New fashion landscape: how the industry has changed in 2020

Key insights from Levi Strauss, McKinsey, and Zalando

As the leading fashion platform in Europe, Zalando is in a unique position to have gained deep insights into the impact of the Coronavirus crisis on Europe’s fashion landscape, from new consumer behavior to digital acceleration trends. 

 

Boris Ewenstein (Senior Vice President Supply, Zalando) sat down (virtually) to discuss these changes and their implications for 2021 planning with Bruno Vanhoorickx (Senior Vice President for Corporate Development, Zalando), Claudia Roggenkamp (VP Digital Europe, Levi Strauss & Co.) and Miriam Lobis (Partner, McKinsey & Company). Read on to find out what they had to say about this year of seismic change and what it means for your 2021 strategy planning.

Digital is unstoppable at Levi Strauss

2020 was a wild roller coaster ride for Levi Strauss & Co. Here are some key lessons the company took from this experience:
 

1. Digital is unstoppable – Levi’s own e-commerce business grew by 52% globally over the course of Q3 (June – August). Digital revenues, including those from big platform partners like Zalando, were also up by 50% globally, while company global revenues declined by 27%. The share of digital revenues doubled from what it was a year ago, which is an indisputable indicator to Levi Strauss & Co that digital acceleration is only getting started.


2. Brick-and-mortar stores are here to stay – offline stores recovered faster than expected, as consumers still have a strong need to “touch and feel” fashion. There is a huge consumer appetite for an offline experience. Therefore, there will still be demand for brick-and-mortar stores, but stores will need to adapt fast to changing circumstances.


3. Strong brands will prevail – The importance of brand equity and customer loyalty is becoming even more clear now. Money invested in branding is money well spent.


4. Brand values are not optional or an add-on – values are the new baseline that brands need to embed everywhere. Being authentic and clear on what you stand for as a brand is crucial for connecting meaningfully with customers.

 

Want to learn more about what Levi Strauss has to say about digital acceleration? Check out the video below:

Digital, right now, to us, seems unstoppable.”

Claudia Roggenkamp (VP Digital Europe, Levi Strauss & Co)

Digital named as #1 opportunity by fashion executives

In their ‘State of Fashion 2021’ report, McKinsey surveyed 328 fashion executives about top opportunities and challenges. Digital was largely seen in the industry as the top opportunity (30%), followed by sustainability (10%) and market share gain (8%). No surprise: The biggest challenges for the fashion industry are the Coronavirus crisis and the economic crisis (45%), changing consumer demand and behavior (18%), and physical retail and store footfall (7%). 

Consumer sentiments confirm that the shift to digital will persist

In another survey, McKinsey asked consumers in Germany, the UK, and Spain about their expectations when it comes to shopping online vs offline. The majority of those surveyed (64%) say that since the outbreak of Coronavirus, they shop more frequently online because they find it more convenient, safer, and are now used to it. To further confirm this, 48% say that since the start of the lockdown, they shop less in physical stores because they do not enjoy shopping with lockdown restrictions, they have health concerns, and they prefer the convenience of shopping online now.

 

So what does this mean for brands and retailers? Prioritize doubling down on the online experience. Online formats, such as live chats, live streams, and virtual events are growing rapidly as a way to connect with customers and recreate the in-store experience.

 

If you want to hear further industry and consumer insights by McKinsey and Company, check out the video below:
 

Clearly, digital is largely seen in the industry as *the* opportunity."

Miriam Lobis (Partner Fashion, McKinsey & Company)

Consumer engagement with Zalando is increasing

As the first round of lockdowns went into effect and consumers were confronted with restrictions that limited their access to offline retail options, we witnessed a strong engagement increase on Zalando. The daily time spent per user during the March-April lockdown increased by 15%, while conversion rates increased by 10%, as customers turned to Zalando to shop as well as get inspiration and entertainment. 

Brands and retailers are finding new ways to connect with customers via fashion platforms

Offline stores and brands’ own e-commerce channels allow for an immersive experience and create a direct connection with the customer. However, through those channels, companies mainly attract loyal customers who already know their brand and offers.

 

For that reason, many customers turn to fashion platforms, as it takes the hassle out of the search. As a result, baskets at Zalando typically contain products from multiple brands. 

 

As customers flocked online, so did many brands and retailers in order to be where the customer is. On Zalando alone, we welcomed more than 600 new brands to Wholesale (year-on-year Q3/2020). Our Partner Program partners on average doubled their GMV in Q3 compared to last year’s Q3. In addition, more than 2300 brick-and-mortars are connected to our platform and saw on average +15 new orders per day, which has been a great help for many stores during lockdown periods.

Partner Program brands are expanding to new markets and offering broader assortments

Consumers are engaging for longer periods of time and in a more meaningful way on Zalando. Likewise, and also in response to that, Partner Program partners are also investing and expanding in their presence on Zalando. For example, we saw an average 53% increase in available assortment per partner, compared to Q3 last year. In addition, 26% of Partner Program partners have expanded to new markets since April 2020, hereby taking advantage of Zalando’s presence in 17 European markets and integrated localized customer experience.

 

The key takeaway here is clear: combine your brand’s own e-commerce and stores with Zalando to find new customers and internationalize your brand easily across Europe.  

When can we expect consumer spending to be back to normal?

McKinsey Global Institute studied the fashion industry recovery scenarios and outlined a base scenario of when different regions will return to 2019 sales levels. Looking to the East, China is experiencing the fastest return to pre-Coronavirus levels in Q4 2020, as the economy has managed to recover quickly. 

 

Europe is expected to return to those same sales levels in Q3 2022. The reason for this delay is the many regional differences, with some advanced markets being offset by markets that are somewhat lagging behind. In addition, the heavy reliance on tourism in Europe is significantly affecting the luxury segment in particular and leading to a delay in sales recovery. Finally, there is a 14% increase in digital spending in Europe, which due to the big size of the fashion market, won’t be enough to offset the 5% decrease in offline spending. All these reasons combined mean Europe as a fashion market will take longer to return to 2019 levels, in comparison to China.

 

Finally, looking to the West, the US has witnessed a slower response in taking measures to curb the spread of the pandemic and the study has outlined Q1 2023 as the most likely period of time for pre-Coronovirus consumer spending levels to return.