Businesses and their supply chains have evolved as trends and consumer behavior has also changed. This is most apparent in the retail industry where consumers want the latest trends instantly, and to meet that demand, shippers look for opportunities to shorten lead times and better manage their overall inventory. This past September, designers at New York Fashion Week provided instant gratification by providing consumers the chance to purchase items online. This process takes resilience, an immense amount of planning, and the right supply chain partners to execute.
Balancing Brick-and-Mortar and Ecommerce
There are about 61 retail square feet per person in the United States and Canada1. Declining foot traffic and decreased profits have taken a toll on many brick-and-mortar retailers this year. For instance, Macy’s recently announced the closing of hundreds of stores. Part of this decline is said to be a direct result of the enormous ecommerce growth with global ecommerce sales expected to reach $3.5 trillion within the next five years2. The cost of fulfillment and logistics of ecommerce orders can be up to four times higher per unit than that of a traditional brick-and-mortar unit3. In order to stay resilient, brands must re-evaluate their inventory and supply chain strategy to streamline their supply chains to handle in-store and online processes.
Retailers With Winning Strategies
When companies think of a successful retail supply chain model, apparel company, Zara, most likely comes to mind. Zara was recently reported as the world’s largest fashion retailer by sales4. While other retailers struggled, Zara continued to expand into major markets. This company found its competitive advantage by successfully executing a fast fashion model where quick inventory turnaround reflects their consumer demand and trends. New merchandise is out in stores twice a week5 and items are delivered directly to the store that placed the order as opposed to being sent in bulk to warehouses. The fast replenishment stems from the ability to quickly source materials, make decisions, and utilize centralized distribution. Zara has even utilized its shipping containers to return unsold inventory for recycling6. It has successfully integrated its in-store and online experiences giving customers the ability to pick up or return online items in store and even order items online while in the stores7.
Determining a Successful Strategy
Unlike Zara, the average brick-and-mortar supply chain model drives retailers to load up on inventory and then mark down what doesn’t sell within a certain time frame. The department store supply chain model can be more complex. Current models cause buyers to purchase by season from wholesalers about six times a year, with a total of 15 months from concept to cash and nearly nine months to re-order once a retailer determines what had the most demand8.
The key to resilience is to better forecast demand, shorten lead time, and better manage inventory. By implementing a nimble and resilient supply chain, shippers can improve production and reduce the amount of inventory left marked down or unsold. Data, manufacturing locations, robotics, tracking technology, and transportation are all complex but important factors to evaluate when developing a successful supply chain strategy.
In today’s market, retailers are depending on their supply chain partners to help navigate the market and find solutions to meet customer demands and overcome inventory challenges. Retailers strive to get the latest trends into the hands of customers without having excess inventory. With a 3PL, retailers can determine the best order management, transportation, and distribution processes to achieve their goals.