Blog postsDecember 22, 2016
Fast Fashion—Mastering Affordable Distribution in a Flash
You don’t have to be Inditex, owner of fast fashion chain Zara and second largest fashion company in the world, to afford a fast fashion supply chain. Small to mid-size retail and apparel companies can tackle a fast fashion strategy despite the absence of large capital outlays and the scale and volume afforded to other giants like H&M and Nike.
This article breaks down the main characteristics of a fast fashion supply chain and then walks you through a handful of ideas for mastering fast fashion distribution affordably.
Fast Fashion Pays Off
Fast fashion is the latest phenomenon in the fashion industry to get new trends to the market as quickly and cheaply as possible. The tradition of seasonal fashion lines that only come out a few times a year is being challenged by retailers introducing new products every couple of weeks.
For retailers, fast fashion encourages customers to make frequent visits to the store, it establishes high demand and it assures quick turnover. For customers, it’s a “new look” and the power to be on-trend without draining the pocketbook. This article from Forbes does a nice job explaining the benefits further.
John Thornbeck, chairman of Chainge Capital and former CEO of Rockport (Adidas), recently noted fast fashion might be the most important disrupter in the industry today.
When you look at the numbers, he appears to be overwhelmingly on point. Consider this:
The fashion industry brings in around $3 trillion annually and accounts for 2 percent of the world's Gross Domestic Product (GDP).
In 2015, the top five companies in the industry brought in a collective total of $152 billion in revenue. Out of these five companies, three of them are considered fast fashion brands and all five of them have fast fashion divisions.
Fast fashion pays off. And it’s made possible by innovations in the supply chain.
Characteristics of a Fast Fashion Supply Chain
There are two keys to the success of Fast Fashion: one is the price. The other is a faster supply chain that can take a product from ideation to the consumer in a matter of weeks.
So, why does J.C. Penney take 10 months to get new styles into a store and Zara take two weeks? Let’s take a look at the top three characteristics of a fast fashion supply chain:
Short lead time from designer’s table to manufacturer
Better communication is the foundation for improving lead times between design and manufacturing. An integrated approach enables closer communication and accountability through the design/production lifecycle. The key is to put designers, planners and production managers on the same page with their global trading partners.
The use of productivity tools and a focus on an integrated team leads to sharp reductions in total turnaround time. Instead of waiting for potential problems to erupt into crises – materials running late, defective components, production schedules that are slipping – integrated systems identify potential trouble spots and help users resolve them before they impact production and delivery schedules. It's a level of supply chain responsiveness that can't be achieved through the patchwork systems of spreadsheets, fax and emails that many companies still rely on.
“Simply put, the reason for Inditex’s success is short lead times: the ability to offer designs to the customer that other retailers do not yet have,” Société Générale analyst Anne Critchlow said in a recent WSJ article. She added, “Think of Zara not as a brand, but as a very speedy chameleon that adapts instantly to fashion trends.”
Quick and reactive manufacturing
If the name of the game in e-commerce is getting products closer to your customers, the name of the game in fast fashion is getting manufacturing closer to your retail stores.
Manufacturing is where all the lead time is. For most companies, it’s a minimum of 90 days to get a product from conception to retail stores.
Consider this scenario: a store decides it’s going to start making a new dress. After it’s designed, it goes to the manufacturer. From there, it can take several weeks to gather the raw materials and set-up the machines to produce the design. Then a sample must be made. The sample is shipped back to the designer and fitting team for approval, changes are made, another sample is shipped and finally it’s approved—sometimes a month later. It takes a week to mass produce the product in China and then two weeks to ship to the U.S. It spends another week getting through a regional DC network, put away, and only then is ready for picking and distribution to retail stores.
Companies like Zara produce fresh, trendy clothes in manufacturing plants close to its end consumer. It’s a big part of their strategy for fast design turnaround.
Customer-centric replenishment strategy
The final key to a fast fashion supply chain is a customer-centric replenishment strategy. Stores monitor customer purchase patterns in real-time and incorporate the data into demand forecasting and replenishment schedules.
The customer drives the replenishment schedule, based on what they want, right now.
A deviation from traditional models where sales reports and formal marketing metrics inform decisions and then mass quantities of product is pushed out to stores based on those findings.
In the fast fashion model, data constructed from real-time purchasing behaviors informs decisions and limited numbers of product is pulled into stores “just in time” to be sold. This keeps demand high and dramatically lowers the amount of unsold inventory sitting in warehouses. It also keeps only the fastest turning product in the most prime real estate position of the supply chain, the store front.
It’s a pull-based replenishment schedule vs. a push.
To accomplish this, it requires distribution centers to be close to retail stores. Companies who are doing this well can get an order from a store manager at noon and have the product in the store that same-day.
Part of Zara’s secret sauce is having store managers continuously observe customer behaviors and report back to the corporate headquarters. The corporate office uses the information to make fast decisions about new designs and production volume, and the store manager uses the information to pull hand-picked product into the store, every day. A nimble, local supply chain network executes the process seamlessly.
As Inditex Chairman and Chief Executive Officer Pablo Isla told the WSJ, “Since the beginning, the idea has been to understand what the customer wants first and then have an integrated manufacturing and logistics system to be able to deliver it to them quickly."
Mastering Fast, Affordable Distribution
How do you get a product from manufacturer to retail store in the shortest amount of time? For retail giants like Zara and H&M this process is a lot easier to tackle. They have the capital, scale and volume to support a robust supply chain network. For smaller companies, it can be more challenging.
Thankfully, there are a handful of things smaller retailers can do to stay relevant in the fast fashion market.
Create an agile warehouse network
Access to local, affordable infrastructure is a challenge. Most retailers build static, fixed supply chain networks to support seasonal patterns because it’s the safest and most affordable approach with limited capital. Public warehousing, also known as short-term warehousing, is used sparingly—usually only to solve emergency overflow issues.
Fast fashion cannot be supported with this fixed model.
You need a warehouse strategy that can keep pace with the catwalk, and that means building a more nimble and reactive network.
New technology is making it possible to tap into a vast network of short-term warehouses and leverage them together into a dynamic network. It comes with zero capital costs, no long-term commitments and you can manage multiple partners and track all inventory from a single dashboard.
This means, if you have a design coming in from China, but you will only have the item in stores for three months, instead of signing a long-term lease with a warehouse to store the item, you can pop-up warehousing for only as long as you need it. It’s a “pay-as-you-go” model with no fixed costs, so you can augment your supply chain fast, to accommodate more frequent styles coming through your pipeline from more locations.
Retailers no longer have to be limited by the location of their warehouses.
You can choose local manufacturers that are closer to your retail stores and pop-up warehousing nearby for however long you need it. The value here is that more centralized manufacturing and warehousing enables small batch distribution, which lowers the chance that unsold items will get stuck somewhere. Most retailers send product in bulk to warehouses, but building a more dynamic network will give you more flexibility. On-demand warehousing also gives you access to extra capacity, whenever you need it, so you can quickly respond to changes in market demand.
Pop-up fast, local distribution centers
To accommodate a pull-based replenishment strategy you can utilize pop-up distribution centers. Like popping-up warehouses, you can pop-up distribution centers closer to your manufacturing plants and closer to your retail stores, so you can cut delivery time and transportation costs.
Cutting transportation costs means you can afford to have more frequent shipments to stores and keep less product on the shelves. This strategy allows retailers to sell more items at full price because of the sense of scarcity and exclusiveness the company exudes. Less product is marked down and more items are sold because the demand stays high.
Something Zara does very well is capture product and customer data like sales velocity, sell-through rate and cycle time. This is valuable data, but it’s often time-consuming and expensive to build a system for tracking.
Consider a software solution like Stitch Labs that enables you to centralize data from all your sales channels as well as your warehouses so you can be sure it is accurate and up-to-date, allowing for informed, collaborative and actionable business decisions.
If a certain style or design becomes the new must-have on the street, you can respond accordingly and churn out new styles while the trend is still going strong.
Run a network analysis
There are multiple ways to answer the question, “where should I put my distribution centers and how many should I have?” The best way to figure it out is through a quick network analysis.
The analysis is run through a network modeling tool that runs all the supply chain variables through its system and calculates the true optimal solution on balance of shipping cost and delivery time. This includes how many distribution centers a retailer should have and where they should be located. A network analysis can be run specifically for a fast fashion strategy, returning the optimal locations to support the need. Companies like Llamasoft are a great resource for this service.