Outlook 2013: Lessons that should have been learnt
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? They need to remain nimble enough to respond to changing buying patterns, develop strong partnerships across the supply chain, and focus on a sourcing portfolio that balances costs and risks.
Tom Nelson, managing director, VP global product procurement, VF Asia - part of the $9bn VF Corporation whose apparel and footwear brands Wrangler, Lee, The North Face and Timberland:
There are a lot of suppliers in the world that can provide a lower FOB price. However, will the 'total cost' really be lower? What really happens to quality, deliveries, the people that make our products, or our environment? We have found that by creating longer-term partnerships we can lower our total costs. This strategic relationship allows a higher trust level between the companies. When the companies have trust in each other, great things can happen. There is a lot more information sharing, a lot more transparency - both allowing for better efficiencies, quality and working environments. These companies can also leverage off of the strength of each other's skill sets (1 + 1 = 3+).
Andrew Lo, CEO of Crystal Group, one of Asia's largest apparel manufacturers, producing more than 230m garments a year for customers including Victoria's Secret, Levi's, A&F, H&M, M&S, Uniqlo, JC Penney and Gap:
Competitive prices: not necessarily the cheapest, but pricing has to be within a narrow range of customer expectation. Having competitive prices is one of the keys to winning an order and winning a customer. If you are always at the high end or exceed their expectation, then sooner or later the customer will kick you out. Even if you're much cheaper than your competitors, the customer might not place an order with you if you are not adaptable to their needs, like quality, speed and design. There's no magic formula; the key is being able to meet the customer's expectations and help them to build the best product for the consumer.
Roger Lee, chief executive, TAL Group, a leading garment manufacturer that produces 55m pieces of apparel a year and makes one out of every six dress shirts sold in the US:
What we should have learnt is that demand swings will be bigger and more unpredictable than ever before. There are no more six-month lead times to place an order. There are no more 12-month forecasts that we can use to plan our production. The world economy is changing. Consumer buying patterns are changing. Even the weather is changing, which throws off old seasonal calendars. And unpredictable events like Hurricane Sandy can affect demand all the way to the manufacturers.
So the only way to be successful moving forward is to remain nimble. We need a labour intensive workforce that needs to work every day. We cannot have a fluctuating headcount from day-to-day or month-to-month, because it costs time and money to train workers and big fluctuations in headcount affect quality and efficiency.
We need to have a solid foundation that can react to the continual demand uncertainty and changing buying habits and patterns. In addition, you cannot remain competitive purely on costs. There will always be a cheaper manufacturer. But you must have differentiations. For TAL, our differentiations are our innovative products, supply chain management capabilities, and consistent on-time delivery and consistent quality garments.
Kurt Cavano, founder, chairman & chief strategy officer at TradeCard Inc, the supply chain collaboration and global trade platform:
A key lesson to remember: regardless of economic conditions, it's always essential for retailers and brands to partner with suppliers. Most have learned this lesson in recent years, but there's a growing list of opportunities to do more with trading partners, to help them contribute to the success of the full supply chain.
Looking ahead, it's important to ensure suppliers have the resources they need to meet not only brand requirements, but consumer requirements. This includes investing in things like technology to deliver visibility and transparency down to the factory floor while automating processes for factories to help them do their jobs better. If a brand delivers a tool to its factories to automate pack and scan, it helps the factories do their job faster and more accurately, but it also improves the brand's accuracy and performance. Most importantly, it helps ensure consumers can get what they want, when and how they want it.
Ranjan Mahtani, CEO of Epic Group, which operates manufacturing facilities in Bangladesh and Vietnam and supplies 36m garments a year for customers such as Wal-Mart, JC Penney, Kohl's, Gap, Abercrombie & Fitch, Marks & Spencer and H&M.
- Build strategic alliances and partnerships instead of doing transactional business.
- Build a portfolio based on annual requirements, and do business with strategic suppliers and customers who can add value to each other's business.
Ashad Sattar, managing director at Sri Lanka clothing manufacturer Timex:
As apparel companies have already learnt, the units per style will be low, plus they must be able to provide a solution on design. Firms who are able to offer smaller units, short lead times and design products will remain competitive in future.
Jan Hilger, High End Fashion Consulting, and member of the board of DTB Dialog:
The time for irresponsible 'quick wins' is over. Examples from the recent past have clearly shown that especially in Europe, where consumer confidence is getting lower month by month, consumers require transparency and information on what they are spending their money on. The rapid speed of information through social media and blogs is making it more and more difficult for disreputable firms to cover their tracks. Playing fair, sourcing transparently and delivering a justified price/value relation will become increasingly important.
Dan Dunham, global sourcing manager at Cabela's, the US-based specialty retailer of hunting, fishing, camping and related outdoor merchandise:
Build strong strategic partnerships with your mills and factories.
Josh Green, founder and CEO of Panjiva, a New York based firm that provides information for retailers and importers seeking new sources of production:
I think companies have learned a LOT over the last few years. A sampling:
- Yes, people will buy clothes online.
- With all the change buffeting the industry, most companies need to invest in new skills (new people?) to ensure they have the capabilities they need to succeed in the years ahead. If you don't have people on your team who understand online sales - and how to find and use data to inform decision-making across the organisation - you should find some quick.
- It's crazy to have all of your sourcing eggs in one basket. Rising wages in China aren't as painful for the companies that know how to source globally.
Jonny Mitchell, managing director of the legwear division at Courtaulds Brands Ltd, owner of the Pretty Polly and Aristoc hosiery brands and a major supplier to UK retailers including M&S:
In order to be successful, you need to be doing things better and faster than your competitors. Innovation in product, marketing and service delivery is key. Consumers have so much information that you need to attract their attention in a busy and fast moving market. To remain competitive you need to have a sensible cost base, which can support growth but survive downturns, and be happy to make brave, but well thought through strategic decisions.
Helen Mountney, managing partner at consumer goods consultancy Kurt Salmon UK and Ireland:
Consumers are still looking for the best price and using the internet to research purchases before committing to buying. Impulse buying has mainly gone by the wayside, so there is even more need to be competitive. Brands need to tailor their pricing and promotions strategy to drive footfall and secure their share of spend in peak trading times.
To do this effectively requires businesses to better understand the true end-to-end costs of sourcing product. Data should be available on cost by region and this balanced with the quality and delivery requirements and levels of risk and flexibility needed. This information can then be used as a baseline for determining a future sourcing strategy and to balance speed and margin and bring better value product to consumers.
Businesses also need to be smart with their physical supply chains, review the routes, the transportation modes and consolidation plans to ensure these are aligned with the sourcing and channel strategy of the business.
As the level of international business grows for UK retailers, sourcing and supply chain strategies need to be reviewed to ensure they are as effective and efficient for a global business as they were for a domestic-centric business.
According to Retail 2013, a report on the UK retail sector produced by Retail Week in association with Kurt Salmon, there is a discernible move to find some alternative sources of supply to China, with the need for greater flexibility and shorter lead times prompting change as much as costs. However, there is still widespread support for Chinese suppliers on quality and service criteria, yet European sourcing is on the increase.
The report reveals retailers are, however, only making selective changes to supply chains while retaining core relationships. This is not surprising as they are instinctively unwilling to make changes to successful supply chain arrangements, which they have invested in over a significant period of time, for what might be shorter-term gains.
Mike Todaro, managing director of the American Apparel Producers' Network (AAPN):
It's how you put it together that sets you apart. We've seen it in El Salvador's 'Environmental Valley'. Here, over the past five or six years, a number of our members built an activewear supply chain city - two synthetic yarn spinners, two world class knitters, a number of cut/sew factories expanded, trim producers, especially in elastics, invested, fabric finishing, logistics and so much more. Earlier this year, on a whim, I sent an email to our Central American members and two-dozen owners and executives from three countries spent a day sharing customer and industry insights. Can you imagine this? Now that we are growing with new members in Colombia, we are seeing yet another variation on the community or country vertical integration theme.
Mike Flanagan, CEO of apparel industry consultancy Clothesource:
Life just keeps getting less and less predictable. Spreading and wherever possible minimising risk is the only answer - not just geographically, but in terms of scheduling, risk-sharing, avoiding unnecessary commitments. All of which is summed up in the January Flanarant: How's sourcing going to be in 2013?
Neil Saunders, managing director at retail analyst Conlumino:
The key lesson of the past few years has to be that growth can no longer be obtained simply from opening more capacity and putting more product on the shelves. The market no longer works in this way. Retailers that wish to see superior growth need to steal share from others and cannot rely on organic growth alone. This makes for a much more competitive and challenging environment, but also creates more of a zero sum game where for every winner there is a loser.
In this kind of environment, investment - in stores, in channels, in product, in experience and in service - are all much more important. This is a buyer's market and retailers need to up their game in order to appeal to consumers and get a slice of their spending.
What's also critical is having a clear USP (unique selling point). It sounds obvious, but there are still many retailers who are rather 'stuck in the middle' of the market. They offer neither the cheapest price points nor the most compelling product. While there is still room for these players, they won't be the ones securing superior growth; indeed, they will likely suffer long run erosion in share and declining sales.
This leads on to another priority area: segmentation and clarity. With consumers more time pressured than ever, compelling offers need to be clearly segmented - both by price in terms of good, better, best, but also increasingly by theme, lifestyle or trend. This makes offers easier to shop and adds value through a 'less is more' approach, which can lead to greater levels of cross-purchasing.
John Miln, CEO of industry body the UK Fashion and Textile Association (UKFT):
It ought to be that complacency damages opportunity. By better defining your DNA, leveraging your skills and know-how leading to a competitive proposition and USP creates the difference in competition. We are uniquely placed in our industry in the UK by our history and heritage. Taking advantage of that makes considerable sense. As should continuous management of the change process that allows companies to grow.
Competitiveness is not only about price - service and innovation also make the difference. Investment in the business make sense of course, but only if sustainable margins can be obtained. Brands are more inured to this, but serving the high street can be tough in this regard where cash management is critical.
Magdalena Kondej, head of apparel research at Euromonitor International:
If there's just one message to take forward into the coming years it's that even in the most difficult economic circumstances, there are always opportunities and there are always winners.
- Listen to your consumers - don't try and dictate what and how people should buy.
- Constantly innovate - shopping culture is changing so dynamically that there is a big risk of "too little too late" for retailers that fail to keep up.
- Invest in m-commerce - some of the biggest success stories of 2012 are related to this channel. About 37% of Rue La La's sales now come from mobile devices, up from just 2% in January 2010, and 28% of Shop Direct's internet sales came from tablets and smartphones which contributed to 2012 Christmas sales surge.
Gilbert Harrison, chairman of investment banking group Financo:
They just have to make sure that number one, their product is right; [and] they've got to make sure that their e-commerce business is set to grow, that is absolutely essential. They've got to spend the money to make sure their delivery and web functions are all in sync. They've got to take a look at their whole production and make sure their channels of distribution are fine.
Click on the following links to read other articles in this management briefing:
Outlook 2013: Apparel industry challenges
Outlook 2013: Apparel industry opportunities
Outlook 2013: Other issues to watch
Companies: Uniqlo, H&M Hennes & Mauritz AB, JC Penney Company Inc, Marks & Spencer Group Plc, VF Corporation, Timberland Company, Victoria’s Secret, Levi Strauss & Co, TAL Group, TradeCard, Wal-Mart Stores Inc, Kohl’s Corporation
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