Textile and Apparel Retailing Whitepaper - KSA Technopak
Textile and Apparel Retailing Whitepaper - KSA Technopak
Textile and Apparel Retailing Whitepaper - KSA Technopak
Retailing
Fu t u r e I m p l i c a t i o n s f o r Su p p l y C h a i n
W H I T EP A PER
Published By
Januar y, 2014
Performance Enhancement
Productivity/Efficiency Enhancement
Material Utilization and Quality Enhancement
Streamlining Merchandising and Preproduction
Activities
Lean Manufacturing Tools
Visual Control and SOPs
Industry Studies
Research-based Studies
Manufacturing Benchmarking
Start-up Assistance
Planning and Design of Factory
Implementation of Layouts and Process
Selection and Training of Middle Management
Efficiency and Production Build-up
01
02
03
04
04
05
06
09
10
Conclusion
Authors:
Amit Gugnani | Senior Vice President
Aseem Doda | Associate Vice President
Prerna Kaushal | Senior Consultant
Design & Development:
Arvind Sundriyal | Assistant Manager-Design
Whitepaper January, 2014| Textile & Apparel Retailing: Future Implications for Supply Chain
Exhibit 1
8.1
6.8
6.0
5.5
6.2
5.3
5.2
4.5
5.8
5.6
4.3
3.5
USA
Germany
France
1990
2000
UK
2010
This can largely be attributed to shrinking economies, reduced disposable incomes, and a dented consumer confidence.
If we look at one of the key indicators of an economys health, viz. GDP growth rate, all major consuming economies,
except China and India, are expected to register a rate below 5%. Apparel retailers have therefore started broadening
their horizons, and are more than willing to look at foreign markets for their growth and profitability.
GDP Growth Rate Projections (%)
Exhibit 2
14
09
8.5
7.8
6.9
4.9
04
01
-6
4.4
3.7
2005
2006
2007
2008
China
2009
India
2010
2011
World
Source: IMF
2012
USA
2013
UK
2014
Japan
2015
2016
2017
Whitepaper January, 2014| Textile & Apparel Retailing: Future Implications for Supply Chain
Exhibit 3
900
800
800
680
700
736
647
729
700
600
500
400
300
195
200
127
100
52
41
33
19
2005
2011
US
EU
2015
China
India
Source: US Census Bureau, EU CBI, NBS China, Technopak Analysis & Estimates
Major retailers and brands based in the US, EU, and Japan, have also realized this trend and are now exploring
international markets, especially in developing countries, and are expanding much more aggressively. This initiative is
already showing positive results as retailers have started registering much higher growth in their revenues from overseas
expansion.
Sales Growth of Major Brands (%)
Exhibit 4
60
52
50
40
30
20
10
0
11
15
14
9
13
7
3
Ralph Lauren
21
18
A&F
Gap
Inditex
Uniqlo
Exhibit 5
25000
20000
8%
5%
0%
15000
10000
-2%
5000
0
Inditex (Zara)
H&M
Gap
2007
Dillard's
2012
Traditional Retailers
Whitepaper January, 2014| Textile & Apparel Retailing: Future Implications for Supply Chain
With the increased incidence of impulse purchasing and shorter product lifecycles in clothing, fashion seasons are
increasingly becoming shorter, and there is wider acceptance of fast fashion models. It is crucial that response times are
reduced, which in turn necessitates establishing a strong and collaborative supply chain between the buyer and supplier.
Thus, shifting sourcing patterns are requiring teams to work through a greater number of seasons, often as many as
12 instead of the earlier two or four seasons. Again, the need for better control on raw material costs and improved
responsiveness to changing fashion has squeezed lead times. Consequently, manufacturers do not have the luxury of
receiving orders for greige fabric, or for blocking capacity, in anticipation of future orders anymore.
80
73
70
30
60
50
40
6%
R1
G
CA
30
27
25
49
24
20
41
34
15
30
10
20
10
0
2011
2012
2013 (P)
2016 (P)
Ralph Lauren
GAP
YOY growth in 2012
Source: Emarketer
A&F
Exhibit 7
64
41
18
8
2013 (E)
2018 (P)
Total Market
Modern Retail
2018 (P)
18
25
82
75
Domestic Brands
International Brands
Whitepaper January, 2014| Textile & Apparel Retailing: Future Implications for Supply Chain
Similarly, the consumption supply chain is unique as the consumers tastes changes every few kilometers. The ethnic,
linguistic, and cultural diversity of India results in sharp differences in tastes, habits, incomes, and consumption.
This results in retailers product proposition becoming region-specific, leading to a multiplicity of stock keeping units
(SKUs). Further, the phenomenal increase in operating costs due to the increase in real estate prices is pushing down
retailers profit margins constantly. These high real estate rentals leave no room for retail stores to stock excess or
additional inventory. The combination of these factors leads to a unique Indian consumption supply chain which
includes the handling of a large number of SKUs in pieces, in contrast to the handling of limited SKUs in the form
of pallets, by most large retailers across the globe. Further, in emerging countries like India, the retailing business
continues to be dominated by independent retailers, mom-and-pop stores, and unorganized markets. Here, wholesalers
and distributors carry goods from various suppliers to the independent retailer (owned shops and unorganized markets).
Due to such inherent dynamics and multifaceted nature of the clothing industry, fashion retail has its own special
prerequisites. Thus, there is a growing need to learn the art of handling these complexities, and to design, develop, and
execute supply chain solutions that are distinctively Indian.
Typical Apparel Retail Supply Chain
Exhibit 8
Fabric Mill
Logistics
Apparel
Manufacturer
Logistics
Warehouse
Logistics
Retailer
To survive in todays challenging global market, alongside buying the right goods at optimum prices, it is also crucial
to have products at the right place, at the right time, at the right operational expenses. This requires efficient logistics
systems and processes. The T&A industry stands out as one of the most globalized industries in the world, with a supply
chain spread across the globe which includes retailers, contractors, merchandisers, buyers, suppliers, logistics players,
warehouses, and customers, each with an important role. The entire supply chain needs to be integrated, as managing
logistics requires close coordination across the network of suppliers, manufacturers, co-packers, distribution centers,
transportation providers, and stores. Traditional supply chains generate sequential and isolated plans for inventory,
production, distribution, and procurement.
Retailers worldwide are attempting to implement various supply chain practices in order to efficiently manage their key
goals, including reducing slow moving inventory and thereby improve stock turnover, reducing clearance inventory,
improving the process of ordering, receiving, packing out from receiving, improving the process of products markdowns,
improving the sales per footfall, sales per employee, reducing out-of-stock inventory, guaranteeing accurate store sales/
inventory data, and improving merchandise availability.
Global buyers increasingly prefer suppliers who can provide end-to-end solutions rather than just manufacture
garments. In order to gain a competitive advantage, most buyers and suppliers are looking at consolidation and are
exploring strategic partnerships with each other. Further, T&A businesses everywhere are trying to develop a customerfocused business model. They enter into long term strategic partnerships with their buyers in order to have total control
over the supply chain and create economies of scale. For manufacturers, capacity blocking ensures volumes and better
production planning due to end-to-end visibility. Building a long term relationship with buyers also helps establish
supply chain excellence. For buyers, strategic partnerships ensure a faster turnaround, closer-to-season decision making,
lower out-of-shelf time and lost sales, fewer markdowns, reduced inventory levels, and an opportunity to focus on the
core business of retailing rather than on sourcing activities. Suppliers can contribute to reducing supply times by setting
up a vertical supply chain from fiber to garment, as this will shrink the time spent on transportation. Further, the time
spent on approvals and/or couriers can be saved through a closer collaboration with buyers. Thus, increasingly, the
visible trend is towards consolidation and forging strategic partnerships across the value chain. Players are integrating
activities from design development, vendor management, manufacturing, and supply chain.
In recent times, the industry has witnessed various forms of strategic partnerships covering diverse business issues.
Many retailers and brands want partnerships involving upstream integration to better control the value chain; at
the same time, many players are relying on strategic tie-ups for research and development, and innovation. Dye
manufacturers are working closely with fiber players to launch colored fibers targeted at specific markets. Fabric and
apparel manufacturers, as well as retailers, are partnering with pure-play logistics players so as to focus solely on their
areas of competency and maximally leverage their expertise and experience. Of late again, many fiber players which
have managed to establish themselves as fiber brands have partnered directly with apparel brands to launch fiberspecific programs in specific markets.
Exhibit 9
Manufacturer
Regional Consolidation
Common Logistics
Common Warehouse
Consumer
Retail
Data Sharing
Source: Technopak Analysis
Whitepaper January, 2014| Textile & Apparel Retailing: Future Implications for Supply Chain
Traditionally, the T&A industry has operated in an unsustainable way. Energy and other resources have been used
wastefully and inefficiently throughout the supply chain, leading to increasingly unsustainable levels at each phase
of production and logistics. Post-purchase use and disposal are hardly ever given due consideration during the
development and production phase of T&A merchandise. In production hubs across countries like India, Pakistan,
Bangladesh, China, Sri Lanka, and Vietnam, toxic fumes from dyeing units, untreated water, etc. are increasingly
released into community drains. The use of child labor and hazardous living conditions are also common in these
manufacturing countries. Further, diesel-based electricity generation, and the use of pesticides and insecticides in
cotton farms are predominant issues in any textile or apparel hub. The industry has been dominated by incompliant
sweatshops and working environments. Many occupational health hazards are associated with the industrys workforce
due to the prevalence of such working conditions and the related exposure to hazardous chemicals, particularly in
cotton production. Also wet pre-treatment, dyeing and finishing, fiber dust, denim dust, etc. give rise to respiratory
diseases and are heavy lung irritants. Increased globalization, consumerism, and the desire for fast fashion have lent
substance to this unsustainable value chain.
Briefly, the existing approach vis--vis the development of the T&A value chain is neither environmentally nor socially
conducive nor viable. Each phase of the clothing production value chain has the potential for negatively affecting the
environment and also has a social bearing. Thus, there is need for immediate intervention by the entire T&A industry.
Although many organizations and brands are following a new sustainable approach, and taking steps to modify their
supply chain practices in order to minimize the environmental and social implications, there is still much more to be
done.
Throughout the T&A industry, there is at present a gap in terms of making the entire supply chain sustainable. It is
imperative to create an approach that is environmentally and socially viable, while also being profitable. For brands
and organizations, it is now about how to be sustainable and engage stakeholders effectively and efficiently. Building
a sustainable economy will require prompt change and approach by thought leaders. Businesses with sustainable
supply chains incorporate sustainability into their day-to-day operations and decisions at every level. Progressive T&A
companies are competing to address extant issues and create more sustainable businesses. The strategic approach to
sustainability involves developing a philosophy of sustainability within the organization, creating goals, implementing
workable projects to meet these goals, educating employees and stakeholders, and regularly auditing the entire supply
chain to correct any abnormalities. The industry needs to be proactive in finding ingenious and innovative ways of
designing and developing fashion instead of seeing sustainability as a constraint or a limitation.
9
Conclusion
The unique features of the T&A supply chain are short product lifecycles, low predictability, high volatility, and high
levels of impulsive purchasing. It requires getting the merchandise to the retail stores within short times-to-market and
at low costs-to-market repeatedly. Given the long lead times that are extant in the industry, it is important to have an
effective supply chain to help retailers buy products as close to the season as possible.
Thus globally, there is a need to develop flexible manufacturing rather than large manufacturing. There is a need to
focus on lean manufacturing strategies, shorter runs, just-in-time inventory management systems, and automated
systems. More adaptive manufacturing approaches need to be followed. Manufacturers should separate manufacturing
bases for the Basics and Fashion ranges, and apply a multi-location manufacturing approach. They can manufacture
value-added products in-house and outsource the basics. Manufacturers must focus more on improving business
efficiency. Technology deployment, across the entire value chain, will also be critical in the immediate future. Retailers
should use advanced analytics tools for forecasting. Tools for processing Big data must be used for tracking consumer
demands and fashion trends. Technology deployment will reduce the need for labor management and ease the product
development and sampling process, besides facilitating production (through greater automation), warehousing, and
shipping processes.
Retailers must develop localized/regional supply chains through strategic alliances, joint-ventures, acquisitions, and/
or wholly-owned manufacturing and marketing subsidiaries for each China, India, and Brazil. Increasingly, there is
need to create a sustainable supply chain model alongside improving business efficiency and profitability. The impact
of T&A production, throughout the supply chain, on the environment and society needs to be minimized. Developing
and executing a strategy for sustainability is critical for all T&A-focused organizations as there is a growing push from
both consumers and the industry. Leaders have to move beyond strategies for short-term prosperity and work towards
long-term sustainability.
Supply chain in India suffers from the percetpion that these are activities related to logistics or warehousing. In
several organizations, supply chain management (SCM) was started as a reactive process to increasing costs and global
competition. Some organizations regarded SCM as a tool for profitability, but mostly as a tool for cost reduction.
However, in recent times, Indian apparel retailers have learnt from western retailers and have given SCM a strategic
position in their business strategy, instead of viewing it as merely an operational issue. Large format retailers are seeing
SCM as a key to increase their profitability.
Many organizations in India are now gradually moving towards improving their profitability and efficiency by
implementing various supply chain techniques. The most commonly used tools are information technology-based.
apparel retailers have started seeing information technology as an important tool to improve efficiencies and are
taking definitive steps towards leveraging IT tools in reducing the gaps in the supply chain. Companies have begun
understanding the need for building a sufficiently flexible supply chain which enables them to capitalize on new growth
possibilities like developing a new product in the shortest possible time. The future belongs to those companies wherein
a robust and flexible supply chain can become the base for any growth initiative.
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Whitepaper January, 2014| Textile & Apparel Retailing: Future Implications for Supply Chain
About
Technopak
Indias leading management consulting firm with more than 20 years of experience in working with organizations across
consumer goods and services.
Founded on the principle of concept to commissioning, we partner our clients to identify their maximum-value
opportunities, provide solutions to their key challenges and help them create a robust and high growth business models.
We have the ability to be the strategic advisors with customized solution during the ideation phase, implementation
guide through start-up and a trusted advisor overall.
Drawing from the extensive experience of more than 150 professionals, Technopak focuses on four major divisions viz.
Retail, Consumer Products & E-tailing, Fashion - Textile & Apparel, Food Services & Agriculture, and Education.
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Education
Technopaks Education division has a vast understanding of the sector in terms of industry environment, growth
potential, regulation and policy, which has enabled us to become a thought leader in the sector. Technopak caters to all
the education segments K-12, Higher Education, Vocational Training and ancillaries. Innovative business models and
government thrust on privatization has led to assertive participation by private organizations. Such participation spans
various levels of investment and operational scale, be it organization planning for expansion in the country or foreign
institutions aiming to foray into the Indian education sector.
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Amit Gugnani
Senior Vice President
[email protected]
+91 98717 55992
Aseem Doda
Associate Vice President
[email protected]
+91 96500 87322
www.technopak.com