Everything is Changing

Digitalisation is changing the foundations of the fashion industry. It all started with the rise of e-commerce and social media. It continues with adapted production processes and the transformation of the wholesale business. Interview: Quynh Tran. Illustration: Claudia Meitert @Caroline Seidler

Digitalisation initially only stood for the transfer of content on analogue data media to digital systems, for instance from paper to CD-ROMs and disks. With the irresistible rise of the Internet, the process has taken on a completely different dimension. Today, even objects, spaces, and processes are digital. Within the fashion industry, e-commerce has shown the full effect of digitalisation. While people still doubted online shops ten years ago, it has become clear that online retailing has already changed the market completely. If one asks what digitalisation can still change in the future, the answer is often one word: “Everything!” It starts with the production process, affects the retail industry, and changes the way we communicate with customers. “The key challenge for today’s fashion companies is: What does it mean to be a digital fashion company? This concerns all factors connected with process and efficiency optimisation, as well as all customer interfaces. Digitalisation is not about merely setting up an online shop. Digitalisation requires a completely different way of thinking”, says Javier Seara, partner and global sector leader for fashion/apparel at The Boston Consulting Group. “If you look at an item of clothing today, the production costs stand for roughly 20 percent of the retail price. In the other 80 percent one can find many inefficiencies in terms of money and time, which can be optimised through technology”, Seara estimates.

Today Digitalisation Means: Think Differently, Think Agile New technologies make more and more steps in the manufacturing process increasingly efficient. Virtual 3D models of clothing items simplify the design of collections, while 3D printers can create prototypes immediately, thereby allowing pattern information to be transferred to suppliers in real time. Today, it takes up to a year until a collection makes it into the stores. Reducing this timeframe is a blessing that the fashion industry expects the digitalisation to deliver. Even the inventory and delivery of clothing can be optimised by digital means. Gerry Weber and Marc O’Polo were among the first brands to introduce RFID technology to keep track of products throughout the supply chain, from the production site to the store, via electromagnetic waves. In the meantime, Zara, a subsidiary of Inditex, has also implemented the technology and aims to have RFID technology in all production sites and stores by 2016. It will monitor the inventory automatically and will save time and money.

The Challenges of the Retail Industry Digitalisation had - and still has - the greatest impact on the retail industry. The rise of e-commerce - led by the likes of Asos and Zalando - has fundamentally changed the market, especially the retail sector. But instead of cannibalising each other, the stationary and digital worlds are merging rapidly. One-way strategies no longer work in times of highly demanding customers; multi-channel and omni-channel strategies are the order of the day. “Online and offline must go hand in hand and need to learn from each other”, says Anita Tillmann, the founder and managing director of Premium. “The buying behaviour has changed greatly through digitalisation and the use of smart phones, tablets, etc. (mobile devices) - everything is available at all times. This leads to online impulse purchases, which are highly dependent on context. Nevertheless, the majority of sales are still generated in stationary retailers. For customers, the direct contact and expert advice remains valuable and important. Some online platforms have already implemented ‘curated shopping’, which offers individualised selection and style consulting services. Online retailers have perfected the ‘customer journey’, meaning they know exactly how to lead the customers through the product range. How can I give adequate purchase suggestions based on the buying history? In turn, this represents a learning opportunity for stationary retailers.” That the two worlds overlap, is not only proven by large online retailers, but also by the stationary retail industry, which is gradually introducing supplementary online shops. “Thanks to the big players, the e-commerce standards are highly complex and already clearly defined. We, in our capacity as a classic retailer, see this as a huge challenge, especially as we entered the online segment relatively late and had to transfer our stationary concept into the digital world with limited resources. That involves content that goes beyond the product itself and emotions. In order to transfer the shopping experience into the virtual realm, one needs individual storytelling and an editorial mindset. We will achieve this by re-launching our online presence in autumn”, says Andreas Kampe, head of e-commerce at Berlin-based department store Quartier 206. There really is no alternative to an own web shop. However, this doesn’t mean that the online business has to be handled in-house. Farfetch, a global online platform, currently showcases the product ranges

of approximately 300 luxury boutiques. Farfetch handles marketing, sales, and logistics while participating in the generated profits - a model that combines and shares resources.

When Wholesale Goes Digital Tommy Hilfiger introduced an entirely different sphere of digitalisation when it launched its digital showroom. Instead of flipping through samples on a rack, the retailer now simply picks up an iPad. He can then view the items on a display dummy on a big screen, turn it 360 degrees, zoom in, alter materials and colours, and retrieve all sorts of background information. The only “real” elements that remain are a few material samples and, of course, the human contact with the brand’s employees. “If the digital showroom prevails - and I’m convinced that it will - it could change the entire wholesale model fundamentally. The whole idea of wholesale is completely outdated. Something needs to change - and this change will be digital”, says Javier Seara. “The concept of a digital showroom was initially met with scepticism, even internally. But the system made everything more lucid and more efficient - not only for us, but also for the buyers”, says Daniel Grieder, the global CEO of Tommy Hilfiger. He continues: “For me, it isn’t a question of if, but when digital showrooms will prevail in the textile industry, mainly because they have so many advantages. There is another important factor: Today’s generation is moving in the direction of consumers purchasing goods online. This generation is used to doing everything online and those are the buyers of tomorrow. They want a digital showroom. They want to come to the market, but they want to buy on the screen. People have become accustomed to doing things on screens.” “Digital order processes make a lot of aspects easier. You can view your orders and change colours or quantities, instead of grappling with countless paper punches. I can imagine that working for the mid-priced and possibly the premium segments, but not for the luxury segment”, estimates Milena Lubosch, head of buying for e-commerce at the department store Quartier 206. Holger Petermann, managing director of Think Inc Communications GmbH, sees a positive potential: “Everything that can be digitalised will be digitalised. This concerns the retail trade, trade shows, and communication channels. Digital structures also create new floors and spaces. In both the retail world and at trade shows, one can create key product displays that are particularly special and brand-conscious. The remainder is shifted from the racks into the digital space.” “A digital showroom makes sense for brands that focus on systematic purchasing, for others less so. A digital showroom can be an auxiliary tool, but it certainly isn’t enough”, Anita Tillmann summarises. “As a trade show, we present all the newest trends, we are mediators and informants, and bring together relevant fashion industry players in the tech field. The digitalisation of order processes is not our core mission.” Tommy Hilfiger believes its digitally supported showroom is already a huge success: “The devices optimise the processes and halve the order time. As soon as our customers recognised the advantages of the system, they were delighted”, Grieder reveals.

Reverse Digitalisation - How Digital Returns to Stationary Tommy Hilfiger is equally innovative in its own retail department. The “Store of the Future” concept introduces digital elements to the stationary retail world. In the Tommy Hilfiger stores, customers will be afforded access to a larger product range via iPads. The products can be purchased on location. This is a concept that Adidas has also already implemented with its adiVerse touch screen walls. Topshop has even introduced a Tweet Mirror, which communicates real-time reactions to the outfit chosen by the customer. C&A Brazil even has hangers that include real-time Facebook likes of products. Grieder believes that precisely this networking between online and offline is the model of the future: “The whole industry needs to embrace omni-channel strategies. It doesn’t matter anymore where the customer decides to buy a product; that the customer buys is the only thing that matters. You have to convince the customers of your brand. It’s no longer about sales per square metre, but about enthusiasm and innovation per square metre. Today, the customer is faster than the companies, which is rather dangerous. One needs to be willing to let changes flow into the company and have visions of how it will look tomorrow. If we wait for the next generation to make these changes, it’s too late.” Anita Tillmann believes it is precisely this knowledge of the customers that offers great potential: “There have never been so many people interested in fashion and looks; they have awareness of what fashion can do to you. This is particularly apparent in the men’s fashion segment. For the first time, young men think about how they come across, utilise fashion consciously to express their identity, and absorb fashion. The awareness for fashion has been changed greatly by this selfie culture; it already has an effect on the fashion industry and will have an even greater effect in the future. When all these kids, who have grown up with social media channels, earn money, it will have a huge effect on fashion sales.” Holger Petermann claims that this potential can be influenced directly. Petermann cooperates with DMR, an expert for social media analysis and brand evaluation, in order to optimise the “Bespoken Process”, which is a digital communication process aimed at “managing key products in the media sphere as quickly as possible and simultaneously. The ultimate aim is to heighten the awareness and relevance of a brand among consumers, promote desires, and ultimately trigger a buying impulse. This is going to be extremely important, in this context, to reinforce the image of a brand.”

The Customer Influences Production Processes Today, customers are not only well-informed and active in terms of fashion, but they also influence the production process. Opinions in social media have a significant influence on product ranges. Corporations such as Google and IBM offer “big data” analysis software that evaluates tonality and tags in user opinions to filter customer preferences. This works as follows: IBM’s “Social Media Analytics” has identified suede as the main trend for autumn. According to Frankfurter Allgemeine Zeitung, more than 30 percent of all products were sold out at H&M at the end of August. Cosmetics manufacturers such as Bobbi Brown or Mac even go so far as to let the consumers choose the colours for the upcoming season via Facebook likes. Fashion companies also rely increasingly on the opinions of their customers and allow them to customise products. Examples include Prada’s shoe classics, Nike’s running shoes, and Longchamp’s bags. This topic is also on Tommy Hilfiger’s agenda: “The opportunity for customers to produce their own design and to select the cut, colours, and details they want, will play a major role in the future. The choices are then transferred to the production site digitally and the customised product can be picked up at the store two weeks later. The production processes will be shortened extremely by digitalisation. Digital is the new normal”, Daniel Grieder summarises.