98_survey_logo.jpg (5038 bytes)Importanceof strategies for achieving goals in the near future
Respondents were asked to rank the importance of various strategies in achievingtheir financial or business goals in 1998 and beyond. The key success factors for domesticmanufacturers and distributors relate to developing an effective response to conflictingconsumer and retailer demands for quality, price and service. Above all, achieving acompetitive quality/price ratio is seen as the most important factor. With increasingglobal competition, and overseas suppliers capable of competing on quality and style aswell as price, businesses need to capitalize on their existing strengths, such as theadvantage of their proximity to market, as well as developing new skills in sourcing inorder to establish an advantage. The relative importance given to sourcing as opposed toresponsiveness may vary from sector to sector and country to country, but the mostimportant issue is to have a strategy that encompasses a full range of capabilities.

Individual country results
While "improving product quality" was ranked as the most importantstrategy by all other respondents by country, Italian suppliers put a far greater emphasison "improving business flexibility to change". This may reflect the fact thatmany Italian suppliers are working at the upper end of the market, with a particularemphasis on innovation and style, but also suggests that changes in their own marketplace,where retail has remained dominated by independent operators longer than in northernEurope, are beginning to have an impact. Larger, organized retailers make greater demandson flexibility and timeliness than independents. It is notable that the emphasis onflexibility is lower in the UK, Germany and the US, where organized retail is moredeveloped (suggesting that this issue is more of a fact of life for suppliers) than inFrance, Spain and Italy. At the same time, German and UK suppliers rate "closerintegration with customers and suppliers" more highly than business flexibility,reflecting a growing emphasis on supply chain management.

Whether apparel or footwear, manufacturer or distributor -suppliers all rank "improving product quality" as most important, althoughfootwear manufacturers differentiate less between this and "improving businessflexibility to change" than the other groupings. All supplier types have the sameranking of strategies - quality, flexibility, integration, Mergers &Acquisitions(M&A) - though there is a clear differentiation when it comes to business size.Medium-sized companies rank flexibility above quality, while the smaller and largercompanies favor improving product quality. However, the largest companies make littledifferentiation between flexibility and closer integration, while small and mediumcompanies place flexibility as a clear second. Whereas smaller suppliers are likely tohave both a more focused product range and geographic distribution, and can seek todifferentiate themselves primarily on product quality, agility is an area in which themedium-sized suppliers need to differentiate themselves, as they expand their businessboth geographically and into new channels of distribution. Quality is likely to be ofconcern to larger suppliers as their supply and distribution base becomes more fragmenteddue to globalization. The issues of flexibility and integration are closely linked,explaining the relatively small difference in importance given to these issues.

Figure 1.  Ranking ofstrategies for achieving goals for the near future: UK

UK respondents overwhelmingly ranked product quality as thesingle most important strategy (72%) - a higher proportion than in any other country. USrespondents also ranked this factor higher (60%) than the overall average (51%). Retailconcentration is more advanced in the UK than the other European countries surveyed, andconsumer demands for high quality at a mass-market price is therefore strongest. However,a higher proportion of UK companies surveyed still manufacture in the UK rather thaninternationally, and a lower proportion (68%) undertake sourcing than in any other countryapart from Spain. This situation is unlikely to change in the near future, with only 4%planning to source.

This may reflect a level of confidence in the UK's laborcost competitiveness, and a recognition of a need to retain a local manufacturing base toretain control over product quality and responsiveness.

Responsiveness is ranked less highly by UK companies thanmost of the European market, with only 8% of British respondents ranking the strategy asthe most important, the nearest to this is the German ranking of 16%. The nature of the UKmarket has already made responsiveness a key factor, and it is therefore not surprisingthat it is not highly rated for the future.

In common with Germany and Italy, sourcing is ranked abovethe datum by British suppliers, second to product quality. As mentioned above, fewer UKsuppliers are actively sourcing than most of their European competitors, but for many itwill be a key to business expansion. The balance of UK and offshore product supply ischanging, as are sourcing locations, with "European rim" locations - i.e.Central/Eastern Europe and North Africa - gaining favor over more traditional sources inthe Far East. The UK is a relative newcomer to these areas, which have primarily beendeveloped by German, French and Italian suppliers, gaining the advantages of low laborcost, high skill levels and proximity to the market.

Figure 2.  Ranking ofstrategies for achieving goals for the near future: Spain

Spanish respondents conformed with the overall resultsregarding the importance placed upon product quality and business flexibility to change.However, significantly fewer respondents (8%) than the average (14%) rated"manufacture or source from around the world" as the most important strategy(compared with approximately one-fifth of respondents in the UK, Germany and Italy). It isstill possible for suppliers to manufacture competitively in Spain, but as the example ofZara, the highly successful Spanish-based clothing retailer, shows, responding effectivelyto consumer demands is a more sustainable and successful strategy than pursuing low-costsourcing.

Figure 3.  Ranking ofstrategies for achieving goals for the near future: France

French companies rank quality and responsiveness first andsecond, in line with the average, but place greater emphasis on visibility and controlthan on sourcing. This may be explained by the fact that only 54% of the respondentsmanufacture domestically - a surprisingly low proportion given the relative importance ofdomestic production in France. Visibility and control are clearly vital to companies witha wide sourcing base, and they are unlikely to rank sourcing as a key issue for thefuture. For many French companies, the continued growth in importance of the hypermarketsand other "grandes surfaces" in apparel, textile and footwear distribution is amajor challenge. Not only do branded and own-label goods compete in the same environment,but they are competing with a full range of consumer goods for shelf space. Visibility andcontrol are therefore critical in maintaining availability, which is a major factor in"defending" in-store shelf space.

At the same time, specialist multiples are growing at theexpense of independent retailers, putting more pressure on suppliers in terms of cost,responsiveness and service.

While product quality is the prime issue for Germansuppliers, this is not as pronounced as in the UK. Despite the fact that Germany has thelowest proportion of suppliers manufacturing domestically (40%) and more companies (84%)sourcing from overseas - the emphasis of suppliers is more focused on effective globalsourcing.

Figure 4.  Ranking ofstrategies for achieving goals for the near future: German

German manufacturers are among the leaders in developingmanufacturing in Central and Eastern Europe, which has allowed them to retain high qualitylevels and responsiveness while not incurring the high labor costs associated withdomestic manufacturing.

Although organized forms of retail have played a relativelyimportant part in the German market, a protected environment has meant that price has notbeen such an issue as in the UK and US. As legislation governing retailing is relaxed, andmore aggressive retailers continue to enter the German market, it is likely that thissituation will change, and domestic suppliers will come under increasing pressure toreduce costs.

Figure 5.  Ranking ofstrategies for achieving goals for the near future: Italy

The low ranking given by Italian suppliers to quality issurprising, but the response to this survey suggests that the changes occurring in themarketplace, with spending on apparel declining and multiple forms of retail gaining inimportance, are focusing suppliers' attention on service. A reputation for designinnovation alone is not going to be sufficient to remain competitive in the longer term,in domestic or export markets.

Italian companies, while still primarily retaining adomestic manufacturing capability, are also widely using offshore locations, and seefurther development of this capability as an important issue. This is in line with the UKand Germany, and reflects the need for Italian companies - to whom Germany in particularis a vital market - to maintain price competitiveness as well as their edge in design.

Figure 6.  Ranking ofstrategies for achieving goals for the near future: UK

In line with the UK, US companies place quality well aheadof the other factors. Given a similar retail structure, it is clearly a major issue forsuppliers to continue to improve product quality while keeping prices under control. Therankings for responsiveness and sourcing are almost an exact mirror image of those for theUK - explained at least in part by a lower proportion of domestic manufacturing (68%compared to 90%) and a higher level of sourcing activity (81% compared to 68%). Therefore,as with the French suppliers, improving visibility is of greater importance to UScompanies than the average, given the need to provide high levels of service via adisparate and remote supply base.


 

The 1998 Apparel and Footwear Industries survey was carried out by mulitple research agencies co-ordinated by Benchmark Research on behalf of JBA.  This survey has been written in conjunction with Simon Shepheard-Walwyn of Kurt Salmon Associates (KSA), and Rob Jennings and Michael Pearl of JBA's apparel, footwear business unit.