front of the target audience. This is a real potential revenue enhancer, but to do it successfully significant tech investment and new-style supplier collaboration is required.
• Multichannel competition hotting up. One reason online fashion finds itself at a crossroads isn’t necessarily a negative one for the wider industry. Next, Marks & Spencer (M&S), and – to a lesser extent – John Lewis are on a positive path. These businesses, driven by constructive changes in their fashion lines and route to market, are in high demand. Potentially sparked into action by the exciting strides made by online fashion pure-plays over the last decade, these traditional players are providing a refreshing offering and taking the challenge to their younger digital native rivals.

To summarise, fashion retail is becoming ever more competitive, the macroeconomic environment is unstable, new regulatory pressures are only going to intensify, and huge new opportunities for revenue growth have emerged (but it entails thinking completely differently to before). It’s never been more important for online fashion retailers to ensure they are investing in the most suitable technology, such as enterprise resource planning (ERP) systems aligned to their specific business requirements.

All roads lead to supply chain

The common area of focus to try to overcome the aforementioned challenges is the supply chain.

In terms of turning around sales or finding ways to grow in a difficult economy, better supply chain strategy and tighter inventory management pays off – after the bullwhip effect of Covid, so many retailers have had trouble getting the right stock in the right place at the right time, highlighting the need for fine-tuning merchandise planning. When it comes to getting on top of the sustainability agenda and building out a robust environmental, social, and governance (ESG) strategy, the biggest wins can be made in building more transparent supply chains and forging closer working relationships with suppliers throughout the long tail.

And on the matter of finding new revenue paths, such as developing a retail media proposition or building marketplace models alongside existing e-commerce offerings, this is essentially all about building closer ties with – and increasing the number of – suppliers across your value chain. Tough times call for tighter and different working relationships.

Even looking at Next and M&S, two big players in today’s fashion market and ones with momentum, you only have to cast an eye over trading statements and annual reports to see much of their reinvention in recent years is supply chain-led. M&S, for example, has invested significantly in changing the shape of its fashion buy to become more relevant to its core audience while also attracting younger shoppers. Meanwhile, Next’s transition to become the infrastructure of third-party fashion brands’ supply chains shows just how importantly it considers this part of operations in relation to overall business success.

Tech, transparency, and partnerships

Some inspiration for tackling online fashion’s travails comes in the form of a newly published CGS BlueCherry® 2024 Supply Chain Trends & Technology Report. The research is built on the responses of 300 survey participants from across the world of commerce, providing some guidance for online fashion retail in its moment of need – and helping businesses benchmark themselves against the wider industry.

We’ve highlighted the five reasons why online fashion retail is at a crossroads in 2024 in the intro. It only feels neat and tidy to conclude by highlighting five key talking points from the research that can direct those facing market challenges down the correct paths.

5 key takeaways BlueCherry’s trends report

Essentially, the report underlines why supply chain digitisation solves a lot of online fashion retail’s pain points.

1. In general, end-to-end supply chain digitalisation can help retailers, brands, wholesalers and their suppliers to respond to the uncertainties, challenges and opportunities that 2024 brings.
2. Artificial intelligence-driven analytical tools used throughout the supply chain can enhance accuracy of consumer demand planning. All the while, seamlessly integrated ERP, PLM and shop-floor control solutions improve supply chain productivity and visibility.
3. CGS BlueCherry’s suite of tech solutions allow retailers to share and centralise critical ESG documentation, gain transparency to chain-of-custody handoffs, validate data accuracy, and extract and cleanse data from disparate sources.
4. Technology investment in the supply chain supports the essential process of building stronger supplier relationships. As the report suggests, lots of retailer-supplier relationships broke down in the pandemic as orders were cancelled – often at the last minute – when the crisis took hold. Although there has been a big push to repair some of this damage, there is plenty of work still to do to bring all rungs in the supply chain ladder that bit closer together.
5. Digitalisation is gaining momentum across the fashion supply chain, so by not acting and standing still, retailers and brands are actually going to be moving backwards. Some 86% are working on or planning actions around improving supply chain visibility, while 83% are doing the same in terms of digital transformation.

Although retailers and brands are moving in the right direction with this, the share of respondents to the survey who consider their efforts in digital transformation “best in class” remains a single-digit percentage. There is clearly plenty of room for improvement, so the question is what are fashion retailers waiting for?

Contact CGS today to discuss how we can solve your challenges and enable you take the right direction at this crossroads point for the industry.