Covid-19, A Wake-Up Call for Supply Chain Management
Retailers are struggling to best navigate this new reality as the implications of the crisis are felt across fashion retail, including the backbone of this industry – its supply chain.
As fashion manufacturing grinds to a halt, fears of potential supply-related issues derived from a lack of resources and labour are threatening the operations of fashion businesses. In light of inconsistent supply pipelines unable to produce products regularly, most retailers are facing these two common scenarios; overflowing inventory due to lack of sales or depleting stock as supply runs low. Either way, both situations place retailers at great risk.
For countries like China, Italy, Spain and India where the majority of fashion manufacturing takes place, this crisis is a major blow to their economy. It also doesn’t help that the global supply chain is also incredibly interconnected. A number of textile companies in Europe are also suppliers for manufacturers located in Asia, increasing the effects of this crisis twofold.
While some factories in China have resumed production – weeks of temporary closures and layoffs have already delayed spring/summer stock and will likely affect the upcoming seasons as well. At this stage, to shift orders and re-schedule deliveries will not be easy tasks. On top of managing inventory issues, retailers will also need to take account of warehousing capabilities and logistics going in and out of the affected territories.
Despite the numerous supply chain upheavals the industry has gone through in the past, many retailers found themselves unprepared for this crisis leading to uncoordinated responses. However, most of these problems are due to underlying issues that have long plagued fashion production, even before the pandemic. In many ways, this crisis is a wake-up call to change the way we manage our supply chains.
Precise Product Phasing
Among the consumer shifts to anticipate after this crisis, is a decline in mass consumerism. With the impending global recession ahead of us, future consumers are likely to shop less. This begs the question: should retailers be launching any new products during this period?
The answer is, absolutely. Recent e-commerce sales performance shows us that consumer demand is far from over and most importantly, sustaining a constant cash-flow during this period is critical for business continuity.
As consumer demand remains turbulent, achieving an optimal inventory level is key. This means retailers will need to re-think how they forecast assortment size and time the frequency of new launches. Traditionally, we relied on historic data to inform our sales projections and line planning. But now these patterns are not sufficient.
Product analytics is now more crucial than ever as the solution to many of these problems may lie in your competition. Nike was one of the few retailers able to come out of the quarter relatively unscathed – its Q3 earnings beat early estimates despite hundreds of closed stores due to its swift e-commerce strategy.
A deeper view into Nike Hong Kong’s phasing strategy displays the significance of balancing product newness with markdowns to maintain healthy inventory levels.
In the chart above, coming out of the Chinese New Year period and into the beginning of the outbreak, we start to see the pandemic’s toll on Nike’s new-ins in February, as the number of new SKUs sharply declines. The number of discounted products is also relatively high despite the month being an uncommon sale period.
However, as conditions in Hong Kong start to improve, Nike ramped up its spring launches while continuing to liquidate products through markdowns to keep inventory moving. It is also important to note that the number of new-in’s in April of this year is less than 2019’s, and the number of discounted SKUs far higher than last year’s.
The same approach should also apply to replenishments. At this time, identifying signals for replenishment on a timely basis can be tough as retailers struggle to manage ongoing deliveries. But in planning for the upcoming fall/winter launches, producing new seasonal styles is no longer as relevant as replenishing products consumers actually need.
As many of you have noticed, sales for comfort products such as loungewear, pyjamas and workout gear have soared amid the COVID-19 lockdowns. However, now comes the issue of securing restocks as inventory runs low.
To overcome this dilemma, retailers will need to be more agile with stock monitoring and re-analyse product ageing. With a new understanding of market demands, it is important for retailers to detect stock movement of hot commodities, like loungewear, to plan for future replenishments.
The most critical situation to avoid during this period is excess inventory – a full warehouse means more money spent than money coming in. To ensure full warehouse flexibility, liquidate less demanded categories as much as possible, especially seasonal styles and occasion wear before the season’s end.
Adapting Available Resources
For retailers that have already purchased fabric and materials, this is the time to pivot your line sheets. Higher demand for comfortable apparel indicates we should prioritise softer materials. Repurpose materials intended for seasonal styles for high demand categories like core products, loungewear or activewear to increase the probability of sell-out.
A material breakdown of Asos’s assortment shows nearly 50% of sold out products are composed of polyester followed by cotton, spandex, jersey and viscose – all materials that are soft or elastic in nature. Since many of these materials are commonly used and likely to be in your line sheets anyway, find ways to maximise usage and increase SKU allocation using these materials.
If anything, this will also help in preventing wastage and increase sustainability by reducing the risk of overproduction. Many of the overstocking issues we have faced previously are linked to the constant churn of overstocked products and often this only led to more losses than profits as rampant discounting ate away margins.
Key Lessons Learned
In the years leading up to this crisis, many of us had already recognised the need for a supply chain reform, either due to shifting consumer behaviours or increasing environmental concerns, but stopping the engine of the industry was just too much of a risk.
Now that we’re forced to take a pause, there is an opportunity to re-evaluate the ecosystem we operate in. Many of the changes proposed were needed long before this and the COVID-19 crisis only amplified the necessity of a reset. From backing highly fickle trends to promoting excess consumerism, it is time for retailers to abandon old values and shift the paradigm of how we operate.
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