When the whole world was battling through the deadly pandemic and the subsequent lockdown, the stores were shut and sales were dead. In this scenario, an e-commerce sale was the only saving grace for most of the retailers – including those who were sending apparels and fashion products. And there were numbers to prove it.
The British Retail Consortium-KPMG Retail Sales Monitor revealed an increase of 60.2 per cent in e-commerce sales of non-essential items in May 2020. Several retail stalwarts like Inditex Group, Target, Gap and many more have seen a whopping rise in their first quarter of this year. The Children’s Place saw its online sales go up by a massive 300 per cent in the first quarter.
Today the world is talking about ‘new normal’, and e-commerce is definitely turning out to be the ‘new normal’ opportunity – especially for those who are selling apparels. But is it easy selling apparels online? While there could be lot of debates on this, one cannot deny that it is not cost-effective. And to put it simply, anything that is not cost-effective is not worth any investment.
From merchandising and processing to shipping of apparels and also accepting returned items, it’s exorbitantly expensive – which may not appear from outside. Michael O’Sullivan, Chief Executive Officer, Burlington, recently shared that for a retailer like Burlington, whose average unit retail is around US $ 12, digital business doesn’t complement its otherwise moderate business.
And like Burlington, Ross – which too is an off-price retailer – believes cost of e-commerce is tough to live with. Michael Hartshorn, COO, Ross, agrees with his namesake from Burlington and says that off-price business is difficult to work in e-commerce scenario with average unit retail of US $ 10 or US $ 11. Ross, which has never been into e-commerce, recently announced its plans to open 100 physical stores in 2020, following its launch of 100 stores last year.
Industry experts have often said that any economics with free shipping and return policy was, and will never be, economically feasible. They too have numbers to justify their views. Reportedly, Burlington’s annual top-line growth has been somewhere around 8 per cent – mainly through bricks-and-mortar sales. Then why to incur extra cost for something that’s not feasible for them?
Notably, even TJX’s Marshalls too delved into digital business only as recently as 2019. So the picture is not as it always seems from the outside. Primark is another case. The UK fashion giant has made it distinct many times that it is keen to add physical stores to its fleet going forward. Coresight Research, in a recent report, said, “The economics of e-commerce remain a challenge, and we expect discount formats to continue focusing on bringing shoppers into physical stores, as bricks-and-mortar remains the only channel for no-frills retailing that has been proven profitable.”
Not just money! Are you getting your inventories right?
But it’s not just money and profits; many say getting correct inventories is also a challenge while doing e-commerce business. Many shoppers prefer buying lot of apparels with intent of keeping one or two and returning the most. Notably, this happens more with young shoppers from 18 to 29 years of age. Reasons for return clothes could vary from difference in sizes to change in mind after reading reviews/watching videos on the Internet.
The return rate, to put it simply, kills the economics. In such circumstances, it is very difficult to get the supply and demand numbers correct. Kate Klemmer Terry, who works as Chief Revenue Officer at Quiet Logistics, said that while the return rate for apparels from bricks-and-mortar stores is mere 2 per cent, it is a huge 20 per cent for online. Kate has the experience of handling digital operations at big apparel retailers like Ralph Lauren and Tommy Hilfiger among others.
Still ‘touch and feel’ is a hit!
Almost every shopper, irrespective of whichever part of globe they reside, likes to touch, feel and try the product, especially in the case of apparels. And this happens only at retail stores – nowhere else.
In fact, many retail giants like Target and Nike have been investing big to enhance their bricks-and-mortar stores by beautifying the display shelves, floors and providing state-of-the-art facilities and services to shoppers. So, marketing of products is also easy when done through stores.
Doug Stephens, retail consultant and author of Reengineering Retail: The Future of Selling in a Post-Digital World has said that online marketing has grown noisier amidst a barrage of social media posts and e-mails. Stores are an incredibly powerful means of bringing people together.
Then there’s also the fun factor – fun of wearing clothes in the trial room and expressing oneself is something that only stores can provide and there’s no age limit for this. E-commerce is no fun in that regard.
Critics do have a take on e-commerce return policy. Quiet Logistic’s Terry says returns in e-commerce can be hugely brought down if the apparel labels can provide best possible information on size, fit and colours through charts and interactive videos that talk about how apparels can easily fit and drape. What all does a shopper want! But it hardly happens…
Also, one factor that can’t be ignored is that firms like Nordstrom makes returns easy and free. If return policy becomes free of charge and is easy, then it automatically results into better conversion and better numbers. Online returns are made more difficult by their original packaging requirements like stuffing and collar tabs that are taken apart by a shopper. The difficulties of mitigating that and of demand planning in general are sending more such apparel products from apparel e-commerce to bricks-and-mortar stores.
Few years back, Barclaycard had conducted a research wherein it was shown that 6 out of 10 retailers were negatively impacted by the increasing number of shoppers returning the items after buying online. 31 per cent said that managing returns was significantly affecting their profit margins. Here it is worth noting that Dale and Kate Fletcher, who run independent shoe retailer Molemi, had initially gone for digital sales, and thereby, offered services like free delivery and free returns, but soon the cost escalated so much that it turned out to be a losing proposition.
Online has impacted every shopper’s purchasing decisions today, with nearly 47 per cent shoppers saying that they would not order a product if they had to pay the bill for the return. Paying for returns doesn’t please customers, and this adversely impacts the performance and reputation of the retailer among the shoppers. Going online is never easy and requires clear and strategic planning. Notably, running an apparel business online is almost as expensive as running a physical store in any shopping centre or mall, and every retailer knows that.
In India too, there are quite a few new fashion labels that are paying 40 per cent commission and may be even more to e-commerce platforms like Myntra, Jabong and Flipkart among others for sales and product delivery. Now, this is as much as running a bricks-and-mortar store that includes rental costs in addition to costs related to staff, utilities and other discounts.
Even large firms with huge brand portfolios, in spite of paying lower margins to online portals, do not save expenses they would incur in bricks-and-mortar stores. Apparel brands, however, could save about 8 to 10 per cent in online costs over retail stores provided they have reasonable volumes and do not offer much discounts. A lot of brands lose more through discounts than the store rental they would have saved. Adding more to this, Sandeep Singh, Co-founder and CEO, Freecultr, said, “It’s not that the brand only bears the entire cost,” adding that the brand didn’t operate below its gross margin unless it was liquidating old inventory, which formed 10 per cent of its total collection every season.”
Here it is imperative to note that brands that once started online like Freecultr and women’s westernwear FabAlley have been trying to enhance its presence through bricks-and-mortar stores so as to build brand trust and achieve multi-channel presence.
E-commerce lately has been bringing in money, especially in this era of coronavirus and lockdown, and so it will not end soon. It’s going to be there, but apparel retailers will have to keep their eyes open and understand what’s cost-effective and profitable for them. The sooner they understand this, the more productive it will be for them in the days to come.