Survival of the fittest: what can we learn from the recent high street casualties?
25 August 2016
2016 has already proved to be a turbulent period for retailers, particularly those operating within the fashion sector. With Brexit and the fall of major UK retailers covering the front pages, the after-shocks are still spreading across the marketplace and it’s clear that not everyone is getting it right.
We’ve spoken before about how it is increasingly challenging to part savvier consumers from their hard earned cash, requiring brands to be more relevant and more tailored. We have also touched on the importance of Total Retail, having joined up and seamless channels to market focussed on customer needs.
So how can retailers adapt their business model to these emerging buyer behaviours and market trends in this uncertain market place and still turn a profit?
The right stuff, in the right place, at the right time
In a world of increasing choice and general decreased brand loyalty having the stock where and when your customer wants it, is key to securing a sale. But there are both physical and financial limitations to how much stock you can hold in any given store. The cost of holding wide ranges of styles and sizes go beyond the value of the goods themselves and impact on property, staff, logistic costs and ultimately your bottom line.
According to the most recent Working Capital Opportunity, compared to 2014, 2015 saw an uptick in inventory on hand from 53 to 55 days. However, the difference between the top 25% and the bottom 25% performers is an eye-watering 44 days compared to 122 days. On average a move from bottom quartile to top quartile could release up to c.£160m based on the retail companies falling in the bottom quartile. So it is clear that those that have learned their lessons well have developed systems which reduce the quantity of stock held, generally through centralised distribution and optimised logistics – overnight restocking of stores and upgraded Point of Sale (POS) systems. These allow orders in store for next day delivery, and are just two solutions which reduce the burden of holding stock. Slick logistics also help with the increasing issue of handling returns from online sales as they can be quickly moved back to a central warehouse for processing and re-distribution.
Streamlining stock management
Whilst the immediate day-to-day logistics of stock management have come on leaps and bounds in recent years. We are still seeing retailers using age old buying patterns at a seasonal level and committing early, tying up significant cash to purchase the majority of their seasons stock (often from far overseas). Aside from the obvious risks of being too optimistic, or indeed pessimistic, about demand leaving you with excess stock or missed sales respectively, you also have to store, handle and monitor the goods once they’ve arrived. Spanish fashion chain, Zara is one example of a retailer which has executed a quick turnaround inventory strategy and cleaned up on high-street sales leaving many British retailers struggling to keep up.
So what can you do about this? Offshoring for cheaper manufacturing will always have its place in the supply chain but the cash pressure related to bulk orders can be mitigated by agreeing the right terms with key suppliers. Aligning the payments to expected performance, minimises the time cash is tied up in physical goods, however this is dependent on the quality of the dialogue with suppliers.
We’ve also observed some of the largest consumer brands mixing near- and far-shoring of supply. Whilst near-shoring is often more costly, the shorter, quicker supply chain allows them to react quickly, whilst the far-shoring can handle longer term demand. This gives them an edge in the fast paced digital age where trends can change quicker than the British summer weather. Whilst the complexities of Brexit may make near-shoring more challenging from a legal perspective in the short term, the longer term benefits it provides are likely to offset the initial legal challenges of setting this up.
In a fiercely competitive industry, retailers will need to adapt their business models to the changing dynamics affecting the market, underestimating the importance of stock management could be critical to surviving through these tough times. Identifying the most cost efficient source of financing stock and wider corporate growth is also a major factor and the topic of our next blog on the sector.
What lessons have you taken away from the recent high street casualties? Are there any changes you are making to respond to the latest consumer trends? Share your thoughts below or if you want to hear more on this topic, please get in touch.