FASHION'S DIGITAL TRANSFORMATION: NOW OR NEVER - MCKINSEY
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Retail Practice
Fashion’s digital
transformation:
Now or never
Some apparel, fashion, and luxury companies won’t survive the
current crisis; others will emerge better positioned for the future.
Much will depend on their digital and analytics capabilities.
by Antonio Gonzalo, Holger Harreis, Carlos Sanchez Altable, and Cyrielle Villepelet
© Georgijevic/Getty Images
May 2020The COVID-19 pandemic is simultaneously an cost structures and make each step of the value
unprecedented health crisis and a global economic chain better, faster, and cheaper. For example,
shock. Amid the pandemic, the apparel, fashion, digitization can enable new logistics and sales-
and luxury (AF&L) industry has moved quickly to fulfillment options (such as click-and-collect and
address urgent public-health needs—closing stores, drive-through), fuel innovative ways of customer
manufacturing much-needed items such as face acquisition, and help predict and manage inventory
masks and hand sanitizer, and making donations to create a more resilient supply chain. The
to healthcare and community organizations. At fundamental enabler to all this will be data—the
the same time, AF&L companies are grappling transparency, governance, and accuracy of which
with COVID-19’s business ramifications, including have never been more important.
widespread job losses in an industry that provides
livelihoods for millions of people worldwide. This all portends a deepening digital divide. Even
before the crisis, companies that were digitally and
Although no one in the industry foresaw the intensity analytically mature outperformed competitors that
of this crisis, some fashion companies are finding hadn’t built robust digital and analytics capabilities
that they are better equipped than others—largely (Exhibit 1). The COVID-19 crisis has only widened
because of their digital know-how. In this article, the gap between industry leaders and laggards. For
we touch on COVID-19’s impact on the AF&L leaders with the ability and willingness to invest,
industry to date. We then propose a set of actions the pandemic has clearly been an accelerator. As
that AF&L companies can take to build their digital a top executive of a leading apparel player recently
and analytics capabilities—not just to ensure declared, “We’ve accomplished two years of digital
business continuity and minimize the downside of transformation in two months.”
COVID-19, but also to emerge from the crisis in a
position of strength. Thus, for executives in the AF&L sector and all related
subsectors (such as beauty products and sporting
goods), the imperative is clear: make digital and
A deepening digital divide analytics a core element of your company’s strategy.
Our consumer-sentiment surveys, conducted in
April, show declines in purchase intent of 70 to A number of trends in the post-COVID-19 world—the
80 percent in offline and 30 to 40 percent in online “next normal”—could make digital and analytics play
in Europe and North America, even in countries that an even more important role. 3 Physical distancing
haven’t been under full lockdown.1 E-commerce is could continue, making consumers less likely to
clearly not offsetting the sales declines in stores. visit brick-and-mortar stores, and a contact-free
Nevertheless, it has been a lifeline for fashion economy could emerge—raising e-commerce and
brands as stores have been shuttered—and it will automation to a new level.
continue to be critical during and after the recovery
period. In China, the return of offline traffic has been The implications of these trends will differ for each
gradual, with 74 percent of Chinese consumers company, depending on its digital starting point
saying they avoided shopping malls in the two and strategic orientation. Digital and analytics
weeks after stores reopened.2 This suggests that leaders (companies in which online sales account
some percentage of offline sales could permanently for 30 to 40 percent of total sales, parts of the
migrate to e-commerce. value chain are significantly digitized, and online
and offline channels are integrated to some degree)
Digital is not only an increasingly important have an advantage today but could quickly lose
sales channel; it can also help companies adapt it if other players accelerate their transformation.
1
For survey findings by country, see “Global surveys of consumer sentiment during the coronavirus crisis,” April 2020, McKinsey.com.
2
McKinsey Chinese COVID-19 consumer-sentiment survey with field work March 21–23, 2020.
3
Shubham Singhal and Kevin Sneader, “The future is not what it used to be: Thoughts on the shape of the next normal,” April 2020,
McKinsey.com.
2 Fashion’s digital transformation: Now or neverCOVID Fashion Digital
Exhibit 1 of 6
Exhibit 1
Digital and analytics leaders outperform their competitors in total returns to
shareholders.
Consumer companies’ TRS1 weighted by market capitalization
TRS1 CAGR, 2010-18,2 %
600
19.2 500
Total top quintile
1.6×
400
+68%
12.3
300
Total bottom quintile
Consumer sector
200
100
0
Leaders Laggards 2012 2013 2014 2015 2016 2017 2018
1
Total returns to shareholders.
2
S&P 500 index, consumer sector.
Source: Capital IQ, McKinsey analysis
On the other hand, laggards (companies with less Navigate the now: Immediate priorities
than 20 percent of total sales coming from the The health and safety of employees and customers,
online channel, low digitization levels across the of course, has been—and remains—the absolute
value chain, and siloed online and offline operating priority. By now, AF&L companies have closed stores,
models) have an opportunity to make an “all in” bet introduced new hygiene and safety processes in
on digital and analytics—and perhaps gain market warehouses and distribution centers, and set up
share with smaller capital-expenditure investments, digital tools for remote working and collaboration.
which used to be a limiting factor for many brands.
Although the situation remains uncertain and is
That said, digitization won’t be a panacea. evolving daily, there is a clear set of actions involving
Companies should direct investments to areas digital and analytics that AF&L players should
in which the highest business value lies—which implement now to keep the business going, stem
might not be in sales but rather elsewhere in the sales losses, and plan the comeback.
value chain. Equally important, companies should
avoid “gold plating,” aiming instead for the fastest Engage with customers in an authentic way
minimum viable digital solution that will achieve the Email, social media, and other digital channels have
business goal. Finally, the sequencing of initiatives seen significant spikes in usage during the crisis
will play a big role in making a company’s digital (Exhibit 2). AF&L brands must therefore continue
transformation as self-funding as possible. to communicate frequently with consumers, even
Fashion’s digital transformation: Now or never 3if most consumers aren’t currently spending. Use also helps to boost sales. On a leading Chinese
digital channels to launch genuine, purpose-driven e-commerce platform, transaction volume for
communications regarding health, safety, business fashion-brand miniprograms (brand-powered apps
continuity, and community building. If you decide to embedded within the platform’s interface) more
send consumers relevant content, be sure to do so than doubled between January 2020 and February
in an appropriate and empathetic tone (for example, 2020, during the peak of China’s outbreak.
a global sports-apparel player now offers yoga
lessons on Instagram). Refine and scale up your online operation
GES 2020 We expect the online share of fashion and apparel
Whether it’s a personalized
COVID Fashion Digital offer or outreach from in Europe and North America to increase by 20
aExhibit
personal stylist,
2 of 6 the best brands are maintaining to 40 percent during the next 6 to 12 months. In
customer relationships even while stores are closed. April, traffic to the top 100 fashion brands’ owned
Staying in touch with your most loyal customers websites rose by 45 percent in Europe. 4 Some of the
doesn’t just keep your brand on top of mind but larger players have even reduced their promotion
intensity to be able to handle the volume of orders.
Exhibit 2
Consumers are spending more time online during the crisis.
Change in time spent on select activities,1 % of respondents
Texting,
chatting, Reading Social Video Movies Video Reading
messaging news online media content or shows games print news Working
Increase 46 47 43 40 45
30
15 10
Stay the same 46 44 47 49 42 48 52 53
Decrease 8 9 10 12
11
22
33 37
35%
of consumers browse for
22%
of consumers state they will
10%
of consumers think brands
fashion inspiration in online browse for inspiration online should not promote their own
shops at least once per week more often in the next 4 weeks interests at this time of crisis
1
Question: Over the next 2 weeks, how much time do you expect to spend on these activities compared to how much time you normally
spend on them?
Source: McKinsey COVID-19 Consumer Pulse Survey, Apr 1–Apr 6, 2020, n = 5,000+; McKinsey COVID-19 Apparel & Fashion Survey,
Mar 27–Mar 29, 2020, n = >6,000
4
Similarweb, April 19, 2020, similarweb.com.
4 Fashion’s digital transformation: Now or neverDelivering an excellent customer experience online Prioritize digital-marketing levers as
is crucial, so reallocate your resources and shift demand rebounds
management attention from offline to online. Also, In anticipation of a shift toward online sales, allocate
scale up capabilities in both demand generation and more of your marketing budget to digital channels.
fulfillment (Exhibit 3). Seek to eliminate points of Establish or improve your digital-marketing “war
friction in every part of the online customer journey— room” and increase its visibility in the organization—
for example, by improving your website’s search for instance, by establishing a C-level digital-
function and expanding your online assortment. performance dashboard that provides a cross-
Some retailers have redeployed store personnel channel view of e-commerce, customer relationship
from closed stores to support online fulfillment or to management, and social media, thus enabling
assist consumers via digital call centers. rapid identification of opportunities for efficiency
optimization or growth.
While most AF&L players already have an
GES 2020 presence, some still don’t. Companies
e-commerce Retrain your look-alike models to capture value from
COVID
withoutFashion
one canDigital
launch a basic online platform in 10 the new consumer segments and behaviors that
Exhibit 3 of 6
to 15 weeks. A private-equity-backed retailer did it have emerged during the crisis. Upgrade your digital-
in 13 weeks (Exhibit 4). marketing activity to be best-in-class—for example,
Exhibit 3
Companies must accelerate their online capabilities in both demand generation
and operations management.
Example levers
Accelerate demand Manage operations
Relevance, awareness, On-site and Stock and Loyalty
and traffic conversion fulfillment
Simplify range, prioritize Tailor on-site messaging to Strengthen supplier Focus on user interface and
essentials to meet address current situation relationships, especially for user experience (more
immediate demands of new (eg, contextual landing priority SKUs (eg, CEO important than ever as
customer traffic page with special content meeting) customers are more willing
Launch contextual and for COVID-19 situation) Prioritize SKUs and ensure to switch brands at this
personalized campaigns Launch and optimize sufficient stock allocation time)
across marketing channels targeted markdowns and (eg, longer inventory days Leverage customer
Allocate budget to highest- promotions to wind down for high-demand SKUs) relationship marketing and
impact targeted paid forecasted stock excess Ensure omnichannel maximize frequency of
channels (eg, Facebook, Optimize on-site product management of stock, email and app push
Instagram, search-engine assortment and display fulfilling online orders from campaigns
advertising) (eg, focus on top SKUs) best online or offline Investigate opportunity to
Adjust search-engine Introduce bundles location to optimize overall create special offers for
optimization and other (eg, family boxes), special stock positioning loyal customers
nonpaid channels to offers (eg, free shipping, Prepare fulfillment and Focus on contactless
situation (eg, refine 3-for-2), and innovative customer-support capacity delivery (delivery staff
keywords) discounts for increased demand training, communication)
Shift focus from brand Staff temporary resources to match customer
building to performance as needed expectations
marketing (including Identify scenarios and plan Communicate proactively
budget reallocation) for worst case; work with with customers (eg, email
government authorities to from CEO to address
understand guidelines situation)
Fashion’s digital transformation: Now or never 5COVID Fashion Digital
Exhibit 4 of 6
Exhibit 4
A retailer built and launched an e-commerce platform in 13 weeks.
Launch timeline, weeks
Company Private-equity-owned retailer with 1,000 physical Impact More than 400% week-on-week growth rates in
stores but no online presence online sales within the first month
1 2 3 4 5 6 7 8 9 10 11 12 Launch
Assortment/ Design Technology Operations Marketing Getting ready
merchandising Design online Development Set up warehouse Develop and for launch
Decide on online store, prepare Build tech processes to execute marketing Track objectives,
assortment and minimum viable foundation; handle online plan, including key results, and
prepare product product, integrate integrate online orders; onboard search-engine key performance
pages (eg, digital marketing store with new warehousing optimization, indicators; maintain
photos, details, tools, test warehouse- staff and set up in-store budgeting; set up
measurements) prototypes, and management customer-service advertising, and tracking tools
make new design system team launch strategy
iterations
by adding sophisticated imagery to your social- investments in developing advanced analytical
media posts and conducting “social listening” to tools to steer markdowns during the crisis will pay
inform the development of new services and offers. off almost immediately.
Use granular data and advanced analytical tools Optimize costs using a zero-based approach
to manage stock In light of crisis-related sales decreases, cutting
The value of excess inventory from spring/summer costs is an obvious imperative for most companies.
2020 collections is estimated at €140 billion to However, reducing all budget lines across the board
€160 billion worldwide (between €45 billion and is risky. We recommend a zero-based budgeting
€60 billion in Europe alone)—more than double the approach instead.
normal levels for the sector. Clearing this excess
stock, both to ensure liquidity and to make room for Identify two categories of projects: critical projects
new collections, will become a top priority. linked to core digital and analytics priorities that
must proceed as planned or at a slightly lower
At the best-performing companies, an “inventory speed (for example, building a new data lake to
war room” uses big data and advanced analytics to enable personalized marketing) and core projects
first simulate dynamic demand scenarios specific that can be delayed (such as those that don’t
to locations (channel, country, store) and SKUs, enable emergency response). Continue only the
then to synthesize the resulting inventory risk— projects that fall into those two categories; stop
thus enhancing decision making. The war room all others. A range of savings levers—such as
decides, for example, whether to redistribute vendor renegotiations and tactical moves to the
SKUs, transfer inventory to future seasons, or cloud—can help dramatically reduce your operating
accelerate markdowns (Exhibit 5). A company’s costs. Reset your digital and analytics priorities and
budget and adapt them to a post-coronavirus world.
6 Fashion’s digital transformation: Now or neverCOVID Fashion Digital
Exhibit 5 of 6
Exhibit 5
Using analytics, a company can quickly build sell-through scenarios and
synthesize resulting inventory risk.
Required data Optional data Analytics Output
Sales, units, cost, and price Sell-through plans at best Ingest, blend, and interpret Granular understanding of
by item, by store, and by available level of detail up to 20 terabytes of data, the “baseline” scenario
week Product-attribute data then combine data with across styles, channels, and
Inventory at a granular level (standard or custom) projections from leading locations
by item by week Product-level e-commerce global health organizations, Forecast networkwide
Possibility of selling in-store data (eg, clicks per day) business decisions (such as performance during the
inventory online Category-level sales when to open doors by crisis, variations across the
Existing product hierarchy breakdown state), and economic- footprint
Existing store master file recovery scenarios More granular
Season-indicator data understanding of cash
required by scenario
Shape the next normal: Longer-term aspiration, a clear plan, and concrete milestones.
strategic actions In our experience, successful digital and analytics
Although time frames remain uncertain for now, transformations have the following elements
AF&L players should start planning how they’ll in common:
compete in—and perhaps even influence—the
industry’s next normal. Consumer habits, — Strong support (or even direct sponsorship) from
companies’ interactions with consumers, and the the CEO during the entire journey.
number and types of touchpoints will all change. The
requirements for supply-chain speed and flexibility — A pragmatic approach that starts with an
will continue to increase. Digital and analytics will understanding of the consumer and the drivers
play a critical role in helping companies emerge of value creation; digital for digital’s sake will not
stronger from the crisis. deliver results.
Set an ambitious aspiration and define a — A clear road map and prioritization of initiatives,
clear road map combining actions that help set up the enablers
A digital and analytics transformation is typically for the organization with the implementation of
an 18- to 24-month journey, requiring an ambitious use cases that generate quick wins.
Fashion’s digital transformation: Now or never 7— A focus on getting to a minimum viable chain: customer experience (front), distribution and
product (MVP) within two to three months— supply chain (middle), and product development
a rapid timeline that allows the company to and support functions (back). Exhibit 6 shows high-
iterate while generating value, avoiding large impact use cases in each of these three areas.
up-front investments.
Provide an excellent omnichannel experience
— A central team to monitor value capture. This The pandemic has elevated digital channels as a
team also helps build the road map by scanning must-have for AF&L players. Therefore, take this
opportunities, allocating budgets, and opportunity to leapfrog into the digital arena by
coordinating implementation, ensuring that all making it the center of your operating model: move
efforts are focused on delivering tangible impact your traffic- and engagement-generation engine to
rather than gold plating. digital, and leverage digital channels to drive store
traffic and vice versa.
— Well-defined key performance indicators (KPIs)
to measure success. Besides scaling up digital sales efforts, reconfigure
your store footprint accordingly—for example, by
The first step in the transformation program should reducing presence in “B” areas (markets with
be the definition of digital priorities, which will lower population density and lower profitability
differ based on each company’s business model per square meter), devoting less store space to
and digital starting point. Digitization is much more product categories with high online penetration,
than just selling online; a quick diagnostic may be experimenting with innovative formats (such as drive-
required to select and align on key value areas. through windows or pop-up stores), and making
GES 2020
it easy for customers to perform any omnichannel
COVID Fashion Digital
Typically, digital and analytics priorities can be operation, including complex ones (such as buying
Exhibit 6 of 6
categorized according to their place in the value online from a store if the product isn’t in stock there,
Exhibit 6
Digital and analytics can transform domains in every part of the apparel
value chain.
Customer Supply chain and Product development and
experience (front) distribution (middle) support functions (back)
Seamless omnichannel experience Allocation of new collection Digital collection development and
Personalized customer journeys, merchandise (no sales historical management
activations, and promotions to record) End-to-end digitized product
maximize customer value AA-powered granular demand management (including design,
Prescriptive merchandising forecasting and replenishment virtual sampling, production visibility)
optimization IoT-enabled warehouse optimization Digitized and robotized finance and
Online artificial-intelligence-powered and automation back-office processes
sales associates Optimal warehouse picking and Talent and HR analytics
Markdown optimization powered by slotting
advanced analytics (AA) End-to-end digitized supply-chain
Shelf, format, and macro space planning
optimization AA-powered network, transport,
Store of the future and route optimization
Platform for last-mile delivery
8 Fashion’s digital transformation: Now or neverDigital and analytics can not only drive
top-line growth but also significantly
improve speed, cost, flexibility, and
sustainability across the supply chain.
and then picking it up from another physical store customers coupons to redeem in-store once
in the next 12 hours). Use data and analytics to tailor physical stores reopen.
the assortment in each store and to streamline and
optimize assortments overall. Prioritize use cases based on your business context,
advanced-analytics capabilities, and customer
In our experience, fully integrated management segments. Create a prioritized use-case road
of stock in stores and warehouses is core to any map and a technology-investment plan. Integrate
omnichannel operation. Making all stock (even stock personalization into all delivery channels to ensure
shortly arriving to warehouses) visible to customers consistency in your customer communications.
in any channel has proved to boost sales.
Leverage big data and analytics to manage
Bet on personalization the supply chain
Personalization has helped several industry players Digital and analytics can not only drive top-line
achieve 20 to 30 percent increases in customer growth but also significantly improve speed, cost,
lifetime value across high-priority customer flexibility, and sustainability across the supply
segments. It has proved even more valuable in chain. For instance, some leading companies
subsectors with more stable and predictable are using radio-frequency identification (RFID)
purchasing patterns, such as beauty products. to track products more precisely and reduce
in-store merchandising manipulation. Companies’
Use cases for personalization have mostly centered RFID investments typically yield operations
on personalized offers, personalized promotions simplifications and service-level improvements.
and benefits (such as access to new products), and
reductions in generic traffic-generation costs. To In addition, automating logistics through digital
go further, add personalization capabilities to your warehouse design and predictive exception
digital war room—for example, by collecting and management can significantly increase efficiency.
analyzing all the available data to generate detailed The benefits will flow to consumers as well—in
insights about your customers. Build actionable the form of better product availability and faster,
microclusters based on customer behavior. For cheaper, and more accurate deliveries. Leading
instance, entice the highest spenders with online players, for example, are using models
special incentives (such as triple loyalty points for powered by artificial intelligence (AI) to predict
purchases of at least $1,000), target customers sales of specific products in certain neighborhoods
who tend to buy in the categories where you have and cities, then stocking the predicted amount of
the largest inventory buildup, and give online inventory in nearby warehouses.
Fashion’s digital transformation: Now or never 9Digitize product development and — Think data from the start. Build solid data
support functions foundations as part of every digital and analytics
During the COVID-19 crisis, the digitization initiative in a way that allows rapid scaling and
of product development has proved to be a forward compatibility. Design and build out
competitive advantage. Companies that were pragmatic data governance focused on enabling
already using cutting-edge tools such as 3-D business value by helping to ensure data
product design, virtual sampling, digital material breadth, depth, and quality. Establish a strong
libraries, and AI-supported planning have fared data culture and ethics.
better than their peers during the crisis. Their
designers and merchandisers can react faster to — Design your technology stack for faster
market trends, significantly reduce both sample integration and development, with applications
costs and time-to-market, and collaborate remotely broken down into microservices and isolated
across teams. The past several weeks have shown through the use of application programming
that it’s possible to do much more on this front interfaces; use unified DevOps toolchains to
than some in the industry initially thought. Indeed, enable automation and reduce time-to-market
the pandemic may have shattered historical to a matter of hours instead of weeks.
preconceptions and biases against digitization in
core product-development processes. These enablers shouldn’t become causes for
delay. Rather, they should follow the same agile
Digitization of support functions is another key timelines and sprints as the core initiatives.
lever for improving efficiency. By automating Implementation should be pragmatic and clearly
repetitive tasks in back-office functions such as linked to value generation.
indirect purchasing, finance, legal, and HR, you
can simultaneously reduce costs and free up Attract and retain top digital talent
time and resources to reinvest in more valuable After the crisis, financially stable companies may
activities. Companies that have automated their be able to attract top-notch digital talent, including
finance processes—such as claims collection and in-demand profiles such as digital-marketing
financial reconciliation—have found that they’ve specialists, data scientists, data engineers, user-
also increased the agility and accuracy of these experience and user-interface designers, and
processes while capturing significant synergies. software and data architects. Retaining these
Speed up the digitization of all support functions kinds of employees will require AF&L companies
through robotic process automation and other to develop new talent processes—with tailored
leading-edge technologies. initiatives in recruiting, career growth, learning and
development, and performance management—
Build data and tech enablers to support specifically for engineering and digital talent,
your transformation similar to what many fashion players already do for
Technical enablers play a key role in powering digital designers and creative directors.
and analytics growth. In our experience, three core
principles are the most relevant: In addition, AF&L players should adopt agile ways
of working to speed up development of digital and
— Use cloud infrastructures to sustain scaling analytics products and projects. Agile techniques
and to access best-in-class services, enable companies to release MVPs into the
particularly for use cases that best benefit marketplace quickly and refine them iteratively
from the cloud’s features (for instance, data based on consumer feedback.
consumption across the globe, very high storage
and processing needs).
10 Fashion’s digital transformation: Now or neverand analytics—particularly around e-commerce,
data-driven stock management, and digitization of
There’s no denying that the COVID-19 pandemic will key functions—we believe they can not only endure
make for a difficult 2020. For some AF&L companies, the crisis but also build competitive advantage
even survival may be a struggle. However, if they lead and strengthen their business for an omnichannel,
with empathy and undertake bold actions in digital digital-centered next normal.
Antonio Gonzalo is a partner in McKinsey’s Frankfurt office, Holger Harreis is a senior partner in the Düsseldorf office, Carlos
Sanchez Altable is an associate partner in the Madrid office, and Cyrielle Villepelet is an associate partner in the Paris office.
The authors wish to thank Achim Berg, Stéphane Bout, Martine Drageset, Aimee Kim, Althea Peng, Brian Ruwadi, Jennifer
Schmidt, Ewa Sikora, Kate Smaje, and Tobias Wachinger for their contributions to this article.
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Copyright © 2020 McKinsey & Company. All rights reserved.
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