The fashion sector finds itself in the middle of a never-ending discounts and promotions battle. Data analysis will be the key for retailers to regain the control, according to the report Powerful pricing: The next frontier in apparel and fashion advanced analytics by McKinsey.
The ending of the price war has a name: big data. In a context marked by sales drop, the constant promotion battle in which fashion finds in and the rise in low cost operations is shrinking the margins, and creates a vicious circle from which just a few operators manage to escape.
In this context, the report Powerful pricing: The next frontier in apparel and fashion advanced analytics by McKinsey suggests data analysis as a crucial element to make retailers regain control of the prices.
The increase in promotions has led price limits in fashion to blur and made it difficult to establish a baseline. “Data analysis will be the tool to make fashion recover Smart pricing, which requires understanding where customers perceive value and having the agility to respond to competitors’ moves” indicates the consultancy.
The discounts and promotions war made pricing outlines to blur
One of the solutions the report proposes through the use of data analysis is to use that tool to plan what impact constant promotions are going to have and defining each season business tactics. The use of data will also serve to retailers to make decisions before launching a collection and to fix pre-season prices to establish the cost of its products.
In that sense, the report points out that, by the means of data analysis, companies can identify which products category has an invariable purchase intent despite de price. Fashion companies should invest on that aspect and consider the most competitive pricing clients would be willing to accept.
The business model change into omnichannelity and the online boost, where offers and discounts are the norm, have as well encouraged the pricing battle. According to the report, with the use of data, fashion companies can identify which channel and period is optimal when it comes to lowering prices.
Through data analysis, companies will be able to identify which products maintain an invariable purchase intent despite de price
Using data analysis, the consultancy explains that some companies have already started to use a different strategy during the various planning stages of a collection, which entails a following increase in sales and margins.
The report expects those retailers unaware of the pricing battle to be encouraging fashion industry growth, as well making consumers go back to buying full price. One of the big operators that has explicitly distanced itself from the discounts war is Inditex. On the third quarter, the group was able to keep down its margin fall thanks to “we have responded to a volatile and complex environment without discounts,” according to Pablo Isla, chairman of the Spanish giant.