49% of fashion executives signal that supply chain disruptions will be the top issue for 2022. This article explores why and provides tips how to mitigate these challenges.
The last two years with Covid-19 have been unprecedented for the fashion industry. Facing a recession in the beginning of 2020 led many brands to reduce their orders for 2021. But the economy has bounced back very quickly, and consumer demand is now higher than before.
However, brands trying to increase production again are met with significant challenges: Production capacities in countries such as Vietnam were reduced significantly due to the pandemic. Raw material shortages have led to a surge in cost prices. On top of this, logistics costs are at an all-time high as worldwide demand and slower loading/unloading of containers in major ports have caused a scarcity of containers and shipment options.
As fashion brands are gearing up for Christmas and 2022, we have looked into the supply chain disruptions in more detail and share eight tips to overcome them.
Adidas CEO: “Global freight rates, constraints on containers biggest issue today” (Source: CNBC Video Interview Nov 2021)
1. Reassess Your Channel Strategy for Outlet and Retail
The production challenge is unlikely to be resolved in the next year. Looking at your channels and your brand, it is still a good time to think about the channel strategy for 2022 and 2023. Premium brands are likely to shift production capacities to full price retail and e-commerce rather than outlets. While further retail closures due to Covid-19 are unlikely, full price stores (in contrast to outlets) still have the opportunity to ship merchandise to online customers. Retail managers are therefore well advised to recheck their closure/expansion and refit plan for 2022 and 2023.
2. Partner with Wholesale Within Your Channel Strategy
Your wholesale customers are feeling the effects of product scarcity too. While some brands may be tempted to shift terms in their favour entirely, a balanced approach ensuring availability for the most important wholesale accounts can be the better option. A retail executive recently told me: “Our goal is to create stronger partnerships with brands and we are going along with reasonable price increases in exchange for having guarantees that we are ‘first to receive’ merchandise once it hits the ports in Europe. We have also seen some brands demanding significantly better terms in their favour. Whilst there is little we can do for the next season, we are beginning to actively look for substitutes for the long-term.”
Moncler Centre Stage at Nordstrom (Source: Nordstrom)
3. Manage Prices and Promotions
Unsurprisingly, the higher costs in raw materials and supply chain management are likely to last another 2-3 years, leading to higher landed cost prices. Especially premium brands have the power to increase prices offsetting both the higher cost prices and inflation. Some brands have already raised prices for selected products and/or stopped participating in larger promotions. Furthermore, markdown percentages should be managed even more tightly than before.
Nike had to cut their revenue forecast due to supply chain issues (Source: CNBC Sep 2021)
4. Hunt for Surviving Suppliers
With many suppliers having succumbed to the ongoing shutdown, finding new suppliers is a key priority for many fashion brands. Realistically, the chance of finding new suppliers in the hard-hit regions is low, and it may a better option to look for new markets right away.
Cotton price development 2021: prices have increased significantly (Source: MarketInsider)
5. Chase New Supply Countries
The shutdown of many factories in Vietnam has hit major brands such as Adidas, Nike and Puma very hard, and repercussions will be felt well into 2022. Especially for premium brands, it makes sense to diversify into several markets going forward, as margin reduction due to volumes spread over more parties (i.e. less efficient production and higher landed cost prices) can be offset by higher end consumer prices. The discussions about production in some Chinese regions in recent years may be just another reason to diversify further into several markets.
Swiss sneaker brand ON faced severe disruptions to production in 2021 (Source: ON Media)
6. Make Supply Chain Challenges a Key Management Topic
Job postings for supply chain managers are at an all-time high. But it is only a very recent trend for supply chain teams to get c-level exposure or even a seat on the board like in case of Nordstrom. Given that supply chain managers often focus on solving day-to-day issues, it is important to find staff who not only bring supply chain expertise but also strategic vision to the table.
7. Fall-Winter 2021 Merchandise Delivered to Markdown
The delays in shipments leads to winter products delivered to stores and consumers only after Christmas. Whilst markdown will inevitably be high, the time to sell it off may be longer given that Spring-Summer shipments are also delayed.
Puma Shanghai full-price store (Source: Puma press release)
8. Manage Consumer Expectations
As brands experiment with various means to tackle their supply chain challenges, it is important to clearly communicate potential delays and keep consumers up to date on the status of their order (see also our previous article on how to manage Brexit challenges). Considering that it can take six months to have a car delivered, let alone a Sony PlayStation, it is worth keeping in mind that the consumer mindset and expectations regarding availability and next day deliveries have also changed.
About the Author:
Maximilian Gellert is passionate about transforming digital technologies into pragmatic every-day solutions for retailers. Combining consulting experience with industry functions in premium apparel and online grocery, he supports retailers and etailers in their digital challenges and last mile innovation. Read more of his work here or connect with him on LinkedIn.
