LIM College

Digitization has allowed new disruptive entrants to capture any incremental growth the apparel retail industry has offered. VC-backed web-based businesses operate to a different set of values--scale quickly, profits later.

Meanwhile, social media creates brand awareness rapidly and cheaply while undermining the competitive advantage of established brands. Retailers and brands need to compete with nimble new startups that may or may not be around in two years time. But if they are not, they will be replaced by more of the same. Barriers to entry have been permanently lowered with the internet.

The pace of change is unprecedented as digitization works its way through the apparel ecosystem, from design, textile production to assembly and manufacturing, to logistics and distribution and finally to retail/ecommerce point of sale.

Li & Fung recently announced an 18 percent drop in operating profits and commented that 2016 was one of the toughest trading environments in its 100+ year history. Moreover, the industry's challenges will likely increase in the next few years as creative destruction ensues.

In 2017 announced store closings are up 100 percent year over year and the outlook for retail bankruptcies accelerating is gloomy. This instability will persist and its repercussions are already impacting brands and wholesalers selling into traditional retail channels.

The corporate culture necessary to navigate today's business environment, to lead amidst new consumer priorities and channel choices is paramount to success. Many established companies are attempting to solve their business dilemmas--slowing sales, reduced store traffic, contracting gross and profit margins--with yesterday's solutions which all too frequently is promotional pricing.

In the long run this damages brand equity and is really a race to the bottom. New thinking is necessary, new strategies. Retailers should be replacing the store expansion budgets of yesteryear with new R&D budgets that explore new ways of connecting with consumers.

Startups have none of the legacies of mature businesses, the organizational silos, the protocols. They assess the business environment afresh without accommodating organizational constraints. Business leaders need to unshackle their growth strategies from the limitations of today's business model and ask themselves,

"Why are we in business, what value are we offering the consumer, how can we provide new solutions that engage the consumer and what do we need to change?" This is not easy to do. It can mean jettisoning divisions and eliminating positions. Purging will allow new opportunities to emerge. A new framework with out-of-the-box thinking and a willingness to test and try and fail is necessary. Here retailers and the apparel industry can learn from the technology industry.

Over the long haul, the digital shift should generate efficiencies that yield enhanced profitability. Opportunities co-exist with these challenges. For starters, niche markets and long tail opportunities will provide access to new consumers and profitable growth as mass market growth stalls.

One thing is sure, data literacy is a prerequisite for success in 2017 and going forward. Your business depends on you understanding the proliferation of data out there and turning the data into insights that help you to take actions that protect and grow your business.