Roland Berger: How should a fashion and lifestyle company position itself for the future?
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Companies often call on the international consultancy Roland Berger when they are in a difficult situation. So, the consultants are used to getting companies in challenging situations back on track. In a conversation with FashionUnited, experts Alexander Müller (Senior Partner, Competence Centre Restructuring, Performance, Transformation & Transaction) and Richard Federowski (Partner, Consumer Goods & Retail) explain what is important for fashion and lifestyle companies in these times.
Mr Müller, Mr Federowski, what are currently the greatest challenges facing the industry?
Alexander Müller (AM): The fashion and lifestyle industry is currently one of the industries hardest hit by the pandemic. On the one hand, the pressure to adapt business models was already growing before coronavirus as the result of digitalisation, realignment of value creation chains, the further development of sales channels, improvements in customer communications and rethinking of point-of-sale concepts. On the other hand, the prolongation of the second lockdown has led most of the liquidity to be used up. For many firms, it is now a matter of survival and a question of how it will be possible at all to finance the restart and future investments given the current lack of liquidity and increased debt load.
Richard Federowski (RF): Right now, in the fashion and lifestyle industry, two forces are converging. As Alexander mentioned, the industry had already been undergoing fundamental changes before the coronavirus crisis. The pandemic is acting like a catalytic converter and accelerating these changes, but unfortunately, the industry's motor is running out of fuel. The casualisation of fashion was already well under way and has now been intensified; for example, the sneaker boom and the athleisure trend. Even the decline in footfall in downtown locations is nothing new – certainly in terms of its extent. The transformation of shops into experience showrooms, the use of new technologies along the entire value creation chain, the softening of seasonality, increasing competition from China or the importance of social media and digital commerce as well as the topic of dynamisation in sourcing and sustainability: All these challenges must be addressed by the industry with even greater urgency – and that in an exceptionally tense market environment.
What is the first thing you focus on at a company when they contact you?
AM: In the current phase, we first focus on the present liquidity situation and the immediate further development. As a result, we are able to assess the need for action and the room for manoeuvre for all further steps. Particularly in crisis situations, we often find that planning is based on too many idealised figures and that the actual situation is more serious than first thought. Then there is the question of how future-proof the business model is. The answer to this determines all further measures. The old adage still rings true here: "No strategy, no turnaround."
RF: Unfortunately, in many cases entrepreneurs or CEOs decide to get outside help very late in the game – when the crisis situation is already at an advanced stage and external pressure from trade credit insurers and those providing financial support is already very high. Of course, that is why cash – as Alexander already noted – is paramount and the company must be managed in the short term based on this aspect. But of course, that is far from enough. In general, one must understand as quickly as possible what is causing the crisis or what has gone wrong. The customer is the point of convergence here, from where we examine the brand, assortment and distribution. The most important question is that of relevance. This question is often dismissed too quickly although it is so important in these times: What is my purpose, what do I stand for and what is my "reason to exist"? In many cases, however, operations do not suit the times. Of course, it is always important to have a look at the competition and other markets. The example of Asia and how customer interaction and sales are being redefined there, one cannot turn a blind eye to this in a realignment.
What measures do companies have to take and how can you help fashion and lifestyle companies in the process?
AM: We consider ourselves entrepreneurs, which is why we take a holistic approach that covers all aspects: the strategic, operational and financial business.
In the medium term, the crisis can be used as an opportunity for a long overdue realignment of the business model. In order to remain fit for the future, you cannot stay blinkered and hope that everything sorts itself out. Even consumers who were not internet-savvy in the past have learned by now, at the very latest, how to make online purchases. This development will not be reversed once the crisis is over. Certain shopping behaviours from this time will remain – even working from home will stay with us in the future. Covid-19 will become part of our reality. So, it is necessary to start approaching issues with an open mind. On this basis, the entire value creation chain has to be rethought. What will my future go-2 market be like? What do I have to do to change my supply chain strategy in order to remain flexible in the market? What do I have to do to reposition my organisation as a whole in order to approach the future in an agile and cost-efficient manner? Which assortments are future-proof? What does my brand stand for and how can I win over customers? And last but not least: Who finances this and how? As a globally positioned consulting company, we are able to provide individual and one-stop support with our respective experts in answering all these questions.
RF: Today, the battle for footfall, which was once fought in pedestrian zones, is now being fought more than ever online. How do you get in touch with customers in the future? What content do I convey? How do I want to be perceived? Then questions arise like: What is my role in society? Apart from the product, what can I offer consumers? How do I stay relevant? These topics have to be rethought now. 'Digital' and 'social' are becoming more important than ever, not just for communication with customers, but also for the entire customer promise or added value for customers. In addition, the topic of 'data' must not be forgotten. Collecting and analysing data in a strategic manner as well as the related recognition of signals is increasingly becoming a competitive advantage. Companies have to ask themselves: How can I enable this transition? How do I have to develop my business model further and do I have the right people on board? We will address these questions and more by revising our clients' corporate strategy and further development of structures, processes and analytics.
What should companies pay special attention to when it comes to future-proofing their business?
AM: If the pandemic has shown one thing, it is that the role of early warning systems as a central steering element for management and also for supervisory bodies needs to be reassessed. Well thought through, holistic early crisis detection is a key component of good corporate governance. On the basis of these findings, it will also be necessary to think and plan much more strongly in scenarios in the future. Only then can countermeasures be prepared in time and implemented where necessary.
In connection with the new provisions of EU insolvency law, the Gesetz über den Stabilisierungs- und Restrukturierungsrahmen (Act on the Stabilisation and Restructuring Framework/StaRUG) came into force in Germany on 1 January 2021. What does this mean for companies?
AM: These adjustments are attributed to an EU directive from 2019 – that is, before the crisis – and serve to devise more efficient restructuring processes and prevent insolvencies. Similar laws will be or have been enacted in all EU countries by 31 June 2021. The new law mainly serves to facilitate and accelerate the financial restructuring of a company through the deferral or waiver of debt or adjustment of financing terms. It achieves this by allowing individual creditors, who do not wish to back a proposed restructuring concept, to be outvoted by way of a majority resolution. In our view, however, this also requires the submission of a feasible, holistic concept that also accounts for economic performance factors. After all, a majority resolution naturally requires the majority to be convinced of this. An additional advantage is that this process is not public. As a result, the entire process can – if prepared and executed professionally – take place as much as possible outside of the public eye.
This also diminishes to some extent the stigma of insolvency.
RF: Exactly, the topic of insolvency prompts most people to respond with rejection because it is associated with failure and a substantial uncertainty. The StaRUG in Germany and the corresponding laws in other EU countries provide incentives for initiating the restructuring process earlier and, thus, taking countermeasures in time. They give companies the tools they need to reach a consensus with all those involved earlier on while keeping this process away from the customer.
AM: But the new legal regulations also bring a number of obligations with them, which are not to be neglected. Particularly with respect to the issue of early crisis detection and management, company management is required to take the relevant early warning systems more seriously. For many companies, implementing these tools poses a challenge which we can help them tackle.
What challenges do you see in the coming years and how can companies master them?
AM: Unfortunately, we have to assume that this pandemic will not be the last large-scale event of its kind. A myriad of challenges lie ahead in coming years and decades and we will continue to live with uncertainty and lasting changes.
RF: Companies will only be able to survive if they are agile, efficient and customer data-driven and offer customers a brand promise with genuine added value, not to mention a story that is relevant to them. Numerous changes lie ahead for the fashion and lifestyle industry in particular. Consumers will question companies and their assortments to an increasing degree, socially, ethically and in terms of sustainability. The new wave of minimalism, particularly in Europe, will affect demand and collections. This is also evident in our current study "Shopper Behaviour Upside Down". Topics such as purpose-driven consumption, sustainability, circular economy, radical transparency and traceability are here to stay. But also, topics such as automated decision-making, AI-based product development, value creation chains linked on the basis of partnerships or conversational commerce and a more intense D2C approach by manufacturers will have a major impact. The increasing importance of Chinese brands in Europe should also not be underestimated. Consumers' expectations of brands and retailers are not on the decline.
Every CEO should address long-term megatrends. These are aspects such as differences in population growth across regions, education, health, sustainability, shift in power, technology and globalisation. Though we are seeing a slight decline in globalisation – near-shoring is a huge topic when it comes to sourcing and the supply chain. We have focused extensively on these topics for our "Trend Compendium 2050". I can only urge every CEO to follow these megatrends very closely and determine the effects they will have on their company. The future often comes a lot faster than you think.