The Logistical Challenges Facing Fashion Retailers
There have been considerable changes in the fashion retail environment since the turn of the century. Globalisation of markets has led to increased competition and the quest to develop new products and markets while reducing costs in the supply chain. At the same time, the digital revolution has required companies to recalibrate their organizational structures to meet the demands of this new omnichannel environment.
This has meant that trends that were becoming apparent in the late 1990s have continued as retailers continue to explore new markets and source products offshore. Once heralded as the saviours of domestic production in traditional markets with their vertically integrated models, Zara and Benetton have also succumbed to increasing offshore production and outsourcing to full package intermediaries in Asia. As discussed below, Benetton had sourced from a supplier working in the Rana Plaza building in Bangladesh. The vertical integration model is also becoming rare even in the luxury fashion sector where companies exert strong control over their distribution channels. As companies such as Burberry and Prada have extended their brands into new categories (diffusion brands) there has been a tendency to shift production offshore, retaining core products for domestic production (the trench coat in the case of Burberry).
Much recent debate has focused upon changes in the global economic environment that will erode the current competitive advantage of China, namely rising labour costs, long lead times and a lack of flexibility in a digital age. It has been suggested that ‘reshoring’ will occur as retailers source closer to the markets that they serve. This is unlikely to happen for some time with the devaluation of the yuan this year and the need to invest heavily in traditional textile sectors that neither have the infrastructure nor the skills base to compete in global markets. It should be noted that the Chinese economic crisis in 2015 is more likely to impact on luxury fashion companies that have invested heavily in China over the last 10 – 15 years. The high growth rates of the 2000s have given way to relatively slow growth in recent years partly due to the new Government’s clamp down on corruption (including gift giving of luxury goods). This slowdown will be exacerbated by the recent devaluation of the currency. Burberry’s share price is often linked to market conditions in China and from April to October 2015 the price fell by nearly 25 per cent.
With most companies continuing to depend upon offshore sourcing and third party manufacturing, the risk of scandals and another Rana Plaza is always on the radar Controlling the supply chain will be a key factor in the future to ensure CSR compliance and to minimize reputational risk. Benetton was targeted by pressure groups because of their tardy response to contributing to the compensation fund, whereas Inditex, owner of Zara, made a major contribution although they did not source from the factory complex.
Fifteen years ago most home shopping for fashion goods centred on catalogue retailing. Now and for the foreseeable future the omnichannel model will be the key to success for fashion retailing. Customers expect to buy 24/7 from smartphones, tablets, desktops and even shops! They also expect to receive and return goods through a variety of channels. Next, the largest fashion retailer in the UK, has 50 per cent of its online orders collected from its stores. Who would have thought that buying shoes online would be so easy? In the case of Schuh, it has developed its online sales from 0 to 15 per cent in 14 years. The internet allows Schuh to carry 30 per cent more lines than in its stores. Because it controls its network from a single hub it can offer the customer a range of options with regard to delivery and returns. Customers can click and reserve or collect – around one quarter of orders are picked up in stores or they can pick up and return goods from a local convenience store. For online ordering and home delivery a range of choices are available according to size of order and delivery time schedules.