DESIGNING AND WHOLESALING
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2 THOUGHT LEADERSHIP REPORT DESIGNING AND WHOLESALING you asked someone to define retailer in the year IF 2000, the answer likely would have included words and phrases such as seller of consumer goods, stores stocked with merchandise and simply, merchant. In 2015, the word is more likely to summon descriptors such as private label purveyor, fashion trendsetter, sourcing powerhouse and omnichannel enterprise. A similar dichotomy of definitions would likely have come from describing an apparel wholesaler, fashion brand or garment manufacturer, then and now. In just over a decade, traditional business boundaries have gradually dissolved, and new business models have emerged. Regardless of what they are called, today all of these players are on the same quest to satisfy a connected consumer who wants a rewarding and hassle-free shopping experience. Those who succeed pave their way for future growth. Whether a retailer is expanding its private label collections or a wholesaler is opening new retail outlets, they will have to develop new capabilities, acquire new technology and build new infrastructure to support their strategies. In many cases, retailers are designing their own product, sourcing the components for that product and having it manufactured globally. They then bring it into warehouses from which it can go anywhere into their own stores, into a wholesale division that sells to other retailers, into other channels such as e-commerce and catalogs, says Rob Henneke, executive vice president, Retail Process Engineering LLC (RPE). It adds new layers of complexity to the old model, and it s completely different from what we had 15 years ago, before e-commerce really got started. Evolving Business Models There are a variety of drivers, opportunities and challenges as more retailers embrace designing and wholesaling and as more brands expand their retail presence. Among key drivers are the need to introduce more products per season, to gain greater merchandise control and to capture larger margins. Some retailers and brands are exploring concession or consignment business models, whereby the brand usually owns the inventory until it sells, at which time the retailer pays the brand a royalty. Such store-withina-store arrangements can help retailers manage their operational costs because they can carry a lighter inventory load. They also can give brands more control over how their products are merchandised. Like click-and-collect commerce, vertical retailing or cataloging, consignment selling is just one more face of omnichannel retailing. For each different business model, there are new rules, different data flows and more processes to manage. Gaurav Pant, EKN senior vice president of research and principal analyst, explains that more apparel retailers are leveraging expanded networks and building ecosystems to support new delivery models: The challenge is that they have to figure out how to manage the business, such as how to take bulk merchandise and get it to other partners, manage all of the communications manage all of the things that matter when you re more of a distributor or manufacturer than a retailer. Retailers need to follow the customers where they are and where they will be This shift requires viewing your retail presence not just as the stores or channels you control but the ecosystem that you play in and providing product access and adequate brand support to that ecosystem, says Gaurav Pant, EKN SVP of Research & Principal Analyst. The modern ecosystem might include new channels such as messaging apps, online marketplaces, alternative delivery partners or social media sites, says Pant. Retailers need to follow the customers where they are and where they will be This shift requires viewing your retail presence not just as the stores or channels you control but the ecosystem that you play in and providing product access and adequate brand support to that ecosystem. The shifting and blurring of traditional retail paradigms promises to continue. In its 2014 state-ofthe-industry research report, Retail Innovation and Technology: Viewpoints on Merchandise Innovation, EKN revealed that retailers expect a 4.5 percent average revenue increase due to cross-channel commerce and expect the share of online sales to increase from the current 13 percent to 19.1 percent by OCTOBER
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4 Q & A EXECUTIVE INSIGHT QHow do you see some fashion retailers and manufacturers breaking out of their traditional roles, developing new capabilities and trying new business models? What are some factors driving this evolution? That s a very good question. We ve been noticing a blurring of lines between business models and distribution channels. Not only are we seeing brand manufacturers and wholesalers getting into the retail space with brick-andmortar and e-commerce offerings, but quite often, we re seeing the other side of the coin. Retailers are venturing into wholesale via stores-within-stores or concessions partnerships as well as designing their own private labels. The interesting end result is achievement of vertical integration with synchronization of operations across the entire supply chain from product development to omnichannel retail. The factors driving this evolution include a need to increase revenue, margin, brand image and quality. More importantly, it s the rise of the connected shopper, empowered with tremendous amounts of information that has dramatically transformed the fashion industry. With the proliferation of consumer technology, fashion companies are confronted with an unprecedented change in consumer demand. Shoppers are now used to relying on technology and digital devices to simplify their lives. They want a seamless customer experience, one that allows them to purchase products whenever and wherever they want. QWhat technology and operational changes are needed to support new roles taken on by these different types of fashion businesses? To compete in today s omnichannel world, retailers have to integrate their operations and processes throughout the supply chain. The reality is that a significant number of companies have disconnected operations. Their infrastructure and systems were not built to address evolving customer expectations and the multitude of customer touch points that exist today. What do retailers need? Enterprise-wide information accessibility, which can be achieved by breaking down the silos between product development, sourcing, manufacturing, merchandising and distribution. As with any initiative of this scale, it s necessary to have organizational alignment across systems, employees and partners. This means embracing structural change, creating an integrated technology platform, improving customer analytics and optimizing supply chain operations. C-level executives need to support this type of transformation if they are to have any chance of ensuring true integration between business units (e.g. manufacturing, wholesale, retail and e- commerce). With the right technology in place, fashion companies can respond in real-time to market shifts, enabling more demand-driven business processes, profitability and, above all, customer satisfaction. MORIS CHEMTOV President Jesta I.S. QHow does the concept of the endless aisle apply more than ever to fashion companies active in omnichannel commerce? When they shop, customers don t think in terms of channels, platforms or devices. They only think about satisfying their needs in the most convenient manner. They want endless aisle capabilities where they can order an item irrespective of where it s physically located. They also want to be recognized regardless of the channel they shop and expect retailers to fulfill from anywhere (warehouse, store or vendor), facilitate in-store pick-up of web orders and support returns anywhere (warehouse, stores). To keep pace, fashion brands need to synchronize their demand and supply chain by leveraging the right technology, one that allows them to share a global inventory and provide flexible distribution and fulfillment options. It s also necessary to have a centralized data repository to enable a single view of the customer. Put simply, endless aisle makes omnichannel commerce possible. It unifies inventory across channels and enables associates to match every customer request with available stock. Jesta I.S. provides fully-integrated supply chain, inventory management and omnichannel retail software solutions for brand manufacturers, wholesalers and retailers specializing in apparel, footwear and soft goods. The web-based Suite includes Product development, Sourcing, wholesale, B2B ecommerce, Inventory Management, Distribution, Web Order Fulfillment, Point of sale, Financials, Analytics and Mobility across the enterprise. Jesta's Vision Suite is a modular platform that eliminates the inefficiencies and inaccuracies of disjointed applications. On the wholesale side, brands leverage the platform to reduce costs and increase agility across product development, sourcing, manufacturing, sales and distribution. On the retail side, merchants utilize the merchandising and POS software to optimize business operations and cultivate customer engagement. 36 OCTOBER
5 THOUGHT LEADERSHIP REPORT DESIGNING AND WHOLESALING [Fashion businesses] need to avoid cobbling together too many different applications, from too many software vendors on too many different platforms with too many different databases. For the most accurate data, they need a single source of information, says Rob Henneke, EVP. Retail Process Engineering LLC. Lagging Legacy Systems In this period of omnichannel expansion, when fashion firms depend on legacy IT systems, there is the potential for functionality gaps, which can limit opportunities for operational excellence. The primary issue is that most legacy systems were not designed to support diverse business models and processes. They usually emphasize retail store operations or wholesaling or e-commerce, but rarely all three. Yet today, many apparel companies need systems to support all of these models. From an IT perspective, they must integrate or perish. Some businesses have added point solutions to address the most pressing limitations of their older systems. However, bolt-on strategies generally are not sustainable in the face of increased omnichannel complexities, particularly as companies expand through acquisition or by entering new product categories and channels. When retailers have a mix of legacy and newer point solutions, there tend to be organizational silos, with staff working in their own camps and different divisions using disparate systems. When a company s technologies cannot easily talk to each other, it creates multiple islands of data and considerable manual data manipulation. For example, a retail planner might have to view information from multiple computer programs, flipping between screens, only to end up pulling pieces of data from all of them into an Excel spreadsheet to build a plan. In its retail innovation report, EKN addressed this challenge, noting that omnichannel volume growth further complicates the scalability, repeatability and extensibility of integrated merchandise planning and execution. For its report, EKN surveyed 91 retailers, 66 percent of whom were apparel and specialty retailers. The research found that close to 60 percent of retailers indicated partial or no integration between their merchandise planning and execution at the process and systems level. In particular, EKN survey respondents expressed a keen desire to integrate product design and development data. Thirty-three percent of EKN survey respondents indicated they planned to do so within 12 months. According to the report, the key factors driving this integration are a need to differentiate products from those of competitors and to deal with increased price competition and rapidly changing consumer demand. EKN s study concluded that retailers need to evaluate integrated models of merchandise operations and technology adoption that aid range expansion, rapid new product introduction, faster lead time and sellthrough in their omni-market and omnichannel environments. Technology for The New Retail Against the backdrop of the latest fashion industry, retailers are donning their designer and wholesaler hats, and brand manufacturers and wholesalers are honing their retail skills. Yet even as they go in different but complementary directions, they all require advanced technology built to support extended supply chain responsibilities and new sales models. As fashion businesses now blur the lines as both retailers and wholesalers they need one single version of the truth when it comes to the various business units, explains Henneke. They need to avoid cobbling together too many different applications, from too many software vendors on too many different platforms with too many different databases. For the most accurate data, they need a single source of information. Likewise, Pant points out that many apparel retailers and brands are managing their omnichannel commerce by cobbling extinct solutions together and making them work instead of having something that s a bit more holistic. However, for companies ready to make the leap, there are end-to-end solutions built to handle all of the functions fashion businesses must manage today. This includes collaborative design and development, sourcing and manufacturing, warehousing, wholesaling, consignment sales, web order fulfillment, store operations, clienteling and omnichannel merchandise planning and allocation. OCTOBER
6 THOUGHT LEADERSHIP REPORT DESIGNING AND WHOLESALING There also are solutions capable of running multiple brands on a single software platform. Until recently, fashion businesses had no choice but to manage different brands or business units on different software instances, even if the technology was from the same vendor, Henneke notes. When you are dealing with multiple instances of the same software, it s much harder to manage, very time-consuming and more expensive to maintain, he says. When you can operate all of these various brands on a single instance of the software, your IT costs come down significantly. This vertically integrated software also can be leveraged to manage sourcing and demand, merchandising and store operations. Such solutions are ideal for fashion retailers, brands, wholesalers and manufacturers who want to bring all of their data together under one IT umbrella. Among the EKN report s recommended actions was to adopt integrated merchandise planning with product lifecycle, product data, order and supplier collaboration tools in order to reduce total cost of ownership, including costs associated with products, vendors, software, maintenance and process updates. The report also recommended that retailers develop one view of product for internal and external stakeholders, in part by avoiding continued use of point-to-point merchandise/product planning and execution. With integrated technology comes greater visibility across channels. In the end, you re looking at selling to an extended set of retailers, or of distributors in a certain sense, online and offline, affirms Pant. The ability for you to plan across the board means that you are going to have fewer out-of-stock situations and a lower level of inventory that you need to carry, which puts you in a better place from a cost perspective. Transitioning to modern, omnichannel retail solutions streamlines processes across all channels, better matches supply and demand, centralizes information and ensures seamless visibility, clarifies Henneke. Companies can grow and become more profitable when they use today s adaptable and real-time solutions that are more secure, scalable and provide functionality that addresses all of the requirements across both wholesale and retail. This convergence of information, systems and tools to manage processes from apparel design to the consumer sales transaction represents an ambitious but achievable retail IT agenda. Those who succeed in its execution will undoubtedly represent the new retail at its best. 38 OCTOBER
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