How Can The Fashion Industry Flourish In A Turbulent Environment?

McKinsey consulting Achim Berg and Leonie Brantberg think:

Industry is fragile in the face of global instability, but fashion companies can rely on smart long-term strategic management and mitigate the impact of fluctuations.

London, England, is now deeply troubled by geopolitical conflicts, terrorism and financial crisis.

As a fast changing and globally interconnected industry, the impact of this instability is particularly evident.

Many fashion industry players are improving their reaction speed to deal with all kinds of short-term changes, such as the sharp drop in sales volume after tourists reduce travel.

But the real management of uncertainty also involves the outlook for the next quarter to build a business that can flourish in a turbulent environment.

Managers who understand these challenges can formulate a rainy day strategy, and the following 5 practical measures can be used as a reserve plan to retain their strength for a longer period.

How fluctuations affect fashion

There are many manifestations of volatility.

For example, the currency exchange rate fluctuations in 2016 are larger than the average exchange rate over the past 5 years. According to a study by McKinsey GlobalInstitute, global debt growth is faster than GDP growth.

There are many factors that exacerbate these trends.

The degree of interconnection of the world is also increasingly close: McKinsey estimates that 940 million Internet users will spend nearly 1 trillion dollars on cross-border activities by 2020.

Transaction.

The industrialization and urbanization of emerging economies, the aging of mature markets and the birth of new science and technology will further complicate the future.

All these challenges are affecting the fashion industry, and the challenges are not limited to them: the fashion market is partly "commercialized", shortened fashion vogue, compliance issues and sustainability issues.

Removing the ever-changing demand, the impact of the cost base, such as the impact of a straight down currency exchange rate on procurement costs, is a constant threat.

Therefore, the value creation and the whole of clothing and luxury enterprises

This is also confirmed by McKinsey's research.

A rainy day for fashion

In order to remain flexible in the short run, fashion companies need to take a long view.

In a strong long-term strategic framework, even a destructive period of two to three years is merely a cycle.

The key is to be vigilant in peace and danger, and to give full play to the advantages of a stable period in order to resist risks.

Long term expectations are also important for the company to review and determine the margin of error.

After all, with the increase of volatility, the best prediction may not be right.

A strong strategy involves the development of capabilities, mechanisms and tools to respond quickly to changes and make reasonable decisions.

Through the following 5 steps, fashion companies can be armed to cope with volatility and remain successful:

1. change the thinking mode and take the consumer as the leading factor.

There must be granular and multifaceted understanding of consumer trends and consumer decision-making processes.

Fashion companies can prioritise products, pricing and promotion decisions, and more importantly, respond to consumers' needs in a volatile environment.

According to the corresponding adjustment of currency exchange rate, fashion companies also need to be more flexible, especially when the price difference is adjusted across regions.

2. open the "ready" state of operation:

To alleviate unexpected demand, excess inventory or compliance problems, fashion companies should improve their supply chain's pparency and flexibility from end-to-end.

This can closely monitor supply risks, including suppliers with difficult economic conditions, and manage inventory in order to cope with the financial impact of higher capital costs and foreign exchange rates.

In terms of sales, excellent retail performance and channel management should be built on streamlined operation, ensuring that the core of profitability lies in providing first-class customer experience.

Streamlining operations for fashion companies that rely on physical outlets to invest in online channels also release cash flow.

3. brand, category and geographical diversity:

A diversified enterprise that constantly replaces resources between brands and regions can buffer the most extreme effects of volatility and volatility.

Therefore, fashion companies should diversify their geographical footprint and consider increasing or reducing brand names or sub line brands to reduce dependence on individual countries, brands or market.

As uncertainty increases the cost of capital, companies need to examine their portfolios to see if new investments can get enough returns in a more challenging financial environment.

4. ensure cash flow and management costs:

Cash is king in uncertain times, especially in fashion industry.

Smart companies protect their balance sheets when they can raise funds.

Extending the deadline for repayment of debt is also reasonable.

Another key to resisting volatility is to manage profits and losses.

Store rent is a huge expense for the fashion industry, and the price of real estate and rents are easily fluctuated.

Therefore, it is crucial to re-examine the rental portfolio. The crisis can even negotiate the lease again.

Labor and other costs should also be flexible as far as possible.

5. develop a flexible organizational model:

Volatility makes it harder for companies to attract and retain talent.

Fashion companies have struggled for a long time in the so-called "optimal" organizational structure. The best response is to focus on long-term organizational development and health.

In addition to reaffirming the value of the company and creating a flexible structure to allocate resources more quickly, we should also plan and optimize the working conditions such as labor dispatch (especially retailers), promotion awards and so on.

Despite the challenges, the fashion industry is still a high profit industry.

Volatility may erode corporate performance, but fashion companies can still rely on smart long-term strategies to take specific steps to reduce the impact of volatility and to support corporate initiatives to defuse business risks and enhance flexibility.

Turbulent times can also create huge business opportunities for renegotiation, re inventions, and even fashion companies' opportunities to invest well and prepare to tide over difficulties.