The Digital Transformation in the Fashion Industry


Term Paper, 2020

13 Pages, Grade: 1,3

Anonymous


Excerpt

Table of contents

List of abbreviations

1. Introduction

2. Digital Transformation
2.1. Digital Transformation in Fashion Industry
2.1.1. Product Development and Support Functions
2.1.2. Supply Chain and Distribution
2.1.3. Customer Experience
2.2. Strategies

3. Case study Zalando
3.1. Zalando’s Business Model
3.2. Digital Transformation at Zalando

4. Conclusion

Bibliography

List of abbreviations

B2B Business to Business

B2C Business to Consumer

DT Digital Transformation

RFID Radio Frequency Identification

1. Introduction

Over the last few years, the effects of digitalization have become more and more perceptible in the daily lives of fashion consumers. New technologies and globalization open up new ways to consumption, production and commerce and have fundamentally changed the consumer behavior.1 Therefore, fashion companies need to adapt and transform their business strategies in order to be able to stand up to new challenges, take advantage of the opportunities offered by digitalization and ensure sustainable corporate success. So far, innovations are being tested in many areas, but few or none of the major fashion brands have managed a complete digital transformation in all areas of their value chain.2

In the following, the term digital transformation and the effects of digitization on the entire value chain will be explained in more detail and illustrated using the example of Zalando.

2. Digital Transformation

Over the past few years, a number of different definitions of the term "Digital Transformation" (DT) have evolved. It can be defined as the process of redefining a business, digitizing processes and reorganizing as well as expanding the value chain within a company.3 The purpose of the transformation is to provide new energy to companies, even if they may already be successful, to exploit the full potential of information technology and to be prepared for the future.4 The transformation creates benefits and opportunities, but it also causes completely new challenges.

Due to the ongoing globalization, the DT is important for companies worldwide. The entire entrepreneurial world is changing, and the establishment of new technologies has fundamental effects on the entire society.5 The transformation not only affects the entire world, but also all industries – there is no industry that can avoid digitalization.6 Companies in the fashion industry need to adapt and further develop their processes and strategies and partly even transform their entire business model.7 Digital advances such as analytics, mobility, social media and artificial intelligence are being used to improve customer relationships, make internal processes more efficient and develop a competitive advantage as well as a unique selling point.8

However, companies deal with the DT differently, depending on their business model and strategy. Some companies are transforming their business fundamentally and radically, others only slightly and in specific areas.9 The DT in a company can already include the digital conversion of individual processes and, for example, working only paperless. However, it can also extend far beyond and may involve a company expanding its sales channel by adding an online shop or offering new digital customer services.

2.1. Digital Transformation in Fashion Industry

Major developments in the availability of information, technologies and communication are setting new standards for customer expectations. Meeting the needs of customers, who have increasingly more requirements and precise ideas regarding their demands, is causing a higher complexity.10 Digitalization has created new communication channels such as social networks, which have become an important source of inspiration and an opportunity for interaction between fashion retailers and customers. Concluding, the approach for a successful DT strategy should start with the customer. Only if there is an understanding of the customer, a suitable strategy can be developed and the DT can be seen as an opportunity instead of threat.11

Digital approaches such as the use of customer data – for example by designers to identify trends and adapt products to customers’ needs – can therefore be useful. It may also create a competitive advantage towards other companies, because not only the needs of customers have changed, but the market situation as well. Since the 2000s, many online players and innovative businesses have emerged that require conventional manufacturers and retailers to evolve in order to remain competitive in the future.12

As the DT has an impact on the entire value chain from the product design and development, through the business to the business (B2B) sector and on to the business to consumer (B2C) sector, there are various possibilities for implementing digital approaches.

2.1.1. Product Development and Support Functions

Fashion design and production need to be simple, adaptable and sustainable in order to be successful in the future.13 For achieving those standards, digital solutions can offer opportunities for producers and retailers.

One digital approach as an alternative to conventional fashion design is 3D design. Instead of drawing sketches by hand and sending them to producers in Asia, a new tool makes it possible to design clothes via 3D.14 This saves a lot of time, because less correction loops are necessary, and the communication becomes more efficient.

Digital solutions can be beneficial in the B2B sector as well. One example is the switch to a digital showroom. Instead of having samples of clothes on site in every subsidiary in different countries, a digital space is developed that can be accessed from every country.15 As a result, there is less logistical effort, less resource consumption, less space is required and it is ultimately more beneficial for the company as well as the environment.

Further areas that are influenced by the DT in the design and production process in fashion companies – as well as in other industries – are the administrative departments. Processes can be replaced or improved by digital approaches such as working platforms for collaboration, virtual meetings or automated processes – for example in the finance department.16

2.1.2. Supply Chain and Distribution

The digital transformation in the fashion industry can be recognized in the supply chain and distribution as well. In this industry, a main difficulty is that products go out of fashion very quickly and can no longer be sold. Therefore, the enormous value of excess inventory presents a challenging issue in most companies.17 In order to ensure liquidity and to make room for new collections, the excess inventory must be cleared. Through digital solutions, however, companies are looking for better ways to prevent this enormous surplus from even arising. By using big data and advanced analysis tools, it is possible to improve inventory management. For instance, some companies are using an "inventory war room" that uses data and advanced analytics to simulate dynamic demand scenarios that relate to locations like channel, country or store, and then synthesizes the resulting inventory risk to improve decision making.18 As a result, it is easier to decide whether to redistribute products, carry over stock to future seasons or accelerate markdowns. In addition, the automation of logistics through digital warehousing can increase efficiency. The benefits also benefit consumers through improved product availability and faster, cheaper and more accurate deliveries.19

Another possibility is the use of Radio Frequency Identification (RFID) to track products more accurately and reduce manipulation. The use of RFID usually leads to a simplification and improvement of operational processes.20 Based on those examples, it can be concluded that digital technology and analytics can enable the supply chain to become faster, more flexible, more sustainable and even less expensive.

2.1.3. Customer Experience

Since the beginning of the 2000s, a large number of online shops for fashion have been launched. Previously purely stationary retailers such as H&M or Zara followed the movement and developed into multi-channel players.21 In 2019, online sales in the fashion sector in Germany amounted to 14.6 billion euros. The sector thus accounts for the largest share of online sales, just ahead of electronics.22 The share of purchases that are now being made online has reached a level where traditional strategies and shopping behavior are undergoing fundamental changes.23

With the rapid growth of online commerce, companies have the opportunity to generate more and more data from their customers and create customer profiles with individual characteristics and needs. By using the technological progress and innovative, digital approaches, it is possible to improve the relationship to their customers. Through the quick customer feedback generated by the analysis of their data, retailers can identify more quickly whether their product is successful or whether and what needs to be changed.24

However, not only online players, but also the bricks-and-mortar retailers can use digitalization as an advantage. By linking online and on-site shops, the best possible customer experience can be created. For instance, the well-established fashion concern H&M Group is continuing to expand its stationary retail business in many countries but is also pushing its online expansion further as well as integrating physical and digital channels more and more.25

2.2. Strategies

The holistic transformation of a company would imply the creation of a new architecture of the entire company ecosystem, where all data and information are collected and exchanged at every level of the organization and in every phase of the business processes along the entire value chain.26 This new structure and the resulting complete virtual transparency allows unprecedented benefits in terms of efficiency, flexibility, responsiveness and consistency between customers' individual needs and the products and services.

The various innovations resulting from digitalization referred to in chapter 2.1 have been successfully implemented in several companies. However, this does not necessarily mean that all fashion companies should implement those measures. The digital transformation process has to be individually tailored to the company and the business strategy.27 Not every bricks-and-mortar retailer necessarily needs an expensively equipped store concept with innovative digital tools in order to remain competitive. On the other hand, not every online shop needs a store network if the majority of customers orders onlineif the majority of customers orders online.

Based on the findings, it becomes clear that while many companies are trying out digital approaches, very few have already set their sights on a holistic digital transformation, nor have they completed it.28 Reasons for restricting the digital transformation to certain areas of the company are, on the one hand, the high costs of restructuring large companies and the complex but required process of reorganizing the whole management and all departments. These factors prevent traditional, established companies from approaching their transformation strategy systematically.29

3. Case study Zalando

Founded in Berlin in 2008, Zalando SE is Europe's leading online platform for fashion and distributes goods in 17 countries.30 In 2018, Zalando accounted for the highest turnover of all online fashion retailers in Germany with approximately 1.38 billion euros.31 Zalando has set itself the goal of becoming the platform for fashion. For this purpose, an infrastructure is being built that will bring together a wide range of players in the growing digital fashion market - creating a completely new ecosystem that networks customers, brands and partners.32 Zalando thus focuses on digitization in all areas of the company –from administrative back office services all the way through to improved customer experience while shopping online.

[...]


1 Compare Schallmo, D., Digitalization, 2016, p. 3.

2 Compare Gauger, C. et al., Digital Fashion, 2020, no page number

3 Compare Schallmo, D., Digitalization, 2016, p. 3.

4 Compare ibid.

5 Compare Appelfeller, W., Feldmann, C., Transformation, 2018, p. 1-3.

6 Compare ibid.

7 Compare Cevikcan, E., Ustundag, A., Industry 4.0, 2018, p. 25-29.

8 Compare Appelfeller, W., Feldmann, C., Transformation, 2018, p. 1-3.

9 Compare Schallmo, D., Digitalization, 2016, p. 8.

10 Compare ibid.

11 Compare Täuber, T., Digital Strategy, 2019, no page number

12 Compare ibid.

13 Compare Bertola, P., Teunissen, J., Innovative Fashion, 2018, p. 354.

14 Compare PVH, Strategic Investments, 2017, p. 7-23.

15 Compare ibid.

16 Compare Bertola, P., Teunissen, J., Innovative Fashion, 2018, p. 352-369.

17 Compare Altable, C. S. et al., Retail Transformation, 2020, no page number

18 Compare Altable, C. S. et al., Retail Transformation, 2020, no page number

19 Compare ibid.

20 Compare ibid.

21 Compare Mahrdt, N., Fashion Marketing, 2016, p. 2-5.

22 Compare Handelsverband Deutschland, Online Shopping, 2020, p. 11.

23 Compare Mahrdt, N., Fashion Marketing, 2016, p. 2-5.

24 Compare Bhardwaj, V., Fairhust, A., Fast Fashion, 2009, p. 165-169.

25 Compare H&M Group, Online Expansion, 2019, p. 18.

26 Compare Bertola, P., Teunissen, J., Innovative Fashion, 2018, p. 352-369.

27 Compare Hsieh, L., Robinson P. K., Supply Chain Strategy, 2016, p. 98-100.

28 Compare Bertola, P., Teunissen, J., Innovative Fashion, 2018, p. 352-369.

29 Compare ibid.

30 Compare Zalando, Corporate Website, 2020, no page number

31 Compare Statista, E-Commerce Germany, 2019, no page number

32 Compare Zalando, Corporate Website, 2020, no page number

Excerpt out of 13 pages

Details

Title
The Digital Transformation in the Fashion Industry
College
University of applied sciences, Düsseldorf
Grade
1,3
Year
2020
Pages
13
Catalog Number
V921592
ISBN (eBook)
9783346244291
ISBN (Book)
9783346244307
Language
English
Keywords
Fashion Industry, Digital Transformation, Digital Fashion, Digital
Quote paper
Anonymous, 2020, The Digital Transformation in the Fashion Industry, Munich, GRIN Verlag, https://www.grin.com/document/921592

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