The Pocket Guide to

THE APPAREL INDUSTRY

Times have changed. The power that was once held by manufacturers first shifted to retailers, and

now lies within the hands of the consumer, who is only one click away from any purchase, anywhere

in the world. This simple shift in power has caused significant problems for today’s apparel retailers,

because when considering brick and mortar locations, they have to face the industry’s highest levels

of complexity, capital investment and risk.

Consider these factors:

Complexity: The U.S. is the most over retailed country in the world in terms of

available square feet per person. Currently, total U.S. GLA is 14 billion square feet,

which translates to about 46 square feet of retail space per person – almost four

times the square feet of retail space per person in Canada. This makes retail today

incredibly complicated as there’s a lot of space available, but with all those choices,

there’s even more opportunities to fail.

Expense: Building a new store already requires a significant amount of capital

investment, but as pre-recession leases come up for renewal, rent for A and A+

properties will increase by as much as 80% while B locations will be converted for

alternative uses such as restaurants or entertainment and C and D properties will be

abandoned.

Risk: As rent climbs, many locations in retailers’ portfolios will begin to perform

poorly because sales don’t automatically go up when rent goes up and landlords

have no hesitations about replacing retailers occupying prime real estate with others

that are averaging higher sales.

Now, the big question becomes: How do I offset these lost sales and extra expenses while

navigating an increasingly complex retail landscape? The answer lies in customer analytics.

In this pocket guide, we will explore some of the key challenges and opportunities facing the apparel

industry, and outline how customer analytics is providing answers to crucial questions.

We hope you enjoy Buxton’s Pocket Guide to the Apparel Industry and that it’s a useful tool for

jumpstarting strategic conversations at your organization.

Best wishes,

The Buxton team

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The Pocket Guide to the Apparel Industry: An Introduction

The apparel industry, while not unfamiliar with

change, has reached its proverbial tipping

point. The convergence of an economy still in

transition, rapidly developing new technologies

and increasingly high consumer expectations

has created the perfect storm that is dramatically

transforming the apparel landscape and

reshaping the shopping environment, leaving

some brands struggling to keep up as they try to

navigate the murky waters.

However, the apparel retailers that manage their

way through can look to the future with a sense

of cautious optimism as the apparel market

begins its long-awaited return to growth.

While the category’s growth is modest, with

an annual forecasted growth rate of 3% between 2014 and 2018, the

segments driving this growth are experiencing

gains that are outpacing the overall market.

Undoubtedly, the industry’s expansion is partially

due to the rise of e-commerce. The adoption

and integration of continually advancing

technology is not only causing a shift in the

behavior and attitudes of consumers, but it’s

also profoundly influencing and molding the

shopping environment as the lines between

digital and physical blur together.

Despite the fact that this new multi-channel

reality has given way to a rise in online shopping

and put the role of the physical store under

question, brick and mortar storefronts will

continue to be a staple of apparel retailers.

Consumers still need the experience associated

with in-store shopping. After all, the single

biggest reason that people DO NOT buy

apparel online is that they want to touch and

feel the merchandise.

In fact, if brands properly reinvent their physical

stores, transforming them into competitive

weapons by adjusting formats to fit a multi-

channel strategy, stores can be substantial

growth vehicles. However, in order to modify

the in-store environment and build an omni-

channel strategy successfully, it’s absolutely

critical to know who your customers are as well

as understand their lifestyles and purchasing

preferences both online AND offline. Only then

will brands be able to effectively meet their

customers’ needs and expectations.

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Seismic Shift for Apparel Retailers

The Next BIG THING!

Menswear

Plus-size Apparel

Luxury Apparel

Activewear

Up 5% in 2013 to reach $60.8 billion

Up 7.2% in 2013 to reach $16.2 billion

Up 5% in 2013 to reach $286 billion

Up 9% in 2013 to reach $36 billion

Winning Your Millennial Shopper

The stakes involved in reaching your Millennial customer are high. There are roughly 80 million

Millennials in the U.S. alone, and every year they spend $600 billion. While Millennials are already a

powerful force, they will truly come into their own by 2020, when their annual spending will grow to

$1.4 trillion and represent 30% of total retail sales.

Millennial females buy

a third more apparel per

year than non-millennial

females, regardless

of income or race.

Percent who shop for clothing more than 2x a month:

of millennials reported using a mobile device to read user reviews and research products while shopping, compared to 21% of non-millennials.

Millenial females shop almostTWICE AS OFTEN

with their spouses – and twice as often with groups of

friends or relatives – than non-millennial females.

Percent who shop for clothing at least 2x a month:

Millennial males spend twice as much on apparel per year as males of previous generations.

MILLENNIALS MILLENNIALSNON-MILLENNIALS NON-MILLENNIALS

MALEFEMALE

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47% 38%36% 10%

Among American millennials, BOTH SEXES say they like clothing, like buying it, and have formed preferences when it comes to brands.

Millennials tend to shop in groups and seek others’ opinions, more than non-millenials.

50%+1

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Today’s apparel landscape is essentially

unrecognizable from the one just five years ago.

The dynamic industry landscape represents a

reshaping of retail where the future has come

down to one word: experience. In this new

reality, traditional business models, store formats

and customer segmentations are no longer

sufficient to survive.

New products, new formats and new

technologies have always been elements that

progressive retailers have had to embrace

and successfully integrate into their core

strategies – not just to stay current, but also

to let customers rediscover their brands and

enjoy an even greater shopping experience.

However, the process of remodeling stores

and redefining business models to be better in

line with customers’ desires and needs can be

an uncomfortable one as consumer behavior,

spending habits, attitudes, and demographic

profiles change so rapidly – leading to vastly

different expectations of merchandise, service,

value and entertainment.

The key to a smooth transition for apparel

retailers is to understand how your customers’

behaviors are evolving on a national, regional and

local level, what the impact will be on both in-

store and digital expectations, and how changing

consumer requirements can best be addressed.

Because only then can retailers successfully

redefine and adapt their store proposition to

enhance the overall customer experience, reach

more customers and increase personalization,

in turn making their stores more exciting,

entertaining, emotionally engaging and relevant.

While the solution may not be the same for every retailer, it will have one thing in common: KNOWING WHO YOUR BEST CUSTOMERS ARE.

So as the apparel industry finds itself in the wild

west of development and change, savvy retailers

are turning to customer data and analytics as it

provides a competitive edge and serves as the

foundation for greater efficiency, expansion and

business development by answering questions

such as:

However, most retailers have barely scratched

the surface of customer insights. Deciphering,

dissecting and analyzing the most relevant

components – the information responsible for

streamlining operations, enhancing productivity,

refining merchandising strategies and customizing

marketing initiatives – is a substantial undertaking.

This frustration only becomes more intense as

retailers realize that there are an endless number

of answers that could be revealed by examining

the right data in granular-level detail which would

allow them to really thrive.

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Decoding the Message

Which store do I remodel first?

Which leases do I negotiate or let go?

How do I reprioritize resources to improve underperforming locations?

And the reason for this is simple: Successful solutions come from asking the right questions.

Like a domino effect, as you gain more insights by uncovering the hidden stories that aren’t always

clear in revenue reports and other performance metrics, you are able to ask questions about your

performance that were previously unapparent to ask. For example, customer intelligence can reveal

patterns of behavior among specific groups of customers in particular market regions, which can then

impact corporate messaging, promotions, pricing and merchandising strategies. Or, it can explain

that the drop in sales at the end of the month was because of a shrinking market and a decline in

discretionary funds among consumers.

Yet, with more shopper data accumulating every day and the extensive ramp-up time involved in

building an in-house analytics team, most retailers will be better served by turning to a partner for help

in managing and deriving these insights from customer data.

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So What Does This Mean to You?The challenge for apparel retailers in the new digital shopping world is how well they can adapt, how wisely they can make spending decisions on new technology and how best they can use technology to continuously connect with their greatest asset – the customer. Predictive models are helping retailers transform their businesses now so they can enter the next growth cycle poised to succeed by identifying who their best customers are, where more of them can be found, and the value potential that those customers have – either in terms of dollars or visits.

The insights extracted from customer data provide meaningful answers that retailers need to guide the execution of their real estate and marketing strategies. And by truly knowing their customers, retailers can achieve greater success by serving them more effectively, efficiently and profitably.

Customer analytics is not only about gaining a deeper understanding about your customers – it’s also about applying your customer knowledge to every facet of your organization including real estate, marketing and operations. Effective customer analytics allows you to gain insights in each of the

following areas:

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Customers Real Estate Marketing Operations

Create in-depth core customer profiles – understand who they are, what they want and what drives their buying decisions at the product level

Know where more of your best customers can be found

Understand value and penetration by customer segment

Understand the differences between your online, offline, and omni-channel customers

Determine your core customers’ media preferences

Forecast sales performance – down to sales per square foot

Pinpoint under-performing locations and identify which sites should be relocated and which sites remodeled based on untapped demand

Analyze the potential for a new or streamlined format, and identify markets that represent the best fit for it

Prioritize new markets for expansion and determine your brand’s potential by city, region, or the U.S. and Canadian market as a whole

Optimize and infill your existing markets

Develop hyper-local marketing initiatives and merchandising strategies

Create marketing campaigns that hit the right customers with the right messages, in terms of price points and regional preferences

Target qualified prospective customers at the household level within each stores’ drive-time trade area with tailored marketing messages

Optimize your media mix based on the media preferences of your customers, including different media channels, dayparts and content

Target your online shopping services at the household-level to maximize your online shopping channel

Understand exactly how you should manage categories and vary your product mix from one store to the next

Optimize assortments corresponding to the specific sizes, colors, styles or brands that local customers demand

Match promotions with assortments by locations to drive strong category sales

View your sales more easily by day, by hour, by location – and set a strategy for improvement

Identify the relationship between online and offline sales

This is where Buxton comes in. Using customer

data, our analytics and solutions simplify the

decision-making process, maximize ROI on new

store openings and reduce the risk of failure and

poor performance.

Through portfolio optimization, retail modeling

and forecasting, we can identify which of your

brick and mortar locations have little upside

potential given the current format of your

business and where there may likely be sales

transference from weaker stores to stronger

nearby locations.

In extreme cases, we can provide white space

analysis, where we present a completely new

blueprint for the retailer. Based off of a retail

model, we create a clean map and redeploy the

entire portfolio of locations to determine where

the best locations would be located and what the

optimal number of locations would be throughout

the U.S.

Furthermore, with good customer data, we are

able to understand the interplay and migration

of customers between channels – meaning that

if you closed two out of three stores, we can

forecast which customers would migrate to the

remaining location and which customers are

likely or unlikely to change channels and begin

shopping online for your products.

Not only are customer analytic solutions

necessary to survive the overall shift in the retail

environment, but hard market data associated

with understanding market share is also crucial

in obtaining the insight required to gain a

competitive advantage. By knowing your true

market share, you can see where your best

opportunities lie, know how you are doing

compared to your competition and quantify the

impact your strategies and tactical execution

have had on business results. While this hard

market data has traditionally been difficult, if not

impossible, to obtain, through a relationship with

Visa, Buxton is able to access both you and your

aggregated peers’ customers’ de-identified credit

and debit card transactions. This enables us to

accurately and objectively quantify your market

share at all levels of your organization – from the

very top down to individual locations.

By understanding your true market share, with

Buxton’s Market Share Solution, you have an

unbiased metric that filters out market noise,

allowing you to more deeply answer questions

such as:

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The Customer Insights You Need to Grow.

Boiled down, by harnessing the power of effective customer analytic strategies and

market share knowledge, you’ll have the customer insights needed to guide future

growth in this new reality.

Is the market growing or shrinking?

Did my strategies and execution have a positive impact? Negative impact? No impact?

How effective were my advertising and promotions strategies?

Did I capture customer dollars from my competitors’ locations?

Why did my revenue grow? Decline?

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Answers at the Push of a Button Today’s analytic solutions are delivered through platforms such as SCOUT, Buxton’s proprietary web-

based data visualization tool. By connecting decision-makers in real estate, operations, marketing

and merchandising to custom analytic models 24 hours a day – whether on a tablet, smartphone or

computer – SCOUT allows you to perform a variety of useful analytic and mapping functions that

clearly and simply illustrate who your customers are, where they are located, and the value of those

customers to your organization. Ultimately, SCOUT is a platform that centralizes all your planning

and strategic development resources, providing you with access to the information that will improve

organization-wide decision making, maximize your returns and make everything you do easier, more

efficient and more effective – all with one touch of a button.

To learn more about the world of customer analytics and the technology behind today’s leading retailers, contact us.