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Tjeerd, a little forewarning: I'm going to "grill" you a bit in our interview, sort of as a representative of your industry. Let's start with a question that many people are currently discussing: How badly has the corona crisis affected fashion retail, how is it doing today?

Before Corona is after Corona. Fashion retail has been under pressure for a very long time, in my opinion for at least 20 years.

One of the main reasons: Space productivity has deteriorated over the years, i.e. sales per square meter. The mid-price has fallen very sharply because production has shifted to Asia, but also because the product mix has changed. The mid-price has also fallen because fewer coats, dresses and jackets are being sold and more and more individual items.

Then more and more shopping space was added and every German city built its own shopping center. The range has grown, sales have fallen. There are also various reasons for the enormous cost pressure. As a result, stationary fashion retail in particular is no longer attractive, the margins are too low. I know of hardly any other industry in which almost all the big players are having problems.

Where can fashion retailers find the courage
the courage to transform when it is
under so much pressure?

Then there is the shift towards eCommerce, which in my opinion has only just begun. It is far from over, even if many would like it to be.

And then there was the coronavirus crisis. What impact did it have?

Corona brought three problems. Firstly, customers have learned how nice it is to shop online. They stay at home and no longer come into the store. Secondly, e-commerce is now booming more than ever. And the third is a problem for many industries: The value chains no longer work as well and there is a huge problem with input prices.

The brick-and-mortar fashion retailers are coming out of the crisis with broken balance sheets, even higher debts and losses. And I believe that - although there can always be exceptions - they will no longer have the footfall they had before the crisis. Customer frequency had already been declining for years. This means that bricks-and-mortar fashion retailers have a huge problem in becoming profitable again in the short term. This results in a long-term problem: where is it supposed to find the courage to transform when it is under so much pressure?

I'm going to take sides with the fashion retailers who like to claim that people need a real shopping experience, they need the haptic. Are they right? Could this be the lifeline?

I respect every opinion. But it's a matter of truth and fiction about the shopping experience. In response to eCommerce, the argument has been used for ten years. We can go shopping together in beautiful Nuremberg afterwards. This much in advance: you won't find much in the way of experiences or innovative store concepts.

"A business cannot simply be cut in half"

The reality is simply that most stores are old or outdated, that fashion retail has an enormous investment backlog, especially in digitalization, but also in the stores. And that it is increasingly difficult for fashion retailers to find qualified staff and labor costs are extremely high.

In addition, all fashion retailers have a huge capacity problem: They have too much space to manage productively. But they can't do that and they can't offer an experience.

Let me make a comparison with cruise shipping - it was one of the most profitable businesses in the world until Corona came along. Suddenly the ships were no longer fully utilized, there were only half as many people. But you can't cut a ship like that in half. We also have the same problem in fashion retail: you can't simply cut a store in half.

The space is too big for the turnover and the number of customers. Lease agreements are very long and landlords are often inflexible, especially if they are backed by funds. There is only one solution:"Get rid of the space. Get rid of the overcapacity." Then you can develop a profitable business model and make the necessary investments to offer an experience.

Could it be that there is a lack of courage to make major changes, for example to minimize floor space or establish a new brand?

Every company has its own challenges to overcome here. But of course, as you suspect, they also have to do with a lack of courage: the courage to make tough management decisions. Or the courage of investors or owners to make the necessary investments. Knowing full well that there is no guarantee that this will generate a return.

It's clear to me - but I'm not saying I'm right - that bricks-and-mortar retail will lose out dramatically again in the next five to ten years. And that e-commerce will continue to grow. I read a figure: by 2023, clothing worth 800 billion dollars will be bought worldwide via eCommerce. People want to go shopping, but in ten years' time they might be doing virtual shopping - from home, wearing 3D glasses, gloves and digital sizing, in a digital fitting room.

I am interested to see that most fashion retailers are not solving the short-term problems - which is actually a capacity problem - and are not tackling them aggressively enough. I can only put this down to a lack of courage on the part of management, but also because the supervisory bodies are not pushing hard enough.

"We will see many new brand formats that are either very
are either very innovative or serve a clear segment"

There's a lot of psychology behind it: When someone is under pressure in the short term, you get so sucked into the day-to-day business that you have to be strong and have eaten good eggs and bacon in the morning to push through a long-term strategy.

Why aren't there more good examples like Globetrotter? They manage to use the space in a completely different way. They are - supposedly - giving up space because they could show a wider selection. Instead, they offer experiences and the opportunity to test the goods.

Globetrotter is a very good example because it is a brand that is very clearly defined in terms of product, price and positioning compared to the competition. It specifically addresses a customer segment.

I don't see any such segmentation at Karstadt or Galeria Kaufhof - there are products for everyone, but nothing for the individual. It will be difficult for such large brands to grow in stationary stores or to offer sustainable experiences. They may try to implement flair in world cities with a lot of tourists - but that will be difficult in B and C cities.

"It's hard to shrink to a healthy size,
you can't make any mistakes"

My prediction is that many of the big ones will become smaller or disappear. That we will see many new brand formats that are either very innovative or serve a clear segment. The recipe of "I'll renovate a branch for a lot of money, wait and then everything will be fine" - that's too simplistic. There is no one in the top ten whose strategy I find convincing.

The Top Ten Lacks Strategy? Why is that like that?

I'm not saying that they don't have a strategy. But I haven't seen a "strategy to win offline" in Germany yet. Maybe there is no winning strategy for brick-and-mortar retail, maybe the future is digital. I'm not talking about brands that are at the beginning of their lifecycle, but about brands that have already gone through a few lifecycles: Maybe their winning strategy is to downsize.

Growth forgives a lot of mistakes. But downsizing is difficult, you can't make any mistakes and then you have to expand the digital side. Many people may hope that the eCommerce share has grown enough and the rest will stay brick-and-mortar because mother and daughter always want to shop and the city is always attractive. But I would say that's a false hypothesis. The world is going digital, whether you like it or not.

The experience will be better online than offline, thanks to the technological possibilities that already exist but have not yet been implemented for cost-benefit reasons. It's better to prepare for that today. This is a risk for retail – and at least as big a risk for the real estate market.

What role do brands play in fashion retail?

Brands are the be-all and end-all for fashion retailers because people express themselves through fashion. Am I sporty or unsporty? Am I premium or more casual? Am I bold? A fashionista? With fashion I can show my personality - and at a reasonable price.

"Trends come and go
and at some point a brand is back
where it came from"

If you ask Germans "What is the difference between BMW and Mercedes?" they will be able to give you a clear answer. But most will have a hard time answering "What is the difference between a Hugo Boss jacket and a C&A jacket?". Nevertheless, they are willing to pay X times more for a Hugo Boss jacket.

Of course there may be differences in product quality - but this example shows how emotional fashion is. People are willing to pay an enormous premium for a brand that supports and reinforces my personality. So if I have a strong brand, I can charge a high premium.

The problem with this is that a brand quickly becomes a hype - but that quickly dies down again, the whole thing is very short-lived. Trends come and go and at some point a brand is back where it came from.

"Anyone can throw marketing money around, it's not an art"

But there are brands like C&A - I can say this because I worked for the company - that were probably never hype, not in those "highs and lows", but remained very consistent and profitable over the years. They were not sexy, not "best in class", but they always did business, in good times and in bad. C&A came out of the Corona crisis relatively stable.

My impression is that retailers like Galeria, Douglas, Media Markt, C&A and Karstadt invest a lot in marketing and branding. But do consumers even notice that? Do they realize that there is something specific, a concept behind it?

There is a difference whether I invest in a brand or in marketing. Let's talk about the brand instead, because anyone can throw marketing money around, it's not an art. It's a question of budgeting and doesn't make my brand strong.

The prerequisite for a strong brand is always the quality of the product or service, a certain relevance and charisma. Apple is a strong brand - also because Apple produces great products. For me, that's the prerequisite: a good product.

"A brand is a strong brand if it
pays attention to many factors and attributes
that are relevant to customers"

. However, that is not enough for a strong brand. So I have to ask myself: What do I need to make my brand shine? Is it the shopping experience? Or the testimonials that carry this brand and thus convey a certain attitude to life? These should not be underestimated in fashion retail. What is becoming increasingly important are projects such as environmental social governance, good citizens. They also give the brand shine.

A brand is a strong brand if it pays attention to a lot of factors and attributes that are relevant to customers. A brand must be relevant to customers and better than the competition. Apple is better than the competition in many factors, such as stores, products, the Surface and so on. That is how you build a strong brand. And then there is the marketing that supports this process - but only as a building block.

In clothing retail, a lot of marketing money is spent to boost sales in the short term, for example with discount wars. But much less marketing money is spent to strengthen the brand. That is a dilemma. Our industry is more committed to the short term than the long term. That is what we have to keep in mind. Although there are exceptions, especially among the little ones who bravely start over.

"Sweep upstairs first,
then you'll have good people downstairs"

This is an example of the issue of sustainability. The textile industry has higher CO2 emissions than the shipping and aviation industries because the transport routes are so long and a lot of energy is used. All of this has not yet penetrated the collective consciousness. I read a statistic that only one percent of clothing worldwide is recycled. But 100 million tons are thrown away every year.

A key challenge for retail is implementation, i.e. the implementation of concepts, strategies, brands and ideas – right down to the last employee. How can this work?

In retail, people do the business, there is no capitalization through machines. It is hard work with hard working hours. They are mostly older employees, many of whom have been doing it for a long time. It is becoming increasingly difficult to find someone for this job because the tasks are no longer attractive to young people in terms of work-life balance. These people are not to blame if the implementation does not work. It is usually the management in the stores.

Scaling up like this takes a very long time and is very difficult because it depends on good management on site. My advice is always: clean up the top first, then you have good people at the bottom - otherwise it will not work.

Retail certainly has a quality problem in some areas because it has invested too little in people, training and everything that goes with it. Everyone who goes shopping notices this. It is the same in other industries, but in retail it is serious - across the board, even in luxury.

Great experiences in retail are so rare that we as consumers are almost happy when we have one. We live off of it for months. But it should actually be the norm. Why isn't there any investment here?

I think sustainability is lacking. It's not enough to put everyone through a program once a year; that's a permanent, daily task. In my opinion, our industry made mistakes in HR during the 2007 financial crisis. Many companies in Europe had a hiring freeze for years, which is why a generation is missing today, the average age no longer fits. There is also more cynicism in the market. All of this makes it more difficult to act today than if you had managed a continuum.

So you're still suffering from the mistakes of 2007?

Yes. A bad collection can be corrected in one season. You get rid of the collection and produce better goods. HR mistakes cannot be corrected in six months, that takes time.

What is the importance of sustainability for fashion retail?

The topic has certainly arrived there. There are two sectors: environment and social standards in the supply chain. The environment is about packaging, energy, CO2 emissions. Water is a huge problem because enormous quantities are needed to produce textiles.

The social standards are much more complex because it is a very complex industry, especially in production. An average item of clothing goes through five, six, seven countries - raw materials, yarn, finishing, consolidation and distribution. Production takes place mainly in Asia and it takes a lot of cooperation and compliance to enforce these standards, for example in terms of safety in buildings and minimum wages - although I actually prefer to talk about "living wages" because you can't live on a minimum in such countries.

With all these problems, does stationary fashion retail have a future? Will the concepts of classic brands such as Galeria Karstadt, Breuninger and C&A survive?

I certainly don't want to come across as gloomy, but we have to face reality: brick-and-mortar retail is disappearing. The era of falling prices, when ever-increasing volumes can be sold, is over.

"Brick-and-mortar retail is a medieval concept,
that's just what you have to say"

It will go in this direction: higher prices, better quality, more technology. Sustainability has a completely different meaning for the younger generation. The industry is facing a radical change. Either I acknowledge this and do what is necessary - or I cling to the old and ignore the future. Then of course I have a problem.

Stationary retail is a medieval concept, that's just to say. It's slowly coming to an end. There are new, great solutions that need to be embraced. My advice to all companies: Fortunately, the world doesn't change overnight, but it changes very quickly - and ten years is fast.

Start asking yourself: "What does it mean for my business?" I don't have to believe that stationary retail will become smaller. But I should ask myself the question: If that happens, what does that mean for my business model? What does that mean for my employees? Scenario planning can provide some great learnings, but my observation is that many people don't want to accept change because they want to address the problems that would result in the short term.

This will end tragically for some brands. Just think of how many good brands have serious problems or have disappeared in the past five years. I'm not being gloomy, I'm just saying: "The world's moving on and your part of it or you disappear."

You speak plainly, which is something I rarely hear in the industry. Is that easier for you in your position as a neutral, objective industry insider? Or is there generally too little plain speaking in the fashion industry?

Of course, it is easier to reflect from a distance and put your finger on the sore spot. But the textile industry is certainly also a vain industry, and that comes with fashion.

The German car industry was also self-absorbed. Just three or four years ago, most CEOs were preaching that combustion engines would be around for another 30 years. But now they are doing what needs to be done: get rid of combustion engines and go electric. In the fashion retail sector, you still see too little of this consistency.

Dear Tjeerd, thank you very much for this inside perspective!

Do you have any questions or suggestions about this article? We look forward to receiving your email.

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