Transcript of "Change In Fashion Whitepaper English Vs1.1"
Time to change towards morevertically integrated fashion business 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.
A recent sector analysis in the clothingindustry¹ shows that supply chainmanagement based on actual retail sales(and stock) figures from the shops andintensive supply chain cooperation is theonly right answer to achieve better resultsin the upcoming years. This article aims atenhancing managers’ awareness of howto manage retailers and suppliers in orderto ensure their mutual cooperation andto achieve better results. This article is anin-depth research study integrated withconcrete practical examples that envisagesthe necessary constraints.Not only retailers but also suppliers shouldgain insight figures from the detailed results Successful companies have already changed their businesscoming from the shop floor. Both retailers processes and have increased their market share substantially.and brand suppliers should ensure the Examples of successful companies are those with verticalquality of output from the shop floor and structures, such as Zara, Mango and H&M.aim to improve it: this is in their mutualinterest. Suppliers used to be satisfied with H&M is active in 37 countries and owns over 2.000 stores asbringing the buying period of a new opposed to 1.800 stores a year ago. Her net profit in the first sixcollection to a successful end. However, months of 2010 increased 33% year on year. H&M realized athis is too soon to celebrate, because the turnover of 118 billon Swedish Kronas (12.8 Billion Euros). H&Mreal finish is at the end of the season, opened a flagship store with 6 floors on the Dam Square inwhen the retailer should have sold the Amsterdam recently.goods to the consumer. Many Dutchfashion, footwear and sport suppliers still Meanwhile many German brands such as Esprit, Betty Barclay,act this way, which causes them to lose a Gerry Weber, Frank Walder, Gardeur, Brax, Gelco and Street Onemuch better chance to succeed. German (perhaps the most important pioneer in chain cooperation) are alsosuppliers proved to better act in this new winning market share, because of there more figure driven supplyway of thinking. chain management.A turnaround in thinking patterns isnecessary. But it should go even further:organizations need to change theirinternal structures. Optimizing processesand qualified people on the new positionswill become a major point of interest.Furthermore, processes and systems needto support the goals and the people in anorganization. This crucial strategic changeprocess cannot occur without dedicatedattention from the general managementteam. It is certainly not an IT project.The management of fashion companieshas historically been driven by trade andemotion. Emotion will always be veryimportant in this sector. However in thesedays, there is a growing need to focus alsoon ratio in order to achieve better results. Illustration by Piet Paris1 ING Economisch Bureau, August 10th, 2010 2
Cor Klein Koerkamp (Kleinmeulman Fashionfrom Dalfsen, NL) about Street One:“Via EDI, Street One has a continuouslyupdated detailed insight into stock, slowmovers and fast movers of all the Street Besides management based on figures and supply chain collabora-One items in our multi-brand store. Street tion, there are traditional success factors that are still important. TheseOne translates this data into management factors include a clearly consistent choice of the target group, a goodinformation and actively uses it to keep collection and excellent logistics. Mutual trust is a basic requirementcontrol and achieve a win-win situation. everywhere for successful chain collaboration.Street One ensures that fast sellingproducts are replenished within one or twodays. I do not have to spend much time onordering, importing data and relabeling ofthe goods anymore. I almost never have Macro-economic developmentsto say to my customer ‘Sorry, we don’thave this item in your size anymore’ and I increase the necessity ofmaintain low levels of stock. The circulationspeed and the output of this brand issignificantly higher than those brands that adapting organizationsfollow a more traditional mode of operation. Despite the substantial decline in the volume growth of the fashionThis way of working should be used by industry, the square meters of shop floors continues to grow, asmore suppliers. In my view, this collabora- illustrated in Figure 1. This growth will lead to an increasing discrepancytion model is crucial to a competitive posi- in the return-on-investment for successful companies and those whotion for relatively small multi brand retailers lag behind.such as Kleinmeulman Fashion. The brandgains a grateful, dedicated and strong sales In 2009 the number of bankruptcy cases of suppliers and multi brandpoint in this region and it is able to better retailers in the fashion sector increased substantially, due to theanalyse and manage the selling of its economic crisis. These bankruptcies continued in 2010 and even morecollection quickly. in 2011. Due to the discrepancy of output, it is inevitable that the number of bankruptcies will increase. Companies who lag behind willStrategic awareness with top management be the companies who do not change or recognize the necessity ofis changing all over the world. It is now changes until it is too late and so eventually will see the decreasingbeing manifested in the fashion industry. profit. Then it might be too late because structural change needs certainThe Dutch brands lag far behind in this time, especially when several links in the supply chain have to change.change process compared to the German The next decade will be critical.market, with some exceptions such asO’Neill, Garcia, Noppies, Dobotex (Puma)and Micro. This change process requires Figure 1: Changes in shop floor square meters and turnover volumesattention, energy and a lot of time. Footwear of clothing stores in the Netherlands 2001-2010.brands such as ECCO from Denmark andTimberland from America became aware ofthis need to change and miscalculated the more sales floor spaceamount of time required to change. Gant despite strong sales declinefrom Sweden and Diesel from Italy, alsowell-known brands, just recently startedworking on this. A lot of brands, still are notaware of this need to change. How manywake-up calls do they need? fashion floor space fashion turnover source: CBS, locatus, estimation by en raming ING Economisch Bureau 3
Concession and Consignment 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 Changing 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 Business Models 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 floorTraditionally stock risks in the fashion and provides an automated infrastructure including intelligent P.O.S.industry lie mainly with the retailers. registers, which communicate through electronic data interchange withSuppliers only produce what retailers signed the system connecting to the suppliers; Maison de Bonneterie does notfor. Retailers bear all the risks of not carry the risk of stock, doesn’t pay for the stock, but is paid by theselling stock to consumers. More and more supplier as a percentage of the actually realized consumer sales.suppliers are realizing that such an attitude Chain reversal is at its best.towards the current market is short-sighted.A successful sale season is one when In recent years, V&D’s concession and consignment models havearticles are actually sold at regular prices successfully reversed the downward spiral. Now V&D offers an attractiveto consumers at a high circulation speed. mixture of different clothing brands for consumers and suppliers. In theIf this is not the case, the loss of margin is press release on June the 30th 2010, Mark McKean, the CEO of V&D,evident because of inevitable mark downs, indicated that V&D had achieved the highest growth in the last decadewhich lowers the profits of the retailer. The and a better growth rate than others in the fashion industry (source:impact on the supplier will be apparent in GfK, from January until May 2010). McKean states that: “with ‘friendlythe next round of orders in terms of a lower staff’, ‘attractive products’ and ‘well-known brands’, V&D has shown abuying budget, notwithstanding the quality constant growth in appreciation and perception.”of the collection. This phenomenon can onlybe changed if the supplier feels the V&D in the Netherlands currently owns over 4.000 shop-in-shops ofnecessity to be involved in the sell through A-brands. They are almost all managed via EDI by suppliers. With theof its collection on the multi brand shop concession and consignment models, V&D has overcome the capitalfloor. Successful companies need to take it constraints and avoided potential margin losses due to productone step further. markdowns.These companies not only demonstrate Meanwhile, the sell through ratios skyrocketed because assortmenttheir involvement at the retailer level, management and replenishment of the concession and consignmentbut also carry shared responsibility. goods are fully driven by the supplier, who is also the owner of theThis indicates the trend in supply chain goods.reversal. A few practical examples are Only A-brands with a changed vision have managed to venture in thisillustrated further in the article. trend. They have learned that a more risky model may lead to a win-winNowadays a lot of successful concepts are situation and now benefits can be materialized.more supplier driven’ than retailer driven’.The verticals and mono-brand shops with Suppliers who stay away from this trend or ignore it will encounter aA-brands are well-known examples. Also in erosion of their presence at major shopping streets. Many traditionalthe multi-brand context, we come across multi-brand stores will disappear due to the lack of businessmore supplier-driven business models’, succession, the amount of ever growing mono-brand stores (Esprit,such as Vendor Managed Inventory (VMI), Vero Moda, Jack & Jones), exorbitant rental fees for top locations, theConcession and Consignment. These expanding of foreign store chains (Charles Vogele, New Look, Primark)models are distinguished by suppliers and the continued grow of foreign vertical brands (Zara, H&M).taking care of the product planning, withretailers no longer responsible for ordering. 4
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 Vendor Managed has gained a powerful exposure on external shop floors. This is a win-win situation, as discussed in the quotation below. Inventory (VMI) Romano Capuzzato, the CEO of Sinner:In the VMI model, the retailer owns the “Delivering glasses to retailers is not that interesting anymore. It is morestock, but the supplier manages the re- interesting which glasses are sold to the end consumer. This processplenishment of the products. This is also a determines the end result for the retailer and therefore also for our‘supplier-driven’ business model that can company. The discussion between the brand and the retailer no longerbenefit both the retailer and supplier. The focuses on who should carry the risk in inventory. Based on the mutualsuccess of the VMI model has been proven agreements and better choices, we are prepared to take the stock risks.in practice. We have seen the positive effects of the VMI model on our turnover,In the VMI model, the retailer uses electronic circulation speed and profitability. Probably there is still easy money todata interchange to notify the supplier about be made in the fashion, footwear and sport industry”.the stock level and sales items on de-tailed level (article-color-size). The supplier If Albert Heijn (operating in a business sector where profit margins arereplenishes the stock at the shop floor at a very low) could not depend on its supplier and did not have intensiveconstant and attractive level. EDI to get the products ‘just-in-time’ at their stores, the company would no longer exist.The advantages of VMI for the retailer aremultifold: The VMI model, when compared to other supplier-driven business• The stock is maintained at a right level models, requires more than just a strong level of confidence among the that prevents stock-out situations and business partners, the brand and the retailer. It also requires a change speeds up the sell through ratios; in the supplier’s thinking and acting. It requires the supplier to look into• The stock level can be controlled at a low the retailer’s area, as well as constantly optimize the merchandise of level, resulting in a lower capital external shop floors. requirement;• It is an automated process that prevents mistakes and is more time efficient.The VMI model benefits the supplier interms of less dependence on the retailerand the sales development process. Thesupplier can monitor the process of sellingthe products on the shop floor and thereforebetter manage merchandise flow.Street One is an example of a brand thathas already utilized that VMI model for sev-eral years and achieved satisfactory resultsfrom having its brand in a tight positionon external shop floors. The collaboratedmono-brand and multi-brand retailers nowhave a high turnover rate per square meterwith scarcely any price reductions. 5
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 Retail is detail: digital collaboration with suppliers numbers are necessary for extra turnoveraccurate insights and better management based on gures As demonstrated in the above mentioned sector analysis is managing by retail figures becoming more and more crucial ICT system for orders, inventory and because of structural developments, such sales records as internationalization and technological Manual orders, inventory and improvement. Of course the retailer must sales records 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 more efficiency; lower costs exception of customer management, should be electronically available for the supplier as well; on a weekly basis or perhaps even Source: Economic bureau ING, August 2010 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- The first set of requirements for a successful and sustainable partner- tailed information exchanged between the ship between a supplier and a retailer cover the awareness of the need suppliers and retailers, the supplier-driven for a structured (EDI) supply chain collaboration and also trust in mutual business models such as concession, con- collaboration. Effective collaboration will lead to a better insight in the signment and Vendor Managed Inventory actual and detailed figures on the shop floor and mutual improvement of are not manageable. the results. The supplier has to obtain an actual and structured view of the sales and stock of The earlier the information is available, the earlier the supplier will be all models, colors and sizes in the external able to fine-tune the next collection and better plan the production. shops, so as to adequately analyze and ar- With a good foundation of collaboration, a higher sales percentage and range the assortment of products in its own eventually higher earnings will be achieved for both. Today, retailers automated system. more and more demand guarantees from the supplier regarding returns-, exchange-, and/or sell through results. On the other side retailers are Electronic data interchange is a condition more open for shop-in-shops for the brands who are cooperative in this for the supplier-driven business models in field. Van Tilburg Fashion & Sportswear, with a shop floor of over 10.000 a responsible manner and a mutual added square meters in Nistelrode (NL), is a good example of this collaborative value for the retail-driven business models. 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. 6
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;Organizational transformation: • Franchised (mono-brand) stores; • Direct Internet sales to the consumer; strategy, processes, people • Concession/consignment with multi-brand stores (mainly department stores); • Shop-in-shops; and technology. • Vendor Managed Inventory. The earlier mentioned sector analysis Retailing does not belong to the supplier’s business area. Many brand also states that it is required to transform suppliers did not recognize this in time and started retail activities on the organization and personnel for both their own. This turned out to be a mistake and the suppliers learned this retailers and suppliers so as to obtain a lesson at a high price. Generally speaking, separating the wholesale better steering of the organization and the from the activities of selling directly to customers is the only correct goods. The practice shows that the sales decision, as proven by the practice of successful precursors. persons on the supplier side should be However a structural organizational transformation requires re-defining equipped with more actual numbers and and recording the organizational tasks, roles and responsibilities. this steering process requires personnel These need to be acknowledged and also subsequently implemented with other competencies and more by people with suitable skills, not just the people who are available in sophisticated tools than those in a the organization. Retraining and hiring new people is almost inevitable traditional and often emotional way. if a positive organizational transformation is to be achieved. In addition, Within a few years, a transformation at the company needs to replace or adapt the technology so as to ensure suppliers towards management by figures that it adequately supports the people and processes in the transformed can result in the need to replace or retrain organization. traditional thinking personnel by another type of employee. Another strategy can be to outsource the retail activities to a The supplier needs to know how to cope sophisticated retailer. Gebr. Coster is a retailer who’s responding with the figures from the shop floor of her successfully to this strategy. With a long time track record in retailer and to achieve this, electronic data operating some 40 Levi’s shops, Gebr. Coster now also operates mono exchange is necessary. Processes, tools brand shops of Dockers, G-Star, Adidas and most recently: Polo Ralph and people (roles, tasks and responsibili- Lauren. Combined business models: traditional franchise, concession ties) need to be aligned according to the and VMI. Now Gebr. Coster even opened a so called duo brand shop transformation of the organization. (combination of G-Star and Adidas). 100% EDI-enabled of course. A strategic re-orientation is the first impor- The supplier can use EDI to send electronic data on product information, tant step. Fundamental choices have to be order conforming, packing slips and/or electronic invoices) to the made on the growing importance of supply retailers, as well as receive electronic data on sales reports, stock data chain collaboration among the organization and electronic orders from retailers. and its customers, and the possible applica- tion of’ supplier-driven’ business models In addition to EDI, the IT-systems on the supplier side should be able such as concession, consignment and to process the data provided by the retailers, analyze it and eventually VMI. Since making the necessary changes transform it into information for shop floor management (replenishment can take much more time than companies and pricing). A typical wholesale can’t cope with sales prices (including previously considered, it is important for VAT) and conduct profit calculations at the level of the shop floor. the responsible manager to make the right decisions (medium and long-term decisions) On the other hand the IT-systems on the retailer side should be able to about their company’s role in the supply automatically process incoming electronic data messages (product data chain for the upcoming years. and more) of the suppliers end send back proper and actual shop floor data to be processed in the suppliers’ systems. 7
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, EDI: the condition 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 eachfor supply chain collaboration individual shop at style-color-size level. This is an advantage for both partners. Indeed, the retailer can automatically create orders and the As mentioned before, electronic data inter- supplier can automatically process the orders via EDI; change (EDI) between the retailer and the • The daily or weekly turnover data and the stock levels per defined supplier has become an essential condition period are of interest for the supplier in order to monitor the sales of for adequate supply chain collaboration. It is the merchandise. This is applicable for all business models. no longer sufficient to provide just a printed, However, in the case of supplier-driven models, EDI is the lifeblood pdf or e-mail list with the results from the of the business (‘without EDI, no concession, no consignment and no shop floor. Vendor Managed Inventory’). 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 figure 3: and processes in the supplier’s side are PRICAT 1 linked to the IT-system on the shop floor, and vice versa. EDI is not just designed for ORDRSP 2 the supplier-driven business models such ORDCHG as concession, consignment and Vendor Managed Inventory; the traditional Leverancier Supplier DESADV 3 4 5 6 Retailer Retailer pre-order and re-order processes aiming at INVOIC 7 8 a high efficiency can also benefit from EDI SLSRPT (figure 3). 9 10 INVRPT 11 ORDERS 1. Artikelaanmaak – data sneller quicker Creating article 60% - 80% EDI berichtcodes: catalog; product data PRICAT = price 2. Orderinvoer –-80% automatisch Order entry 80% automated PRICAT = artikelstamdata ORDRSP = order respons ORDRSP = orderbevestiging 3. Binnenmelding goederen –-80% automatisch Receiving goods admin 80% automated DESADV = despatch advice / ORDCHG = orderaanpassing 4. Ontvangstcontrole – 50% sneller Check packingslips - 50% quicker DESADV = pakbon note advanced shipping INVOIC = factuur 5. Prijzen en labelen – 100% automatisch Pricing and labeling - 100% automated INVOIC = invoice SLSRPT = doorverkoopcijfers 6. Filiaalverdeling – -100% automatisch Cross docking 100% automated INVRPT = = sales report SLSRPT voorraadgegevens ORDERS = order (NOS) 7. Factuurinvoer – 90% automatisch Invoice entry - 90% automated INVRPT = inventory report 8. Factuurcontrole – 100% autoamtischautomated Checking invoice details - 100% ORDERS = orders (NOS) 9. Productbeschikbaarheid – aanzienlijk beter Product availability - much better 10. Nieuwe samenwerkingsvormen met leveranciers mogelijk Branded retail - new ways of business 11. Replenishment never-out-of-stock-collectie (NOS) – 100% Replenishment basics - 100% automated automatisch source: FashionUnited Indicia BV 8
The introduction of VMI itself is not aguarantee for financial success. Thereforethe detailed data analysis is important forboth suppliers and retailers to re-designtheir processes. This requires organizational Based on such information, collections are developed locally and thetransformation, not only for the retailer, but inventory is optimally controlled. This will lead to reduction of lost-salesalso for the supplier. and returns. Inventory is traditionally a high cost center in the fashion industry. The department of logistics has to act as a chain director andSidney Bialystock, COO Sapph lingerie, become increasingly important. Terms like supply chain managementdiscussed how to become successful as a are introduced.brand now and in the future: Together with the retailer there is a cost perspective from the wholeThe rules of the game change constantly. chain: who is best in which areas, where can we put the cost mostFor a brand builder, this always needs to be efficiently in the chain, what knowledge about the market and thekept in mind. It also requires not only quality consumer do we have.management and employees but also adifferent way of steering the supply chain. At the end, everything is about the trust to share information and toIn the past, the focus was placed on the benefit from the collaboration. For us, as a young brand, this meansproduct and the retailer was the dominator. that we are not limited by such advancement. We have arranged ourNowadays the whole business model has to organization and systems according to the new business models andbe dedicated to deliver what the customer/ are able to adapt rapidly when necessary. Together with FashionUnitedconsumer needs, so that this customer- Indicia we are making great leaps forward. Learning from the set-ups ofbased focus is the foundation for the processes in other branches, where traditionally margins are underbusiness model. pressure, helps us.It is another way of reasoning. The traditio-nal product management requires thinking Surf to www.pranke.com and www.fashionunitedindicia.com forabout product concepts and then marketing more indepth information about supply chain digitalization in fashion.is used to create a place for your brand in Or have a look at the website of the Dutch Platform Ketendigitaliseconsumers’ brains. The sales force is now ring Mode, Schoenen en Sport: www.mssketendigitaal.nl whose goalbeing transformed from salesmen to consul- it is not only to initiate electronic collaboration between the supplierstants who collaborate with the retailer so as and retailers in the Dutch fashion market, but also to stimulate,to locate better solutions. IT and EDI are the to facilitate, to keep affordable and where possible to furthertools for learning about the customer needs, standardize processes as well as message formats. FashionUnitedincluding where they are and what products Indicia is not only distributor for Germany based Pranke (eGate,they are buying (consumer behavior). In eBiss), but also facilitates the data exchange hub for the Platformaddition, websites and web shops play an Ketendigitalisering and beyond.important role in gaining information fromconsumers. Social media such as Facebookand Twitter are also important. 9
October 2010, in close cooperation betweenSteven Witteveen (FashionUnited Indicia) andMark Stol (FCTB)Steven Witteveen, Mark Stol,FashionUnited Indicia BV FCTB BVTwitter/LinkedIn: stevenwitteveenMobile phone: +31 653 137303FashionUnited Indicia BV FCTB BVwww.fashionunitedindicia.com firstname.lastname@example.org email@example.com. (036) 538 28 38 t. (020) 471 33 17FashionUnited Indicia BV provides added FCTB BV is a down to earth consultancy firm,values to both retailers and suppliers in fashion. focussing on business issues regardingOn the business issues supply chain manage- Innovation & Change.ment, supply chain integration and electronicdata interchange (EDI). 10