April 2012 Integrated Solutions For Retailers
By Matt Pillar, Editor In Chief
As fuel costs migrate north for the summer, retailers seem to be scaling back on their supply chain costs, which can turn into bad news for fast fashionistas. Many apparel merchants are drastically reducing the percentage of Asian-manufactured apparel shipped via airfreight, opting instead for cheaper, but significantly slower, ocean liners to transport goods to North American markets. The Wall Street Journal recently reported that Abercrombie & Fitch, for instance, has reduced air-shipped inventory to 12% from 60% just four years ago. While such decisions have immediate bottom-line impact (air freight can cost as much as six times that of ocean transport), they make for some colorful conversations among CFOs, fashion buyers, and supply chain execs.
At issue is the 20+ day time-to-market difference between planes and ships, and its impact on supply chain agility and, ultimately, inventory carrying and markdown losses. Case in point, newly released tees at A&F sell vigorously at upwards of $60. A month later the same tee can be had for $16 on the clearance rack.
It’s a perilous balance with profit line consequences, but IT can help. While integrated forecasting and sourcing technology can’t change the price of crude, it can help retailers pare airfreight costs to a minimum without hampering the speed of fashion. By creating visibility into which merchandise presents the best full-price sales potential, apparel retailers can make smart decisions about which fashions they need here now, thereby rationalizing the cost of transport. That’s one reason supply chain collaboration software companies like TradeCard, NGC, and TradeStone Software are racking up apparel brand wins and posting big growth numbers in an otherwise ho-hum retail market.
Is South America The New China?
In addition to transportation costs, buyers of Asian-manufactured goods are struggling with the dynamics of the Chinese economy. What was once “pinch-me-I-must-be-dreaming” cheap to manufacture in China isn’t so anymore. Labor markets with equal or even lower costs are developing in Latin and South America, and while the textile production infrastructure there isn’t yet as sophisticated as it is in China, some analysts project it will be within a decade. Ground- and ocean-based freight from developing markets in this region takes considerably less time and expense than from China, so I suspect we’ll soon see another growth spurt for manufacturers south of the border.
While they may offer less expensive labor and transportation advantages, some of those developing source countries in Latin and South America come with a different set of risks — in the form of significantly more hostile environments than that which American businesspeople typically find in China. Not long ago, I called a colleague of mine, CIO of a large retail apparel brand, on his cell phone. I caught him on a trip to visit one of his manufacturing facilities in Mexico, and he was quick to describe the scene. “Matt, I’m in an armored car, flanked by bodyguards with submachine guns.” What? “I’m in Mexico City, and American execs are pretty sought-after targets for kidnapping and ransom down here.”
As global sourcing strategies go, risk analysis is apparently the name of the game. What you’re willing to risk — time-to-market, procurement cost, quality, profit potential, or life and limb — is your business