The role of physical stores is evolving as the customer journey experiences fundamental changes (explored in our first paper in this series: A seamless fit: Evolution of stores in a digital-centric customer journey). With consumers increasingly shifting spend online, many apparel retailers recognize the urgency to pivot their business models, investing in digital infrastructure to maintain relevance and profitability. However, these structural changes require significant investment at a time when operating costs are mounting.
Triggered by ongoing disruption from COVID-19 and the economic aftershock of the Ukraine conflict, retailers are faced with rising raw material costs, skyrocketing energy prices, transport delays and labour shortages. Against this backdrop, retailers and brands will need to adapt their propositions to differentiate from the competition and offer value-for-money as a more cost-conscious consumer emerges.
Prior to COVID-19, apparel retail profit margins were already under pressure. As such, many retailers now face a ‘profitability paradox’ – they need to invest in digital to satisfy an ever-expanding set of customer needs and expectations, but the return on their (digital) investments often diminishes over time, impacting profitability.
Retailers will have to seek ways of intelligently managing the changing economics of retail to secure long-term profitability and value creation. Their online investment and digital strategies must account for a myriad of factors, from the acquisition of new customers, to slick aftersales service, to incorporating data science practices. All these elements, and many others, require a sustained focus and a holistic understanding of the rapid changes occurring across the entire industry.
This second report in this series, commissioned by Eversheds Sutherland, focuses on the profitability pressures faced by the apparel industry. It explores the opportunities and challenges for retailers as they transform their business models in response to changing industry dynamics. For retailers, brands and other retail-related industry professionals, the insights contained in this report will be invaluable for strategy development and future planning.
