The current economic crisis has caught the AF&L (Apparel, Footwear & Luxury) industry off guard. COVID-19 has destroyed several retail industries and AF&L is no exception. The outcome of social and economic shutdowns presents remarkable challenges for leaders in this industry. What is the role of value creation drivers in the AF&L industry?

 

Although no one knows the total financial devastation of the COVID-19 pandemic on the retail sector, the crisis has definitely damaged some of the principal aspects of the AF&L industry. Some of these changes could even be permanent.

 

To note, between February and March, AF&L sales went down by an average of 40%. Apparel & Footwear is predicted to contract around 27% to 30% and the luxury group by 35% to 39% contraction.

 

In fact, two big successful retailers, Neiman Marcus and JC Penney filed for bankruptcy during the outbreak of the pandemic. They were both established businesses selling to customers for more than a hundred years. Both companies, however, were debt-laden and market leaders in a declining Apparel, Footwear & Luxury industry.

 

Now we see more sustainability measures driving new business strategies — a trend that’s happening across different groups like luxury, fast fashion, sport, and value retail. However, since the downturn, businesses’ commitment to sustainability has created tension between brands and retailers. Now, more than ever, value creation has become more important for declining retail industries.

 

In this article, we will continue to discuss the pandemic’s effect on the luxury market. Also, we’ll explore value creation and its drivers in the fashion industry. We’ll give examples of how distribution companies are breaking the mould by thinking creatively. You will learn why value creation is important post-pandemic and how to prepare your business for the future of retail in the long run.

 

 

Value Creation Drivers: Exploring Apparel, Fashion, and Luxury Industry

 

Value creation is when you offer something valuable and receive something that is even more valuable to you in return. In business, it can be simplified into costs and benefits. Owners, organisational structure, employees, and customers are all part of the dynamics of value creation.

 

value creation

Defining What Value Creation Drivers Are

 

What do you value as a business owner? This obviously changes with time as you achieve more milestones and objectives. For some, it is defined and synonymous with success aligned to specific company values.

 

What are your business goals and purpose? Clearly, it doesn’t make sense to create something that’s valuable to you that customers don’t think they need. In this case, there is no value creation.

 

On the other extreme, as a business, you may provide value for customers that don’t mean the same thing to you. This happens when a business operates beyond its costs, barely earning any profit. A setup like this can only survive if there are other opportunities or channels for price techniques.

 

Create a Network of Users

 

Using resources, capital, research, creativity, and marketing automation, create products and services through the lens of customers’ needs. As author Kaitlyn Smith said, “People make purchases that fit who they are and who they aspire to be.” So, ask: “Who are your customers? Who do they want to be? As you determine this, keep it in the business model at all times.”

 

For example, a single phone will not matter much to a company’s sales volume. But with millions of customers, it creates a network of connections and users that allow not only the telecommunications industry to thrive. But with the advent of technological convergence, streaming and internet services on crossover devices are the new norm. This scenario is also common in social media. So, with more businesses adopting an eCommerce platform, you need creativity to establish a network of users/customers.

 

Deliver through product features and sales teams

 

Sales and marketing strategies zero in on product features that will bring benefits and solve customers’ problems. That’s what people care about the most. How can you make their lives better and easier? Then deliver this promise through engagement, eCommerce platforms, and the best customer service.

 

Sustain by Focusing on the Future

 

Sustaining the business during a downturn is very significant, including stakeholders and strengthening the economy. However, top management should not ignore the longer term.

 

Consider implementing an eCommerce business. The pandemic has triggered a lot of companies to develop and implement an online and Omni-channel strategy.

 

First, allocate a bigger share of investment to e-commerce. Discover new ways of collaborating or partnering with existing and established online stores. Step up your transformation through your customisation efforts in digital marketing. Focus on developing a personalised digital experience with the same quality.

 

Restructure through mergers and acquisitions (M&A) 

 

An economic downturn can create new avenues for improvement. Thus, businesses should determine which companies they could potentially partner with to keep operating or expand into adjoining markets and product categories.

 

Expect changes in customer behaviour

 

The luxury industry has created value for decades because of its creativity and innovation. The new normal will definitely look quite different. So, the luxury and fashion industry should anticipate and respond accordingly. After a large-scale economic crisis, consumer preferences change.

 

Go digital (end-to-end supply chain) 

 

Using remote-working platforms or virtual showrooms can help fashion brands maintain and improve productivity during a crisis. In fact, remote work may be semi-permanent. So, a transformation like this requires investment in innovative, resilient, and cutting-edge technology when digitising the supply chain.

 

 

Why are value creation drivers important even after COVID-19?

 

The fashion industry will face unrecoverable and wilful wounds if it abandons value creation during the pandemic. Besides, cost management initiatives are only one aspect of a sustainability strategy.

 

The key to making money out of sustainability is based on innovation – i.e., your pricing, marketing, and sales strategy. How do you define, communicate, and capture the value of sustainability for your customers and employees? Without the ability to answer this question, no one will buy into your vision.

 

At Taylor Wells, we argue that it is vital for retailers, fashion brands, and other industry shareholders to continue investing in value pricing, pinpointing its drivers, and creation during and after the COVID-19 crisis. With this in mind, we listed four areas that we’ve identified as critical to monetising a business strategy based on sustainability and value creation:

 

1. Safeguard important assets

 

Fashion businesses should focus on their assets and ensure to protect capital, employees, channels, value chain partnerships, and the trust and support of their customers. Take out complexity and costs that are not necessary to prepare for reinvestment.

 

2. Find a solution to immediate inventory problems

 

Pricing is a key aspect of proper inventory management. It’s part of a business’s supply chain management and ensures that the business has the right products in the right volume (for sale), and at the right time. With continuing lockdowns across the globe, supply chains often experience bottlenecks.

 

3. Combine value creation with company recovery techniques

 

Make value creation central to post-pandemic decision-making. The crisis shouldn’t be an excuse to turn away from value creation. In fact, it should be included in key product priorities like durability and quality.

 

 4. Speed up transparency

 

Transparency plays a major role in businesses when taking advantage of innovative business models, digitalisation, and end-to-end solutions. The reason is to evaluate and encourage a new positive transparent model that exhibits value creation practices.

 

It is also essential to have an open dialogue and profitable partnership across the value chain to come up with a common solution for protecting employee livelihood and maintaining trust.

 

 

Where can you uncover value creation drivers in your business?

 

As a manager, you should believe that you can create value throughout your organisation. It does not occur just because you sell your products. The truth is that it all comes with first, how you structure your business. Then the process of creating value will continue with how you develop your product or deliver your service. And finally, value creation’s end product would be the sale. Sounds simple, right? However, it is made up of various branches of processes. To get you started, here are three crucial ways to create value:

 

1. Value creation in the course of business development

 

Sometimes business people desire quite so many appealing prospects and outcomes, but that is only because they have not committed to doing what is best. You can’t have everything. Have you heard of the saying, “The person who chases two rabbits catches neither”? That is true even in business. Wouldn’t it be preferable to get the most of what you desire? Of course, the answer is yes. But how?

 

Establish your objectives. When you have a clear aim in mind, making decisions is simple. Clarity of purpose results in captivating straightforwardness. You will not be wasting your time, effort, or money. You will see that your company is dedicated to providing a profitable overlap between what you value and what your consumers value.

 

But keep in mind that you cannot reach your aspirations on your own. You will require the assistance of advisors, consultants, and employees. To flourish, you must go beyond simply providing value to our customers, you must also give value to our workforce.

 

Productive workers seek more than just compensation. You need personnel who are internally motivated to add value to your customers’ lives. They are energised by a sense of purpose and fulfilment.

 

2. Value creation during the acquisition or generation of assets

 

Companies frequently make the majority of their money before making a sale. When you see dollars, it’s natural to associate value with them. It’s easy to mistake activities that generate revenue for those that create the majority of the value. The idea is to consider your company to be a sophisticated process of value-creating processes.

 

One approach to think about it is to see each process as its firm and divide the entire system into sections. Which methods are the most dependable and profitable? Where are the possibilities? When you only focus on sales, it’s easy to overlook where you’re adding value. Profits can be generated by both decreased costs and more income.

 

3. Value creation through marketing, branding, and promotion initiatives

 

Customers recognise value when it is properly communicated to them, and you see that they are willing and able to pay for it. Hence, revenue is generated by the creation of value during your sales process.

 

Beware that the sales process may be your most overlooked opportunity. You could have a wonderful product or service but underinvest in marketing. Never underestimate the value of establishing a brand. Strengthen relationships and acquire the knowledge that clients expect you to have to convince them.

 

Another error is to waste money on a sales procedure that produces minimal value. This frequently happens when business owners observe sales income but don’t understand what’s driving it. They have yet to discover what their customers actually appreciate.

 

Your customer actually discovers the value you can bring them, throughout the sales and marketing journey. Keep in mind that how you invest in this field may create or destroy value for your business.

 

 

Pricing: Key to Sustainability with Value Creation Drivers

 

Value creation includes the components in a product/service that a customer is willing to pay for. What customers will really pay is based on how the product is priced and marketed.

 

A great product that guarantees major benefits is only a promise. For instance, their willingness to pay may fall short of value. However, it defines value more when the product has a money-back guarantee. Therefore, aligning the value offering with customers models the impact of consumer economics.

 

Theoretically, the process seems easy for B2B customers using the Economic Value Estimation discussed in the pricing book, “The Strategy and Tactics of Pricing”). It shows that it isn’t the amount of the price you charge, but the amount of the relative price potential that a feature enhancement could provide for various customer groups.

 

Businesses that lack ways to measure value for product development tend to create services that represent “the best that money can buy” versus “the best value that customers will buy.”

 

Finding the balance between underpricing and overpricing is a skill that not all businesses know how to do. You have to base your price and make changes from time to time. If you mainly rely on discounts and promotional offers to bring margins, then overtime you’ll find that you’re underselling your product/services or the brand itself. Worse, this type of pricing architecture will eat away margins in the long run.

 

 

Value in Use as a Pricing Example

 

The fashion industry has always relied on setting its prices based on value, often at a higher range. We’ve seen designers start from scratch whose clothing or accessory brands are worn by celebrities or on the red carpet. As a result, their customer’s value perception increases. Similarly, when a fashion or luxury brand or product quality declines, so does the customer’s value perception.

 

Pricing on Purpose by Creating and Capturing Value

 

Establishing a Brand

 

Your brand’s resilience will help more customers choose your brand and pay for the value that they receive. Of course, to do this, it will take customer demographics research, marketing, product quality or development and improvement, pricing, and positioning over time.

 

Operations

 

This involves organisational processes and culture within cross-functioning teams. It also includes inventory, materials, technology, and labor. In most cases, production follows a cost-based pricing because there is more opportunity to create value. Yet, that’s not always advisable. The luxury industry thrives on value drivers that customers attach themselves to items like exclusivity.

 

Monetisation

 

This is commonly practised in social media thru advertisements. We see personalised pay-per-click ads on Youtube, Facebook, Instagram, and other websites. Even the gaming industry has adopted this practise.

 

 

Implications

 

A business can secure long-term growth when committed to value creation. It stays relevant by creating market-leading differentiation against competitors, leaving a lasting legacy.

 

Here are some tips that will help you determine that the retailer in an AF&L industry is moving in a positive direction:

 

  • Greater e-commerce sales (both absolute value and share on overall sale)
  • Continuous customer engagement with the brand
  • Positive cashflow
  • Lesser outstanding inventory
  • Improved margins
  • Satisfaction index of employees including attrition

 

 

Bottomline

 

With thorough planning and skillful execution, the luxury industry can weather the crisis successfully and may come out even stronger.

 

To move in a positive direction, a business should be decisive and take actions on the short term and long-term implications of decisions made during the pandemic.

 

To transform a business in the right direction, executives want to first revise business model and operations. This can be done through M&A, integrating vertically, pricing and revenue management, or enhancing the value chain efficiency to maintain market share while managing profitability.

 

For a comprehensive view on building a great pricing team to prevent loss in revenue,

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