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Fashion, apparel, textile, merchandising, garments

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  1. 1. Sector Update: Textile and Apparel Industries Transforming Enterprise January 28, 2003 Jan Hammond Harvard Business School
  2. 2. Industry Overview: Bases of Competition <ul><li>Price/Cost </li></ul><ul><ul><li>Overcapacity, retail consolidation. </li></ul></ul><ul><ul><li>Prices dropping: e.g. 1994 – 2002, CPI up ~23% </li></ul></ul><ul><ul><ul><li>Women’s/Girls Apparel price index down ~13% </li></ul></ul></ul><ul><li>Quality </li></ul><ul><ul><li>Look, feel, durability... </li></ul></ul><ul><li>Fashion </li></ul><ul><ul><li>Short product life cycles, unpredictable demand </li></ul></ul><ul><li>Variety </li></ul><ul><ul><li>Closets are full: consumers need a reason to buy </li></ul></ul>
  3. 3. Competitive Impetus for Lean Retailing with Technology as an Enabler Need for New Supply Channel Management Models & Practices Short Product Life Cycles Forecasting Uncertainty Inventory Risk <ul><li>Lean Retailing </li></ul><ul><li>Weekly+ replenishment </li></ul><ul><li>Small order quantities </li></ul><ul><li>Short lead times </li></ul><ul><li>Technological Enablers: </li></ul><ul><li>Barcodes and Scanners </li></ul><ul><ul><li>Product level identification </li></ul></ul><ul><ul><li>Shipping container identification </li></ul></ul><ul><li>EDI & Internet </li></ul><ul><li>Automated Distribution Centers </li></ul>Product Proliferation
  4. 4. Channel Structure: Traditional Retailer-Supplier Dynamics Apparel Plant 1 Apparel Plant 2 Apparel Plant n Retailer’s Warehouse Retail Store 1 Retail Store 2 Retail Store m Manufacturer’s Warehouse Low Frequency Retail Order Large Bulk Shipments Apparel Plant n Weekly Orders Apparel Plant 1 Apparel Plant 2 Retailer’s Distribution Center Retail Store 1 Retail Store 2 Retail Store m Manufacturer’s Distribution Center Channel Structure: Lean Retailer-Supplier Dynamics Small Replenishment Shipments
  5. 5. Source: Standard and Poors, 2002
  6. 6. Distinctive Aspects of Industry: Factors Affecting E-Commerce Adoption <ul><li>Difficult to specify key aspects of product </li></ul><ul><ul><li>Fit </li></ul></ul><ul><ul><li>Color </li></ul></ul><ul><ul><li>Touch and feel </li></ul></ul><ul><li>Reviews by customers, industry experts, independent performance evaluations not as helpful </li></ul><ul><li>Emotional aspects to purchase </li></ul><ul><li>Brands help (somewhat) </li></ul><ul><li>Some product categories easier: </li></ul><ul><ul><li>Basic products: </li></ul></ul><ul><ul><ul><li>More familiar touch, feel, and fit; </li></ul></ul></ul><ul><ul><ul><li>Less expensive </li></ul></ul></ul><ul><ul><ul><li>Less important emotionally </li></ul></ul></ul><ul><ul><li>Product with clear sizing standards </li></ul></ul>
  7. 7. Business to Consumer
  8. 8. Evidence of Industry Challenges (B2C) <ul><li>Returns high </li></ul><ul><ul><li>Casual sportswear: 12% - 18% </li></ul></ul><ul><ul><li>Fitted fashions: 20%-28% </li></ul></ul><ul><ul><li>“ High” fashion: up to 35% </li></ul></ul><ul><ul><li>vs. average on-line return rate among all product types ~10% </li></ul></ul><ul><li>Returns expensive to process </li></ul><ul><ul><li>Arrive one at a time, not necessarily in good condition </li></ul></ul><ul><ul><li>Need to be classified, undergo quality control with a determination made: </li></ul></ul><ul><ul><ul><li>Repackage and back to inventory? </li></ul></ul></ul><ul><ul><ul><li>Back to vendor? </li></ul></ul></ul><ul><ul><ul><li>Liquidate? </li></ul></ul></ul><ul><ul><ul><ul><li>Requires higher level of judgment in distribution center </li></ul></ul></ul></ul><ul><ul><li>Customer credit (scan or input order number) </li></ul></ul><ul><ul><li>Update inventory/sales systems </li></ul></ul><ul><li>Example: Spiegel volume: 6M units/year: 24,000/day </li></ul>
  9. 9. Technological “Solutions” <ul><li>Zoom Technology </li></ul><ul><li>Color Representation Technology </li></ul><ul><li>Swatch Technology </li></ul><ul><li>Technology to address fit challenges: </li></ul><ul><ul><li>“ Personalized” on-line “models” </li></ul></ul><ul><ul><ul><li>Input your measurements and other characteristics: “try clothing on” the model </li></ul></ul></ul><ul><ul><li>Take body measurements </li></ul></ul><ul><ul><ul><li>“ Fit calculators” translate measurements to sizes </li></ul></ul></ul><ul><ul><li>Body scanning </li></ul></ul><ul><ul><ul><li>Fidelity issues </li></ul></ul></ul><ul><ul><ul><li>And … do you want to see your own body online? </li></ul></ul></ul><ul><ul><li>Marketers want images more “aspirational” </li></ul></ul><ul><ul><li> for “plus sizes”: you give measurements: no image, just says “loose”, “tight” or “best” fit </li></ul></ul>
  10. 10. Mass Customization <ul><li>Dell Model: Book orders prior to manufacturing </li></ul><ul><ul><li>But, can’t hold all components like Dell. </li></ul></ul><ul><ul><li>Fabrication required as well as assembly; Color matching critical. </li></ul></ul><ul><li>Custom Fit </li></ul><ul><ul><li>In store measurement/ordering: </li></ul></ul><ul><ul><ul><li>Levi’s jeans: measure </li></ul></ul></ul><ul><ul><ul><li>Brooks Brothers’ shirts: measure </li></ul></ul></ul><ul><ul><ul><li>Brooks Brothers’ suits: body scan </li></ul></ul></ul><ul><ul><li>On-line measurement/ordering: </li></ul></ul><ul><ul><ul><li>Lands’ End </li></ul></ul></ul><ul><ul><ul><ul><li>Take own measurements </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Jeans, chinos: now 40% of all purchases are custom fit </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Price premium ~50% </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Moving into men’s shirts, trousers </li></ul></ul></ul></ul><ul><li>Custom Design </li></ul><ul><ul><ul><li>Fabric, components, style options </li></ul></ul></ul>
  11. 11. B2C Issues for Different Participants <ul><li>Bricks and Mortar Retailers </li></ul><ul><ul><li>Different data requirements </li></ul></ul><ul><ul><li>Order fulfillment challenges </li></ul></ul><ul><li>Manufacturers </li></ul><ul><ul><li>Channel conflict </li></ul></ul><ul><ul><li>Order fulfillment challenges </li></ul></ul><ul><li>Catalog Companies </li></ul><ul><ul><li>Easiest transfer, but new skills required </li></ul></ul><ul><li>Pure Plays </li></ul><ul><ul><li>Order fulfillment challenges </li></ul></ul><ul><ul><li>Need brands to instill consumer confidence </li></ul></ul>
  12. 12. Case Study - Levi Strauss <ul><li>11/23/98: On-line Launch </li></ul><ul><li>#1 e-mailed consumer request for direct on-line sales of Docker products </li></ul><ul><ul><li>- Levi launches on-line sales of Levi and Docker brands </li></ul></ul><ul><li>Industry debate: Levi should first use the web to improve spotty fulfillment record with retailers instead of using web to sell direct </li></ul><ul><li>01/99: On-line Exclusivity </li></ul><ul><li>Levi retains exclusive rights to selling Dockers and Levi on line </li></ul><ul><ul><li>sales of Levi and Docker brands declared off limits on all retailer web sites: anger in channel </li></ul></ul>
  13. 13. B2C - Levi Strauss <ul><li>11/99: Off Line </li></ul><ul><li>Levi announces halt to e-commerce efforts and web sales post holiday season </li></ul><ul><li>Instead, Levi will use site as a merchandising vehicle, with final sale directed to retail partner sites </li></ul><ul><ul><li>All online efforts now moved to JC Penney and Macy’s </li></ul></ul><ul><li>Debate: why Levi changed online strategy: </li></ul><ul><ul><li>Overwhelming opinion claimed due to channel conflict </li></ul></ul><ul><ul><li>Others claimed Levi was caught in a fulfillment challenge as they failed to develop an infrastructure to support the site </li></ul></ul><ul><li>Levi announces a renewed focus on working hand-in-hand with retailers to meet consumer needs </li></ul><ul><li>01/03: Continue to sell on Penney and Macy’s site. </li></ul>
  14. 14. Partnerships <ul><li>Fewer in each category choosing to “go it alone”: Combine bricks and mortar presence and online capabilities: </li></ul><ul><ul><li>Levi’s and Macys/JC Penney partnerships </li></ul></ul><ul><ul><li>Sears bought Lands’ End </li></ul></ul><ul><ul><li>Amazon site: Sears/Lands’ End, Eddie Bauer, Target, Gap, Liz Claiborne, … </li></ul></ul>
  15. 15. On-line apparel sales growing (much at expense of catalog sales) Source: Standard & Poors, 2002
  16. 16. Expect continued growth, but understand challenges <ul><li>Amazon entry is a big deal: </li></ul><ul><ul><li>First 6 weeks of Amazon apparel store site (holiday season): $1.29 billion sales, # 2 only to computers, at $1.32 billion </li></ul></ul><ul><li>Partnerships critical: combine brand name w/ bricks and mortar w/ on-line fulfillment capabilities </li></ul><ul><li>More women using the internet </li></ul>
  17. 17. Business to Business
  18. 18. Forces Driving Implementation <ul><li>Demand unpredictability is high: the need for improved channel information is considerable. </li></ul><ul><li>The high fragmentation of plants and global dispersion of plants make the need for transparency high: there are many local players who benefit from lack of good market information. </li></ul><ul><li>“ Pain” in the industry is high; there is great room for improvement. </li></ul>
  19. 19. Expected Performance Benefits <ul><li>Decreased cost of communication in the channel. </li></ul><ul><ul><li>Extension of lean retailing practices </li></ul></ul><ul><ul><ul><li>From EDI to web based: easier to scale, maintain, improve </li></ul></ul></ul><ul><ul><li>Estimate for Sears for purchase orders alone: </li></ul></ul><ul><ul><ul><li>Purchase order cost expected to drop from $100/order (cost w/ previous EDI system) to $10/order (using Web-based retail exchange) </li></ul></ul></ul><ul><ul><ul><li>Annual savings for 100 million purchasing orders ~ $9 billion/year </li></ul></ul></ul><ul><li>Improved visibility in the supply chain </li></ul><ul><li>Improved forecasting capability </li></ul><ul><li>Reduced channel inventories </li></ul><ul><li>Improved design </li></ul>
  20. 20. Forces Hindering Implementation <ul><ul><li>Difficulties of specification persist: Products, plant capabilities and components are difficult to characterize. </li></ul></ul><ul><ul><li>Apparel plants are small , with relatively low levels of sophistication. Implementation will be challenging. </li></ul></ul><ul><ul><li>The complexity of interaction among channel partners is relatively high. </li></ul></ul><ul><ul><ul><li>Communicating about product design, product quality, plant capabilities, involves significant subjectivity . This type of communication will be harder to put on line. </li></ul></ul></ul><ul><ul><li>Intermediaries provide domain expertise and local knowledge that will be hard to automate. </li></ul></ul><ul><ul><li>Deep knowledge is required to be effective </li></ul></ul>
  21. 21. B2B Auctions, Exchanges, etc. Tightly coordinated supply chains Breadth of Relationships Depth of Relationships Where the hype has been Where many of the benefits lie Understanding the Value Proposition for Textile-Apparel-Retail B2Bs