Forecasting focus key for brands expanding in Asia
Cherokee has launched its brand in China with RT Mart Stores
Foreign companies are flocking to Asia in general and China in particular to boost sales in the hope of offsetting soft demand at home. But while potentially lucrative, such a move is not without its challenges, especially when it comes to forecasting and managing shopper demand across the supply chain.
Faced with slow or stagnant growth in their traditional and home markets, an increasing number of fashion retailers and brands are flocking to emerging economies in Asia to fuel the next step in their expansion.
American retailer Gap Inc opened its first Chinese stores in November, and plans to add its Old Navy and Banana Republic brands as its expansion here continues.
Likewise, Collective Brands is in the process of taking its Stride Rite children's footwear brand to China and South East Asia after agreeing a licensing deal with Li & Fung Retailing. And brand management company Cherokee last week revealed it has launched the Cherokee brand in China with RT Mart Stores.
Even China stalwart Tesco believes there is scope to quadruple its sales in China to GBP4bn (US$6.41bn) a year over the next five years. The retailer hopes to double the number of hypermarkets it has in China to over 200, while tripling the number of customers per week to around 12m.
But while theses firms are lured by the potentially huge opportunities to be gained in China and elsewhere in Asia, there are some major challenges that also need to be overcome when making such a move.
"As anyone who's tried to penetrate the Asia market knows, not only do you have the cost of bringing in infrastructure, but there are cultural differences in terms of how shoppers shop, what they look for, what drives their buying decisions," explains Todd Kolber, vice president of sales at merchandise and assortment planning software vendor JustEnough, which helps retailers manage their inventories from raw materials to point of sale.
"It's very different from other markets, and understanding this is key to being successful."
Speaking on a recent webcast hosted by the software firm, Kolber adds: "The risks of going direct are somewhat high; not only do you have the infrastructure and the cultural differences, but you also have to deal with fairly expensive transportation.
"There are some regions in Asia that are somewhat difficult to traverse depending on the method of transportation and the product you're trying to move. You've got to put that in lead times, especially if you're bringing product from the US or from other countries into Asia."
Also speaking at the webinar on 'Growing International Brands in Asia through Demand-Driven Planning' was AMR Research analyst Mike Griswold, who believes some of the challenges faced by retailers "hold true if you're a single continent retailer or looking to expand across the globe."
At the broadest level these include the "incredible" growth in own brand products, price, fulfilling online transactions as efficiently as possible, and tracking down the talent to run a global organisation.
Honing in, other tactical issues to focus on are bridging the gap between planning and execution, often by improvements in forecasting and inventory management; creating an end-to-end view of the supply chain; and ensuring visibility across the globe in areas like inventory levels.
And on a daily basis, retailers are dealing with challenges like forecasting and understanding shifts in demand, removing complexity from the supply chain to meet those demands, and collaborating internally and across a network of trading partners to drive improvements.
"People are investing in areas like transportation management, network design and reverse logistics to manage this expansion," Griswold explains. "But supply chain planning and analytics are both incredibly important if you're looking to move your business into Asia, and it's an area often under-invested in by a lot of retailers."
In particular, he points out that demand-driven planning is key to helping retailers manage shopper demand, structure their supply chains to meet that demand, and use this consumer insight to drive the development of products and services.
He also believes forecasting should become more of a core competency for retailers. The focus here is to look at the impact of shopper demand at the item level, on shipment points and on suppliers.
"Looking at all three levels of forecasting at the same time will give a unified picture of demand that will move retailers forward as they look to expand internationally," Griswold says.
He adds: "Inventory management is really a strategy, it's not a short-term fix. It needs to be part of your overall expansion strategy and one in which technology should be seen as the enabler and not necessarily the problem solver."
There's no doubt it's a strategy worth pursuing - and the potential rewards speak for themselves.
"If the market continues to grow at its current pace, by the year 2030 the Asian market will make up 42% of worldwide consumption," Todd Kolber notes.
"So there's a large and growing opportunity to move product successfully and grow brands and retail in that market, especially when you look at the western markets which are much more mature and where there's been marginal growth.
"If you look at Asia, the size of the middle class in general over the next 5-10 years is projected to be greater than the entire number of individuals who live in the US.
"So it's a very vast and growing population; it's also a very urbanised population, these folks are centred around urban markets and centres which enable retailers and brands to reach them very easily."
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