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3 The State of Fashion 2021The State of Fashion 20217 CONTENTS Executive Summary 89 Industry Outlook 1013 GLOBAL ECONOMY 1633 01: Living with the Virus 17 Jumia: Balancing Speed with Discipline in a Crisis 20 02: Diminished Demand 23 Covid-19 and the New Era of Luxury 29 CONSUMER SHIFTS 3457 03: Digital Sprint 35 Kering: Fast-Tracking a Digital Upgrade 38 Alibaba: Innovating for Chinas Advanced Ecosystem 41 04: Seeking Justice 45 Louis Vuitton: Hardwiring Accountability in a State of Flux 48 05: Travel Interrupted 52 Selfridges Group: Managing the Pivot to Local Shopping 55 FASHION SYSTEM 5899 06: Less is More 59 A More Circular Fashion Industry Will Require a Collective Effort 63 07: Opportunistic Investment 67 08: Deeper Partnerships 70 Shahi Exports: Reforming the Fashion Supply Chain 74 Risk, Resilience and Rebalancing in the Apparel Value Chain 77 09: Retail ROI 81 H Head of Institutional Affairs, Jumia Group Dubbed Africas answer to Amazon, Jumia has seized the e-commerce opportunity in dynamic markets like Nigeria, Kenya, Senegal, Morocco and Egypt, though it didnt achieve the growth levels analysts expected during the pandemic. Next year, the e-tailer will be even more disciplined about its path to profitability, suggests Juliet Anammah, a veteran executive at the group. by Robb Young23 selling everything from luggage to laptops and food to footwear, Jumia remains an attractive channel for brands to access consumers on the continent, and Anammah remains bullish about the firms prospects in 2021. How much more room is there for Jumia to grow in the year ahead and what role do you now play in the continents online acceleration? Is it different from the role you played in the first eight years of growth? We still have decades of growth ahead of us. If you look at the penetration of e-commerce on the continent, at best, its still about two percent, three percent. There is still a whole lot of upside in terms of more transactions that we can bring online, and we are addressing this in multiple dimensions. Were increasing the variety of products that can be found on Jumia. Today, a consumer can buy virtually anything on Jumia not just fashion products and beauty products. They can buy airtime for mobile phones and pay bills on Jumia. And within each of the categories where we operate, the assortment is growing every year. All of these are things that are relevant in terms of our growth trajectory in the context of Africas ever- increasing e-commerce penetration rate. Some people credit Jumia with “revolutionising” e-commerce in Africa. Others accuse it of being a clone of Amazon, citing the successive roll-out of services like Jumia Prime, Jumia Express and so on. What do you say? Id say: one, you dont reinvent the wheel. It makes no sense to go and start rewriting the rule book on how e-commerce works. Consumers around the world are already used to a certain way of interacting with e-commerce platforms. Its important that you give them something that theyre familiar with but adapt it. So we said, “How will consumers trust that the item will be delivered to them?” because logistics is a big challenge in Africa. We had to solve the trust question by creating a cash on delivery option with three attempts to make a delivery, a payment solution and all kinds of special service infrastructure. I call it adapting the e-com- merce model for the African environment and customising it to the African consumer. We couldnt just take a model from another region, and then implant it in Africa. That wouldnt have worked. But for people to now say, “Oh, this is the Amazon of Africa,” it means they recognise that what were doing for Africa is what Amazon did in the US. So, to the extent that the “Amazon of Africa” nickname makes me feel anything, it makes me feel happy. Jumia provides a sales platform for consumers in Nigeria, South Africa, Kenya, Cte dIvoire, Ghana, Senegal, Uganda, Morocco, Algeria, Tunisia and Egypt. How do you manage to optimise the customer experience for such a hugely diverse group of markets with different regulatory environments and different consumer behaviours across that colossal expanse of the continent? We didnt have the luxury of having big, established logistics players that could reach every part of the country who were also willing to take cash on delivery, so we had to create a network of third-party logistics providers. We just built the systems that would allow us to then leverage that and the data systems for it. Thats impressive. But how do you localise Jumias assortment across African nations with so many different wardrobe preferences not only between the different markets but also within each market? Assortment differs by market because we operate across 11 countries but there are certain brands that we have partner- ships with on a global level But if you take Nigeria, for example, there are small local designer outlets producing affordably priced clothing for work and some creating African native fashion for special occasions. We also customise our marketing. In certain markets, YouTube is important and others it is different social media. To what extent do you feel that Jumias path to profitability has been impacted by Covid-19? How do things look now in the run-up to 2021? During the Covid pandemic we didnt need to spend as much on sales and advertising as we would have done in normal times so overall, youll find that net losses were reduced between 2019 to 2020. Of course, we had taken some decisions earlier on about staff costs and other operational expenditures that matured by the second quarter of 2020, which held our gross merchandise value (GMV) expenses down further. In terms of the top line, it wasnt phenomenal growth. 01. LIVING WITH THE VIRUS24 The State of Fashion 2021 Some people expected us to see triple-digit growth over 2020 versus 2019. Their perception was that the whole of Africa was ordering online, which is not the case. You need to understand that its a long-term play for e-com- merce. Its not a two-year stint and you march on to profitability. It takes a pretty long time. Where we are right now, were very much focused on our account profitability. You were the CEO of Jumia Nigeria for four years before being appointed chairwoman in 2020. How have you led your team to source the right products for the mass market? We are a platform for everyone. Were agnostic. So you have top brands from Procter customers are rewarded with social currency for online and offline engagement on the brands WeChats mini- program exchangeable for free menu items at the in-store caf. 73 In the coming year, we expect brands to elevate the online customer experience even further, as digital is augmented with physical, and vice versa, in increasingly sophisticated ways. To power up e-commerce growth, the digital customer experience and behavioural insights will be the top two priorities for data and analytics in 2021, according to fashion executives. 74 In addition, brands will leverage innovations including integration of social shopping, reviews, gamification and personalisation, aiming to create a richer digital experience. One departure from the past, however, is that fashion players will need to be much shrewder with their investments to focus on those innovations that deliver on the bottom line. 03. DIGITAL SPRINT Exhibit 5: The share of online fashion sales is expected to remain high in 2021 SHARE OF FASHION SALES FROM ONLINE CHANNELS (EARIER RECOVERY SCENARIO), % Note: Scenarios intended to provide insight based on currently available information for consideration and not specific advice SOURCE: MCKINSEY ANALYSIS; EXPERT INTERVIEWS; EUROMONITOR INTERNATIONAL LIMITED, APPAREL 2020 EDITION AND LUXURY GOODS 2019 EDITION, SHARE OF E-COMMERCE SALES (FOR 2019) Online Offline USA EUROPE CHINA 2019 2019 2019 2020E 2020E 2020E 2021E 2021E 2021E 22 16 33 37 26 40 34 22 37 78 84 67 63 74 60 66 78 6340 The State of Fashion 2021 Kering: Fast- Tracking a Digital Upgrade Grgory Boutt Chief Client and Digital Officer, Kering The man tasked with leveraging digital to create an integrated customer experience at the group behind Gucci, Saint Laurent and Bottega Veneta says that its full-steam ahead for e-commerce growth in 2021. The challenge will be to reinvent Kerings sprawling store network for ultra-connected luxury consumers on multiple platforms. by Robert Williams The primacy of digital has been a long time coming for luxury, but even as discovery shifted to platforms like Instagram and WeChat, the sector was slow to embrace online retail. When stores shuttered during the first half of 2020, however, the critical importance of e-commerce became immediately apparent. Kering, for one, saw its share of online revenues more than double. Momentum in e-commerce channels will continue to grow in 2021, but with long-haul tourism still frozen and store traffic struggling to rebound, the French luxury giants chief client and digital officer faces a challenging environment for omnichannel in the year ahead. Not only does Grgory Boutt have to find a way to make Guccis network of nearly 500 stores relevant in an over- whelmingly digital world, he also has to fast-track an e-commerce overhaul at Kerings other billion- dollar-plus brands like Saint Laurent and Bottega Veneta. EXECUTIVE INTERVIEW41 Youre Kerings chief client and digital officer. Can you tell us a bit more about the connection there? I think Franois-Henri Pinaults vision in creating this role was that digital is the means to an end. My job is about starting from the clients, leveraging digital to create the best experience for them. For all Kering brands except Gucci including Saint Laurent, Balenciaga, Bottega Veneta and Alexander McQueen Yoox Net-a-Porter had been operating their e-commerce businesses via a joint venture until this year, when you were set to move those functions in- house. Why? If a quarter of our business and so many of our interactions with clients are going to happen online, we want to control that experience. We think our clients want to move seamlessly between the different channels: making it so if you buy online you can pick up in store, you can book an appointment in-store online, you can reserve a product to try on, you can buy online then return it in-store. The only way to build those bridges is if you control both sides of the equation. Those sort of click-and- collect services and in-store appointments are no doubt more important since the pandemic, even if wed already been hearing a lot about this “omnichannel” approach in recent years. Are there any other ways you plan to blend online and offline services for the next phase? One area where we accelerated some efforts on omnichannel is distance sales, making it so a client visiting our e-commerce site can actually interact with sales associ- ates in the store. So, if a customer says yes to using the feature, a sales associate in the store could chat with the customer, or even do a video and have them show some particular products and even close a sale. Weve piloted that in some regions with a programme called Gucci Live and were getting an amazing response from our clients, both in terms of qualitative feedback and conversion. Before the pandemic, McKinsey had forecast that e-commerce would account for around 20 percent of overall luxury sales by 2025. Kering exceeded that forecast in some regions this year, five years earlier than expected. After such a rapid surge, will online sales channels still grow next year? Our e-commerce revenue during the first half of 2020 went from 6 percent to 13 percent of overall retail revenues year-over-year. In North America we were as high as 26 percent e-commerce so already ahead of the 20 percent McKinsey expected for 2025. I expect e-commerce to continue to accelerate in the coming years, because this is addressing a fun- damental trend in our business. Were seeing a lot of the luxury growth coming from younger generations as well as Chinese customers aspiring to buy our products, and the common theme between those two populations is that theyre ultra-connected. Of course, in terms of the share of e-commerce it will normalise a bit, since a lot of what we saw in the first half of the year has been driven by our retail network being closed. But I think it will be at a much higher level than expected prior to the pandemic. One trend weve been seeing in the digital space in recent years has been faster growth for big brands while smaller brands underperform. Whats driving that polarisation online? Do you think that gap will continue to widen next year? Thats not just online; its a gen- eralised phenomenon that digital is a part of. Building a luxurious experience online and building a digital footprint is very hard to do and requires significant invest- ment. To have an e-commerce platform that is global, that is also omnichannel, is incredibly hard. And if you want to have an impactful social media strategy, thats also very hard because its not just one platform: you have to adapt your content for Instagram, Facebook, Line in Japan, WeChat in China, and KakaoTalk in Korea. Building relevant content for each of those requires a lot of investment. So bigger brands or brands that are part of a bigger group can do this better. “If I had one piece of advice for a small brand thats not part of a group like ours, it would be to really pick their battles. My advice would be do a few things extremely well, and delight a niche of customers.” 03. DIGITAL SPRINT42 The State of Fashion 2021 CONSUMER SHIFTS Without that kind of group investment, how can a small, or a medium-sized brand be the exception, and really win some visibility online? If I had one piece of advice for a small brand thats not part of a group like ours, it would be to really pick their battles. When you look at a brand like Gucci which is going after every opportunity in the digital space, its very tempting to try to go after all of those oppor- tunities too. My advice would be do a few things extremely well, and delight a niche of customers. Trying to do everything could result in being average, and not cutting through the noise. Weve heard so much in recent years about the importance of e-commerce for Chinese luxury consumers, especially those who buy through very advanced digital channels in Chinas own distinctive online environment. What are Kering brands doing to scale up activity in this space? E-commerce is huge in Asia, but when you look at luxury, its still very nascent. Thats something that not everybody understands. The ecosystems are incredibly different from what we are used to here, as “” e-commerce sites are less popular in China than their “” counterparts in Europe and the US, and there are some very specific players you have to work with. But Gucci has launched its Chinese site and were seeing tremendous traction there, and we are also buildi
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