Fashion retailers are at an inflection point

Long before Covid-19, the retail industry was already facing serious problems with struggling physical stores, massive debts, declining profitability, excessive dead inventory, inefficient operations, the meteoric rise of e-commerce, among other issues.

“From executive missteps to pandemic-related shutdowns, some of the biggest retailers have filed for bankruptcy.”

CB Insights

The pandemic has dramatically accelerated these trends and resulted on the fall of several retailers, which have faced decreasing sales and growing debt over the past few years as consumer preferences change. Traditional retailers need urgently to address these trends. Department stores are at particular risk, with the pandemic causing the falling of iconic names such as Neiman Marcus or JCPenney. Malls saw declining foot traffic even pre-pandemic, but stay-at-home orders further shifted shoppers to online shopping and spending cash on essential goods instead.

“Traditional retailers have no choice but to transform their operating models.”

McKinsey & Company

Most retailers have responded by making incremental changes rather than fully rethink their operating models. This passivity has translated in not going to center of the issues and to cut spending while underinvesting in fundamental capabilities such as IT, Digital and Talent.

“Legacy structures and processes remain in place, making it difficult for retailers to keep pace.”

McKinsey & Company

For retailers to change the way they work, they must think differently, adopt a more agile and omnichannel operating model, and embrace the power of automation. Making this shift and to widen the narrow leans of cost cutting, retailers should invest on three foundational pillars of an operating model transformation.

  • Manage the skill shift – invest in future growth areas by hiring the right talent and skills.
  • Adopt a more agile and omnichannel operating model – become an omnichannel first organization.
  • Embrace automation across the all organization – disrupt ways of working through automation.

Some legacy retailers have adapted their organizations to agile enterprises, with teams organized by squads along use cases.”

McKinsey & Company

These foundational moves can help retailers adapt their operating models to match the unprecedented challenges that lies ahead.

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