Omni-channel's Holy Grail is pursued by flagging fashion retail giants

Profile picture for user slauchlan By Stuart Lauchlan June 1, 2014
Summary:
If there’s one phrase that you can be guaranteed to hear from any retail firm CEO, it's omni-channel. It’s the Holy Grail that all retailers are pursuing, including 3 US brand name fashion giants over the past 7 days.

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Abercrombie & Fitch

If there’s one phrase that you can be guaranteed to hear in any conversation with a retail firm CEO these days it is of course omni-channel. It’s the Holy Grail that all retailers are pursuing, as can be seen in 3 US brand name fashion giants over the past 7 days.

Abercrombie & Fitch, The GAP Group (owners of GAP, Banana Republic and Old Navy) and Guess? all turned in low-key or loss-making numbers and all three picked out the pursuit of omni-channel capabilities as a fundamental plank of their strategies to improve performance.

Michael Jeffries,CEO of Abercrombie & Fitch (A&F), argues that the wider fashion retail sector is facing a difficult time:

Our sector faces challenges, as highlighted by the spate of recent negative reports. We are fully cognizant of those challenges, and know that we need to be focused, disciplined, and at the top of our game to navigate through this environment. We are more than ready for that. We remain highly focused on returning to growth and believe we are taking the right steps and are on course to accomplish that goal.

Longer term, we are confident that the strategic choices we are making, investing in key international growth markets, investing in our international Direct-To-Consumer (DTC) business, restructuring and repositioning our US store fleet, restructuring our cost base, and making key organizational changes will position us to drive significant improvement in our results and increase shareholder value.

A&F plans to close up to 70 bricks and mortar stores across the US this fiscal year in a bid to get the balance right between online and offline operations. It’s also looking to build its brand engagement through better use of digital marketing and the appointment of a dedicated brand president. Jeffries explains:

The brand president search is underway. We’re making progress. We’re looking at people who have strong merchandising backgrounds, but also strong administration and operational backgrounds. But the primary qualification is merchant. We are making progress. We’re not ready to talk about anything yet.

We are increasing brand engagement through enhanced marketing initiatives and campaigns. Earlier this month, we announced the opening of Hollister House, a key part of our new Hollister marketing campaign. Hollister House is a beach house in Southern California that will be open through early August and will support a major digital marketing campaign across multiple platforms, including YouTube, Instagram, Hulu, Twitter, Facebook, Spotify, Pandora, and our recently launched Hollister Snapchat.

The house represents the iconic, laid back SoCal attitude of the brand, delivered in a fresh, new, and relevant way. The house will be used as a vehicle to create social media content, including music performances from Billboard-charting acts, guest celebrities, and stylist videos. It will also be supported by our new blog, 'This is SoCal'.

Beyond marketing campaigns, we will increase brand engagement through investments in our stores and in our online experience. As you know, we have been running a Hollister store remodel test over the past few months, which features the redesigned storefront we previewed in our investor event last November.

Other online activities include a redesigned Hollister website this fall while ASOS will sell A&F merchandise in time for the Christmas season. Jeffries argues:

Given ASOS’s strong and growing traffic, this partnership will enable us to increase brand consideration and engagement with an attractive margin structure.

Minding the GAP

Meanwhile at the GAP Group, CEO Glenn Murphy picks out a need to improve its engagement and communication with customers as a priority:

We took a step back in our customer communication. That’s less to do with mediums and content and [more on] how to actually get that out to social tools or other tools. I just found that we became reactive, little defensive and used traditional means to communicate value and to drive traffic which is percentage offs way too frequently and we’re too good a company for that. We have very strong brands.

Certain brands out there that we have to compete against or near us, but we don’t have a direct competitive opportunity with. I guess that if you’re on the strong brand, then you have to make up for it with more traditional ways of driving customer attention and driving traffic conversion. But when in your portfolio you have Gap, Banana Republic, and Old Navy, I just have higher expectations.

And if we look at the businesses that did do that, that found the right balance between our enlightened and provocative customer communications, because the customers are looking for that these days, found the right medium, and struck the right balance between that and the value proposition, it wasn’t predictable.

Old Navy is out of the park in April because they struck the absolute great balance between provocative customer communication and a unique way of presenting value. And the other brands know that and they’re going to do that going-forward. I mean this is what we expect of portfolio where we have six brands and three iconic ones, not to be treated like just any brand.

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Banana Republic

As for omnichannel efforts, a Reserve in Store program has been rolled out to 500 Gap stores over the past few weeks:

On top of those 500 Gap stores and 400 Banana Republic stores, the marketing just started behind that to start telling customers [about it] because if anybody tries it, loves it. Our goal is to get awareness and trial behind it and we will be piloting next month Order in Store.

If you look at the apparel business, there is a conversion number, and then there is customers who come in and don’t convert. And the portion of the customers who don’t convert, it’s because they couldn’t find their size, couldn’t find their color, couldn’t find exactly what they are looking for. So this pilot is digital, it’s quick and our employees are going to carry that with them on the floor to close the sale.

When I look at the business, Old Navy is the one brand that’s furthest along. I think that they have made some really good decisions and that’s evidenced by their performance in April which was a plus 18 comp and that’s pretty strong.

They made some really good decisions on their assortment, that’s rooted in fashion essentials and I like what I am seeing as they evolve and improve their assortment between now and the end of the year.

And when I think of their marketing going forward, I like what the team has done, they got a really good creative platform right now at Old Navy, I think its going to be even more compelling as we move through the year and more aggressive, and the Old Navy team is revamping their whole online site, which you will see next month. So I think their digital presence will be even stronger going forward.

Sabrina Simmons, CFO at the GAP Group, adds that other parts of the firm will follow suit in digital marketing and engagement:

We are starting to make those very transitions and each brand assorted at a different stage. I would say Gap is taking a big lead in moving to digital. We haven’t done TV [advertising] in a little bit of time.

I continue to encourage the teams to look forward strictly at the spend. We just finished the quarter where marketing spend was equal to last year. I would say for the same spend, we are getting lot of good exposure and marketing, both all through our digital platforms as well as our traditional platforms. I think we can actually drive efficiency over time and spend less as we shift to some of these other mediums.

We are definitely going to have a lot of digital materials that can be used for our websites for a lot of different medium. So in progress and more to come.

GUESS what?

But it all takes time, as Paul Marciano, CEO of Guess? points out:

The change we're making are taking time, but we see now already after nine months, the product change, the strategy change, initiative, the new system, all that is taking place now. The only thing that we cannot control has been really the traffic. The traffic has been, and continues to be in more continuous channel. But on the other hand, we see numbers in e-com which are growing at a very fast pace. That effect offsets the traffic in a mall enough to a degree.

E-comm has taken center stage with a very strong growth balancing the slower traffic we see in the malls. Our North America e-comm business grew by 49% in the first quarter, picking up from already strong momentum from the first quarter as we continue to see a clear integration of consumer buying behavior across brick and mortar, online and mobile platforms.

So we continue to give all our work and effort to really look at how the business of e-com could be doubling or maybe tripling or it being more than that in the next future.

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GUESS?

And of course all roads lead back to that omni-channel term:

Omni-channel remains our key strategic initiative with a very big growth potential for many years to come. We continue to develop our branded Web site as key destination for our customers across all region and we continue to make great progress there in North America and Europe.

While we have a strong footprint in brick and mortar, the strategy going forward is to productively allocate our capital to not renew stores that don't meet our financial requirements and build omni-channel initiatives. We are in a very different environment than we have seen in the past, and we believe our focus would be much more productive.