You Are Everywhere: Mapping the New Retail Supply Chain
Gone are the days of single-channel apparel retailing—and supply chains servicing that model. Today, apparel retailers must optimize their supply chains to deliver products from any point where consumers want to buy them.
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The formula for apparel retail success used to be straightforward: give consumers quality, on-trend garments at the right price point, in an attractive store setting with helpful sales associates, and watch the dollars roll in. Behind the scenes, the supply chain needed only to support the single mission of getting goods to retail stores on time—a largely predictable process.
Today, however, the apparel retail environment is vastly different. Brick-and-mortar stores exist as merely one channel in a rapidly expanding multi-channel world that has complicated the retail landscape. The typical channel lineup for apparel retailers can now include brick-and-mortar stores; outlet locations; e-commerce sites; social and mobile commerce; catalogs; and other seasonal or single-use channels such as pop-up stores and flash sales.
Consider even the emerging channel of "broadcast retail," pioneered by the reality TV show Fashion Star. Contestants designed apparel in hopes of convincing buyers from Macy's, Saks Fifth Avenue, and H&M to carry the designs in their stores. The winning garments were made available for consumers to buy in stores and online immediately following each episode. It's easy to imagine the supply chain headaches that scenario could cause.
The availability of these myriad channels has, in turn, boosted shoppers' expectations within each channel. "Today, a typical American consumer expects cross-channel services such as 'click-and-collect' and 'order-to-deliver'; wider online SKU offerings; in-store kiosks; free delivery; free returns through any channel; and a mobile retail site," notes E-Commerce & Multichannel Fulfillment: Supply Chain Flexibility Key to Meeting Changing Demands, a whitepaper sponsored by third-party logistics (3PL) provider Exel.
The New Retail Reality
Retail shoppers have also come to expect a reliable brand experience—a consistent set of products, promotions, prices, product descriptions, delivery charges, and return policies—regardless of which channel they are shopping. Sixty-six percent of consumers in a recent Gartner study view this cross-channel consistency as important, notes Gartner analyst Jessica O'Brien.
"Typical apparel consumers shop a brand, not a channel," she explains. "They want the merchandise where they want it, when they want it, and how they want it."
These new demands are being added to the already hyper-competitive apparel market—characterized by seasonal merchandise with short cycles, fickle consumers, and fierce price scrutiny. Finding a way to optimize supply chains to meet the new pressures of channel proliferation, while still servicing the standard need to keep costs under control and deliver the right products to the right place at the right time, is the new reality for apparel retailers.
"The addition of these new channels has greatly increased the apparel supply chain's complexity," says Frank Scappatori, director of strategic accounts for Damco, a global logistics company with U.S. headquarters in Madison, N.J. "Apparel has always been time-bound. Companies are trying to drive fashion and keep up with product launches, which adds a huge speed-to-market component.
"But having multiple sales channels has forced apparel supply chain managers to simultaneously accommodate and anticipate varying internal and external demands so they can continue to meet time windows; keep costs at certain levels; ensure inventory can satisfy multiple channels; and continue to help their organizations fuel growth," he adds. "Supply chains are being asked to deliver a tremendous amount of flexibility."
Not surprisingly, no one-size-fits-all game plan works for managing multi-channel apparel retail supply chains. But while each retailer's approach may differ, one must-have for succeeding in the new apparel retail environment is supply chain visibility.
"Knowing where your product is, whether it is moving in the most cost-efficient manner, and if it will be available to ship from a distribution center on time is key to handling multiple sales channels," Scappatori explains. "That visibility element is vital to managing multiple supply chains."
Here is a closer look at how this landscape of multi-channel apparel retail is playing out across various aspects of the supply chain.
Inventory Management/Order Fulfillment: Going Beyond the DC for Cross-Channel Inventory Strategies
From malls to mobile phones to mail-order, apparel purchases originate from many points these days, and that means apparel retailers must grapple with how best to fulfill those different orders—and how to handle the inventory behind the purchases. Unlike pure-play Internet merchants or brick-and-mortar-only retailers, multi-channel apparel brands need the flexibility to fill orders in numerous ways.
"Some apparel retailers operate dedicated distribution centers to satisfy the e-tailing part of their business," Scappatori notes. "Others prefer to service all channels out of all their DCs; select a combination of those two options; or use their stores to help fill e-commerce orders."
While maintaining multiple sales channels complicates the inventory management and order fulfillment process, it can also provide an advantage, notes Gartner's O'Brien."If a multi-channel retailer can execute well, it can leverage its entire network—including store locations and drop-shippers—for order fulfillment, instead of just being able to ship from a DC," she explains.
But executing on multi-channel inventory strategies can be a challenge for apparel retailers that do not possess the necessary resources or technology. "In many cases, the infrastructure to support cross-channel inventory isn't there. Retailers may not have the necessary inventory visibility or multi-channel order management systems to support it," O'Brien says. "And, they might have multiple warehouse management systems that aren't operating together to allow inventory to flow through the network."
Nordstrom is one multi-channel apparel retailer capitalizing on the ability to provide cross-channel inventory visibility. The upscale fashion chain, based in Seattle, operates 231 stores in 31 states, including 117 full-line stores, 110 Nordstrom Racks, two Jeffrey boutiques, one treasure&bond store, and one clearance store. Nordstrom also serves customers through Nordstrom.com, catalogs, and in the online private-sale marketplace through its subsidiary, HauteLook.
Over the past few years, Nordstrom has been able to achieve consistently high inventory turns (5.6 in 2010 and 2011, its highest inventory turns of all time) without increasing inventory costs by simply making better use of inventory across all its channels.
The company gives shoppers the option to buy online and pick up in stores, and displays both its Web and store inventory online. So if a shopper wants to purchase a Burberry trenchcoat from Nordstrom.com and pick it up later that day at their local Nordstrom store, they will know instantly if it is available. In addition, the company uses its stores as de-facto fulfillment centers—so if another customer wants the same trenchcoat and the Web DC is out of stock, the garment can be shipped from any of Nordstrom's physical store locations.
Melding store and Web inventory can also help retailers avoid markdowns, because items do not linger as long on sales floors or DC shelves. "Companies that have flexibility to move inventory around can gain a large advantage," explains O'Brien. "If a sweater, for example, is not selling well in Los Angeles but is selling like hotcakes online or in New York, retailers that can ship the sweater from those poor-performing stores and send it to other stores or directly to the consumer make better margins."
A Boost to the Bottom Line
Gaining a single view of inventory visibility, and using it to leverage inventory across the network, has helped Nordstrom maintain synergy between its channels, boosting the brand's already strong reputation for customer service and consistency. The inventory management overhaul has also helped its bottom line. In fiscal 2011, the company achieved an all-time sales high, exceeding $10 billion. And it again achieved a 5.6 inventory turn, which "reflects the ongoing benefits from our multi-channel capabilities," explained CFO Mike Koppel during Nordstrom's 2011 earnings conference call.
During the call, President Blake Nordstrom also outlined the company's goals for 2012, which clearly show the retailer's commitment to excelling in multi-channel commerce. The goals included: enhancing the overall Web and mobile Web experience; building out IT infrastructure to fuel e-commerce growth; beginning implementation of enhanced tools to improve initial inventory allocation and assortment; expanding online merchandise selection; and developing a more customized approach to all aspects of customer engagement.
Transportation: Mixing Up the Modal Mix
As the number of sales channels continues to increase, so does the complexity of transportation management. The standard apparel retail distribution model—in which garments come inbound to a distribution center and are delivered to local stores via ground transport in a reasonably fixed fashion and timeframe—is no longer a given. As such, the need for apparel retailers to profitably optimize their transportation network has never been greater, says Fabrizio Brasca, vice president of global logistics at JDA, a Scottsdale, Ariz.-based supply chain software provider.
With the growth of Web and mobile channels, apparel retailers are no longer just dealing with a network of transportation providers who deliver garments to brick-and-mortar stores via ongoing replenishment processes. They now must also service e-commerce order patterns—typically a higher volume of orders, each with a small number of items, delivered to consumers' homes instead of to distribution centers or stores. The nuances of shipping goods direct-to-consumer are very different challenges than transporting inventory in bulk.
"A change in the modal mix has occurred, with parcel shipping now becoming an important part of the game," Brasca explains. "Many apparel retailers have treated online or mobile orders as 'one-offs,' separate from their traditional transportation applications and planning. That strategy was feasible when the number of orders was small, but e-commerce volume has been growing rapidly, and is becoming an important part of the consumer experience."
A Holistic View of the Transportation Network
To stay competitive and profitable in a multi-channel world, apparel retailers must embrace consumer-centric transportation management processes and integrate new channels into traditional transportation planning.
"Companies must take a holistic view of their transportation network," advises Brasca. "Don't treat orders from new and evolving channels as one-offs, but rather look at the aggregate, and find ways to mitigate the risk, complexity, and costs of that particular channel by leveraging other channels.
"For example," he continues, "the common initial assumption about Web channels is that all orders should be shipped direct-to-consumer via parcel, often from a central fulfillment location. This ultimately is an expensive proposition for whoever is paying for the shipment, whether it is the retailer or consumer."
Instead, to reduce costs, companies can consider alternatives such as in-store pickup; local delivery from a store, because same-city delivery rates can be more cost-effective than shipping nationwide from a fulfillment center; or postponed delivery from the store, where inventory is delivered to the store via existing transportation routes, then shipped locally direct to the consumer.
Continually evaluating and modeling your transportation network is also key, as sales channels mature and new channels pop up.
"A one-size-fits-all transportation strategy is not appropriate," Brasca says. "Every company needs to have the ability and technology to fine-tune its solutions and analyze its transportation plans, looking intelligently at different trends and how they stress the multi-channel network."
Reverse Logistics: Moving Forward While Taking Products Back
Returns are a fact of life in apparel retail. For multi-channel retailers, reverse logistics is even more complicated because of the very nature of orders via Internet, mobile, or social channels—you can't try anything on—and because customers who bought a garment via one channel may want to return it through a different channel.
This set-up creates some interesting back-end challenges. "Apparel retailers often use order and warehouse management systems that have been in place for years, and are structured to support the brick-and-mortar environment," explains Kevin Brown, director of product marketing for Newgistics, a reverse logistics provider based in Austin, Texas. "When companies expand to include alternate sales channels, they often add a new set of systems to support that particular buying behavior, and those two sets of systems don't necessarily talk to each other."
When returns occur in a multi-channel environment where systems are disconnected, it becomes more difficult and time-consuming to process customer, transaction, and credit or exchange information, which can strike a sour note with customers.
In addition, multi-channel apparel retailers often offer additional stockkeeping units (SKUs) online. For example, a T-shirt may only come in blue and white in the store, but online customers can also choose purple, grey, or red. In some cases, inventory for those online-only SKUs is handled by a third party, who drop-ships goods on the retailer's behalf. When a shopper returns the online-only shirt to the store, that merchant may have yet another set of systems to contend with.
"Each of these segments can contribute to either a robust customer experience or a painful one when it comes to the return, based on how the merchant is set up to handle it," Brown explains.
Cross-channel returns also present interesting inventory scenarios. "Any time you introduce a non-standard SKU into the retail environment, the merchant has to decide what to do with that particular garment," Brown notes. In the example above, returning an online-only T-shirt to a store means the store must now either stock an item it doesn't usually sell, or absorb the time and cost of returning it to a centralized DC location. In the fast world of fashion, time is often a luxury that retailers don't have.
Seasonal merchandise, in particular, can be problematic for multi-channel apparel retailers. Say a shopper buys a bathing suit online and decides to return it to a physical store location at a time when the store is beginning to stock fall merchandise.
"The retailer will likely have to put that item on the sales floor at break-even or lower cost just to liquidate it," Brown explains.
Reeling in Returns
How then, to combat returns snafus? Many retailers are turning to technology, implementing systems that allow them to view inventory levels across the store network, which means returned merchandise can more easily be redirected to the appropriate location.
"Smart retailers are using returns to help fill orders in various channels," Brown notes. "They can ship a garment returned to a store directly to a Web consumer, for instance. This strategy allows the retailer to get rid of that merchandise—which it may not normally manage—as well as cut the cycle time on the delivery side, and also reduce the operations and transportation costs surrounding that return."
Whether it is revamping reverse logistics procedures, changing inventory strategies, tweaking transportation management, or implementing new technologies, it is clear that today's apparel retailers are optimizing their supply chains to keep up with the rapidly evolving world of multi-channel retail.