In town for the L’Oreal Melbourne Fashion Festival Business Seminar recently, aurora fashions ceo Mike Shearwood revealed the nuts and bolts of his omnichannel revolution.
Three years ago, fashion chains Oasis, Karen Millen, Coast and Warehouse found themselves embroiled in the collapse of Icelandic retail investor Baugur.
Their parent company at the time, Mosaic, filed for administration as part of a rescue package brokered with its biggest creditor, Icelandic bank Kaupthing, to which it owed an eye-watering £400m ($AU638m). Together with Mosaic’s former management team, Kaupthing bought back the four brands in a debt-for-equity swap which wiped Baugur’s stake and created the newly formed Aurora Fashions.
Aurora chief executive Mike Shearwood remembers this time well, despite the company clearing a healthy $1.2 billion in sales over the last financial year.
“To be honest, everyone thought that we would go under and we wouldn’t come back up again. I’m very fortunate to have a fantastic team of ordinary people who can do extraordinary things. We came up with a three prong strategy for the group. One was to regain our market share in the UK, because that had been declining due to the issues we’d had with the banking crisis, two was to grow and develop our international business and three was to turn our e-commerce into a revenue stream that was profitable.”
Aurora now operates a network of over 1600 stores and concessions across 51 countries, with 22 digital channels. While the group manages just 33 stores in Australia, Shearwood describes the country as a well-educated, sophisticated and “expensive” market with solid margins on apparel. He stresses the last factor due to its immunity from the 15 to 20 years of price deflation across Europe and the UK; a factor that is eroding as more international players adopt that third prong in Aurora’s strategy.
“You’ve been insulated from this level of competition, and that’s fantastic, but the world is changing because the barriers of entry have disappeared,” he says, noting the meteoric rise of Australian sales on e-commerce powerplayer asos.com. “We were facing a similar situation in the UK but we decided it wasn’t just good enough to accept e-commerce, we needed to embrace the digital world. We evolved our strategy with the objective of giving our customers the best multichannel experience of our sector. What we found was, the more we leveraged our store portfolio, the more we realised we could offer customers a better, richer, more sophisticated, and convenient experience than the pure player e-commerce guys.”
The process of Aurora’s digital transformation belies its introduction of 90 minute delivery on online orders last year; it commenced on much simpler terms. All e-commerce functions were brought in-house three years ago, and four photographic studios and a runway were constructed for product shoots. It was the first apparel retailer to launch a transactional mobile application, a device which now accounts for around 10 per cent of online sales, however Shearwood admits to launching with “relatively unsophisticated” flat images. The richer the content became, with editorial-style spreads and interactive content, the higher the online conversion and lower return rate for online purchases.
“I guess we thought that we were pretty customer focussed, but actually we were still thinking like traditional bricks and mortar retailers,” Shearwood explains. “We had our stores, our web, our e-commerce. But we were trading web the way we were trading stores, so we decided to do something about that.”
In order to evolve this, customers were then allowed to return online purchases to stores, as well as reserve product online to collect in-store. Head office e-commerce teams were intergrated into the retail brand teams in order to achieve the latter, taking down barriers between the two areas of business.
“Why? Because our stores hated e-commerce,” Shearwood says. “Because e-commerce stole their sales and robbed them of their bonus. We changed our policy, so that when customers took the product into stores for a refund, the product went back into the store inventory but the sales came off the web. So all of a sudden, the stores are thinking the e-commerce stuff is not so bad because customers are coming into my store, and I’ve got the opportunity to convert them into sales. It was still taking their sales initially and they had to work harder, but they were starting to think it was ok.”
The phase that followed was to transform Aurora; a system of real time inventory that it referred to, around a year ago, as omnichannelling.
“If you’ve got big stores, medium stores and small stores, you have the issue of allocation, don’t you?,” Shearwood asks. “You can’t put everything you have from the big store into the small store so you have to figure out what product goes where. And then you have a situation where, well actually, I need to put stock in my distribution centre for replenishment of the stores, I then need to put product for the web, because it’s obviously much more efficient to do pick, pack and dispatch from a central distribution centre. And then I have to put product away for my international business.”
Problems mount when best sellers sell out online and in major stores, only to head into markdown at relatively smaller stores with a few sizes in each style left.
“What our technology has enabled us to do is to access the product anywhere within our business,” Shearwood explains. “So a customer orders online and if that product isn’t available in our distribution centre, the algorythm automatically kicks it to a store that’s got more of that particular product and our stores pick, pack and dispatch that product to our customer.”
He says the move resulted in significant sell through rate improvement, and allowed the retailer to buy wider rather than deeper. It has also warmed the response from Aurora stores, with these sales then credited back to the store which fulfils the order.
“We decided to call that ‘If it’s available anywhere, It’s available everywhere’ and internally we called it ‘ship from store’, because that’s effectively what it is,” Shearwood says. “We had stores coming in to a hundred orders in the morning which they had to pick, pack and dispatch. That’s a hundred orders made via the Internet which would not have been able to be made before because the product wasn’t available, because it was sold out in the distribution centre.”
Online sales were no longer cannibalising bricks-and-mortar stores, but feeding them. This became advantageous for lesser performing stores, such as, until recently, the company’s Belfast site in Northern Ireland. As the store recorded declining sales in the face of increased competition on High Street, there was also a decline in the grade of products shipped to the store. Shearwood says this was a frustrating period, as next day delivery for enthusiastic online customers in the country was not possible due to geographical challenges.
“We thought we can use this, an e-commerce solution, to improve sales in the store. So we put top range product into the store and of course, sales went up because the customers that did go in there had a better experience and a better choice of product. Now in a a traditional model, you would have been completely screwed because you’d be left with a lot of excess inventory because it’s still not the sort of volume you would get [from a better performing store].
“What we did is we used the ship from store model to deliver our e-commerce orders from the store in Belfast to the whole of Northern Ireland. So now all the customers in Northern Ireland who want to shop by e-commerce can get next day delivery, same day delivery and everyone in the Belfast area will get 90 minute delivery. It’s a true example of how omnichannel is working for us. You don’t have to look at closing stores down.”
There are other side projects Aurora has been working on in this field including; the introduction of electronic POS to better engage customers in-store, international language websites and tabulated websites which allow customers to roam and purchase from multiple Aurora brand websites in one go. It is also trialling experiential technology which allows sales staff to better interact with customers; Shearwood shares a vision of loyalty tags with built-in RFID tags which identify customers as they enter stores; showing names, transactional history and purchasing trends; of 360 video footage on mirrors which can be emailed to friends for advice; of sales staff with small hand-held machines which can take payments in fitting rooms and then offer multiple delivery options.
He does not back away from revealing the challenges of this omnichannel revolution, either. He describes launching a major online initiative during the end of November last year, in the lead up to Christmas, as “f’ing crazy” and resulting in some “really happy” and “deeply unhappy” customers as even head office staff all mobilised to meet demand. Managing wage expecations during the initial rollout of ‘ship from store’ was also difficult, as was watching out for people who “don’t like change” and “who’s job it will affect”. He is optimistic about most things however; returns for instance, he believes attract greater customer loyalty, even when the average online return is 25 per cent compared to 10 per cent in store. For pricier occassionwear brands, such as those offered by Coast and Karen Millen, this is higher at 50 per cent and 40 per cent respectively.
“There’s an absolute difference in the return rate from fast fashion businesses and Karen Millen and Coast for example. Partly because if you’re spending $350 on a dress, you really want to make sure it fits. So quite often people will order two. We don’t see returns as a problem – they are as important as the sale. You learn about your customer if you analyse the analytics. It’s about getting the infastructure and logistics right so it doesn’t cost you. People buy more if they can return with confidence.”
Today, 80 per cent of the United Kingdom is covered for 90 minute delivery, which is offered using a range of couriers aggregated to show the best price and service. The preference is still via distribution centres, which can pick, pack and distribute in bulk, but Shearwood says the most important factor is allowing consumers to have the choice. The service is not so much about uptake as about service, with KPIs indicating a 94 per cent success rate.
“We look at innovation like evolution,” Shearwood says. “Lots of small innovations and lots of small changes. Every now and again, through evolution, you have a mutation and those mutations quite often are better adapted to the new world. We never planned to do 90 minutes. That was a mutation. We never planned to do anywhere, everywhere. That was a mutation. They all came through the mutations in our innovations.”