The Future is Online for Apparel Retailers

Coming up with innovative ways to harness the huge potential of the internet is the biggest retail challenge facing the apparel industry over the next five years. And at the core of the challenge is the need for a fast, efficient and hassle-free returns service.

A tipping point for online apparel retailing

The practice of waiting in line for an available changing room to try on new clothes might one day become a novelty rather than an unavoidable nuisance as apparel internet retailing enters a dynamic new era of growth.

The size of online retailing’s incremental growth surge in the past five years, robust as it was, will seem like small fry over the next five years as a new wave of internet investment comes on stream. And at the root of new investment is the need to make online apparel shopping more convenient, accessible and user-friendly.

Online distribution hubs

This month, the UK’s House of Fraser department store chain, which is the fifth biggest in the country with some 61 outlets, is launching two ‘virtual department stores’ in a bid to ease the difficulty factor of buying clothes over the internet.

It is indicative of the type of strategic retail innovation that will become increasingly visible in developed markets over the next five years as department stores, as well as specialist retailers and big grocery chains, look to beef up their participation in what has become a squeezed apparel market.

In the specific case of House of Fraser, two ‘Buy and Collect’ outlets (located in Aberdeen and Liverpool) will be piloted as distribution hubs for online orders. They will provide changing rooms as well as customer service areas, enabling online shoppers to return and exchange clothes quickly.

The logistical problem of returning clothes that do not fit has been one of the biggest barriers to stronger growth in apparel internet retailing in recent years. Indeed, the speed and efficiency with which retailers handle online returns is often critical to profitability.

A fusion of real and virtual platforms

House of Fraser’s new virtual stores are an adaptation of the ‘click and collect’ service that has become popular with UK supermarket chains. This is a service whereby online shoppers pick up their goods at a nominated outlet rather than wait for a delivery at home.

Until recently, home delivery had been widely regarded as the most efficient way to process online orders, but that view has been changing as vast numbers of orders are simply not completed in acceptable timeframes because consumers miss their delivery slots.

House of Fraser is not the first apparel retailer to fuse virtual with real platforms. In the UK, online clothing retailer Asos has, for example, tapped into a network of some 3,500 small local retailers where its online orders can be picked up and returned. And also in the UK, online retailer Amazon has been piloting collection lockers in the London shopping mall One New Change.

Department stores face fierce competition from grocers

Not all chained apparel specialists have performed well over the recent period. For example, apparel companies that run wholesale operations, as well as their own stores, have been vulnerable to the sluggishness of department stores in developed markets. Esprit and Benetton, notably, have lost market share. And Esprit in particular has been weakened by its overdependence on developed markets.

For staple apparel items and increasingly for on trend fashion styles too, the grocery channel has benefited from its ready accessibility to a broad base of customers. Indeed, the network strength of grocery chains – in terms of units and geographical coverage – could be a further competitive advantage if ‘Buy and Collect’ gains traction in online apparel retailing.

Strong online participation is as important as strong emerging market positions

The internet holds the key to the apparel industry’s most attractive distribution opportunities over the next five years. It will not be as simple as launching online sales services, however. Companies will need to be more creative, fusing virtual platforms with real platforms, and thinking outside the box in terms of helping consumers feel at ease about shopping for their clothes online.

The format of ‘Buy and Collect’, with options to ‘Try and Return’ at pick-up points, is likely to grow in popularity. But, there is plenty of room for more innovation. And the companies that can break new ground in terms of minimising the hassle factor of returns will be those driving the growth agenda.

The new middle-classes in countries such as China and Brazil are showing a growing appetite for the internet as a consumption platform, while their wider access to consumer credit cards as well as faster broadband means they will increasingly have the personal infrastructure in place to drive online demand.