Speed is the essence of fashion – anything else is mere apparel. Fashion retailers pride themselves on their ability to get the latest designs onto the shelves of suburban Stuttgart or London’s Oxford Street within days of them appearing on the international catwalks.
But the clothing market is multi-faceted and its high and low ends bear little resemblance to each other. At the top cost is no object, whether inmanufacturing or the supply chain. But at the bottom – filling the shelves of Carrefour or Tesco with white t-shirts and mens’ Y-fronts – cost is everything. As David Hogg, retail marketing manager at Sterling Commerce, says, companies such as Top Shop, Zara and more recently Marks & Spencer have built their brands on the ability to imitate and move the latest catwalk or celebrity styles into their shops rapidly.
Retailers are taking a demand-driven approach. This is highlighted by a recent report by AMR Research which shows that those that take such an approach achieve a 30 per cent reduction in time to market for fashion supply chains, a 50 per cent reduction in out-of-stocks and three per cent improvement in margins.
But surprisingly, fashion is not necessarily at the cutting edge of supply chain technology. In some ways it is quite a conservative industry, though it is catching up fast. Sam Jackson, managing director of fashion retail specialist Prologic, says that the industry has been slower than some to adopt ERP systems but is now catching up. Factors that have mitigated against adoption include the fast-changing nature of the business. Whole chains of shops can spring up in high streets within a matter of weeks, and suppliers are constantly changed.
However, says Jackson, ‘we think that our CIMS product works well in this environment. In fact, many customers adopted CIMS having inherited a dog’s dinner of different IT systems following acquisitions.’
Fashion retailers have also started to go multichannel in a big way, often coming to internet retailing via traditional mail order. In fact, one of CIMS’ strengths is that it works well in a multichannel environment, says Jackson. He says that what has changed in the past six months is that bricks and mortar retailers have abandoned their timid approach to online sales and started to develop online retailing in a big way.
‘In the past, there was a tendency to not allocate sufficient stock to online or only offer a limited range, but in the months since last Christmas many retailers are taking online a lot more seriously.’
Shopping for clothes is the ultimate browsing activity and many shoppers like to put off the ultimate decision until they reach home – so many bricks and mortar retailers are finding online a useful extra weapon in their armoury. John Lewis Partnership, for example, has realised significant online sales growth following an intensive investment programme.
The ability to browse online is also important, says Nick Allen, chief executive of retail fulfilment specialist Zendor. ‘People buying clothes like to browse – more so than for, say, electrical goods, and this is where broadband internet has come into its own,’ he says.
One of the problems with now defunct online fashion sales outlet boo.com was that while it theoretically offered all sorts of sophistication such as on-screen models that moved, in the pre-broadband age the most likely event was a stuck browser. Nearuniversal broadband has changed everything.
He points out that the fashion has always had distance selling based on catalogues, and while much of this traditional business is now transferring to the internet a lot of high street retailers are also realising the value of an online presence. There are many attractions, not least the ability to hold a much larger range online than would be possible in a shop.
Prologic has also refined inventory control so as to better meld bricks and mortar and online stock, adds Jackson. ‘One approach might be ‘soft’ stock allocation so that a certain percentage is theoretically allocated to online, but only indicatively.’
Being able to rationalise stock across the two systems could mean fewer mark-downs or stockouts. Treating the stock as one also makes it possible to rationalise management and payment systems.
Jonathan Bowen at BT Expedite says that while a lot of high street retailers have dipped their toes into internet sales, setting up essentially segregated stock, the successful ones are beginning to see the advantage of integrated stock. BT-commissioned research also finds that while retailers are investing heavily in multi-channel retailing systems, with 50 per cent of those with multi-channel operations planning to upgrade the systems in the next two years, multi-channel retailing is still not the norm.
Stuart Harker, retail partner at IBM GBS has also seen a ‘substantial increase’ in internet business over the past 18 months. ‘CEOs are focussing on growth, and they can use online channels to sweat their assets and use their brand names to leverage other channels.’
He says fashion sales online have been slow to take off because consumers initially found it hard to select styles and colours over the internet, while from the retailer’s point of view the huge return rates initially made online sales expensive.
While return rates are still running at perhaps 45 per cent in the internet fashion sector, ‘the smart guys like Woolworths and Marks & Spencer are using their stores both for returns and pick-ups, and have brought costs down.
Retailing is the visible end of the fashion supply chain but clothes all have to come from somewhere, and that somewhere is increasingly far away. Offshoring of garment production has been going on for 20 years. In fact, as far as many EU countries are concerned – the UK or Germany, for example – the process is virtually complete. Jackson says that Prologic has since turned its hand to managing all the elements of the international supply chain, such as freight and customs.
‘Until about four years ago,’ continues Jackson, ‘the received wisdom was that overseas developing countries were cheap but they were also hard work with substandard packaging, quality problems and incomplete orders. But China in particular has transformed the quality of its supply chain.’
Developing country producers are also adopting IT systems such as CIMS, which are deployed on the web and so easily accessible from all parts of the world.
‘In fact, some people are staying with China because of the quality factor, even though it’s said to be more expensive than some other parts of the world now,’ adds Jackson.
Jonathan Bowen, enterprise product manager at BT Expedite, agrees that many retailers are now sourcing abroad to stay competitive. As well as providing the more inward-facing services fashion retailers need for clients such as Oasis and Edinburgh Woollen Mills, BT Expedite is increasingly offering external processes such as specification of product, quotations and the whole manufacturing and supply chain process. Users can define their own critical paths to help them manage the process.
‘Supply chain efficiency is important to fashion retailers but so is speed to market,’ explains Bowen. Not so long ago there were reports of big high street brands taking six to nine months to get products from concept to shelves but now it’s common for them to have ‘mini-seasons’ every six to eight weeks.
That said, the fashion industry has been a late starter in IT and there are still plenty of retailers using essentially manual supply chain processes. But the complexity of much of the information in fashion is beyond the scope of manual spreadsheets, says Bowen, so much greater update of IT can be expected.
Harjeet Johal, founder of online retailer Underfivepounds.com says that price and value were once the main attractions of countries like China and India but that the quality and controllability elements have come on in leaps and bounds.
‘Five or six years ago, there would always be an element of pot luck, but now service is on a par if not better than from Europe,’ he says. Modern communications technology has helped enormously, ‘but ultimately it depends on how good the factory is – and many of those in Asia are very good indeed’.
He adds: ‘The situation for European manufacturers is, frankly, stark. Either they have to be at the extreme high end of the market or they would have to compete on price, which is difficult if not impossible.
‘While there is a trade-off in terms of responsiveness, don’t forget that for large orders buying would be done months in advance anyway. Yes, if you need something very quickly there is an issue, but for that you can plug the gap from Greece or Turkey.’
There have been some problems with imports from China. Following the country’s accession to the World Trade Organisation, quotas were slapped back on again last year and similar, though less severe, measures are now being applied to imported shoes from China and Vietnam. But Johal is convinced that this is ‘the last gasp of protectionism’.
Allen Scott, MD of Manhattan Associates UK, agrees with Johal’s take on the internet. ‘The internet is really coming to the fore now, but it depends on the market. For instance, we’ve done some work for a big retailer in Kuwait and there’s no interest at all in online there.
‘But in the UK and Europe, even the online laggards have started to come forwardand according to Forrester, fashion is now the six most purchased online sector.’
Where Scott differs from many others in the industry is in the assumption that China and the other Asian producers will have the market to themselves for the foreseeable future.
‘I think there is a shift back to central Europe,’ he says. ‘Salaries in China are rising and people there are beginning to job-hop. Central Europe on the other hand also has low salaries and it’s much closer to Western Europe. And if you can get the same or similar cost factors there, you’re within the EU and can avoid issues like last year’s ‘bra wars’.’
Diversification of risk
Steve Keifer, vp of industry and product marketing for software specialist GXS, adds that he too sees ‘some diversification of risk’ from China to North Africa, Pakistan and other countries. One advantage of slightly closer locations is that executives at head office can get on a plane and resolve problems relatively quickly, which can reduce the need to have local management teams in place.
Another good reason for not putting all one’s eggs in the Chinese basket is that, in time, local consumers will start to compete with export production, which could drive up prices or restrict capacity.
But Keifer adds that the phasing out of quotas on Chinese-made apparel from last year has led to ‘a true free market’ although China’s gain has in some cases been at the expense of other countries in Asia such as Thailand. ‘China now accounts for 25 per cent of the US market. It’s success against other suppliers like India has in part been due to its policy of siting manufacturing on its eastern seaboard, avoiding the logistical complications of countries like India where a long land journey is often a prelude to an even longer sea voyage – adding expensive extra days to the supply chain.’
Nevertheless, fashion retailers have learned to cope with these extremely long supply-lines Keifer adds, not least because a good proportion of what we call fashion goods are in fact things like men’s socks or shirts, for which demand is fairly easy to predict. Longer chains are more of a problem in high fashion.
But the biggest problem in all fashion supply chains is that working capital can be tied up for up to 60 days which, in the case of large production runs, can mean substantial amounts of money
‘Retailers need good decision processes in eciding what they want to have to produce’, and while the likes of H&M have always been good at this, supermarkets like Tesco are also learning fast, because they are selling more apparel,’ says Keifer.
GXS’s clients in this sector are demanding increasing visibility through the internet of where products are in the supply chain, often as far back as the factory floor and at all stages in the international transport chain. But in the past few months clients have also been asking for financial information. One of the biggest potential disruptions to any supply chain is the sudden bankruptcy of a supplier or subcontractor.
If a large retailer demands a big production run from a small overseas company, that could be a significant investment in a country where sophisticated finance tools and access to capital may be lacking, says Keifer, so may GXS clients are asking for creditworthiness information to be integrated with supply chain data. In some cases, the client may be able to help finance the manufacturer, often at more advantageous rates than are available locally.
Retailers such as House of Fraser now use ophisticated applications to plan and to forecast demand – in this case i2’s Merchandise Planner which gives information such as stock lists or margins, all of which can be fed into other systems. ‘It’s a flexible planning system, it’s scaleable and it can be used by a variety of people in the organisation,’ says HoF’s Peter Callaway.
He says perceptions on the value of forecasting systems are changing in fashion retailing, ‘although for us, forecasting would never be system-driven’. But forecasting in fashion is now no longer an entirely seat of the pants affair, either. It is possible, says Callaway, to record profiles of past demand that can be used to inform forecasts of demand.
But there are factors that can’t be predicted – for instance, a celebrity sporting a particular outfit in the pages of Hello! magazine, or the weather. But rather than try to guess the unguessable it is more important to have systems and suppliers that can respond quickly to changes in demand, says Callaway.
Guessing the weather
That said, systems are available that attempt to incorporate long-range weather forecasts, though HoF does not use them. They probably work better on a large land mass such as the US or Continental Europe than on a small island on the edge of the Atlantic, where it is possible to cluster stores in limate areas. ‘But we do listen to long-range weather forecasts,’ says Callaway.
The retailer also tries to work with its suppliers electronically as much as possible and is also moving to a cross-docking system.
Fashion, more than most other sectors of retailing offers great potential for RFID technology. Gerrit Wassink, RFID development manager at ADT Europe, points out that a lot of fashion retailers already put tags on all but the cheapest garments for security purposes (electronic article surveillance or EAS tags, as they are known in the trade) and these can be source-tagged. In fact, ADT says one of its unique selling points is the ability to offer combined RFID and EAS tags. The public is also used to seeing EAS tags on clothes and as these will be fully removed in store, there should be none of the fears of being spied upon that plagued earlier attempts to introduce RFID in other sectors.
ADT, part of Tyco, has many RFID projects going on in fashion retail, says Wassink, and two developments in particular have helped push the concept forward. One was a major contract to develop RFID for Tesco which gave the company critical mass. The other is the emergence of ultrahigh frequency (UHF) as opposed to HF technology, which gives read distances of five metres as opposed to one metre. German retailer Metro now wants to standardise on UHF, he adds.
He adds that one of the biggest attractions of RFID in fashion retailing is ‘improving in-store visibility. According to a recent report, 10 per cent of sales are missed because products are not on shelves.’
With RFID, garments misplaced by customers in the store could be quickly and precisely tracked down and put back in position, freeing up staff time for more productive tasks. US retail giant Wal-Mart, which is somewhat more advanced than the Europeans, has also found ‘a dramatic reduction’ in out-of-stocks.
RFID also has benefits in the rest of the clothing supply chain and one pilot for tracking goods from the Far East has already started, with a second due to commence shortly.
Combined RFID and EAS tags are a little dearer than EAS-only versions but the cost has come down to the extent that it is already viable for more expensive items and could soon be usable in the mass fashion market.
‘I anticipate a lot of activity in the next few months, especially in Germany, the UK and in southern Europe, with a move from pilot to full systems,’ says Wassink.
Pieter Van Den Broecke, senior director retail EMEA at i2 Technologies, says that fashion retailers ‘are under a lot of pressure and have to deal with a great deal of complexity’. He notes the disappearance of the fashion season in favour of multiple collections within a mini-season. ‘This makes the supply chain very challenging,’ he says. ‘You have to get organised for every collection that arrives. Esprit, for example, introduces 7,000 options – that is, variations of a product – every year.
The retailers also need to try and target stock levels according to the consumer profile of each store. Even in a country as small as Holland, there is an appreciable difference in the size of the average person in the north and south (the northerners tend to be bigger). There could even be differences between districts in the same city.
‘The ideal in fashion retailing is achieving a balance between push and pull.’ Space in most fashion stores is limited, and a high degree ofprecision is needed if profit-eating markdowns are to be avoided.
He cites the example of Woolworths in South Africa, which introduced the concept of demand forecasting and replenishment for basic items. ‘It realised it could bring in more styles if it used a pull model rather than a push one.
Dutch retailer WE tried a similar approach and was able to cut its inventory by 20 per cent and reduced markdowns by up to 10 per cent.
Peter Ward, RFID leader at IBM’s emerging business group, says that fashion retailing in Europe, along with pharma, is the hottest story as far as adoption of RFID is concerned. EPC Global has set up a fashion group which has attracted all the key players.
Ward says: ‘I’ve had many conversations with CIOs in the sector over the past few months and for many of them, the business case is there already.’ His feeling is that there will be some significant pilot projects in 2007, with roll-outs of full commercial systems in 2008.
As well as clothing, there is much interest among shoe retailers. This is one of the few areas of retailing in which the bulk of stock still tends to be held in back rooms, and having RFID systems that can get a grip on stock will be particularly interesting. In fashion generally, RFID will make it possible – for the first time in many cases – to have accurate, up-to-date stocktakes – a compelling enough reason in itself to adopt the technology.