About the need to change in fashion for brands and multi-brand retailers
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Intensive collaboration between suppliers and retailers in the fashion, footwear and sport industry is necessary. This is particularly true for brands and multi-brand retailers because the dominant market share of the multi-brand shops has fallen substantially in the last decade. Information exchange between suppliers and retailers alone is no longer sufficient. Several companies, discussed in this ‘food for thought’ article, already changed their business succesfully in order to compete with increasing direct internet sales, the still growing verticals (like H&M and Zara) and the single-brand shops. Many others are still ‘stuck in the middle’... In order to undertake effective organizational change for especially brands, it is essential to establish a way of adequately managing processes on remote shop floors. Only in this way it is possible to gain better insights into consumer behaviour and transform these insights into management and steering information. Eventually, higher sales can be created with better results for not only brands but also for their retail partners. Time to change towards more vertically integrated fashion business
Transcript
Intensive collaboration between suppliers and retailers in the fashion, footwear and sport industry is necessary. This is particularly true for brands and multi-brand retailers because the dominant market share of the multi-brand shops has fallen substantially in the last decade. Information exchange between suppliers and retailers alone is no longer sufficient.
Several companies, discussed in this ‘food for thought’ article, already changed their business succesfully in order to compete with increasing direct internet sales, the still growing verticals (like H&M and Zara) and the single-brand shops. Many others are still ‘stuck in the middle’...
In order to undertake effective organizational change for especially brands, it is essential to establish a way of adequately managing processes on remote shop floors. Only in this way it is possible to gain better insights into consumer behaviour and transform these insights into management and steering information. Eventually, higher sales can be created with better results for not only brands but also for their retail partners.
Time to change towards more
vertically integrated fashion business
1 ING Economisch Bureau, August 10th, 2010 2
Successful companies have already changed their business processes and have increased their market share substantially. Examples of successful companies are those with vertical structures, such as Zara, Mango and H&M.
H&M is active in 37 countries and owns over 2.000 stores as opposed to 1.800 stores a year ago. Her net profit in the first six months of 2010 increased 33% year on year. H&M realized a turnover of 118 billon Swedish Kronas (12.8 Billion Euros). H&M opened a flagship store with 6 floors on the Dam Square in Amsterdam recently.
Meanwhile many German brands such as Esprit, Betty Barclay, Gerry Weber, Frank Walder, Gardeur, Brax, Gelco and Street One (perhaps the most important pioneer in chain cooperation) are also winning market share, because of there more figure driven supply chain management.
Illustration by Piet Paris
A recent sector analysis in the clothing industry¹ shows that supply chain management based on actual retail sales (and stock) figures from the shops and intensive supply chain cooperation is the only right answer to achieve better results in the upcoming years. This article aims at enhancing managers’ awareness of how to manage retailers and suppliers in order to ensure their mutual cooperation and to achieve better results. This article is an in-depth research study integrated with concrete practical examples that envisages the necessary constraints.
Not only retailers but also suppliers should gain insight figures from the detailed results coming from the shop floor. Both retailers and brand suppliers should ensure the quality of output from the shop floor and aim to improve it: this is in their mutual interest. Suppliers used to be satisfied with bringing the buying period of a new collection to a successful end. However, this is too soon to celebrate, because the real finish is at the end of the season, when the retailer should have sold the goods to the consumer. Many Dutch fashion, footwear and sport suppliers still act this way, which causes them to lose a much better chance to succeed. German suppliers proved to better act in this new way of thinking.
A turnaround in thinking patterns is necessary. But it should go even further: organizations need to change their internal structures. Optimizing processes and qualified people on the new positions will become a major point of interest.
Furthermore, processes and systems need to support the goals and the people in an organization. This crucial strategic change process cannot occur without dedicated attention from the general management team. It is certainly not an IT project. The management of fashion companies has historically been driven by trade and emotion. Emotion will always be very important in this sector. However in these days, there is a growing need to focus also on ratio in order to achieve better results.
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Besides management based on figures and supply chain collabora-tion, there are traditional success factors that are still important. These factors include a clearly consistent choice of the target group, a good collection and excellent logistics. Mutual trust is a basic requirement everywhere for successful chain collaboration.
Despite the substantial decline in the volume growth of the fashion industry, the square meters of shop floors continues to grow, as illustrated in Figure 1. This growth will lead to an increasing discrepancy in the return-on-investment for successful companies and those who lag behind.
In 2009 the number of bankruptcy cases of suppliers and multi brand retailers in the fashion sector increased substantially, due to the economic crisis. These bankruptcies continued in 2010 and even more in 2011. Due to the discrepancy of output, it is inevitable that the number of bankruptcies will increase. Companies who lag behind will be the companies who do not change or recognize the necessity of changes until it is too late and so eventually will see the decreasing profit. Then it might be too late because structural change needs certain time, especially when several links in the supply chain have to change. The next decade will be critical.
Macro-economic developments
increase the necessity of
adapting organizations
source: CBS, locatus, estimation by en raming ING Economisch Bureau
Figure 1: Changes in shop floor square meters and turnover volumes of clothing stores in the Netherlands 2001-2010.
Cor Klein Koerkamp (Kleinmeulman Fashion from Dalfsen, NL) about Street One: “Via EDI, Street One has a continuously updated detailed insight into stock, slow movers and fast movers of all the Street One items in our multi-brand store. Street One translates this data into management information and actively uses it to keep control and achieve a win-win situation.
Street One ensures that fast selling products are replenished within one or two days. I do not have to spend much time on ordering, importing data and relabeling of the goods anymore. I almost never have to say to my customer ‘Sorry, we don’t have this item in your size anymore’ and I maintain low levels of stock. The circulation speed and the output of this brand is significantly higher than those brands that follow a more traditional mode of operation.
This way of working should be used by more suppliers. In my view, this collabora-tion model is crucial to a competitive posi-tion for relatively small multi brand retailers such as Kleinmeulman Fashion. The brand gains a grateful, dedicated and strong sales point in this region and it is able to better analyse and manage the selling of its collection quickly.
Strategic awareness with top management is changing all over the world. It is now being manifested in the fashion industry. The Dutch brands lag far behind in this change process compared to the German market, with some exceptions such as O’Neill, Garcia, Noppies, Dobotex (Puma) and Micro. This change process requires attention, energy and a lot of time. Footwear brands such as ECCO from Denmark and Timberland from America became aware of this need to change and miscalculated the amount of time required to change. Gant from Sweden and Diesel from Italy, also well-known brands, just recently started working on this. A lot of brands, still are not aware of this need to change. How many wake-up calls do they need?
fashion floor space fashion turnover
more sales floor space despite strong sales decline
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All department stores in Europe have gone through the supply chain reversal as stated above. In the Netherlands, Bijenkorf has successfully implemented these business models. A recent example of supply chain reversal is Maison de Bonneterie, a royal retailer with a rich and successful history. As time moved on, Maison de Bonneterie was forced to change its business strategy dramatically. Nowadays Maison de Bonneterie’s suppliers decide which products will be offered on the shop floor. The supplier also fully finances the stock and carries the responsibility for stock risks. The supplier is the owner of the product until the point-of-sale to the consumer. Maison de Bonneterie offers shop-in-shops, takes care of getting enough customers to the shop floor and provides an automated infrastructure including intelligent P.O.S. registers, which communicate through electronic data interchange with the system connecting to the suppliers; Maison de Bonneterie does not carry the risk of stock, doesn’t pay for the stock, but is paid by the supplier as a percentage of the actually realized consumer sales. Chain reversal is at its best.
In recent years, V&D’s concession and consignment models have successfully reversed the downward spiral. Now V&D offers an attractive mixture of different clothing brands for consumers and suppliers. In the press release on June the 30th 2010, Mark McKean, the CEO of V&D, indicated that V&D had achieved the highest growth in the last decade and a better growth rate than others in the fashion industry (source: GfK, from January until May 2010). McKean states that: “with ‘friendly staff’, ‘attractive products’ and ‘well-known brands’, V&D has shown a constant growth in appreciation and perception.” V&D in the Netherlands currently owns over 4.000 shop-in-shops of A-brands. They are almost all managed via EDI by suppliers. With the concession and consignment models, V&D has overcome the capital constraints and avoided potential margin losses due to product markdowns.
Meanwhile, the sell through ratios skyrocketed because assortment management and replenishment of the concession and consignment goods are fully driven by the supplier, who is also the owner of the goods.Only A-brands with a changed vision have managed to venture in this trend. They have learned that a more risky model may lead to a win-win situation and now benefits can be materialized.
Suppliers who stay away from this trend or ignore it will encounter a erosion of their presence at major shopping streets. Many traditional multi-brand stores will disappear due to the lack of business succession, the amount of ever growing mono-brand stores (Esprit, Vero Moda, Jack & Jones), exorbitant rental fees for top locations, the expanding of foreign store chains (Charles Vogele, New Look, Primark) and the continued grow of foreign vertical brands (Zara, H&M).
Concession and Consignment
Changing
Business Models
Traditionally stock risks in the fashion industry lie mainly with the retailers. Suppliers only produce what retailers signed for. Retailers bear all the risks of not selling stock to consumers. More and more suppliers are realizing that such an attitude towards the current market is short-sighted. A successful sale season is one when articles are actually sold at regular prices to consumers at a high circulation speed. If this is not the case, the loss of margin is evident because of inevitable mark downs, which lowers the profits of the retailer. The impact on the supplier will be apparent in the next round of orders in terms of a lower buying budget, notwithstanding the quality of the collection. This phenomenon can only be changed if the supplier feels the necessity to be involved in the sell through of its collection on the multi brand shop floor. Successful companies need to take it one step further.
These companies not only demonstrate their involvement at the retailer level, but also carry shared responsibility. This indicates the trend in supply chain reversal. A few practical examples are illustrated further in the article. Nowadays a lot of successful concepts are more supplier driven’ than retailer driven’. The verticals and mono-brand shops with A-brands are well-known examples. Also in the multi-brand context, we come across more supplier-driven business models’, such as Vendor Managed Inventory (VMI), Concession and Consignment. These models are distinguished by suppliers taking care of the product planning, with retailers no longer responsible for ordering.
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The Dutch company Sinner (selling sport and sunglass products) offers a product display directly to multi-brand retailers and manages data through electronic data interchange (EDI). Sinner has demonstrated a growth in turnover through the VMI model. Her retailers have also obtained a high turnover rate per square meter. In addition, the supplier has gained a powerful exposure on external shop floors. This is a win-win situation, as discussed in the quotation below.
Romano Capuzzato, the CEO of Sinner:
“Delivering glasses to retailers is not that interesting anymore. It is more interesting which glasses are sold to the end consumer. This process determines the end result for the retailer and therefore also for our company. The discussion between the brand and the retailer no longer focuses on who should carry the risk in inventory. Based on the mutual agreements and better choices, we are prepared to take the stock risks. We have seen the positive effects of the VMI model on our turnover, circulation speed and profitability. Probably there is still easy money to be made in the fashion, footwear and sport industry”.
If Albert Heijn (operating in a business sector where profit margins are very low) could not depend on its supplier and did not have intensive EDI to get the products ‘just-in-time’ at their stores, the company would no longer exist.
The VMI model, when compared to other supplier-driven business models, requires more than just a strong level of confidence among the business partners, the brand and the retailer. It also requires a change in the supplier’s thinking and acting. It requires the supplier to look into the retailer’s area, as well as constantly optimize the merchandise of external shop floors.
Vendor Managed
Inventory (VMI)
In the VMI model, the retailer owns the stock, but the supplier manages the re-plenishment of the products. This is also a ‘supplier-driven’ business model that can benefit both the retailer and supplier. The success of the VMI model has been proven in practice. In the VMI model, the retailer uses electronic data interchange to notify the supplier about the stock level and sales items on de-tailed level (article-color-size). The supplier replenishes the stock at the shop floor at a constant and attractive level.
The advantages of VMI for the retailer are multifold: • The stock is maintained at a right level that prevents stock-out situations and speeds up the sell through ratios; • The stock level can be controlled at a low level, resulting in a lower capital requirement;• It is an automated process that prevents mistakes and is more time efficient.
The VMI model benefits the supplier in terms of less dependence on the retailer and the sales development process. The supplier can monitor the process of selling the products on the shop floor and therefore better manage merchandise flow.
Street One is an example of a brand that has already utilized that VMI model for sev-eral years and achieved satisfactory results from having its brand in a tight position on external shop floors. The collaborated mono-brand and multi-brand retailers now have a high turnover rate per square meter with scarcely any price reductions.
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Retail is detail:
numbers are necessary for
accurate insights and better
As demonstrated in the above mentioned sector analysis is managing by retail figures becoming more and more crucial because of structural developments, such as internationalization and technological improvement. Of course the retailer must have a detailed insight in its own figures in the areas such as purchase, stock, sales, customer management and financial management. Such data, with perhaps the exception of customer management, should be electronically available for the supplier as well; on a weekly basis or perhaps even on a daily basis. This is relevant not only for the ‘supplier-driven’ business models, but also for the more traditional ‘retailer-driven’ models. Without exact, structured and de-tailed information exchanged between the suppliers and retailers, the supplier-driven business models such as concession, con-signment and Vendor Managed Inventory are not manageable. The supplier has to obtain an actual and structured view of the sales and stock of all models, colors and sizes in the external shops, so as to adequately analyze and ar-range the assortment of products in its own automated system.
Electronic data interchange is a condition for the supplier-driven business models in a responsible manner and a mutual added value for the retail-driven business models.
The first set of requirements for a successful and sustainable partner-ship between a supplier and a retailer cover the awareness of the need for a structured (EDI) supply chain collaboration and also trust in mutual collaboration. Effective collaboration will lead to a better insight in the actual and detailed figures on the shop floor and mutual improvement of the results.
The earlier the information is available, the earlier the supplier will be able to fine-tune the next collection and better plan the production. With a good foundation of collaboration, a higher sales percentage and eventually higher earnings will be achieved for both. Today, retailers more and more demand guarantees from the supplier regarding returns-, exchange-, and/or sell through results. On the other side retailers are more open for shop-in-shops for the brands who are cooperative in this field. Van Tilburg Fashion & Sportswear, with a shop floor of over 10.000 square meters in Nistelrode (NL), is a good example of this collaborative acting. The recently opened Chasin’ shop-in-shop in Van Tilburg is operated by retail organization Score, a jeans chain who developed Chasin’ as a private label and developed is a brand attractive for other retailers. Win-win. Regardless of the business model agreed upon, steering on detailed figures and supply chain collaboration are always critical for both suppliers and retailers. EDI is necessary for such collaborations. Before focusing on EDI as a way of steering on figures and supply chain collaboration, we first will we focus on the need for organizational transformation at mainly brand suppliers and in a certain way also at multi-brand retailers.
With the more traditional business models, especially the pre-order processes and also the re-order processes, information of the sales and stock from retailers are important for the supplier. With such information, the supplier can precisely monitor how the consumers are reacting to its merchandise, keep an eye on the trends and then moderate the design of new products according to the trends. Suppliers now denote the need to `have a short line to the market by offering several collections per season´. The trend-related numbers of the actual sales in the market have become increasingly important because those numbers allow the suppliers to adapt their production at the earliest stage of the season, and therefore enable the suppliers to respond to the customers’ demands and expectations.
Figure 2: To a digital collaboration with suppliers
Source: Economic bureau ING, August 2010
extra turnover
more efficiency; lower costs
Manual orders, inventory and sales records
ICT system for orders, inventory and sales records
management based on �gures
digital collaboration with suppliers
The earlier mentioned sector analysis also states that it is required to transform the organization and personnel for both retailers and suppliers so as to obtain a better steering of the organization and the goods. The practice shows that the sales persons on the supplier side should be equipped with more actual numbers and this steering process requires personnel with other competencies and more sophisticated tools than those in a traditional and often emotional way. Within a few years, a transformation at suppliers towards management by figures can result in the need to replace or retrain traditional thinking personnel by another type of employee.The supplier needs to know how to cope with the figures from the shop floor of her retailer and to achieve this, electronic data exchange is necessary. Processes, tools and people (roles, tasks and responsibili-ties) need to be aligned according to the transformation of the organization.
A strategic re-orientation is the first impor-tant step. Fundamental choices have to be made on the growing importance of supply chain collaboration among the organization and its customers, and the possible applica-tion of’ supplier-driven’ business models such as concession, consignment and VMI. Since making the necessary changes can take much more time than companies previously considered, it is important for the responsible manager to make the right decisions (medium and long-term decisions) about their company’s role in the supply chain for the upcoming years.
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Suppliers who have successfully transformed their business change have conducted a lot of migration work in moving from a wholesale organization to one combining wholesale and retail modes. Basically it’s a strategic choice for a transformation is from traditional wholesale to multichannel strategy of the brand and can consist of a combination of the models mentioned below:• Traditional wholesale (with pre-order and re-order);• Own (mono-brand) stores;• Franchised (mono-brand) stores;• Direct Internet sales to the consumer;• Concession/consignment with multi-brand stores (mainly department stores);• Shop-in-shops;• Vendor Managed Inventory.
Retailing does not belong to the supplier’s business area. Many brand suppliers did not recognize this in time and started retail activities on their own. This turned out to be a mistake and the suppliers learned this lesson at a high price. Generally speaking, separating the wholesale from the activities of selling directly to customers is the only correct decision, as proven by the practice of successful precursors. However a structural organizational transformation requires re-defining and recording the organizational tasks, roles and responsibilities. These need to be acknowledged and also subsequently implemented by people with suitable skills, not just the people who are available in the organization. Retraining and hiring new people is almost inevitable if a positive organizational transformation is to be achieved. In addition, the company needs to replace or adapt the technology so as to ensure that it adequately supports the people and processes in the transformed organization.
Another strategy can be to outsource the retail activities to a sophisticated retailer. Gebr. Coster is a retailer who’s responding successfully to this strategy. With a long time track record in operating some 40 Levi’s shops, Gebr. Coster now also operates mono brand shops of Dockers, G-Star, Adidas and most recently: Polo Ralph Lauren. Combined business models: traditional franchise, concession and VMI. Now Gebr. Coster even opened a so called duo brand shop (combination of G-Star and Adidas). 100% EDI-enabled of course.
The supplier can use EDI to send electronic data on product information, order conforming, packing slips and/or electronic invoices) to the retailers, as well as receive electronic data on sales reports, stock data and electronic orders from retailers.
In addition to EDI, the IT-systems on the supplier side should be able to process the data provided by the retailers, analyze it and eventually transform it into information for shop floor management (replenishment and pricing). A typical wholesale can’t cope with sales prices (including VAT) and conduct profit calculations at the level of the shop floor.
On the other hand the IT-systems on the retailer side should be able to automatically process incoming electronic data messages (product data and more) of the suppliers end send back proper and actual shop floor data to be processed in the suppliers’ systems.
Organizational transformation:
strategy, processes, people
and technology.
As mentioned before, electronic data inter-change (EDI) between the retailer and the supplier has become an essential condition for adequate supply chain collaboration. It is no longer sufficient to provide just a printed, pdf or e-mail list with the results from the shop floor.
The turnover and stock levels which the retailer provides to the suppliers should be structured, automated and available in time on detailed level (item, color, size). The data should be also organized in a way that it can be processed automatically by the supplier’s system. With EDI, the data and processes in the supplier’s side are linked to the IT-system on the shop floor, and vice versa. EDI is not just designed for the supplier-driven business models such as concession, consignment and Vendor Managed Inventory; the traditional pre-order and re-order processes aiming at a high efficiency can also benefit from EDI (figure 3).
EDI: the condition
for supply chain collaboration
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The most important benefits from EDI include:
• Product information is already recorded in the supplier system and does not need to be input into the retailer system, because EDI transfers the product data including barcodes and sales prices from the supplier side to the retailer’s system and registers. This process saves time and reduces errors. Both chain partners have the same set of data, which is important for a qualitative supply chain collaboration;• Cost savings and time earnings on retailer side as a result of electronic order conformations and electronic packing slips by the supplier. Also the ‘time to shop floor’ can be shortened. This is important to compete with the verticals and mono-brand shops;• The delivery of invoices via EDI not only saves costs for the retailer, but also enables an automatic input and checking of the invoices; • Retailers can automatically create orders on a weekly basis with predefined order parameters so as to avoid out of stocks for each individual shop at style-color-size level. This is an advantage for both partners. Indeed, the retailer can automatically create orders and the supplier can automatically process the orders via EDI; • The daily or weekly turnover data and the stock levels per defined period are of interest for the supplier in order to monitor the sales of the merchandise. This is applicable for all business models. However, in the case of supplier-driven models, EDI is the lifeblood of the business (‘without EDI, no concession, no consignment and no Vendor Managed Inventory’).
figure 3:
PRICAT
ORDRSP
ORDCHG
DESADV
INVOIC
SLSRPT
INVRPT
ORDERS
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Artikelaanmaak – 60% sneller
Orderinvoer – 80% automatisch
Binnenmelding goederen – 80% automatisch
Ontvangstcontrole – 50% sneller
Prijzen en labelen – 100% automatisch
Filiaalverdeling – 100% automatisch
Factuurinvoer – 90% automatisch
Factuurcontrole – 100% autoamtisch
Productbeschikbaarheid – aanzienlijk beter
Nieuwe samenwerkingsvormen met leveranciers mogelijk
Based on such information, collections are developed locally and the inventory is optimally controlled. This will lead to reduction of lost-sales and returns. Inventory is traditionally a high cost center in the fashion industry. The department of logistics has to act as a chain director and become increasingly important. Terms like supply chain management are introduced.
Together with the retailer there is a cost perspective from the whole chain: who is best in which areas, where can we put the cost most efficiently in the chain, what knowledge about the market and the consumer do we have.
At the end, everything is about the trust to share information and to benefit from the collaboration. For us, as a young brand, this means that we are not limited by such advancement. We have arranged our organization and systems according to the new business models and are able to adapt rapidly when necessary. Together with FashionUnited Indicia we are making great leaps forward. Learning from the set-ups of processes in other branches, where traditionally margins are under pressure, helps us.
Surf to www.pranke.com and www.fashionunitedindicia.com for more indepth information about supply chain digitalization in fashion. Or have a look at the website of the Dutch Platform Ketendigitalisering Mode, Schoenen en Sport: www.mssketendigitaal.nl whose goal it is not only to initiate electronic collaboration between the suppliers and retailers in the Dutch fashion market, but also to stimulate, to facilitate, to keep affordable and where possible to further standardize processes as well as message formats. FashionUnited Indicia is not only distributor for Germany based Pranke (eGate, eBiss), but also facilitates the data exchange hub for the Platform Ketendigitalisering and beyond.
The introduction of VMI itself is not a guarantee for financial success. Therefore the detailed data analysis is important for both suppliers and retailers to re-design their processes. This requires organizational transformation, not only for the retailer, but also for the supplier.
Sidney Bialystock, COO Sapph lingerie, discussed how to become successful as a brand now and in the future:
The rules of the game change constantly. For a brand builder, this always needs to be kept in mind. It also requires not only quality management and employees but also a different way of steering the supply chain. In the past, the focus was placed on the product and the retailer was the dominator. Nowadays the whole business model has to be dedicated to deliver what the customer/consumer needs, so that this customer-based focus is the foundation for the business model.
It is another way of reasoning. The traditio-nal product management requires thinking about product concepts and then marketing is used to create a place for your brand in consumers’ brains. The sales force is now being transformed from salesmen to consul-tants who collaborate with the retailer so as to locate better solutions. IT and EDI are the tools for learning about the customer needs, including where they are and what products they are buying (consumer behavior). In addition, websites and web shops play an important role in gaining information from consumers. Social media such as Facebook and Twitter are also important.
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October 2010, in close cooperation between Steven Witteveen (FashionUnited Indicia) and Mark Stol (FCTB)
Steven Witteveen, FashionUnited Indicia BVTwitter/LinkedIn: stevenwitteveenMobile phone: +31 653 137303
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FashionUnited Indicia BV www.fashionunitedindicia.com [email protected]. (036) 538 28 38 FashionUnited Indicia BV provides added values to both retailers and suppliers in fashion. On the business issues supply chain manage-ment, supply chain integration and electronic data interchange (EDI).
