Call of the Customer - The Fragmentation of Fashion
Business coming full cycle… Prior to 80’s, the different parts of apparel supply chain lay disjointed. Then came the age of consolidation – different parts of supply chain came together. Business is coming full cycle for last few years – re-emergence of fragmentation.
Reasons for this U-turn Customer becoming over-demanding. Erratic changes in customer preferences and demands. Quickly changing fashion cycles. Customers’ demanding – –Frequent innovation –Greater exclusivity –More choice –Better service
Key Issues Changing consumer lifestyles and needs, affecting the entire supply chain Changes in Retail Industry and supply chain, impacting sourcing and lead times Emerging partnerships in sourcing Political and regional trade affiliations, preferential trade agreements influencing trade flows Preparedness of Textiles and Clothing Industry for Free Trade regime
The Evolving Consumer The consumer is becoming individualistic - “Market of One” Availability is essential Time is more precious than money (A consumer in USA spends 4.3 hours per month on Clothing shopping) 68% of consumers enter a store with a clear idea... 49% can’t find what they are looking for Lost Sales Opportunity “...not my size” “...price too high” “...don’t like the style” doesn’t fit”
Trouble begins … Challenges Galore Unpredictable demands of customer. Tilted balance between competitive offerings to customer and economies of scale to manufacturers. Risk of losing competitiveness in business. Enterprises not able to anticipate priorities and decision criteria. Powerful investments in customer intelligence Tremendous innovation in supply side required.
Fragmentation of demand more informal and active lifestyles has created new demand for innovative products. high degree of segmentation has occurred as New niches New micro-segments on age, ethnicity, income, lifestyle appear Superimposed on these is emergence of new international market segments,as a result of convergence of lifestyles towards an industrialized, urbanized consumer lifestyle model.– Benetton, Polo Ralph Lauren, Laura Ashley, Nike,
Effects of demand fragmentation Mass production no longer viable for many Companies racing to embrace ‘Mass Customization’. ‘Market Turbulence’ Firms getting specially created to implement the mass customization model.
What’s Special? “Customers will try ‘low cost providers’ because the Majors have not given them any clear reason not to.” Leading Insurance Industry Analyst (10-98)
Direct to Dell-Dell Computers Dell’s "direct" model dramatically transformed the value chain architecture – Outsourced all components; performed assembly. Eliminated retailers; shipped directly from factories to end customers. Designed an integrated supply chain linking its suppliers closely to its assembly factories and the order-intake system. Following suit – Levi’s Using mass customization with its Personal Pair women’s custom fitted jeans program. Measurements entered into the computer, to suggest a prototype-test garment. Specs of the best fitting prototype sent for manufacturing.
Opposing Fragmentation – Mergers &Acquisitions the trend is still of consolidation – big fish grow bigger. Increased efficiencies – –Economies of scale –Lower overheads –Greater leverage with vendors. Trend forcing vendors to consolidate
Increasing Value, Convenience and Selection ØDiscounters and Mail-Order formats growing ØE-tailing redefining the future of retailing, with internet accounting for 2% of sales of clothing by 2003. USAEurope
Stagnating Retail Prices 222 258 119 4344 109 19901991199219931994199519961997 Average Retail Prices in UK (in US$)
Impacting the Retail Industry Woolworth 1960’s S JCP MW 1980’s Sears JCP WalMart Kmart Fed. May Merc. Category Killers DaytonHudson Dillards Non-Store Non-Store 2000’s? WalMart Kmart DaytonHudson Sears JCP May Fed. MW Dillards Merc. Entertainment Consolidation and Migration
Situation arising… Fewer buyers each with greater power. Consolidated purchasing in handful of low cost countries. Within exporting countries, consolidation of sellers. Vendors getting forced to design lines for each chain.
Parallel Trend –Fragmentation of Production International fragmentation of production – - whereby integrated production activities are segmented and spread over an international network of production sites. Opportunity for smaller companies It allows production in different countries to be formed into cross-border production networks -within or between firms. confluence of “integration of trade” with disintegration of production” in global Economy.
International fragmentation –Delocalization of production, –Vertical specialization, –Outsourcing, etc Occurs when: A good is produced in two or more sequential stages Two or more countries provide value-added during the production of goods; At least one country must use imported inputs in its stage of the production process Some of the resulting output must be exported
. 3 MODELS Relocation of production to LDCs and NICs New forms of Production and subcontracting (flexible specialisation) Subcontracti ng production within AICs to inner-city manufacturer s competitive advantage - Cheaper Labour women work on a casual basis wages comparable to LDCs and NICs economic production in small batches and just-in- time production.
Effects of Fragmentation: Supply Chain Extra costs (offset by reduction in other production costs) paid for the needed services –transportation of goods between production locations, quality controls, etc East Asia and Mexico in a new light witnessing concepts such as – –“Supplier-oriented industrial upgrading” –“Demand-driven development” –‘Vendor Development’ as a function of Buyers.
The Shakespearean Dilemma Which models must do we adopt to remain competitive in a system as dynamic as this? Consumer unleashing a new power
+ves of Italian Model Extremely flexible regard to labor factor firms. Join creating industrial districts-- productive flexibility, Globally competitive Market power remains equally distributed between domestic suppliers and retailers. Instead of efficiencies of scale, scope, and information technologies, the Italian model competes through flexibility, specialization, and an emphasis on product design and quality
F: Fragmented C: consolidated CCCFC/FFCCCC RMG CCCFC/FFFCCC Made- ups CCC/FC FFCCC Processin g CFFCCFCC/FFF Weaving C--CCCCCFC- Spinning USAMexi co ItalyPaki stan Turk ey Indi a Ban glad esh Chin a Kore a Japa n Level of Fragmentation in different stags of Value chain across countries
However, small scale also brings with it the problem of productivity. Various authors and researchers have placed the current productivity of Indian factories to as low as one-third of levels that might otherwise be achievable. Smaller companies often do not have the resources to invest in appropriate technology or retraining, or in the re- engineering of processes. While skilled Indian labour is inexpensive in absolute terms, due to lower productivity levels, small firms lose much of this advantage.
India’s unit value realization Scope for the consortium approach- enhancing exports growth-using fragmentation results of the study conducted on improving unit value realization in Indian Garment Exports
UVR of India’s Export categories: Primary Survey Fig in Rupees
UVR as a Differentiatior –If one analysis the UVR (unit value realization) results obtained from the survey, it is quite clear that on the one hand, some Indian exporters managed to get a good price of their garments. On the other, there is one set of exporters who have been shipping the garments at a very low price.
UVR as a Differentiatior –For example, in the case of outerwear, the standard deviation from the mean for the UVR was found to be maximum. This means that the Indian exporters exporting outwear are way erroneous in nature in terms of UVR(unit value realization)obtained through exports. The study showed that for instance in outerwear category, the minimum price which an Indian exporter got was Rs. 247(US$ 6), whereas the maximum price of the outerwear garment went up to Rs.575( US$12).
CLUSTER ANALYSIS RationalIntuitive StandardisedNon Rational - Tech Savvy - Design Process Oriented - Understand trends - Ornamentation is important - Not giving due importance to design development but understand the potential of design. - Stress on need basis design development - Give stress to sell more - Believe in standardisation of design - Aware of the importance of design & product development - Designs are meant for all people - Non Tech Savvy - Non Process Oriented - Does not give importance to design development - Ornamentation is unimportant (64) (55)(33) (44)
RATIONAL CharacteristicChannel Capabilities` Branding - Medium in size - Woven & Knit Both - Export destination : EU & USA - Av. Turnover : 26 Cr. - Location : Bangalore, Chennai & Delhi - Importers/Wholesalers abroad - Indian buying house - High Branding Initiative - Interest in tie up with foreign brand - Strongly believes that retail stores will be set up by Indians abroad - 1/3 rd have own apparel brand - High capabilities index - Finance flexibility - Product quality advantage - Delivery schedule adherence
INTUITIVE CharacteristicChannel Capabilities` Branding - Mixed of Medium & large in size - Majority Woven - Export destination : EU only - Av. Turnover : 30 Cr. - Location : Mumbai - Importers/Wholesalers abroad - Indian buying house - Speciality chain abroad - Department stores abroad - High Branding Initiative - Interest in almost all initiative. Looking for the success formula in branding - Medium capabilities index - Finance flexibility - Raw material sourcing - Cost competitiveness of dept
STANDARDISED CharacteristicChannel Capabilities` Branding - Large in size - Woven & Knit - Export destination : EU only - Av. Turnover : 40+ Cr. - Location :Delhi & Mumbai - Importers/Wholesalers abroad of Indian origin - Indian buying house - Foreign Buying house - Department stores abroad - Medium Branding Initiative - Interest in store promotion ( India) - Cautious on Indian brands - 1/3 rd have own apparel brand - High capabilities index - Finance flexibility - ERP system usage - Ability to import raw material - LAN Integration
NON RATIONAL CharacteristicChannel Capabilities` Branding - Majority small in size - Majority Knit - Export destination : EU & USA - Av. Turnover : < 20 Cr. - Location : Bangalore & Chennai - Importers/Wholesalers abroad of Indian origin as well as non Indian origin - Department stores abroad - Low Branding Initiative - Interest in tie up with foreign brands - Believes retailers abroad will be willing to stock Indian brands - Low capabilities index - Merchandising system - Low on raw material sourcing - Low on delivery schedule adherence
Major Findings Too much of dependence on one product. Few exporters are offering all products type but are catering to EU only On the other hand few exporters are offering the single product but to both USA and EU markets. Merchant exporters are having better product mix than Manufacturing exporters. Similarly Knit exporters are doing better on product diversification front as compared to woven exporters Indian exporters have made the beginning of building relationship with the buyers directly. Men`s wear exporter are doing better in terms of channel mix as compared to women`s wear exporters
Differentiation Cost Leadership Focus Differentiation Focus cost Leadership Leadership Strategies Orientation BROAD NARROW Large-scale Exporters falling in the Standardized range Should be using Focus cost leadership-Process Engineering based etc. The small and medium scale exporters can create differentiation through product development & design Initiatives
Impact on the Supply Chain In the increasingly competitive environment, there would be greater emphasis on a “Responsive Supply Chain”. Information technology will become a primary agent of change. “In Stock” “Right Product” “Low Price” On Shelf Performance Inventory Turn Efficiency Replenishment Sourcing Speed Sourcing Efficient Communication and Product Development Consumers’ Demands Retailers’ Key Issues Supply Chain Needs
Resetting the Horizon Qualifying elements Cost advantage (C) Product quality advantage (PQ) Reliability advantage (R) Delivery advantage (D) Fabric advantage (F) Order winning elements Time/Speed advantage (T) Design/Product Devt advantage (DP) Productivity advantage (P) Service Advantage (S) Image advantage (I) Source : Koshy, Darlie O. (1997). Garment Exports: Winning Strategies, Prentice-Hall India, p.241
Consumer Focus: Time for Partnerships Joint Activities Product Development/ Merchandising / Line Planning Inventory Management /Forecasting Supply Chain Management Marketing Selling Floor RetailerSupplier Consumer
Conclusion In conclusion, the global economy is increasingly concentrated at the top and fragmented at the bottom, both in terms of countries and firms. Given this consolidation, profits are driven down at the base of global value chains because of intense competition, leaving little money for reinvestment, innovation, or wage increases.
Conclusion Thus, sourcing structures for such a dynamic industry have shifted from large- scale set-ups to smaller fragmentized sourcing bases, which are more flexible in nature. Whether such a phenomenon will oscillate back to the former in the future is a challenge for researchers
Conclusion The real opportunities to move up value chains in the global economy appear to be increasingly concentrated in a very small number of developing countries, and within the largest of these economies (like China and India), in particular sub-national regions.
The greatest danger for most of us is not that our aim is too high and we miss it, but that it is too low and we reach it. Michelangelo