Fashion companies’ guide to navigating an unusual and unprecedented Holiday season
Updated: Jan 11
Tackling the dual threat of COVID-19 and climate change; a data-driven action plan for retailers to adapt quickly to changing consumer purchasing behavior
Abhinav Chandra, PredictSys Inc, CEO & David Lawrence, PredictSys Inc, Adviser
September 25, 2020
It has been an eventful few months since we last published our forecast on May 13th 2020. We have seen the slowdown of COVID-19 cases in May/June and lifting of lockdowns, the resurgence of cases, the economy rebounding quickly, but then growth slowing, and everything in between. Unfortunately for the US fashion market, our forecasted 31% year-over-year sales decline in 2020 Q1-Q2, has proved to be accurate with an actual decline of 32%. In addition, the trend so far in Q3 is in-line with our prediction of 21% decline year-over-year. Our latest forecast continues to follow the trend of our May forecast and we forecast 24% decline year-over-year in sales in Q4. The decline is driven by a forecasted spike in COVID-19 cases/deaths and warmer than usual winter with a corresponding decrease in cold weather category sales. These conditions will make for a holiday season like no other. To deal with these conditions, Fashion Retailers and Brands will need to think creatively and act quickly to survive.
Our accurate 2020 Q1-Q2 forecast validates our data and modeling
We predicted 31% sales decline year-over-year for 2020 Q1-Q2 with the actual decline 32% as per the Retail Monthly Sales data from US Census Bureau. More importantly, for 2020 Q2, we had forecasted a sales decline of 52% year-over-year versus an actual decline of 48%. In addition, Q3 sales are on track with our Q3 forecast of 21% sales decline as August and September sales have declined by 20%.
We attribute the accuracy of our forecast to our artificial intelligence based modeling and automated use of data including mobility, online traffic, and weather data at scale which are underlying factors driving demand.
How Fashion Retailers can survive this unusual Holiday season with expected sales decline of 24%
Our updated Q4 forecast predicts a 24%+ year-over-year decline in sales (forecasted range: 17-28% decline).
Chart 1: Quarterly seasonally adjusted sales forecast until 2021 Q4, indexed to 2019 Q1 sales at 100
After a partial sales recovery in Q3, our forecasted 24% year-over-year sales decline in Q4 is driven by two factors:
1. Spike in COVID 19 cases and deaths
The Institute of Health Metrics and Evaluation’s (IHME) latest forecast released on September 25, 2020, forecasts 371,509 COVID-19 deaths nationwide by 1st Jan 2021 (1.8X the current death count) with the daily death count reaching 3000+ by December 2020. IHME also estimates that in December, mobility will reduce to the same level we saw during lockdown in April (see chart below). Other reputable organizations are forecasting similar trends.
Chart 2: Cell phone mobility data - historical and projection by IHME on September 11 2020
2. Warmer winter driven by climate change
As per a NOAA (National Oceanic and Atmospheric Administration) study, the last 5 years (2015-2019) are the 5 hottest years ever recorded and most of the next 9 years are predicted to rank in the top 10 hottest years with a probability of greater than 99%. In line with this trend, 2020 Q4 is forecasted by NOAA to be warmer by 0.6 - 2.5+ degrees than average in most of the United States (see Chart 3 below). Warm weather will have a significant negative impact on sales in seasonal cold weather categories like Outerwear.
Chart 3: NOAA October-November-December (OND) 2020 temperature outlook distribution
On an annual basis, we project 2020 sales to be 22-26% lower than 2019 and 2021 sales to be 6-10% lower than 2019. Longer term we forecast that sales will return to 2019 levels in 2023.
Based on our modeling and analysis, we have spelled out likely implications and recommended actions below.
Actions Fashion companies should take now
Prepare for a second wave of store closures or significantly reduced in-store traffic
While the predicted Q4 spike in COVID-19 cases may not result in government mandated store closures, we believe that customer traffic will decline substantially and make operating non-essential stores challenging. Retailers need plans in place for this scenario now. Two areas that retailers must plan for are:
Have clear criteria and procedures on when, where, and how stores will be closed/operated, including how staff will be utilized through this time
Flexibility in buying from suppliers to scale inventory up or down in response to demand
See our May article for additional detailed recommendations for each of the two areas above.
Expand Black Friday to Black November with focus on e-Commerce
In 2019, 124MM people shopped in stores on Black Friday weekend. With high levels of COVID-19 still present in the community, it is highly unlikely that the majority of people will shop in person this year. This will lead to increased online shopping during the holidays. We recommend three areas of focus:
1. Expand Black Friday to Black November
The expansion of Black Friday into a week-long event has been happening in e-commerce over the past five years. This year, it is imperative that Black Friday pricing is made available through both e-Commerce and in-store over multiple weeks in November (Black November). Marketing and merchandising should be lined up to support the early on-set of Black November.
2. Focus on e-commerce
We forecast e-commerce to generate 50%+ of sales in November-December. Retailers should plan to capitalize on this by strengthening their omni-channel operations, shifting marketing spend towards online and ensuring that the best possible deals and prices are available online.
3. Ensure flexible and competitive pricing
E-commerce will increase price transparency and customers will be more price sensitive than usual. It’s important that pricing and promotions are competitive and flexible. Our recommendations are:
Implement/refine online price matching capability
Adjust pricing and promotion individually for e-commerce and in-store channels
Enable stores to change prices quickly through fast communication process and rapid execution using either digital signage or in-store printing
Prepare for e-commerce order delivery challenges
Given the expected surge in online shopping during Q4, we also expect there to be increased delays in delivering products to the customers. Both FedEx’s and UPS’ Q2 ground volume jumped 20%+ year-over-year and they both are planning for a surge in Q4 with plans to hire 75,000 and 100,000 additional workers. This large scale-up in capacity amid an ongoing pandemic introduces potential for increased delays in customer delivery due to the size of the scale up needed to meet demand. To help protect brand integrity and customer loyalty, retailers need to prepare a playbook to mitigate these events. Six potential areas of focus are:
Adjust delivery promises based on latest data (in case of severe delays add a buffer to UPS/FedEx/USPS delivery times)
Ensure notification to customer as soon as possible if their order is delayed
Offer delivery alternatives such as safe curb side pick-up for local customers (where possible)
Make order/delivery status visible prominently in customer accounts
Invest in marketing to encourage customers to shop earlier online
Re-train customer service staff on handling delayed delivery customer complaints, especially when it is about deliveries that will not reach before the Holidays
These proactive actions will help to reduce negative customer experiences as well as reduce customer calls and associated costs.
Proceed with caution on cold weather categories like Outerwear
Given the prediction of a warmer winter and the likelihood of significant reduction in mobility, we expect sales in cold weather categories like outerwear, cold weather accessories and the like to decline by more than 50%. In addition to overall recommendations, for cold weather categories specifically we recommend:
Reduce depth and/or breadth of upfront purchases with flexibility to return products where applicable
Invest more in or introduce informal and casual outerwear like sweatshirts and hoodies. This product category might see an increase as more people socialize outside (eg: backyards and parks)
Increase diligence and frequency in tracking overstock inventory and taking quick corrective actions
Reduce prices earlier in the season, even to liquidation levels if necessary. Do not wait until January
Implement coat donation program where customers can buy new cold weather clothing at a discount with a donation of a cold weather garment to charity
Invest in increased automation in sales planning and inventory management
There will be high uncertainty and rapid swings in sales over the next 12-15 months. Even past the end of this pandemic, profit challenges will require faster and more targeted action in the supply chain to reduce waste and increase profitability. To address challenges during and post the pandemic, retailers should invest in tools and software like PredictSys’ planning and inventory management software, which uses advanced technologies such as machine learning and artificial intelligence to generate and update forecasts and recommendations on a daily or weekly basis. This will reduce waste in your supply chain, enable faster action in reaction to demand changes, and allow the buying and planning teams to focus on other value-added tasks.
These are, undoubtedly, challenging and uncertain times, and we at PredictSys are here to help with your questions and challenges. Please reach out to me at email@example.com with any questions about information in the article above or how PredictSys can help you and your company.
PredictSys, Inc. uses Big Data and Advanced Technologies such as AI, machine learning, and customer sentiment analysis to improve fashion forecasting and to generate automated profit and customer experience optimization recommendations. Our team includes Data Scientists, Merchants, Planners, and Digital/Omni-channel experts.
Abhinav Chandra, CEO and Founder, brings more than 20 years of retail and technology expertise to PredictSys. His experience includes Head of Women's Clothing (Amazon), Head of Customer Experience (Amazon), and Associate Partner in McKinsey & Company's Retail Practice.
David Lawrence, Strategic Adviser, is a retail leader with deep expertise in merchandising, digital and e-commerce. His experience includes VP Digital Merchandise (Tailored Brands), VP/DMM (Men’s Wearhouse, Joseph Abboud), and multiple Buying roles (Men’s Wearhouse, May Department Stores).
List of articles/forecasts which point to a significant second wave in November/December