FASHIONING AGILE SUPPLY CHAINS
Supply Chain Imperatives for Fashion & Luxury Branding in India
At $511b in 2008 the maturing Indian retail market1
holds promise for retailers globally, especially in light of the current economic turbulence: despite setbacks in the United States and Europe, GDP growth in emerging markets like India is still expected to top 7%.
In addition, households with real earnings of more than 1,000,000 INR a year (classified as global by McKinsey 2
) will comprise 2% of the population by 2025, but earn almost a quarter of its income. Burgeoning disposable incomes & heightened awareness have created a discerning, global consumer who demands from Indian retail, and gets, the same experience as anywhere else in the world. Targeting this audience is opportunity, and challenge, for India’s luxury & lifestyle retailing industry.
In order to understand the supply chain imperatives governing fashion and luxury retailing in India, it is necessary to understand the various trends that are the zeitgeist today.
KEY TRENDS AFFECTING RETAIL SUPPLY CHAIN
Traditional four seasons have given way to offering fresh merchandise every two to three weeks, giving the shopper a fresh, new look regularly. Zara offers an average 11,000 articles in a given season compared to 3,000-4,000 for peers, resulting in average annual customer visits of 17 compared to 3- 4 for competing chains3
. Underpinning this ability is Zara’s “design-to-shelf” supply chain capability of 3 weeks.
Offering new merchandise every two or three weeks, Chico’s business model focuses on producing less quantity of an individual product, but more types of merchandise to satisfy its customer. Customers know that if they like an item, they need to purchase it when they see it otherwise it might not be there on the next visit. With a fast-fashion approach, Chico’s is able to quickly determine what is working and what is not.
Faster fashion requires lower turnaround times, forcing a trade-off with LCC sourcing. Uncoupling supply from demand have traditionally helped companies gain cost advantages in manufacturing from low-cost locations and shipping in high-batch sizes- however, demand variability given fast-changing fashion imply such a strategy comes with high inflexibility costs as an append. A TCO approach needs to factor up-charges on total supply chain cost, higher obsolescence, higher markdowns, higher inventory carrying costs, etc.
An agile supply chain design for a UK retailer has enabled rapid replenishment to real-time demand, increasing the gross margin for every pound invested in inventory from £1.67 to £44.
1 Rank 2 in the 2008 AT Kearney Global Retail Development Index (GRDI)
2 McKinsey Global Institute, 2007, ‘Rise of India’s Consumer Market’
3 Fraiman, 2002, Columbia Business School
4 Lowson, 2006, “Retail Sourcing Strategies”