The value of loyalty programs for fashion retailers
Why data is the new oil for retail?
Fashion retailers are reinventing the shopping experience while developing growth opportunities across the whole organization.
The consumption of clothing has grown explosively over the past 2 decades. In 2021, the estimated consumption of apparel worldwide was approximately 168.4 billion pieces. According to estimates of the Statista Consumer Market Outlook, this value is expected to increase in the coming years to 197.3 billion pieces in 2026.
When you look at the numbers, the fashion industry appears to be a great market, but let’s not forget the competition is fierce. One of the biggest challenges fashion retailers face is the customer’s wallet share. Fashion shoppers don’t buy all their garments with one single brand, but rather choose to buy their jeans and cardigans at retailer A, their T-shirts and sweaters at retailer B, their underwear at retailer C and so on.
This implies that no single retailer has the complete 360º customer view (as opposed to grocers and food retailers), so fashion brands invest huge amounts of resources to understand their customers holistically.
In the past, fashion retailers have attempted to understand their customers through market research and big market analysis projects, executed by expensive consultancy groups that would hand over long and complex reports. Still, retail fashion executives couldn’t (or wouldn’t) trust this information fully – as it mostly reported on results of the previous year or season, and was not applicable in real-time. Executives would look at the data and interpret it differently: “customers are not coming to the store as often”, “the collection is not working”, “our client base has changed over the years”. There was no clear picture, everybody had a different opinion.
Fortunately, today retail executives have a more valuable and relevant source of information: their loyalty program’s first party data.
Ecommerce has provided a wealth of information.
Fashion retailers that sell their products on their own website could not only know the average order value, but track other important KPIs, such as purchase frequency. They could also see what clothing items attracted customers’ attention, what was added to the shopping cart or wishlist, and what items were ignored. Online shoppers were prompted to identify themselves (at check-out or even sooner in the online shopping journey), and brands would therefore accumulate big amounts of valuable transactional and behavioral data that would help them optimize not only the purchase experience, but other aspects of the business also: from the next year’s collection, to colors, product names, offer personalization and more.
But ecommerce data did not account for an important side of traditional fashion retailers’ business: their point of sale operations.
Retailers would often stay in the dark when understanding their customers’ in-store purchases, because there was no good reason for shoppers to identify themselves at checkout.
This would also cause bigger problems, such as the following:
CRM teams would launch a “we miss you campaign” and send their customers an email that read: “Hey Laura, it’s been 3 months since you bought from us and we’ve missed you, here is a coupon for your next purchase” – and Laura was not a lapsing customer, she has actually shopped 4 times in store in the last 3 months.
Back to my point: fashion retailers missed a lot of transactional and behavioral data that pertained to their in store operations.
That is… until loyalty programs entered the picture.
Today, running a loyalty program is mandatory in order to identify customers in store.
Offering an engaging loyalty program with attractive rewards allows fashion retailers to get a full 360º customer view of the majority of their sales, which allows the whole organization to take customers’ behavior into account for decisions across the business.
What are attractive rewards? – you might ask.
We all agree that fashion retailers don’t like to discount, but simply said: free delivery and free clothing alterations are not going to cut it. These perks will attract some customers, but not enough to get significant number of members to your program.
The bad news is… discounts work, and there is also some good news:
While fashion retailers might offer coupons with an average discount value of 5%, they will often see that the AOV increases more than 20%, because loyal customers that feel valued and special really do spend more.
A well executed loyalty program will encourage customers to buy more items per transaction, buy more often over the period of a year, and will become overall a tremendous business accelerator.
And again, the short-time financial value is nothing compared to the long-term opportunities.
With the right data sets and the right data quality, a loyalty program becomes a powerful asset for a fashion retailer.
Data helps retailers gain foresight and better optimize the business to drive top-line growth and improve efficiency.
In my experience, I’ve known 3 important data sets that have the biggest and most immediate impact on retailer’s growth:
- Collection and storage of transactional data, including what is bought, how much, at which price, etc.
- Collection and storage of experience data such customer viewpoints collected at the point of sale (in other words, when the transaction is happening)
- Collection and storage of social data such as consumer sentiment data from social media platforms
Forget for a moment that your loyalty program will be a cost center in year one. Yes, there will be an investment necessary to get the right platform and technology, and to hire or train your team.
The upfront investment should not stop you.
The data will quickly enable true 1:1 personalization at scale on many levels: in web content, in email or SMS communications, in customer service, in promotions.
A loyalty program will accelerate sales because AOV and purchase frequency will increase – and the increased engagement and positive sentiment will make your brand top of mind.
Conclusion:
A fashion brand that has a powerful and engaging loyalty program is in itself more valuable than a fashion brand that doesn’t.
Today there is barely no fashion retailer that questions if he should “go online”. Ecommerce is a must, even if you initially don’t know how to make your online sales profitable. Fashion brands need to be online, and then worry about optimization.
Loyalty programs are the same. Fashion retailers need to take the leap forward, and those that delay the decision and investment will be doing so at their own peril. My best suggestion is: do it, and then worry about hiring the missing team members, iterating on your strategies and initiatives, and improving results year over year.
Gathering customer data is mandatory. If you can gather data, you must do so: Data is the new oil.
The value of your customer data will not show up on your balance sheet or income statement, but will be a valuable asset tomorrow. The overall value of your brand will grow.
If you’re a retailer and you’d like to talk about any of the loyalty program strategies outlined in this article in more detail, please get in touch with our team to learn more. We’ll be happy to show you examples or talk through your brand’s unique challenges.
ABOUT THE AUTHOR:
This article has been written by Loyal Guru’s content team, together with Guillermo Corominas.
Guillermo has over 15 years of experience in the fashion industry, having worked as Chief Customer and Marketing Officer at MANGO, and he is currently Europe Sales VP at Loyal Guru.Back to my point: fashion retailers missed a lot of transactional and behavioral data that pertained to their in store operations.
