Renner: How a traditional fast fashion player can use Covid-19 as an opportunity to change
Renner is a well-known brand in the Brazillian fast fashion market. In this short article, I propose 5 things the company could do to get ahead of its competitors during these hard times.
Renner is a large apparel retailer with 380 stores and an small e-commerce operating in Brazil that focus on fast fashion. In 2019, the company grew it’s business and profitability, reaching R$8,5 billion in revenues and a profit of over R$1 billion. Although the company was at a remarkable moment performance-wise, being Brazil’s eighth-largest retail player also means that Renner is suffering heavily with the coronavirus crisis. In fact, the company was one of the first large players to close all its stores and 80% of employees are having their work hours and wages reduced by 25%. Because there is no clarity on when the crisis’s major impacts will be reduced and life will start to come back to normal, management is also planning and implementing measures to mitigate these impacts, such as reductions of costs and investments former projected to 2020. If the situation of the retail industry is already quite complicated, apparel is probably in a comparable more difficult situation, as the category is seen as a superfluous and as the probable economic crisis follows the coronavirus (Covid-19) crisis, it will probably suffer disproportionately in the next year (or years, if one is pessimistic).
That does not mean, however, that there is no opportunity for the company to offset some or all these losses. Given that the crisis is also acting as a catalyzer to Brazil’s e-commerce penetration (the indicator is still very low vs. other comparable countries), Renner can redirect its efforts, accelerate its digital transformation and double down on its e-commerce through five main measures. Those will enable the company to capture more than its brick-and-mortar fair share on the digital space in the short and long terms.
First and foremost, the company should fight the urge to retract investments, especially in marketing. Renner has strong cash flow and low debt levels compared to its peers and should take advantage of that to gain market share. It should carry out a digital campaign with a focus on staying at home and “home fashion”. The company should, of course, be responsible for doing so and prioritize investing more than its peers vs. investing as much as possible.
Second, the company must redirect part of investments to upgrade its digital and logistics delivery operations. This is the founding stone as to how Renner will be able to win, as clients need to go through a good glitch-free and easy to navigate experience on the website and receive (and return) products easily and in an efficient manner (it is important to notice that to run a smooth operation in e-commerce, retailers need to have different logistics capabilities, related to last-mile deliveries). These are important competencies that need to be developed to allow the company to deploy more sophisticated strategies to gain market share, especially as the crisis is prolonged and the economic crisis unfolds.
Third, as many of the company thousands of sales associates remain idle due to stores being closed, there is a possibility to use such a workforce in a positive way for customers, at least in the next few months, while they still cannot go back to stores. The company can launch an “online sales team” using these sales associates to help clients in a very similar way that they do in stores but now on the company’s websites and apps. Although there is a challenge to create this application and guarantee employees can connect with customers, Renner could offer a competitive advantage that pure digital players would struggle to match.
Fourth, Renner should seek to bring together its needs for economic performance with the social needs caused by the coronavirus crisis. A way to do so would be to use it’s brand and stores’ footprint to create a donation network of clothes and other important nonperishable goods to be distributed to those in need. Donations would allow people to gain discounts in Renner’s’ e-commerce. Another interesting opportunity for Renner would be to create a double-sided platform of very small local apparel producers and clients that wish to purchase these products and support them, also giving discounts to Renner products later. Both initiatives would be a good way for the company to increase its brand reputation, push for more sales in the short term, create a new revenue stream for the company, and guarantee access to customers.
Fifth, once the coronavirus crisis has ended, the company should seek to better leverage and integrate its brick and mortar with its digital offerings. In practice that would mean to rethink the model and format of stores. Although today the company already has 20% of its online sales being store pickups vs. home deliveries, its stores remain fairly traditional. A new model could mean not only using space to sell items but also as a way to create engagement and experiences with customers. For example, Renner could host a gathering of fashion aficionados, fashion design workshops, and many other kinds of events. With the right logistics, stores would not need to have massive inventories but could work as showrooms (imagine a world where you could try something on the store and find it delivered in less than 24h).