just-style management briefing: Lessons learnt from the past for the future
What should apparel firms have learnt from the upheaval of the past couple of years - and what should they be doing now if they want to remain competitive into the future? Buyers and manufacturers need to build a deeper, long-term relationship our respondents said, as well as focusing on a sourcing portfolio that balances costs and risks.
Thomas Nelson, managing director, VP global product procurement, VF Asia
I think all too often our industry runs to the lowest point and does so too quickly. When the quotas were removed, many people ran to China. When prices went up due to commodity pricing, many companies ran to Bangladesh. Our industry must have a balanced sourcing portfolio with factory partners they plan to continue to work with long into the future. A much deeper relationship and understanding of the "entire" supply network is also a must. Understanding and relationships all the way down to the people making the products, inclusive of the communities where the factories are located, will be important as we move to the next level.
Hans Bühr, head of raw material purchasing Asia, Triumph International (Hong Kong)
I believe the most important lesson is to have a firm control and overview of the complete cost structure and components involved in the value chain. Past crises have shown that there is still a lot of inefficiency which would allow for major productivity gains through greater optimisation of information flow as well as interaction between buyers and manufacturers.
At the same time there needs to be a realisation that despite the rising wages in many apparel manufacturing countries, there is great automation/optimisation potential in most garment factories.
To remain competitive in the years to come, buyers and manufacturers will need to build a close, long term cooperation that allows for the necessary investments in hard and software in the factories to achieve greater efficiency/cost control and compensate for rising wages, by increasing productivity.
Kurt Cavano, CEO, Tradecard
Many of the factors that are essential to an apparel business are beyond our control. Most apparel firms should have learned to control what they can. Find out as much as you can about your customers and become as sticky as you can. You can’t control the dialogue that occurs around your brand in social media but you can contribute to it and shape it, and provide the infrastructure to create communities of fans.
On the back end of business, there are more trading partners involved in production than ever. Control what you can by providing infrastructure to allow communication to flow seamlessly throughout the supply network. Just as you might leverage social media to connect your community of consumers, picture a social media model for the supply chain that connects all necessary parties – raw materials providers, manufacturers, freight forwarders, financial institutions, agents, etc.
Nikhil Hirdaramani, director, Hirdaramani Group of Companies
It is key to actually be more than a contracted manufacturer: you need to add value whether it is in design or being vertical. You need to build strong relationships with customers as well as have a very strong supply chain. In the past the focus has been more on the former and not on the latter. With fabric prices still fluctuating still it is important to look at the supply chain - including the possibility of also investing vertically in fabric.
Anthony Corsano, president and CEO, Anvil Knitwear
Most importantly, we've learned the being nimble is key to success. Today, apparel companies must be able to expand and contract with the least amount of impact on all of the stakeholders involved.
Delivering a quality product on time, at a fair price and backed with purpose - having a reason beyond profit for existing - will make your business competitive. Consider what qualities make your brand and products unique; why does the market need you; what differentiates your brand from the competition.
Kanishka Wijayasiri, COO, Brandot International Limited
Apparel firms have learnt one key lesson during the past couple of years: they cannot hold large inventories or afford to sell goods on discount. Nearly every firm is "talking" about reducing lead times or has launched initiatives to become "faster". If a firm wants to remain competitive in this volatile environment, then it needs to be able to react faster to customers and offer "speed".
Limited Brands (LTD) is a good example of a retail company that has embarked on an aggressive "speed plan" and produced results: 2011 was very profitable year from Limited Brands.
Where to start? Begin by looking at your own company and its processes before reaching out to the supply chain to reduce lead times.
Josh Green, founder and CEO of Panjiva
On the supply side of the business, the key lesson is not to put all of your eggs in one basket. For many years, companies sought to consolidate their supply base in an effort to drive down costs. However, those who were too dependent on any one geography got burned over the last few years. Rising wages, political upheaval, natural disasters all wrought havoc on those who put all their eggs in one sourcing basket. Smart organisations are now being more thoughtful about how they balance the competing challenges of managing costs and managing risks.
On the demand side of the business, the key lesson is not a new one: it's absolutely crucial to stay close to your customer. At a time when consumers are cutting back on spending and manufacturing costs are rising, it is harder than ever to earn a profit. Those that have done well - and those that will do well in the years ahead - are those who understand better than their competitors exactly what their customers really want. A cliché, but the clichés are clichés for a reason.
Mike Todaro, managing director of AAPN (the American Apparel Producers' Network)
Trust: we are seeing factories expand to do more with who they already have built trust with long term. They are hiring, investing, expanding - and firing weak customers! Only when you gain trust can you gain speed. In our 10 years working in Central America, this is the #1 take away.
Network: as one CEO said of our annual meeting of the entire supply chain: "I've never been to a meeting like this...this meeting was sobering, exiting, my first time ever with retailers, brands and the chain with a good perspective from each of them. There are not many groups like this, where you can speak your mind." The greatest failure of the entire industry is caused by each meeting within their own industry silos and not as chains.
Inventories and SKUs need to be managed. Total product cycle times can be shortened and controlled if every part of the supply chain (up and down) has a financial stake in that goal. Inventory cost/responsibility cannot simply be passed down.
Ashroff Omar, CEO, Brandix Lanka Limited
Since 2005, freeing global trade has had an unfortunate consequence of a kind of consumer excess and an attempt by retailers to satisfy every perceived 'need'. The resultant over-consumption and competition to satisfy these needs has created unprecedented price pressures and raw material scarcities. The rush for 'fast fashion' also meant that many retailers abandoned their successful formats to mimic ones that were not necessarily in sync with their loyal consumers. At the peak of the world's apparel consumption, the recession hit, making everyone along the supply chain re-examine their business models.
The vastly consolidated supplier base during the period means business is settling in countries and regions that make commercial sense. Innovating the business model requires that the retailer is able to relinquish many of the non-value adding functions that are better handled by a well-integrated supply chain. These strategic partnerships with the democratisation of information will foster the trust and collaboration needed for fast and flawless execution.
Roger Lee, COO, TAL Apparel
The difficulty, given the rise in raw material prices and the unstable economy in the US, is that retailers haven't yet figured out a way to change American buying habits. If you look at the recent holiday, Thanksgiving was driven by Black Friday and Cyber Monday promotions, but when these ended the sales were not good. There were also a lot more promotions during Christmas week and sales were better. So the volume was there but the margins, I believe, were not there. Shoppers are trying to buy during periods of heavy promotion.
So I think what we're going to see in 2012 is retailers really thinking about how to sell differently. It's always risky for any brand or retailer to change its selling strategy and customers may or may not like it.
A lot of retailers are also looking at where they're going to source next. China's no longer the lowest-cost country and costs are rising every year. The government's 12th five-year plan wants to double wages at the end of five years, especially in the southern China area.
As a manufacturer we are also looking at where we want to continue to expand. If you asked us three years ago we would have said China, but now this isn't the case. We're happy with what we have in China, but to continue to grow we have to look outside China. [As well as two plants in China, TAL also has production facilities in Thailand, Malaysia, Indonesia and Vietnam.]
We're still searching where to go next, but we're definitely looking at those countries we are already in. We know the operation and culture here; moving into a new country involves a lot of uncertainty and effort.
Mike Flanagan, CEO, Clothesource
Forecasting is tough. Especially if it's the future.
Most of the upheavals since 2008 have come from factors totally outside the apparel, textile or retail industries: issues like individual politicians' decisions (the blockade of Nicaragua or the almost overnight wage hike in Honduras); the cotton helter-skelter (shocking to us, but no different from the suddenness and irrationality of any other commodity bubble); the Arab Spring (serious if you're buying from Egypt, as many Americans do). Virtually none were forecast by specialist political or economic forecasters: few apparel businesses can really have adequate reporting or forecasting resources on tap. So constant review of all supplying countries is important.
For the past 20 years, buyers have come to expect a constant lowering of trade barriers and meticulous adherence by importing countries of trade rules. That's now changed:
- Rich countries still observe rules meticulously, but have pretty much come to the end of barriers their electorates are happy to lower. There's little risk of barriers being rebuilt - but it's utterly unrealistic to expect many more to come down.
- Many poorer countries, though, are a lot more active about creating new barriers - especially potentially significant markets, like Egypt, Turkey, Brazil, Argentina and Indonesia. Foreign retailers in particular need to be very watchful about new threats on imports in developing countries.
The industry has spent 20 years expecting prices to come down. Personally, I think they're now going to grow more or less annually for the next 20 years. The industry needs to start thinking inflation. If retail clothes prices are growing 4%, a retailer's 1% like-for-like sales growth means it's selling fewer clothes. If ex-factory prices are up 15%, a country's 10% dollar growth in exports means it's making fewer clothes, so it's heading for garment industry job losses.
Expect the really unforeseen. The world's three biggest retailers - Wal-Mart, Tesco and Carrefour - all struggled in 2011 with their apparel business and are making fundamental strategic changes as a result. In their home markets, all have done worse in apparel than the sharpest specialists and the discounters: no-one really expects Tesco or Carrefour to regain their garment share at home. Some problems just can't be solved.
Magdalena Kondej, head of apparel research at Euromonitor International
By focusing on price, retailers have invariably brought thinning margins on themselves, which was the main challenge of 2011. That said, companies who managed to resist heavy discounting and maintain price points proved to be the biggest winners.
From the FT: "SuperGroup, owner of the fashion chain SuperDry, says that it will not succumb to rising pressure on UK high streets by discounting clothing in its 72 retail stores over Christmas. The retailer, known for its jackets, is keen to preserve full-price sales to boost its operating margin." And in 2012, SuperGroup looks set to continue to play by its own rules, with the recent announcement of price cuts to come. There is no doubt that falling prices will certainly be welcomed by cash-strapped shoppers.
Lynn Evison, senior manager, Kurt Salmon
Planning, planning and more planning - particularly in-season management. Retailers need to be dynamic, responsive and this can only be achieved through effective in-season management and control of financial KPIs and OTB management. Retailers need to ensure the basics are in place, maybe swing the pendulum more towards planning and ensure there is tight management of buying. Contingency planning is crucial for management of inventory and maximising sell through. Know the current full-price sell-through percentage. Be aware of what action plans need to be in place to ensure achievement of financial KPIs but also position the business so that it is strong, healthy and competitive.
Retailers that only focus on today will continue to struggle and remain in the vicious cycle of fire- fighting. Survival will require a dual approach:
- The trading teams must continue to address the everyday business challenges associated with operating in turbulent markets. Focus on in-season management, contingency planning, pricing and promotion management and have a clear objective to drive sales and profitability.
- A separate team must continue to look forward at the business strategy and continual investment for the future to ensure the business grows, becomes stronger and is better positioned to be competitive in the future. This will require attention to business processes, tools, organisation structure and skills.
Laura Biggs, manager, Kurt Salmon
"Diversify or die" - brands can't continue to just keep doing what they have always done. They need to be looking to either reach new customers with existing products or broaden their collections to meet demand from existing customers.
Also, customer loyalty to brands is fickle: demand changes over night, particularly influenced by the media.
An interactive databank with intelligence on the major apparel sourcing countries
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