Amid the pandemic, a recent report reveals the global fashion industry could have lost as much as 20% of revenues in 2020, worth up to $440 billion. Yet in Q1 last year, the private equity firm SPEAR Capital invested more than $5 million into the South African fashion e-tailer RunwaySale which begs the question: where is South Africa’s fashion industry heading?
Bryan Turner, partner at SPEAR Capital, reveals a big part of its investment thesis into RunwaySale was that the fashion industry would eventually migrate online. In this regard, RunwaySale already ticked three boxes that are key to online success.
“They’ve built their own tech; they’ve got logistics within their control; and they demonstrate expertise in digital marketing,” Turner explains. “Those three criteria – technology, logistics and digital marketing – are the fundamentals of any e-commerce business and RunwaySale demonstrated enough expertise to warrant an investment.”
In an industry where investors lean towards the luxury end of the scale, RunwaySale’s focus on value retail has allowed it to capture a middle-class customer base in South Africa.
With this investment in mind and with the expert opinion of Turner, we take a closer look at the future of fashion in the light of Covid-19 and how retailers can position themselves to be future-fit and profitable.
Consumers under pressure
For customer-facing businesses in South Africa, there’s no way to ignore the state of the economy because it has placed consumers in a difficult position. “You need to be worrying about your consumer and cannot avoid thinking what Covid-19 has done to them,” Turner says. “You might benefit but you cannot be agnostic to the effects of the pandemic; you owe it to your customers to consider them carefully.”
“At the highest level, I think we all know that the South African consumer is under immense pressure,” Turner says. The December 2020 Household Affordability Index indicates that basic food items like sugar beans, rice, flour and bread, for example, have seen price hikes of between 31% and 68% year-over-year. In fact, a food basket for the average South African costs around R4,050 per month which is more than the general monthly minimum wage of R3,321.60, according to the index.
Against the backdrop of rising food prices and the impact of Covid-19, it’s understandable that fashion played second fiddle to essential products as consumers tightened purse strings over the last year. Turner believes the fashion industry will find its equilibrium again in the long run because it’s linked to the economy as a whole.
Trends in fashion and the stay-at-home culture
The fashion industry in particular has not had the best time due to the pandemic. According to a recent census in the United States, retail sales in clothing and fashion stores have declined around 29% year-over-year from December 2019 to November 2020 which is even worse than the 19% drop in the restaurant sector. However, it’s not all doom and gloom for the world of fashion as the pandemic also accelerated some trends that were in motion prior to the crisis like online shopping and catalysed some new fads like loungewear.
According to the State of Fashion 2021 report by McKinsey and the Business of Fashion, one of the 10 fashion industry themes that will set the agenda in 2021 is the digital sprint. During lockdowns, digital adoption soared as people explored online shopping while physical stores were closed. As digital consumption continues its growth in 2021, the report suggests companies must develop more engaging and social experiences to encourage consumers to connect. At the same time, they should make sure their digital channels add measurable value to the bottom line, given tight budgets and the need for productivity and efficiency.
Besides the overarching trend of digital adoption, more visible trends in clothing this year have cropped up in none other than yoga- and fat pants. “Trends which might seem obvious now in hindsight are that beauty and fragrance sales are down because people aren’t interacting as much but other sectors like activewear are up,” Turner adds. “Anything that essentially plays into the work-from-home and stay-at-home trend has done well this year.”
Future of brick and mortar?
While lockdowns still loom large across the world and many retailers close shop, one pressing question remains: what is the future of brick-and-mortar fashion retail in South Africa?
From an investor’s perspective, Turner believes the future of physical stores isn’t dire in South Africa and there’s a place for it alongside e-commerce. “I don’t think everyone quite grasps how different online is to offline in terms of running a business. They’re two different business models and therefore take two different sets of skills to be the best at both.” Aligned with recommendations from the State of Fashion 2021 report, he strongly advises brick-and-mortar retailers to focus on what they offer their consumers: a store should either present a unique experience or be value-orientated, but defining that purpose will be vital.
As for e-commerce, Turner is confident Covid-19 doesn’t change their long-term ambitions for the digital pillar of the industry or their investment in RunwaySale. “If anything, Covid-19 has shone a light on the need for the South African market to move online.”