How to survive and thrive in fashion retail in 2024

Ever wondered why so many fashion brands are struggling right now?

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The list of brands that have faced financial difficulties recently is astonishing, including Farfetch, Matches and, most recently, Ted Baker. Even Nike saw its share price plummet by a fifth when it published a set of hugely disappointing results this June, prompting some commentators to question its future altogether.

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While fashion brands are always buffeted by the winds of ‘what’s hot and what’s not’, there are some more major consumer trends at play, turbocharged by the pandemic and the cost of living crisis. Added to this is the challenge of getting to grips with ever-evolving digital marketing and ecommerce channels which even big established brands like Nike can mess up.

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There’s probably no one better to explain what’s going on in fashion retail and what brands need to get right, than Rhea Fox

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Rhea has an outstanding career across senior Insights roles in major digital retailers such as eBay and more recently in Ecommerce/Digital Director roles at Paperchase, Monsoon and Ted Baker.

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Read on to hear Rhea's expert take on what's going on in the world of retail and how brands can survive and thrive in a tough, competitive market.

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Hello, Rhea. Welcome to the Rocket Ship. Why don't you start by telling us some of your career highlights?

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I have a couple of career highlights worth mentioning: I joined Paperchase a couple of years ago to do a real career pivot out of marketing and customer strategy into a digital channel lead role. That was really a massive highlight for me. It gave me a chance to use a broader range of skills for the first time, and some critical new ones that you need for digital leadership, including re-platforming. Even though the business ultimately failed I managed to get the digital channel into profitability within a year when it had previously been loss- making. It was a real learning experience.

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Then at eBay which was at the other end of the scale, I got the chance to work on a global segmentation, which was a huge research and machine learning project - and quite terrifying. We had a segmentation that was based on recency, frequency and value, and it was no longer working, so we had to replace that. And I'm super proud of leading that project, and I'm really proud that that work still lives on six years after it was launched. It forms the basis of all global CRM at eBay on a one-to-one level. So that’s a lasting legacy, and I was really proud of that.

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You've had an amazing career within fashion retail and specifically digital within that. I'd love to explore a few really interesting aspects of that sector. The first observation I've had is that there's two key trends that seem to be completely in opposition to each other. On the one side, you've got fast fashion brands like Shein that sell very cheap clothes that are very disposable and often end up in landfill at scale, even more so than ‘older’ fast fashion brands like Zara. And on the other hand, you've got these circular economy brands like Vinted, which focus on used clothes and recycling clothes, which are much more sustainable business models. I’m keen to get your perspective on that. Are there just completely different people that are buying these products from different brands? Or is it just one of those things where you've got two contradictory trends happening at the same time?

?"Ultimately, this is two faces of the same coin driven by two macro trends."

Actually, I don’t think that these are contradictory although it may look like it. I think it's been driven by two real macro trends that ends up feeding both. Certainly, in my eBay days, I used to talk about the difference between used buyers and new buyers, and the crossover was generally not that significant. People that bought new would hardly ever buy ‘pre-loved’, they tend to think, ‘my God, I'd never do that. Who would do that?’ It was a really alien concept. But actually, over the last few years, used has really gathered a huge amount of steam and people buy both. If you speak to any young people, you will find that many of them do recycle their wardrobes and are buying and selling through Vinted and Depop. I'm an analyst at heart and it saddens me that I don't have the data, but I'd love to be able to look over the crossover. I suspect it's really significant nowadays. And then there'll be user groups of smaller sizes, who exist either in the ‘Vinted/pre-loved’ world or in the Shein world and ‘never the twain shall meet’.

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But ultimately, this is two faces of the same coin driven by two macro trends. Firstly, we are in a cost-of-living crisis, and a lot of Gen Zs and Millennials are having financial struggles, having to deal with high levels of inflation, rising energy costs, rising living costs. So you take that need for value and then add a real accelerant, which is social media. Rightly or wrongly, younger people or just people who are very active in social, may feel the need to change their outfits and change their image more regularly than was the case in the past. I'm old enough to remember that you went and bought an occasional dress, and you wear it for a wedding, and you maybe wore it to other weddings, because the guests were different. And then you leant it to your friends. But today what you’re wearing to any event is shared publicly so that becomes harder to do. So, if you add that need for value to the need for frequent changes of outfit you end up with Shein and fast fashion at one end and eBay and Vinted with pre-loved at the other.

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Another really interesting trend we've seen in the last few years is major fashion brands trying to push heavily into selling direct to consumer through online channels. For example, Nike and Adidas. And then more recently reverted back to using wholesale channels, which implies that it's not worked as well as they thought. I’d love to hear your perspective on why that's happened? And what do you think is the right kind of retail model for fashion brands?

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It's a really interesting one and I have this discussion a lot. It tends to come from a position whereby a fashion brand will say: we're doing great in wholesale, we're doing great in marketplaces and online concessions. How do we grow DTC (direct-to-consumer) at the same level? Wholesale is really attractive because it's relatively cheap and it's easy. You can run it with a distribution centre, a van and one salesman. It's low effort and it gets you to scale really quickly. The commissions are predictable, and your volumes are plannable, so it's really attractive. But it's not without its downsides. It's inflexible. It can be really dangerous if your stock ends up in the in the hands of a player that goes bust. Several brands have been taken down and out of the market, made bankrupt, through Matches going bust. So, it's kind of dangerous.

"DTC offers a really attractive headline prospect because, in theory, the world’s your oyster and you've got loads of headroom to grow but in reality, it's a much trickier channel to grow profitably than it used to be."

I think a lot of brands are chasing DTC now, perhaps with the perception that it offers an easier or a more profitable route to market than wholesale and most of those brands have seen DTC having a big growth boost during covid and want to recreate those days. A lot of brands are scratching their heads to think about how to drive growth in every channel, which for me, is a really terrible approach. That’s really difficult to do - maybe impossible. Unless you're a hyper-growth brand and chasing every channel to see what sticks - that may be right for you. But in my view, for most brands, particularly those that are in any way mature and multi market, you need to take a top-down strategic approach and say ‘how much headroom do I need to grow the business and achieve my goals?’ And then at the next level down to say, what are the right routes to market that give me the best overall reach and profitability? So, DTC offers a really attractive headline prospect because, in theory, the world’s your oyster and you've got loads of headroom to grow at but in reality, it's a much trickier channel to grow profitability than it used to be. That's really old school but the cost of digital marketing has grown exponentially as has the cost of the SAAS, delivery and returns and we’re in a different world now. For me, you need to take that top-down strategic approach and that should be the key if you're a CDO (Chief Digital Officer) and that right mix will depend on how strong your brand is, how strong your demand levels are and where you are on the growth cycle. And I guess the other thing to talk about is, you know, DTC staff on the digital side are expensive, so if you're really going to go down the DTC route, it needs to be with your eyes wide open.

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There's been a fair few headlines recently of fashion brands that have had financial difficulties and have either gone into administration or been bought out by other businesses. You've just come from Ted Baker, which is probably the most recent one. What's driving that? And what do you think brands have to do to survive long term?

"One thing that I observe time and again in retail brands is, to some extent, a lack of data."

It goes back to what I've just talked about. Have you got the right strategy and clarity on your routes to market? And sufficient understanding of your customer dynamics to go with that. One thing that I observe time and again in retail brands is, to some extent, a lack of data. And that's both that internal and external lens. It always surprising me how many brands really can’t even tell you how many customers they’ve got or where their customers are churning to, or where they're coming from. And if you're not informing your buying and positioning and pricing strategy with that kind of data, that's a red flag.

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I really admire grocery retail: they've been doing this incredibly well for years. Fashion retail needs to have that mentality and that discipline, because that 60 to 70% headline margin that looks really attractive, gets eroded really quickly when you factor in all those costs I've just talked about that are growing. So, poor cost control and digital marketing cost inflation are going to hurt you there. Chasing growth versus that return on ad investment. ?Trading channels being run in silos. That end-to-end understanding of both the market, the headroom and the customer needs is really crucial.

"If you take those big factors alongside the cost of living, the rise of used, the growth in marketplaces and you see that the environment for fashion retail really is tough and needs that level of discipline."

Another factor is that marketplaces in particular are killing it with customers. I‘d argue that Next is now predominantly a marketplace and they’re growing market share at a rapid rate. They offer a really attractive customer proposition: you can buy a blended basket of brands, the delivery will be cheap, it will be on time, it will be scheduled to arrive at the time you want it to. And regardless of how you spin it, that means that the DTC channel for brands, particularly brands who are playing in those marketplaces is likely to shrink, and that includes shops. So, why is the customer going to come to you direct when they can go to Next or Marks & Spencer and get all of that stuff? What's their reason to come to you? And that's a more difficult sell than it used to be.

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And then you have other factors: the rise in fast fashion, discounters shifting old stock and the repair trend, which is currently small but will grow quickly when someone finds a way to scale it. If you take those big factors alongside the cost of living, the rise of used, the growth in marketplaces and you see that the environment for fashion retail really is tough and needs that level of discipline.

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That makes total sense.

So, Rhea, what I'd love to hear is what your top three tips would be for any scale-up or any business in fashion retail.

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The first one is that profitability is everything. You really need digital, marketing and finance in lock step. And you need that finance bench strength to avoid chasing unprofitable growth. And it's exciting, right? When you're a scale-up and you're in hyper growth mode. It's very easy to chase unprofitable growth. Anyone can do that. And actually it's a real challenge to do it sustainably and profitably. So you need that interface between the disciplines, and you really need that finance bench strength and understanding of marketing and digital to support.

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I think the second thing is that all social channels need to be shoppable. It really surprises me, even today, that even some of the youngest brands don't have shoppable social channels, which is just money left on the table.

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And then the third one - a real passion of mine on CRM - is getting those database sign ups right from day one. Category preferences. What do you want to hear from us about? And channel permissions as well. It's much easier to start collecting mobile and SMS and WhatsApp permissions right from day one than it is to retrofit them.

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And what is your one mistake that people should avoid?

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Just the one we just talked about. Each customer in an ideal world has to be profitable from the first purchase, or at least break even. It's got to wash its own face. I think the days of ‘build it and they will come’ and assume that you can build a great big user base, and that's going to automatically translate into some long-term Customer Lifetime Value are gone. For me, that's about making sure that you're not sucked into spending too much on digital marketing and making sure that digital marketing is paying back from a profitability point of view. Don’t bank on the second purchase, would be my advice.

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Fantastic. Well, thank you, Rhea. Those are some fantastic tips, and thanks for your time on the Rocket Ship!