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Key challenges in luxury fashion When new consumer requirements disrupt the entire merchandising machine Consumer Sector EY-Parthenon GmbH
Key challengesin luxury fashionWhen new consumer requirementsdisrupt the entire merchandisingmachineConsumer SectorEY-Parthenon GmbH
ContentThe luxury fashion industry has developedpositively in recent years. Nevertheless,four strategic topics should be on everyCEO’s agenda in the coming years:
1.Death of traditional fashioncollection cyclesAcceleration of fashion cycles driven by online-induceddemand for permanent newness has firmly arrived in thepremium and luxury segments.
2.Sustainability in luxury fashion –from marketing to scaleSustainability and eco-friendliness have become sociallyprominent topics, thereby also influencing demandacross all fashion segments.
3.Emergence of “rent a lifestyle” modelsRental and second-hand models are a rapidly growingphenomenon especially in the premium and luxurysegments.
4.Implications for “the machine”These industry trends are substantially affectingmerchandise planning, supply chain and operationswith new requirements for flexibility, speed, quality andtransparency.
The ongoing shift of inspiration and demand to online channels has led to an ever faster dissemination of fashion trends and thereby faster fashion cycles. In mainstream segments this has been common practice for years already, and premium and luxury segments are increasingly affected and have to react. Consumers are now increasingly demanding faster newness also in the premium and luxury segments.
enough?
The constant demand for newness from mainstream retail is starting to catch up with premium and luxury segments.
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If this will (partially) happen, what is the impact on designteam and development processes and how to manage apermanent fl ow of newness? How do you successfullyachieve staying “on brand”, align star designers andmanage collaborations in a faster cycle process?
Will only the frequency of releases or also the speed ofproduct development itself accelerate – and for whichparts of the collections? How can a higher speed andfrequency be made compatible with a luxury value proposition of exclusivity and quality?
Death of traditional fashion collection cycles
Considerations to put on the agendaWill fashion cycles dissolve entirely causing collection design and production to become a permanent fl ow of product launches instead of a twice-a-year ritual? Will this affect the entire collection or only parts of it? Can an increasing polarization of basic/iconic styles and capsules be expected as a result? Small and capsule collections can be presented on the online channel without high effort for coordinating style, but product presentation of non-harmonized styles in physical stores poses entirely different requirements – how can this be accounted for?
Characteristically, operations of luxury brands are not well suitedto faster fashion cycles. Nevertheless, the market has seenseveral experiments in catering for the increased need fornewness with “see now buy now” and capsule collections – but isthis enough?
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2Sustainability in luxury fashionInherently, premium and luxury fashion are (perceived to be) more sustainable than their fast-fashion counterparts – predominately due to the quality of materials used. Nevertheless, the practice of destroying old season and overstock garments to maintain exclusiveness has resulted in an uproar in society in recent years. Re- and upcycling, friends and family sales as well as donations have their limitations – especially when fashion cycles are accelerating. Meanwhile, France is considering a ban on the destruction of clothing and other non-food goods (worth approx- imately €730m).
A key challenge for luxury players is to shift from a marketing-driven approach (a few initiatives widely marketed, but concerning less than 10% of unsold volumes, e.g. making overstock available to internal or external designers) to scalable and economically viable solutions.
What are the alternative uses of overstock suitable for the luxury segment? Has innovation in alternative uses for overstock been exhausted or are there still new and better solutions? Can luxury brands play more aggressively via the outlet channel, at least on seasonal items? At which point does that destroy value?
However, the more important question is how to prevent overstock in the first place? What can be the role of digital and which possibilities emerge from the use of AI and big data in forecasting demand and stock? Which channel mix and which role of brick-and- mortar stores best support the prevention of overstock? How to enhance fluidity between channels and store?
In addition, how to use successful measures in communication and marketing? What level of effort is needed to escape allegations about “greenwashing”?
Conventional alternatives to burning overstock have their limitations.
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Emergence of “rent alifestyle”Various full-service rental and resale models have emerged inrecent years, mainly focusing on the premium and luxurysegments for reasons of economic viability and durability ofgarments. Their success is based on the fulfi lment ofconsumers” need for convenience, affordability, sustainabilityand constant newness – which automatically poses newquestions to brands, manufacturers and sellers. Decreasingnew product sales and increased reach are naturalconsequences of such concepts.
So far, many luxury brands considered this trend as a nicheopportunity to increase the brand’s aura and desirability, withlimited impact on core business. But are we getting closer to atipping point with “use-rather-than-buy” becoming such awidespread “lifestyle” that it now lures former luxury brandconsumers away from new product purchase?
3Considerations to put on the agendaThe trend is expected to affect everyone: what is the expectation of the impact of rental and resale concepts on the own business model?
Assuming it will have an impact, what are viable options to participate in the trend: Are the brand’s customer access, traffi c and desirability suffi cient to build an own rental operation? Could that jeopardize core business? Or is partnering with a third-party platform more suitable?
How can the requirements of an adapted business model be aligned with the luxury value proposition as well as supply chain and operations?
Is the rental or resale operation a mere customer acquisition tool or an actual sales and profi t driver?
For further insights on this topic, please refer to our insight paper “The devil wears Prada – until the next package arrives”.
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Each of the challenges mayhave its individual impact on the supply chain – their combined impact poses extensive new requirements to the entire operations.
Considerations to put on the agendaDepending on the assessment of the impact of the first three trends on the own business model and strategy as well as existing operations, which parts of the supply chain are affected in which magnitude?
How can operations and the supply chain be adapted to meet new requirements? How can digital solutions support the optimization of the merchandising planning and supply chain?Do luxury brands need to open their ecosystem to new innovative partners to live up to the increasing agility and flexibility challenge? How can the (probably required) organizational and process change be managed?
Implications for “the machine”
4The potential impact of all topics outlined above, combined with a general market slowdown and eroding margins, pose new requirements to supply chains. Faster fashion cycles, growing demand for sustainability and emerging rental models affect sourcing, production, merchandising planning, reverse logistics as well as quality, transparency and lead time.
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HowEY-Parthenoncan helpWe know what we are doingWe are a group of highly experiencedfashion experts combining industry andconsulting experience in the premium andluxury sector.
We know the various business models across the entire fashion industry• We know exactly which elements of aluxury fashion business model may not be altered and need to remain constant.
• At the same time, we know which elements and ideas from the non-luxurysegment may be useful and which can belearned from.
We can provide an optimal mix ofinternational experience.We combine longstanding experience in theluxury market sector with our internationalcapabilities in process optimization,technology and operational excellence.
About EY-Parthenon
EY-Parthenon professionals are global leaders in strategy consulting. EY-Parthenon teams are committed to bringing unconventional yet pragmatic thinking together with clients’ smarts to deliver actionable strategies for real impact in today’s complex business landscape. Innovation has become a necessary ingredient for sustained success. Critical to unlocking opportunities is the EY-Parthenon balance of strengths – specialized experience with broad executional capabilities– to help you optimize your portfolio of business, uncover industry insights to make investment decisions, find effective paths for strategic growth opportunities and make acquisitions more rewarding.Proven EY-Parthenon methodologies, along with a progressive spirit, can deliver intelligent services for clients, amplify the impact of strategies and make EY-Parthenon consultants the global advisors of choice for business leaders.
Kerstin LehmannPartnerEY-Parthenon [email protected]+49 211 9352 17836Düsseldorf
Elena De CòAssociate PartnerEY Advisory [email protected]+39 027 221 227 32Milan
Dr. Jörg SchäferPartnerEY-Parthenon GmbH+49 211 9352 [email protected]üsseldorf
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