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Business Trends

SAP Helps Fashion Retailers with Omnichannel

By Dirk Dreisbach and Harald Ritter

 

Over the last decades, very few industries have seen such incredible success and growth as fashion. As economic growth became steady, there has been a natural rise in consumer demand, and businesses that caught up early enough have been able to relish in the continued sales growth. In time, this reached the developing markets in Asia, South America, and African countries, ultimately expanding throughout the entire global market and making up the fashion industry we know today.

We see stores of leading brands opening all around the globe. The world’s most popular fashion logos dominate the urban scene, filling the streets of the capitals and megacities. The “rockstars” of the 21st century are the designers of these established labels, endorsed by famous actors, celebrities, and many other influencers. And with great marketing strategies, consumer interest accelerates across the fashion lines to all the various target groups. With trends popping up on a near-weekly basis, and an exponential rise in the number of new collections per year, we see unlimited opportunities continue to spread very quickly across the entire fashion customer base. Fast fashion is very much alive.

Since the rise of the online fashion business over 15 years ago, SAP has been working closely with fashion retailers worldwide. As a result of this close collaboration, SAP provides ERP back-end systems and core solutions for supply chain management, warehouse management, CRM, forecast and replenishment, promotion management, fitting to the requirements of the fashion retail industry. Furthermore, to prepare businesses for the upcoming requirements of the ever-progressing online fashion world, SAP has extended its retail fashion portfolio by offering various on-premise and cloud solutions. Businesses across the globe are managing their end-to-end processes with these solutions. Through close interaction of SAP services teams and customers, the competitive position of these businesses is secured with sustainable efficiency gains across their operations – from production, purchasing, logistics, and sales and marketing through human resource management and finance.

 

“It is important to have a strong and reliable business partner. SAP Services and Support has the competencies businesses require to best apply omnichannel solutions from SAP to allow them to perform and operate as best-run businesses. Our fashion retail customers can flexibly react to upcoming challenges and are able to ensure their business continuity. These services support our fashion customers to increase their footprint into the always growing, and still very dynamic, omnichannel fashion world.” Guido Schlief, Senior Vice President and Head of Services Middle and Eastern Europe, SAP

 

Stress testing in the times of the COVID-19 pandemic

 

Fashion is an expression of personality. If the consumers themselves are locked down, how can they show their new items to anyone? While the industry took a hard blow with the COVID-19 pandemic, some managed to quickly respond by adapting their products to the new needs of the consumer. Nevertheless, the pandemic had an enormous impact on almost every retail area, however, unlike food grocery chains, and DIY markets who were able to bring revenues to new heights, the fashion industry was hit extremely hard. Some fashion retailers had no other choice but to close up to 90% of their stores during the peaks of the pandemic. Brick-and-mortar sales dropped to historical lows. Production and purchase orders had to be cancelled. Goods were stored or redirected, and seasonal articles were moved between distribution centers, outlets, and in some cases, shifted entirely across different store formats. Nonetheless, online sales boomed! By focusing on their existing online shops, fashion retailers were at least able to compensate some of their losses with increased revenues from their online channels. Some were able to benefit from the already growing online sales from previous years, which have picked up at an exponential pace since the beginning of the pandemic. So former investments in this area proved to really pay off.

As consumers were faced with the mandate to either stay home or work from their home office, people had more time to navigate through Web shops and compare prices and assortments. At a great convenience for the consumer, one could all of a sudden buy online instead of going elsewhere to shop. The entire industry learned the lesson that successful fashion retailers are those who are able to offer their shoppers alternatives through a multitude of channels. Consumers who have established trust with the product remain loyal to the brand. Likes on social media are what word-of-mouth was in the past. Digitalizing shopping activities across social networks brings groups of consumers together, people who in the past may have not even been seen together in the same room. It’s an anonymous shopping experience now. And this movement continues to attract more and more consumers. There is great innovative and profitable potential for businesses that pursue this digital frontier.

Looking at the technical side, the pandemic crisis challenged retail-driven omnichannel landscapes to the core. And who survived? Those running a best in-class omnichannel landscape. With SAP solutions, retailers are running state-of-the-art online services with fully transparent order fulfillment and personalized consumer-specific content, all managed with real-time transparency. The technical landscape runs on the SAP Customer Activity Repository application with the SAP Commerce, SAP Marketing Cloud, and SAP Omnichannel Promotion Pricing solutions, and omnichannel article availability (OAA) component. This triggers, among others, a seamless shopping experience regardless of shopping in person or online, with omnichannel processes like click and collect, split orders, and clienteling.

 

Coping with rising online sales volumes

 

When, during the pandemic, online demand more than doubled in some regions, IT systems needed to be able to adapt immediately to the sudden rise in online sales activities. With SAP solutions, businesses were able to cope and profit from this sudden rise in incoming online consumer orders. Big data volumes are best handled when running on the in-memory technology from SAP S/4HANA. With this infrastructure in place, existing omnichannel architectures from SAP can easily be scaled up. For example, the SAP Commerce Cloud solution is built on modern cloud architecture principles with technologies such as Kubernetes, which support autoscaling and dynamically adjust to increasing workload requirements.

These architectural principles have already proven their value with their great performance during order peaks like Black Friday, Chinese Singles’ Day, and more. Even in the event of an unexpected crisis, it’s the robustness of a stable architecture that makes the difference. There are new, innovative approaches for managing omnichannel architectures, many of which are multi-cloud. SAP’s omnichannel portfolio also is designed to perform on any hyperscaler environment.

 

Stock allocation between distribution centers and stores

 

Consumers expect products to be available. SAP solutions (such as SAP Transportation Management software, the SAP Extended Warehouse Management application, and especially the sourcing network in SAP Customer Activity Repository) are helping fashion retailers to ensure the availability of products. The software redirects orders to distribute stock from logistics hubs and warehouses to online warehouses – or even collect assortments that couldn’t be sold in stores – to make them available for online sales. To accurately fulfill online orders, you need to have the right stock at the right time and in the right place. Supply chain processes can be shut down unexpectedly, as with the pandemic-forced local, regional, and international lockdowns. With order shipments not being executed, stock can no longer be moved across borders and ends up being stored in unplanned locations.

Without a proper solution, the remaining stock from the winter and spring seasons would not be able to be sold in the stores. A broken chain kills the fluidity of these highly interconnected and interdependent processes. Yet, with business running SAP solutions, the entire and available online assortment can be marketed across all consumer-facing channels and checked 24×7 for confirmed availability with a promised and timely delivery.

 

Real-time reporting and adjustments

 

Markets are ever-changing, and quickly changing market conditions show no mercy when it comes to preparing for these changes. Either you have a solution running, or you don’t.

Looking back at the first lockdowns, it hit at the beginning only China, while other markets were not affected. The first COVID-19 cases were detected in Europe in March 2020, with regional lockdowns in Italy and Spain to follow. As the numbers in cases continued to climb, the lockdown pattern spread across Europe and then across the globe. American and African countries were hit, the Chinese market returned to normal, and yet even the relaxation of restrictions and reopening of stores were location dependent and handled differently. Many countries imposed limited opening hours and detailed restrictions on useable sales space, with only a select number of customers allowed to enter a store at the same time. These measures differed across regions and across continents. Even today, as we continue to fight the pandemic, one brand store is allowed to open without any restrictions, while the other with the same brand located 20 kilometers away may have limits to its capacity of customers.

Especially in such extreme conditions, timely decisions are essential to keep the business running. With the analytical capabilities of SAP S/4HANA, fashion retailers get a real-time overview on actual sales figures and all relevant finance KPIs. Sales executives can adjust promotions, change article pricing and discounts, and even replan the deployment and working hours of the required store personnel with fashion retail-tailored SAP solutions.

SAP customers using the unified demand forecast component of SAP Customer Activity Repository are analyzing historical sales data to identify influencing demand factors such as price changes, promotions, seasonality, public holidays, and trends. Based on these demand models, algorithms in the unified demand forecast component can predict the effects of similar occurrences in the future and use those to determine future demand. If a fashion retailer is forced to close stores (for example, due to store renovations or the launch of new store formats), this data can be used to predict effects in response to a crisis, such as when consumers begin switching from physical stores to online. As the pandemic restrictions are lifted, the data can also be used to determine the upselling potential once the stores reopen.

 

SAP Services and Support keeping projects and operations running

 

Before the pandemic took full impact, a lot of projects had already been running with fashion retailers with teams working closely onsite at the headquarters of customers around the world. With the breakout of the pandemic, tightened customer safety regulations and travel restrictions ultimately forced the teams to work from SAP locations or their home offices. To ensure business continuity SAP Services & Support reacted immediately with clearly defined guidelines. This made it possible to deliver already started and/or planned services remotely. In cases were an onsite presence was essential, pragmatic turnarounds like switching from international to national teams, were defined always considering the latest travel policies and legal requirements.

 

“COVID-19 forced us to change our project models from one day to another to operate up to 100% remotely. From the minute that COVID-19 started to affect fashion business models, we’ve been helping our customers keep their operations going and ensure continuous adoption of SAP solutions.” Martin Turner, Global Vice President and Head of Consumer Industries Services, SAP

 

How COVID-19 will change the fashion industry in the long term

 

While most markets worldwide are slowly recovering, the situation overall remains delicate. Even as incident rates continue to grow, further nation-wide lockdowns may not be avoidable. Political strategies aim to foremost identify COVID-19 hotspots and take local measures to prevent further spread of the virus. Nevertheless, if “second waves” are hitting countries or if the number of cases is further climbing, stricter measures cannot be ruled out.

Although fashion retailers have regained sales for the most part through their omnichannel touch points, overages in the supply chain are to be considered. One option is to sell through promotions or outlets, but this will impact the sales margin. Due to the seasonal nature of fashion, it may be very difficult to sell these overages, which may impact the bottom line of fashion retailers well into the next year. Some retailers may be able to sell excess inventory again at full price in the spring and summer to come, but the cost of storage over a period of up to a year will still have a significant impact on the bottom line.

Decision-makers in the fashion industry must remain resilient and adapt their sales strategies to regional market conditions and sometimes short-term decisions may have to be made. This might be especially relevant for global players who are running their business in many different countries. In the long term, some retailers may reorganize their store networks by focusing on flagship and “haptic” stores, where clothes can be tried on and ordered, and relying more on online sales rather than locations with lower shopping frequencies.

On the consumer side, we will see a spread in buying behavior. On one hand, some consumers may enjoy the regained freedom once stores open up again, allowing extended shopping trips. These consumers may feel a need to catch up and buy even more, if only for a short period of time. On the other hand, many consumers may still have reservations about going back to stores and shopping malls and buying as they once had before the pandemic. Depending on the individual economic situation, the budget for fast fashion items may also be limited. Due to a permanent move to home offices, certain fashion brands will need to plan for a significant reduction in sales or at least offer more leisure products with less margin.

In general, it can be expected that a lot of consumers who have successfully purchased online during the pandemic will continue to do so, regardless of whether or not it was a first-time purchase or a random burst to spend as in the past. For sure, regular online buyers will be a constant. Customer loyalty may also increase, especially when ordering online with a positive experience and when consumers are satisfied with a fashion retailer’s omnichannel offerings. The online and store business must provide a consistent and seamless buying experience, allowing their consumers to buy product in any of the omnichannel touch points and collect (or even return) it in a selected store of their choice. Consumers should have the opportunity to give immediate feedback, allowing this operational data to be considered for further improvements. Apart from that, all these processes have to go hand-in-hand with all of a fashion retailer’s social media marketing activities. As a consequence, fashion retailers have to rethink their current omnichannel strategy and improve their omnichannel processes continuously to remain competitive in the market.

 

“While COVID-19 has radically changed demand patterns from fashion customers, we observed that organizations which went into the crisis with a high level of digitalization were able to adapt much faster to the new situation. For all other companies there is an urgency to invest in digital capabilities now.” Martin Turner, Global Vice President and Head of Consumer Industries Services, SAP

 

Consumer demand is now driven by attractive, strategically placed, and marketed easy-to-use online shops – ones that are mobile accessible anywhere, anytime. It should be clear if, when, and where products are available, and delivery times must be fast and reliable. The importance for omnichannel has never been so fundamental to the success of the fashion industry as it has become now.

 

Dirk Dreisbach and Harald Ritter are chief business enterprise consultants for BTS Consumer Products and Retail Industries at SAP Germany.

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  • Hi Dirk, hi Harald,

    great read, thanks for compiling this comprehensive view on the current situation of the fashion industry. Especially your connection of business specifics, customer behavior (with and independent of the COVID element), IT/SAP characteristics and service offerings created some aha effects on my end. And above all, the article is well-penned. Thanks.

    Best Regards

    Werner