Thanks to low-cost supplies pushing down prices, today’s fashion retailers have to sell 30 per cent more product just to maintain year-on-year sales, according to Gartner. Mass produced fashion from China, Vietnam, Indonesia and a host of other distant sources has transformed the way fashion retailers do business – many opting for direct importation and sophisticated sourcing models.
The prices may be low and highly competitive, but such globalisation brings with it the problems of extended supply chains with their long lead times and limited flexibility for changing delivery schedules. Trading across multiple time zones can be challenging – as is remote version control and sample approval.
The result has been significant investment by many of the major players in sophisticated technology to improve demand forecasting, enhance supply chain visibility, and simplify collaborative design development and range planning.
For all fashion retailers today’s priorities will focus around cutting costs and improving sales – and that generally involves optimising the supply chain to create better on-shelf availability, less money tied up in safety stocks, more accurate assortment planning, and greater responsiveness.
At the same time customers are becoming more demanding. Five years ago – according to research carried out by DHL – the typical fashion shopper would visit an average of five stores before choosing a product. Today, that figure has risen to 11 – and those stores are likely to range from discount retailers to top designer brands as shoppers combine different items to create the right look.
Creating the right assortment for these demanding shoppers is far from easy: one size does not fit all and today’s fashion retailers are focusing on localised ranges creating collections on a store-by-store basis to precisely match the growing vagaries of consumer buying patterns. This is never easy and becomes even more complex when faced with the long leadtimes associated with global sourcing and the hiccoughs caused by delays at customs.
Over the past few years the growth of floor-ready merchandise in the fashion sector has also helped keep lead times to a minimum. Goods are tagged, hanging, bagged and packed in store-ready ratios at the point of manufacture and simply need to be crossdocked at the distribution centre for final shipment to the high street. While the floor-ready standards are well-ingrained, the approach is becoming more complex with the need to vary those ratio packs for different stores, matching local demographics, in an attempt to reduce broken ranges and stock-outs.
DHL Exel Supply Chain has extensive and wellestablished operations throughout Europe – from primary logistics through value-added operations, such as the preparation of floor-ready merchandise, to running cross-docking facilities for major high street names as well as shared-user warehouses for smaller players. While major players like Metro, The Gap, Zara or Levi Strauss expect dedicated facilities, other customers – such as Tie Rack – can also benefit from best practice expertise by using shared operations delivering equivalent efficiencies and economies of scale.
Extended supply chains require excellent demand forecasting – and in fashion that can also be extremely difficult. Responsiveness and agility within the supply chain are essential and we’re already seeing retailers splitting production between the Far East and Eastern Europe to improve flexibility. Sourcing basic lines in the Far East causes few problems – but sourcing high fashion items with a shorter life-cycle and untried sales can prove more difficult: hence the practice of shipping in the initial consignments from the Far East but using factories nearer at hand to produce top up supplies of the winning lines.
Compared with the six weeks or so that it can take to bring containers by sea from China, delivering clothing lines made in Romania or Turkey to the UK will take just seven days – or only three or four if their destination is Spain or Italy. The cost of those products may be rather more, but that is balanced by improvements in matching supply to customer demand with better sell-through, improved stock availability, and fewer markdowns hitting margins.
With Romania on track to join the EU next year, this trend for bringing clothing production back to Europe could well escalate – especially in the high fashion sector where new lines are introduced on an almost daily basis with barely six weeks from design to delivery. Once Romania is inside the single market, products will be able to flow far more easily into Western distribution centres avoiding customs delays and border controls.
But the traffic with Eastern Europe, these days, is not just one-way.
While the newer members of the EU provide an important manufacturing base, they are also areas of growing prosperity and rising consumer demand. Many shoppers in Hungary, Slovakia, the Czech Republic, as well as Russia, are increasingly affluent and eager to buy prestige Western consumer brands – as the vast number of major retailers opening stores in cities like Prague or St Petersburg well demonstrates. These markets represent a massive potential for our major retailers with large populations and rising GDP.
The demand may be there but often the distribution infrastructure is not and it can be challenging for Western retailers entering these markets for the first time. In Russia, especially, there can be significant language problems and it can be difficult to recruit staff with the necessary managerial skills or retailing expertise. There is also a real shortage of suitable facilities: established developers are few and far between and it can be very difficult to find the right sites for both stores and support operations including distribution centres. Retailers often have to accept a compromise on high street locations due to local development constraints.
We have been working in both Russia and Eastern Europe for many years and do have the necessary infrastructure in place, as well as the ability to translate our experience and skills in the retail and fashion sectors across geographic and cultural boundaries.
Many of the distribution facilities available in these new markets can fall a long way short of what western retailers are used to. Cross-docking is still in its infancy and the sort of fully automated warehouses and sortation centres familiar to fashion retailers here are few and far between. Obviously some markets – such as Poland – are rather more sophisticated than some of the other EU accession countries where it could take several years for the necessary distribution infrastructure to develop.
Retailers moving into these new markets need trusted partners and efficient support – and many prefer to work with established service providers to give the consistency they need. We are finding growing demand from our major retail customers for operations in both Russia and the rapidly developing Eastern European markets. These operations, too, need the same level of supply chain visibility and demand forecasting that stores in the West require. Consumer demand in these economies can be just as eclectic as among Western shoppers and stock-outs and broken ranges just as detrimental to sales.
There is little point in retailers striving to cut inventory levels and improve margins in their western European operations if eastern expansion brings rising costs and burgeoning safety stocks. For many retailers these eastern developments are currently on a far smaller scale than in their traditional markets and, at least initially, few will want or need to develop their own dedicated distribution centres. Most retailers will be targeting the same key markets when it comes to expansion, too, opening operations in major – and often widely distributed – cities to begin with rather than in smaller towns.
Rapid replenishment models
Yet – especially in the high fashion sector – customers will need rapid replenishment models to maintain brand consistency and reputation for excitement and innovation that Eastern European shoppers will expect from these fascias. This can be especially demanding when historic data on likely sales performance for new lines is lacking.
Floor ready merchandise may still be something of a novelty in these countries but if retailers are to keep lead times to a minimum – as well as compensate for any local shortage of retailing skills – they will need to apply such techniques to ensure consistency in the offer. Shared cross-docking facilities are one option – although choice of such facilities is still very limited in many parts of Eastern Europe.
In the longer term it will be interesting to see how distribution patterns across Europe change. In the past fashion merchandise has travelled largely in a westerly direction. Currently the traffic is becoming two-way but in future how will growing demand in Eastern Europe and Russia impact choice of entry port for Far Eastern shipments, or location of centralised cross-docking facilities and regional distribution centres? It may take a few years, but Europe’s leading retailers are already demonstrating that Europe is a great deal larger than it used to be.
Kim Sainsbury is VP business development, retail and fashion for DHL Exel Supply Chain, EMEA. firstname.lastname@example.org