The future of Fashion Retail – New concept stores: finding inspiration in the Grocery industry
In my previous job as strategy and operations consultant, I have been involved in many projects concerning grocery retailers in South America and Europe. It was great to see how this industry, with such low margins and high traffic, is optimizing every phase in the value chain.
A business model based on volume and stock turn requires a lot of science. Global supermarket chains have been testing and implementing best-in-class retail strategies based in customer-centricity. Some fashion retail companies are already getting inspiration from grocery and a clear example is Primark, a subsidiary company within the Associated British Foods. Primark business model is based on high-volume, fast-fashion, low quality clothes while offers a poor in-store customer experience. Primark profit margins are so low that e-commerce is not a profitable channel.
Grocery stores low profit margins requires to optimize the right assortment, to the right location, at the right time. Companies like Lidl or Carrefour have invested a big amount of money in space planning tools (e.g. planograms) to segment demand at a cluster level. Each category of the supermarket is cluster-specific and offer the right product-mix aligned to customer needs, shopping missions and customer decision trees.
A planogram and Store Layout
A planogram is build at category level taking into account many variables such as sales, margins, price perception, product placement, product size, attributes (e.g. sustainable, best seller, cross-sell). The fashion business is not so rational because it´s also aspirational and customers are looking for experience and socialization. But there are many things that we can get from grocery stores. A clear example is the way supermarkets cluster stores and create different store formats, from supermarkets to convenient stores. Nowadays, many fashion retailers cluster stores according to sales (e.g. A, B, C) and size (e.g. S, M, L) while supermarkets have a much deeper undestanding of location and store layout.
Grocery retailers offer a range of store formats according to location (e.g. hypermarkets choose out-of-town locations that are easibly accesible by car). Then, assortment in each store or store cluster is optimized at category level. So, products of the same category will vary if the store is in a local neighborhood or in a suburb. In a touristic spot or near a university. In an upper class area or in a low class area. In a warm region or in cold region. Assortment breadth and depth is therefore category, store-specific.
Nike new concept Store in LA
Some companies in the fashion industry are already offering curated or store-specific assortments, like Nike by Melrose store in Los Angeles. The assortment is based on the analysis of online purchases and Nike Plus sell tracking in the same area. Nike is getting closer to fashion, stocking the latest styles but refreshing them on a weekly basis. Their staff is made of Nike Experts, that know about sports, trends and what´s hot in the neighborhood.
H&M also turns to big data (Artificial Intelligence) to tailor merchandising mix of individual stores. The company aims to reduce markdowns by using algorithms to analyze store receipts, returns and loyalty-card data. Other retailers that are adapting their store format to location are Nordstrom, IKEA or Decathlon.
Decathlon City, a smaller store format
IKEA will open its first “city center” store in Manhattan in 2019. The location will open at 999 Third Avenue, NY, NY in Spring 2019 and will focus smart solutions for urban living and small spaces. It will give customers the opportunity to discover, select and order IKEA products for delivery to their home, which is what urban residents want and need.
The role of the store is evolving and going beyond sales transactions (See a list of stores with the best customer experience in New York). Stores can have different roles like flagship, brandship, showroom, fulfillment center, pop-up store. There is only one important must: to put the customer in the center and help him/her to find the right product, anywhere and NOW.