The Retail Industry is passing through a critical period. It is having to counter the problems of demographic change, shrinking disposable income, and increased competition. This article discusses the challenges that these conditions impose on the supply chain, and, in particular, the product development area.
Changes in the consumer base
The first change starting to affect retailers is a demographic shift caused by a shrinking birth rate and a longer life expectancy. This spawns two major effects:
Disposable income is threatened by increased spending on healthcare, childcare, education, and retirement. The shift in population age causes the proportion of high spenders in the 22 – 34 year age group to shrink, while the 55 – 64 year group correspondingly increases. As the older group historically spends less than the younger one on clothes, this also reduces revenues. If these two effects are taken together, then the overall amount spent on clothes is unlikely to rise significantly. This in turn produces responses from the retailers who must protect both their profits and market share.
The retailers responses
To protect profits and market share, the retailer has to take the following actions:
- reduce costs – to maintain their profit margins
- increase variety – to maintain market share
- improve design quality – to increase market share
- reduce stocks – to reduce costs
These actions have corresponding effects on the next part of the supply chain – the manufacturer.
The effect on the manufacturer
Manufacturers are seeing little or no increase in the price that they get for their products. As a consequence, they are moving cutting and sewing operations offshore, or simply importing from overseas contractors. The retailer’s drive for increased variety and exclusivity has lead to an increase from the traditional two seasons to four. Also some retailers are now rolling their seasons three or four times.
Design quality is at a premium
Along with this is the move of production overseas where there is profound difficulty in communicating complex specifications to the needlepoint at widely spread locations. The need to both increase variety and reduce stocks mandates that point of sale data is closely connected to the cutting program. This ensures that replenishment of only stock that is selling is accomplished. The resulting product is then quickly shipped to stores.
Summary of the changes
The change factors that affect the supply chain are:
The consumer is spending less, so to maintain profits the retailer is increasing variety; increasing design quality; reducing costs; cutting inventory and re-ordering only what is sold.
The manufacturer is moving cutting and sewing offshore; responding to immediate changes in production schedules dictated by sales figures; and becoming an importer.