Again we have selected two intersting features for the TextileFuture Newsletter of today.
The first feature is on the “Six vectors of success in online fashion” offering another latest insights of the changing after Covid behaviour of customers in online fashion. It is based upon a survey by McKinsey Consultants.
The secon item “Supplier Diversity: How to Overcome Four Key Obstacles” shows how leaders integrate supplier diversity goals into their procurement strategy. It is based upon a study of Bain & Company, offering the latest findings on that subject.
We wish you an extensive learning curve by these two items for your own business.
The first feature starts here:
Six vectors of success in online fashion
By Anita Balchandani, Benjamin Lau, Hai-Ly Nguyen, and Bogdan Toma from McKinsey Consultants. Anita Balchandani and Bogdan Toma are partners in McKinsey’s London office, where Benjamin Lau and Hai-Ly Nguyen are consultants.
The authors wish to thank Jakob Ekeløf Jensen, Nadya Snezhkova, and David Wigan for their contributions to this article and Dynata for its survey results.
The United Kingdom has been the battleground and a major source of innovation for fashion e-commerce. Our research offers a glimpse into the “new fundamentals” that are creating long-term winners in online retail.
Few industries will look back at 2020 with enthusiasm, and the UK fashion industry is no exception. UK retailers have faced intense pressure during the COVID-19 pandemic as a result of unprecedented store closings and stay-at-home mandates. Still, amid the clouds, there is a silver lining: digital demand has soared, with some companies achieving years of progress in just a few months. As fashion leaders seek to consolidate those gains, they must find a formula that keeps digital customers engaged for the longer term.
Worldwide, 71 % of fashion executives expect their online businesses to grow by more than 20 % in 2021, which is close to the record-breaking pace set in 2020. In the relatively advanced UK market, online penetration reached 75 % in 2020 and is likely to climb to 85 % over the coming period, a recent survey conducted by McKinsey and Dynata shows.1
More than a quarter of UK adults first shopped for fashion digitally during the pandemic, and around one in six made apparel purchases at least once. The great news for brands and digital platforms is that once people try e-commerce, they tend to be loyal to it: irrespective of their ages, online shoppers allocate around 60 % of their budgets to online purchases, either via home delivery or click and collect (Exhibit 1). Moreover, about one-third say they will shop online more in future.
Not surprisingly, digital channels are most popular among the younger cohorts. Some 90 % of UK consumers under 34 have shopped for fashion online in the past 12 months. But the “silver surfers” are not far behind: among the over-65 shopping cohort, around 64 % say they are comfortable with online purchases. Across all age groups, the average online spend as a proportion of the total spend is 55 to 65 %.
Among the key fashion categories, athletic apparel and loungewear have proved most popular over the past year, reflecting the global trend toward athleisure and the impact of the pandemic on consumers’ lifestyles (Exhibit 2). Accessories such as handbags and belts have also seen rising demand. Again, the trajectory is positive, with a large proportion of shoppers expecting to spend the same or more on these categories in the future. Indeed, a significant number of those who have never shopped online say they will consider it going forward, including some 54 % in the athletic-apparel category.
Behaviours that started before 2020 have become an established, even dominant, preference. This suggests a secular shift in shopping patterns as the most likely scenario in the wake of the pandemic. We expect e-commerce to account for 50 % of the UK market by 2022, compared with 35 % at present. UK retail across all channels, however, may not recover until the second quarter of 2023. This contrast of a slow aggregate recovery and rapidly accelerating demand for e-commerce suggests that players should think carefully about their growth strategies for the coming period.
The new fundamentals
Across the fashion landscape, retailers are investing time and money to enhance their digital platforms and develop their online strategies. From shoppable live streaming to direct checkouts on social-media platforms, digital pioneers are finding new ways to excite and engage their customers. Against this backdrop, the results of our survey may challenge some common orthodoxies regarding shopper intent.
Customers value high-quality digital interactions and appreciate innovation, the survey shows. However, these are not the only, or even most important, factors that influence shopping decisions. Customers’ highest priorities, in fact, go to the basics of retailing (Exhibit 3). They want to buy items that are fit for purpose, offer value for money, and are appealing. They favour retailers that consistently stock the right sizes and offer an efficient delivery proposition, as well as offer reliable product information and relevant website content. Customers do not necessarily need to get the lowest price. But they do want the best value—whether shopping for everyday items or luxury goods. These are the qualities, the survey shows, that inspire customer loyalty.
As fashion consumers become more accustomed to e-commerce, the bar has risen on the fundamentals. In response, decision makers must ramp up their capabilities with respect to four key pillars:
Discovery. Customers want brands to stay in touch via interesting news and offers and provide timely and relevant online advertisements. They value attractive, easy-to-use apps and downloads.
Browsing. Features cited as important include appealing product content and relevant recommendations. Again, interesting news and perspectives are rated as desirable, alongside personalized recommendations, comparison functionality, and simple searches.
Purchasing. Customer priorities are focused on value for money, accurate sizing, a selection of brands and products, and considerable discounts. The tried-and-tested characteristics of quality, exclusivity, and simplicity in the purchasing process go a long way toward making shoppers happy.
Experience. Seamless delivery is a highly rated attribute, and customers value being able to return or exchange products easily. Loyalty programs are perceived positively, as are newsletters with simple signups.
UK retailers that consistently achieve high Net Promoter Scores (NPS) for their digital offerings tend to outperform on basic needs. These include visibility, ease of navigation, availability, value, and excellence in delivery. Top performers that inspire an intention to buy more include Adidas, ASOS, Amazon, John Lewis, M&S, Next, and Nike. And the good news for retailers more broadly is that there is no one-size-fits-all model for achieving high ratings. Companies that lead on meeting customer needs come in all shapes and sizes, from pure play to omnichannel and from multicategory to single category. Some platform offerings are among the elite group in terms of NPS scores, while others are not. Still, very few companies are top performers through the entire customer journey; it is much more likely for a company to achieve top ratings at some stages but not at others. One leading retailer, for example, scores highly on its ability to facilitate purchasing but not on repeat purchases. Another, conversely, struggles to grab customers’ attention but sees high levels of repeat purchasing once it has done so.
Looking forward: Six vectors to stand out
In an era of digital disruption, there is a natural inclination to outsmart the opposition and break new ground. However, as they pursue these objectives, retailers should remember that customers are not focused solely on innovation. Indeed, consumers continue to place high value on traditional qualities such as reliability, value, and excellent service. With that in mind, we see six themes to aid retailers’ in executing an e-commerce strategy as the digital bandwagon rolls onward.
- Reinforce the value-for-money proposition. Because online consumers find it easier to compare prices across fashion categories and brands, focus on finding the right price points and assuring customers that they are getting excellent value (although not necessarily the lowest prices). Amazon, boohoo, and H&M score highly on these attributes, our survey shows.
- Curate intelligently. Invest in cutting-edge segmentation techniques to ensure that your assortment will appeal to your target groups as their needs evolve over time. Leverage advanced analytics, as well as internal and external data, to generate deep insights into customer priorities and behaviours and to create tailored responses. Among companies seen as leaders in this space are Amazon, ASOS, JD Sports, John Lewis, and Nike.
- Balance inventory and availability. Interrogate data to more effectively manage availability and visibility. Direct customers to where there is stock and redirect them when stock is unavailable. Analytics can play a key role in monitoring and predicting: if something is not immediately available, let customers know and make contact when it is back in stock. Top of the class in this area are Amazon, boohoo, and Nike.
- Stay connected. Forge ever-closer partnerships with your customers, leveraging omnichannel engagement, nudges, and fresh ideas. However, don’t be indiscriminate. Ensure that content is relevant to the individual and, based on the current circumstances, timely. Amazon, ASOS, and boohoo are rated highly in this area.
- Design websites purposefully. Outstanding content goes a long way toward inspiring purchasing decisions. Prioritize great photography and sharp copy, and don’t let ideas go stale. Companies cited as leaders in this regard include Amazon, ASOS, and John Lewis.
- Get it right on the road. Logistics are a key element of e-commerce business models and a significant driver of costs. Put more emphasis on guaranteeing that deliveries are speedy, on time, and reliable. And ensure plans are in place for when things go wrong. Leaders in this area include Amazon, John Lewis, and Next.
In the wake of the COVID-19 pandemic, there is an opportunity for fashion companies to accelerate their recovery by excelling in digital. However, amid a myriad of opportunities, it is worth remembering a maxim that holds as true now as always: few businesses fail by delivering the fundamentals well.
The second item starts here:
Supplier Diversity: How to Overcome Four Key Obstacles
Leaders integrate supplier diversity goals into their procurement strategy.
At a Glance
- Despite strong commitment from the C-suite, many companies struggle to achieve their supplier diversity objectives.
- Diversity leaders dedicate sufficient resources to building an inclusive supply chain; they also create accountability.
- Leadership teams may have to overcome the mistaken belief that diverse suppliers are scarce and are not competitive on quality and cost.
- Companies in the top quartile of spending on diverse suppliers save an additional 0.7 percentage points in total procurement expenditures.
Supplier diversity has become a top priority for corporate boards in the US. The wave of national protests against systemic racism in 2020 prompted leadership teams to increase their engagement with businesses owned by Black people, women, and other underrepresented groups.
New commitments are broadening efforts launched in the 1960s by a number of large US companies to support supplier diversity. Spending on diverse suppliers rose an average of 54% between 2017 and 2020, according to Coupa, a company specializing in business spend management. And the pool has grown substantially. Minority-owned businesses—a large subset of the base of diverse enterprises—make up 18% of all US businesses, according to the US Census Bureau’s latest Annual Business Survey. The National Minority Supplier Development Council reports that certified minority-owned businesses generate more than $400 billion in annual revenue.
There’s no question that a diverse supplier base is good for society, but a growing number of executives confirm that it improves business performance too. UPS, Target, Pacific Gas and Electric, and other leaders have been building more diverse supplier pools for decades, a move that benefits their bottom lines and reduces supplier turnover. Companies that make up the top quartile in percentage of spending on diverse suppliers generate more procurement savings than the average company engaging diverse suppliers, Coupa’s research shows (see Figure 1).
Many companies assume that working with diverse suppliers will make them less efficient, but the data from Coupa shows that doesn’t seem to be the case. The leaders in supplier diversity rely to a greater degree on electronic purchase orders and invoicing, and they benefit from doing a higher volume of work with contracted vendors. They also are faster at invoice approval and order processing (see Figure 2). Diverse suppliers have an annual retention rate that is 20% higher, on average, than nondiverse suppliers (see Figure 3).
But building a more diverse supplier base isn’t a quick or easy effort. Despite strong commitment from the board and the C-suite, many companies struggle to achieve their supplier diversity objectives. In our experience, leadership teams that succeed overcome a few key obstacles to change and make sure initiatives have staying power.
Understanding four key hurdles to success can help leadership teams achieve ambitious diversity goals. Below we examine these hurdles, and the companies that are at the forefront of engaging diverse suppliers.
Standalone initiatives
Many leadership teams eager to embrace supplier diversity limit their efforts to a series of short-term strategic sourcing events. That approach may provide a quick introduction to a potential pool of diverse enterprises. But standalone initiatives typically don’t address the long-term engagement required to develop a sustainable pipeline of diverse suppliers. For example, it typically takes 12 to 18 months to fully qualify a new supplier.
Tactical initiatives often lack focus, resources, and accountability because they are not part of the firm’s broader procurement or commercial strategy. Managers in charge of identifying and qualifying diverse suppliers typically don’t have sufficient funding to do so. Supplier diversity targets that are not included in the company’s standard category-management sourcing processes are likely to fade as a priority over time.
Retail giant Target overcame the challenge by integrating supplier diversity goals into its commercial strategy. That move helped the company double spending on diverse Tier 1 and Tier 2 suppliers to USD 2 billion between 2016 and 2019. When Target organizes and hosts events to identify diverse businesses for specific product lines, for example, procurement staff help potential suppliers get certified and grow. The company’s supplier diversity team holds business fairs at its Minneapolis headquarters that give diverse vendors an opportunity to present their products to Target’s buyers alongside traditional suppliers. At a beauty innovation fair in 2014, 70 % of the diverse vendors who participated won business from Target.
Lack of organisational alignment
Companies often fail to achieve their supplier diversity goals because competing firm priorities take precedence. Procurement executives tasked with implementing diversity initiatives, for instance, must also meet targets for speed and quality. Faced with the potential risks and delays of bringing a new supplier on board, it’s all too easy to stick with an incumbent.
Boards make strong commitments to increasing supplier diversity but may overlook vital changes in the day-to-day decisions that are critical to implementation. Business units need a mandate to channel procurement spending to a new set of unknown suppliers—and a clear sense of how diversity goals stack up against other competing priorities. Leadership teams may also have to overcome the mistaken belief that diverse suppliers are scarce and don’t cover all categories, and that they are not competitive on quality and cost.
UPS spends USD 2.6 billion annually on contracts with 6000 small and diverse suppliers and is committed to growing that pool. To strengthen organizational alignment, the leadership team established a diversity and inclusion council that oversees execution, ensuring executives meet the board’s objectives to increase annual spending on diverse suppliers. The council helps identify conflicts in messaging and processes, and it was instrumental in convincing key stakeholders, including other business units and functions, to view diverse suppliers as potential sources of innovation.
Lack of dedicated resources
Diverse suppliers often are smaller businesses that require support to succeed and grow. One of the key reasons supplier diversity initiatives flounder is that organizations underinvest in the capabilities required to support new or developing suppliers, including onboarding, risk mitigation, and mentoring. In-house coaching is critical because each procurement organization’s requirements are unique.
UPS addressed this challenge by dedicating resources to in-house programs to support supplier diversity. Designated employees review products and services provided by diverse suppliers for potential business opportunities. And when diverse suppliers qualify to do business with UPS, the company helps them meet the firm’s product specifications. It also pledges to review applications and certifications rapidly.
Goals limited to Tier 1 spending
Leadership teams seeking to build a more diverse supplier base typically target the Tier 1 supplier pool and don’t take the next step of increasing diversity among Tier 2 suppliers—or broadening the scope of their commitment to work with companies that may not have a minority owner but excel at diversity in hiring, leadership training, and organizational culture. A narrow focus on Tier 1 spending restricts the ability to grow a diverse supplier ecosystem and may render company targets unsustainable. It also reduces the full potential benefits of working with a diverse supplier group, including collaboration and innovation as well as access to new markets, customers, and services.
Leaders in supplier diversity implement a multiyear vision that reaches beyond Tier 1 suppliers. They also broaden their search for diverse suppliers to include public companies that are dedicated proponents of supplier diversity based on their policies, actions, and reporting practices. Leading companies with a mandate to improve diversity rethink how they track their own progress beyond dollars spent with diverse suppliers. Some are working with firms like EcoVadis to assess suppliers’ diversity and inclusion practices.
General Motors spends more than USD 7 billion annually on contracts with diverse suppliers, including USD 3.5 billion on Tier 2 suppliers. Over time, that approach has delivered a series of product development innovations, including a reclassification of its Chevy Cruze model. Detroit Technologies, Inc. (DTI), a 51 % Black-owned joint venture, assisted in the redesign of the 2010 Cruze, enabling GM to classify the vehicle as midsize according to US Environmental Protection Agency standards. In order to meet agency requirements, DTI provided program and engineering resources and reduced tooling lead time from 22 weeks to 8 weeks.
Supplier diversity initiatives can deliver powerful advantages. But companies with the most ambitious commitments to building an inclusive supplier base also know that creating the right foundation for success takes time, commitment, and organizational change. These leaders integrate supplier diversity initiatives into the firm’s broader strategy, ensure organizational alignment, commit sufficient resources to build new capabilities, and look beyond the Tier 1 supply base to develop a deep and sustainable supplier ecosystem.
Four Ways to Build a More Inclusive Supplier Base (Infographic)
Many companies struggle with meeting their supplier diversity objectives, but leaders have learned how to overcome the obstacles.
Newsletter of last week
Critical Components to achieving the Perfect Order – Listen to Can forests solve apparel’s microplastics problem? https://textile-future.com/archives/69408
The highlights of last week’s NEWS, for your convenience, just click on the feature to read.
Automotives
Compo-SiL® Technology enters Smart Surface HMI Automotive Market https://textile-future.com/archives/69479
Solvay introduces Sustainable Amodel® Bios PPA for E-Mobility Electrical and Electronic Applications https://textile-future.com/archives/69527
Welcome to a world first: Clariant’s virtual Car Colour Configurator launched with Automotive Styling Shades 2025 Trendbook https://textile-future.com/archives/69538
Carpets
B.I.G. Yarns unveils ColorMind for ultimate design freedom for contract carpets https://textile-future.com/archives/69548
Collaboration
Google to open Its First Permanent Retail Store this Summer in New York City https://textile-future.com/archives/69485
Companies
Uniqlo Unveils a New Campaign with a Familiar Message https://textile-future.com/archives/69495
Archroma celebrates successful market start with whiteness solutions for laundry and detergents in the U.S. home care market https://textile-future.com/archives/69522
Lenzing reaches a new milestone on the path to climate-neutral production https://textile-future.com/archives/69644
Competition
Winners Announcement: 2021 AATCC Outstanding College Graduate Award https://textile-future.com/archives/69626
Data
The McKinsey week in Charts https://textile-future.com/archives/69431
G20 merchandise trade reaches record high in first quarter of 2021 states OECD https://textile-future.com/archives/69509
Business registrations and bankruptcies in the EU rise in Q1 2021 https://textile-future.com/archives/69584
Employment in Switzerland fell in Q1 2021 for the fourth consecutive time – but outlook is positive https://textile-future.com/archives/69610
EU Hourly earnings vary widely across occupations https://textile-future.com/archives/69631
Swiss total Exports stagnate in April 2021 at high level https://textile-future.com/archives/69657
Eurobarometer show record public support for the Euro and broad support for introduction of rounding rules https://textile-future.com/archives/69673
The McKinsey Week in Charts https://textile-future.com/archives/69734
European Weekly deaths: a slight increase in March/April 2021 https://textile-future.com/archives/69747
3D Printing
Can you really print a 3D home for USD 10000? https://textile-future.com/archives/69615
Economic Modelling
FIGARO – integrated global accounts for economic modelling https://textile-future.com/archives/69592
Energy
Updated interactive publication on EU energy https://textile-future.com/archives/69728
Events
ACIMIT: Italian Textile Machinery – Italian Companies return to exhibit at ITMA Asia + CITME Shanghai, China https://textile-future.com/archives/69475
PICANOL to exhibit at ITMA ASIA + CITME, Hall 3, Booth B 27 https://textile-future.com/archives/69638
Call for Papers reminder for the event Sustainable Finishing of Textiles https://textile-future.com/archives/69713
ITEMA GROUP exhibiting innovative weaving solutions at ITMA Asia 2021 https://textile-future.com/archives/69775
EU / Switzerland
EU Commission Statement on the decision by the Swiss Federal Council to terminate the negotiations of the EU-Swiss Institutional Framework Agreement https://textile-future.com/archives/69589
Footwear
Made in Finland: Tarvas keeps its feet on the Finnish ground https://textile-future.com/archives/69661
Indemnification
JD Sports boss Peter Cowgill banks “special bonus” despite 75 % pay cut https://textile-future.com/archives/69783
Marketing
The Groz-Beckert customer product explained in a video https://textile-future.com/archives/69706
Research
Swiss Empa – The other side of entropy – Shiny mega-crystals that build themselves https://textile-future.com/archives/69596
Retailing
BJ’s Wholesale Club becomes latest big company to trim its HQ office footprint as it plans move to Marlborough https://textile-future.com/archives/69461
Kohl’s is betting that activewear and beauty will drive shoppers back to its stores https://textile-future.com/archives/69491
Uniqlo Unveils a New Campaign With a Familiar Message https://textile-future.com/archives/69495
Foot Locker and Melody Ehsani Team Up to launch Exclusive Capsule Collection https://textile-future.com/archives/69580
Robotic
Investment in Robotics Research – Global Report 2021 -IFR releases “World Robotics R&D Programmes” https://textile-future.com/archives/69621
Support
Foot Locker programme will support diverse communities https://textile-future.com/archives/69466
Sustainability
Archroma releases its 2020 sustainability report https://textile-future.com/archives/69534
EASY MASK – Sustainable industry collaboration between Indorama Ventures, DyeCoo and STOLL, a brand of the KARL MAYER GROUP https://textile-future.com/archives/69556
ELIX Polymers’ E-LOOP products with recycled content are commercially available https://textile-future.com/archives/69563
World first: Finnish companies produce plastic from soya residues https://textile-future.com/archives/69650
Primark launches sustainable leisurewear with Recover https://textile-future.com/archives/69685
CO2 savings with BASF’s biomass balance approach – Uzin Utz and BASF cooperate on climate protection https://textile-future.com/archives/69700
Animal relaunches online as a sustainable fashion brand https://textile-future.com/archives/69717
Trade
CSD meeting on digital trade https://textile-future.com/archives/69710
WTO Goods barometre reveals strength of trade recovery, depth of COVID-19 shock https://textile-future.com/archives/69755
Travel
UNWTO and Google Launch Global Partnership to lead Tourism Recovery https://textile-future.com/archives/69457
Webinars
WIPO Interactive series of Short Webinar Sessions Developed in Partnership with the Canadian Intellectual Property Office (CIPO) https://textile-future.com/archives/69568
Join the live webinar on the Fraud Economy on Tuesday, June 1st at 11 a.m. PT / 2 p.m. ET https://textile-future.com/archives/69766
Webinar on How To Create A Knowledge City Evidence From London’s Flat White Economy (June 7, 2021) https://textile-future.com/archives/69759