The first in a two-part series on the future of fashion supply chains takes a look at the changing face of fashion retailing – and why digitising supply chains can unlock large efficiencies, improve transparency and reduce costs to help companies survive and thrive. By Roit Kathiala.
As fashion stalwarts come crashing down all around, it’s easy to pin the blame on the global coronavirus pandemic. But is this really the cause? The problem, in fact, goes much deeper. A lot of fashion companies have been struggling for a long time, taking on large amounts of debt without a robust plan to pay it off. The issue is widespread across the full spectrum of fashion – apparel, footwear and accessories – and the root cause stems from the fact they have failed to evolve with the times and keep up with their existing customers and acquire new ones.
This two-part article discusses the wide changes impacting the fashion industry, their effect on the role of supply chains, and why digitising supply chains can unlock large efficiencies, improve transparency and reduce significant costs to help companies thrive in a transparent and digital world.
Part I: Fashion is changing – and so are its supply chains
To understand the fashion supply chains of the future, it is important to understand the winds of change currently sweeping the industry, where a lot of traditional supply chains and structures are found wanting and unable to adapt.
While physical retail is undergoing a transformation, with malls and shopping centres trying to come up with new ways to build sustainable communities and unique experiences that can drive traffic to store locations, the use of digital tools is also gaining traction to engage consumers. The new ways for customers to shop fashion can be broadly classified into six big shifts:
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By GlobalData- Engaging retail: Millennials, the largest population in the United States, are now entering their earning prime, and research estimates 72% would like to increase their spending on real-life experiences rather than physical things. Hence shopping for fashion cannot remain boring. More than any other generation these consumers are craving new experiences, which is driving a huge shift in shopping habits and destinations.
- Curated retail: Delivering customised convenience backed by data tools and customer information. This form of retail curates customised offerings for each consumer and saves them the time and effort of researching and looking through thousands of options to find what they want to buy.
- Social media shopping: From Instagram to Twitter, Pinterest to Facebook, social media platforms have become an extension of one’s best self and are now also the playing field of mega influencers who route consumers to various products and online shops.
- Buy the runway: The months-long wait for runway styles to reach your nearby department stores is over. Fashion brands are starting to include end-consumers in these shows, which are live-streamed so that everyone feels part of the spectacle. In addition, luxury online retailers like Moda Operandi have built a selling platform that allows consumers to preorder looks directly from designers, immediately after their runway shows, instead of leaving the decision to the buyers at department stores and boutiques.
- Communities and tribes: Digitally enabled connections and networking have enabled large global communities to follow a brand, sometimes with a “cult like” devotion. This enables these brands to have a ready base of customers not just for their products but also for the resale of those products.
- Rental is the new ownership: The rise of the clothing rental market reflects a growing trend of customers wanting to rent their favourite clothes and brands at a fraction of the price as compared to buying them. As well as the rise of rental companies like Rent the Runway, Le Tote, and Armoire, rental subscription services have also been rolled out by traditional retail companies like Ann Taylor and Urban Outfitters.
With such changes sweeping through fashion and retail today, it is also time to rethink traditional fashion supply chains.
During good times, when the economy and consumer spending are strong, companies tend to prioritise revenue expansion and customer acquisition over cost optimisation – and when revenue falls or stagnates the focus shifts quickly to cost control and management. However that approach is fast becoming obsolete, with today’s fashion supply chains in urgent need of reimagining as a fundamental need to grow sales.
Supply chain costs – encompassing cost of goods for resale, warehousing, logistics and fulfilment – are the biggest overhead for most retailers, sometimes reaching as high as 60-70% of total revenue for high frequency retail. This also remains the largest opportunity to reduce costs and improve speed to market and hence customer service.
The need for change is accelerating quickly, mostly due to the shifts in fashion retailing but also in customer and regulatory sentiments. Broadly, we can bucket these changes into six categories:
- Collapsing product lifecycles: The typical 18 month product lifecycle (concept to consumer) of a fashion company has seen the highest disruption in the past decade. First from fast fashion companies whose products are available in store or online for a couple of weeks and will never be replenished but replaced by something new. These companies read and respond to changing trends far more effectively than long product lifecycle companies and force them to shrink their product to market timelines to remain relevant. Then came the tsunami of shrinking logistics and fulfilment timelines that supported the rise of e-commerce. From a two-week delivery window many companies have already transitioned to same-day delivery, or in some cities the delivery person waits for the customer to try on the products and take back returns. With the millennial consumer used to a world of instant gratification, product lifecycles are set to shrink even further across the spectrum from value to luxury.
- Low asset-based revenue models: Just a decade ago, to fulfil customers in Europe or North America a retailer would need a network of distribution centres (DCs) located across the region supported by trucks and lorries and, in many cases, even globally spread consolidation centres to combine goods from various vendors to send to global DCs through a shipping line or air carrier. Now an e-commerce company can just tap into a postal or courier service and ship to customers around the world directly from one DC or warehouse that they may not even own.
- Globalisation and localisation: These contradicting trends have impacted fashion for the last two decades. Globalisation means taking local supply chains and making them global, with companies moving their manufacturing overseas to make the most of low costs. This period also coincided with the ending of the Multifibre Arrangement (MFA) in 1995 and then China’s accession to the WTO in 2001. Having moved most of the supply chain to cheaper production centres in Eastern Europe, Asia and South America, the fashion industry now faces ever shrinking product lifecycles, a reducing cost differential with Asia, and the rise of patriotic rhetoric in trade and consumerism – which has started to localise elements of these supply chains.
- Sustainability: Social, environmental and economic sustainability has now become the key agenda for the fashion supply chain, which has to incorporate a strategy to deliver sustainability in the way it conducts its business. Customers want it, governments want it, and even investors and stockholders are asking for increased transparency around sustainability
- Transparency and collaboration: Companies are increasingly having to answer for – and influence – the practices of tier-2 (their direct supplier’s supplier) or even tier-3 suppliers (their supplier’s supplier’s supplier). Most fashion companies struggle to have visibility into their direct supply chains, let alone being able to influence the action of tier 2 and 3 suppliers (mills, fibre sources, trim suppliers etc). If a simple thing such as visibility is a challenge, managing and integrating and collaborating with these suppliers could seem like an impossible ask. Going by the recent experience of Boohoo, where allegations of malpractices at a tier-3 supplier saw the retailer’s shares lose half their value within a month, and it’s clear the risk associated with even a far-flung supplier can’t be underestimated. In much the same way, the value of collaborating and integrating with these suppliers can’t be overestimated.
- Supply chain as an enabler of core strategy: Be it Zara or Amazon, supply chains – from planning to production to fulfilling customer demands – are a source of competitive advantage, and if ignored can also be a bottleneck for the survival of a business. During the Covid-19 pandemic, countless supply chains were crippled around the world due to their outdated systems. Traceability and operations can fall apart when certain aspects of the network have to close due to unforeseen reasons. There are cases of multi-billion dollar grocery companies unable to get new inventory from their suppliers because they could not pay them as they still followed paper-based invoice approvals and unpaid invoices were piled up on empty desks..
We have looked at the changing face of fashion retailing, new trends that are emerging, and the various changes coming to the fashion supply chain as retail and consumer and regulatory preferences evolve. Next month in Part 2: Digital supply chains – the answer to the challenges, we will look at how investment in digital technology can help fashion companies prepare their supply chains and future proof their businesses.
