Interview with “Retail Group Azerbaijan”

The fashion industry has experienced a tremendous negative impact caused by the pandemic. Lots of physical stores were forced to close, production has ceased, and demand has plummeted (McIntosh, 2020). According to the insights taken from the interview with the CFO of one of the major apparel retail companies in Azerbaijan, “RGA,” due to the pandemic related regulations, all the clothing offering shops were forced to close, which led to the tremendous cash shortage and almost zero sales. According to the McKinsey report, globally, the drop in sales led to a 93% drop in profits in the industry in 2020 (McKinsey&Company, 2020).

“Our brands did not even have online stores before the pandemic to generate any sales from there. The most important task was to keep the cash and negotiate with suppliers to extend the

term payment and achieve certain benefits.”

Due to the fact that before the pandemic, none of the brands that “RGA” represents in Azerbaijan did have a store in any of the digital platforms, so the business underwent significant risk. With the beginning of the lockdown, the company started selling its products by means of Social Networks such as Instagram and Facebook, but not through its own website store.

Talking about the problems with which the company has encountered, and which is the main aspect that triggered other problems is long negotiation processes. Since all the brands that the “RGA” company represents are franchises, accordingly, all the changes should be made except with the approval of the franchisor. Under the agreement between the franchisor and the franchisee, which is in that case “RGA,” any change, even minor, should be negotiated with the franchisor. It may seem that the launch of the online store should not be a long project, given the technological capabilities; nevertheless, due to contractual obligations, such a quick adaptation was not possible. Among the disadvantages for the franchisee are the inflexibility and considering that the businesses operate in a constantly changing environment and may encounter unexpected changes, failure to synchronously and promptly adapt to changing conditions can destroy a business (Murray I. , 2006). The Covid-19 is an example of such an unexpected environmental change that affected all industries all over the world. Since all the brands that “RGA” represents are operating all over the world, the headquarter encountered numerous problems of a different nature inherent in each country at one point. In this regard, the long process of negotiations lasted even longer, in addition to the uncertain situation that further complicated this process. For that reason, any change related to the brands, including the launch of the website, should go through a long negotiation process.

“We have recently launched the Zara online store for Azerbaijan. We only started this in November 2020. And preliminary work for the launch of the Zara online store began already 2 years ago. Due to the pandemic, the process has been prolonged. According to the plan for

the online store, the website was supposed to be launched in early April or March 2020”

The failure to adapt to the changing market conditions put the whole business at risk.

Online stores were not open on time, and even at the point of time when the interview was taking place, the company was operating the online website store only for one brand out of eleven. Despite the fact that on the day of the interview, almost a year has passed since the introduction of the first quarantine measures in Azerbaijan, the company could not succeed in launching websites for all the represented brands. The only alternative that “RGA” could implement within a short period of time was selling through Social Networking platforms such as Instagram and Facebook. The exploitation of social media platforms helped to somehow stay afloat and reproduce a partial sale. Even though the company was utilizing SN platforms, its performance was not considered efficient in order to generate enough sales to gain profit.

“Generating sales only through SN, which one or two percent of the sales that were made before the pandemic, is not efficient. Because it is not possible to show the entire assortment

of goods in social networks, sales figures cannot be high.”

Another significant problem that led after itself a lot of issues that decreased customer satisfaction was delivery. Due to the pandemic, almost all the flights were cancelled. In order to promptly replenish the necessary goods, the supply of all brands that the “RGA” represents was reproduced using air logistics. Consequently, if warehouse fulfilment was taking place twice a week, with the flight restrictions, such a quick delivery was not possible anymore, and delivery by alternative transportation means took much longer time. This led to the longer end-point deliveries. Unlike in the physical store, the online store offers a much wider assortment of products. Customers were able to order those pieces of clothing that representative store in Azerbaijan did not fulfil its warehouse with that particular product in different sizes and colours produced. If such a case was taking place, that customer was ordering the product that is not available in the stock in Azerbaijan, and the delivery had to be dispatched from the franchisors stock in Europe, which was taking quite a long period of time. Therefore, the delivery could take place fourteen working days. The outcome of such a disruption in delivery was customer dissatisfaction and decreased online sales because customers could not understand why the delivery within a city can take two weeks or even longer.

“The website provides an assortment of goods three or four times more than in a physical store, the entire range that is available in Spain. If in a physical store in Azerbaijan the assortment is 2000-3000, then in an online store this number reaches five thousand. Because of this, 90% of the goods from online stores come from Spain, and a very small part is issued

directly from the warehouse.”

Customer satisfaction level suffered not only because of delivery discrepancies but also because of considerable problems with payment options, which was also the result of long negotiation processes. None of the shops offered an online payment option; all the orders were paid at the delivery to the currier and only by cash. The bigger problem with the payment occurred at the point of purchase returns. Unlike the payment procedure, the refund procedure was taking place in non-cash payment format, where during the return process, customers were required to provide their bank account, which is “IBAN,” and ID number. The majority of the customers do not know what the IBAN is in their bank account; furthermore, some customers do not even know what it is and from where to retrieve that number from. Very often, it ends

up with the client entering the wrong information, and this further complicates and prolongs the process. The reason why the refund process cannot be processed the same way as the payment process at the moment of purchase delivery is that returned product should be checked by the representative of the store. Due to the fact that the service of delivery and return of goods is outsourced, no refund at the time of returning the product is possible because the courier cannot check the goods. The whole process of return is very complicated, not user friendly, and quite confusing, which as a result leads to the unsatisfied client with a bad experience.

“First of all, many do not know what IBAN is and due to what a lot of problems arise, or they simply do not write correctly IBAN, write for example IBAN of the correspondent bank but

not the bank in which they are served.”

In addition to that, the uncertain situation in terms of regulations was hindering smooth adaptation to the changing customer needs and market conditions. For example, due to quite volatile regulation changes, whether it is the opening or closure of the physical shops or any other rule, brands were not able to forecast the number of products that are required to replenish or what kind of production to re-stock. Since almost all the public places were closed, people did not attend any events, and the majority were working from home, such circumstances reduced the need of buyers for clothes of a certain style. For example, one of the brands that

“RGA” represents in Azerbaijan, which is specialized in evening clothes, did not sell anything at all, and there was no need to replenish the stocks. In other words, the demand for particular types of goods disappeared at all.

“Stores do not risk purchasing a large quantity of goods, as these goods may remain in the store and not to be sold.”

From the point of marketing, "RGA" did not use any special campaigns in order to trigger an increase in sales. However, given that the pandemic situation has started unexpectedly, all brands already bought new collections in advance and replenished their warehouses with new products, which means that the company was not prepared for a sharp decline in sales due to the imposed quarantine measures. Since stores based on online platforms were not created promptly, at the time when online stores were launched, there was no longer demand for goods intended for a particular season. In order to sell unsold goods, the company uses a strategy of aggressive discounts. At the time of easing quarantine measures in Azerbaijan, it was allowed to operate clothing stores, excluding those stores that are located in shopping centres. Since 90% of the stores of the "RGA" company are located in shopping centres, it was

decided to create an outlet store with a street location in order to compensate for the losses suffered by the brands. This is also one of the methods of aggressive discount strategy.

“Products from the Spring/Summer Collection of 2020, all those products remained in our sock. We cannot sell such a quantity of goods through Instagram, Facebook. Because of this,

we opened a street-facing outlet after first obtaining the consent of the brand partner. And immediately with the prices corresponding to the prices of the outlet, minus 40% of the

original retailer prices, we began to sell these goods there.”