The COVID-19 pandemic has hit the fashion industry particularly hard. Not only has it stopped the steady, if slow, growth the industry has had over the past several years, but it has also put many companies in deep financial distress, according to McKinsey.
Because the holiday shopping season traditionally offers retailers a chance to come out of the red and into the black, many fashion merchants need that extra holiday boost now more than ever. A recent online study of 1,000 U.S. PayPal e-commerce retailers, commissioned by PayPal and conducted by Netfluential, examined how COVID-19 has caused fashion retailers to adapt, including for the holiday season.1 The study found that one-in-five merchants surveyed believed their future depends on holiday sales this year. Yet, 47% of fashion merchants said they don't feel prepared, and 25% said they had taken no action to adapt to industry changes due to COVID-19.
While this is a challenging time, there are ways that fashion merchants can adapt their business now if they want to thrive beyond this holiday shopping season.
Here are three strategies to consider:
PayPal's study revealed that 65% of fashion merchants claimed to have introduced no new products in response to the pandemic, and 72% said they were not planning to introduce any new products. Yet, with the ever-changing COVID-19 situation, a retailer's ability to meet new consumer demands through innovation can set them apart from the competition — and this is critical.
As Greg Lisiewski, vice president of Global Pay Later Products at PayPal, has observed, businesses across the country are pivoting and innovating, whether creating a new line of masks, focusing on "waist-up" fashion, or rethinking their supply chains.
Stuck on where to begin innovating? Lisiewski offers this advice: "An easy place to start innovating is by diversifying payment options at checkout since consumers want payment choice, including flexible payment options given the uncertainty we are facing."
PayPal's research found that among a sample of U.S. fashion merchants that offer financing options, 31% said that offering customers these options will increase sales.
"With options like Pay in 4 — a new pay later product from PayPal — that have no interest and no fees 2 when the consumer pays on time, merchants can easily access all their payment and commerce needs without taking on additional cost or risk within one trusted platform," Lisiewski said. "This helps drive increased conversion with consumers and provides another level of choice as well."
Even before COVID-19, Digital Commerce 360 reported that retailers saw an increase in online shopping. However, that trend has rapidly accelerated, according to new data cited in Digital Commerce 360. And their new habits are here to stay. According to McKinsey, the apparel industry is expected to see an 11% increase in online purchases even after COVID-19.
"We expect the holiday shopping season to follow a similar trend, with consumers increasingly looking to avoid in-person shopping and purchase their gifts online," Lisiewski said. "We also know that this holiday season is a critical moment for most retailers — the majority of whom have been hit very hard by the pandemic."
To offer an exceptional online experience to consumers, it's imperative for every retailer to have a strong e-commerce site and to provide customers with a seamless online experience. The ability to support omnichannel operations is also critical.
"Whether it is leveraging increased online advertising, building a mobile-optimized website, leveraging social commerce marketing, or offering different financing or shipping solutions, consumers are increasingly shopping online, and it is critical for merchants to adapt to this new normal," Lisiewski said.
An easy checkout experience, including the ability for consumers to "buy now, pay later," is one simple way merchants can improve the online experience. In PayPal's study, 42% of fashion merchants agreed that "buy now, pay later" options could help combat shopping-cart abandonment. Yet, only a quarter (24%) of fashion merchants said they were likely to offer "buy now, pay later" options this upcoming holiday season, giving those that do a competitive edge.
Get with the times
The two largest consumer populations, according to Brookings, — millennials and Gen Z — are critical cohorts for fashion merchants. But these younger generations also have strong preferences for brands that promote the causes they care about, such as sustainability.
As cited in the Sourcing Journal, according to the Cotton Incorporated Lifestyle Monitor™ Survey, more than a third of millennial and Gen Z consumers said they put effort into finding clothes for themselves that are labeled "sustainable" or “environmentally friendly."
Additionally, PayPal's research found that almost half (46%) of fashion merchants that sell fast-fashion items — items that are replicated quickly and inexpensively from the runways often at the expense of the environment — have reported a decrease in customers buying those items. At the same time, PayPal's data found that 64% of fashion merchants had made no changes to integrate sustainability into their offerings.
"If merchants can find ways to offer more sustainable products and services, consumers will be more willing to purchase from those merchants because it better aligns with their values," Lisiewski noted. Now more than ever, consumers are turning to online channels to shop, and it's important that merchants show up online this holiday season online with a seamless customer experience that provides flexible and responsible options in product selection and payment options. These options can help drive conversion, revenue, and customer loyalty, all of which are essential for retailers to adapt to the "new normal."
1 An online study commissioned by PayPal and conducted by Netfluential in August 2020 involving 1,000 U.S. PayPal SMB merchants selling products directly to consumers through a website or e-commerce platform. The sample is made up of merchants in different verticals, 200 in fashion, 200 in cosmetics, and 600 across home goods, furniture, garden, electronics, and sport.
2Late fee amount and eligibility for Pay in 4 vary by state. Loans to California residents are made or arranged pursuant to a California Finance Lenders Law License.