SPEED TO MARKET, OR IS IT “SPEED TO MARGIN”

During a recent panel on which I had to honor to serve, a retail VP said, about sourcing apparel production from the Western Hemisphere, “they need more speed to market, they need to have speed”.

I disagreed on two very important levels.

First, if you have ever learned to shoot a handgun, you know speed is good but accuracy is deadly. The problem US retailers face is not speed, its accuracy. Until they capture sales data, share it realtime and partner with their suppliers to get the right products, speed is irrelevant.

There isn’t an apparel producer in this hemisphere who is a member of our organization (AAPN) who, given exact targets to hit with production, can’t turn products in days, continuously.

That led to the second disagreement between us. It’s not about speed to market, but speed to MARGIN. If you are like every other retailer who wants the margins Zara and H&M enjoy, you have to do a lot of things differently from the US retail business model.

As my friend David Birnbaum, the industry author who invented ‘Full Value Costing’ likes to say, “US retailers think markdowns are an act of God”. They buy software to ‘manage’ their markdowns instead of learning the hard measurements needed to reduce them, not to mention stockouts.

That is the value of velocity and it is being proved today by US retailers and Western Hemisphere producers – right here, right now. How?

The two parties work together on the front end – merchandising, design and product development. They throw out a half dozen or so styles.     What sells ramps up in volume, reducing stockouts. What doesn’t gets dropped quickly, reducing markdowns.

When the consumer doesn’t care about the price, then don’t worry about saving a nickel a dozen, which is the Big-Box-China-Syndrome-Sourcing model. There’s only one margin – the difference between the factory you source from directly and what the kid paid in the store for the jeans.

That raises another issue - retailers working directly with factories. Why do so few actually do that? Because, it’s not easy. Retailers today want the healthy margins from their own private labels. Yet, many source these garments through middlemen, leaving margin on the table.

So, they are asking us at AAPN how they might organize to work directly with factories – in other words, like Zara. But Zara, from the first day, knew little about ‘merchandising’. Their owners came from factories. They knew operations. They knew how to hit the target. So, in effect, what Zara did was eliminate the retailer!

Speed, product development, and strategic partnership were built into their business model from the start. In fact, the strong argument is being made that Europe knows both brand management and retail better than their counterparts in the US.

One European told me “you’re too busy putting bandaids on broken business models in the US”. In response to me saying this, a retailer on my panel said, “well, the real problem here is we need more predictability from factories in the Western Hemisphere”. I jumped on that one too.

“No”, I replied, “what factories in this hemisphere need from you is more consistency”. What I meant by this is that the churn and turn over and in-fighting and outsourcing of retail was coming back to bite them. Seemingly ‘strategic’ partnerships tend to collapse like a house of cards when there’s continuous personnel changes.

This allowed me to make the one point I’d brought to this panel from the outset – that if you dissect the supply chain of any major US brand or retailer today, the great problem solvers are actually in the factories. We see retailers failing. We see malls losing anchors. We see more consolidation. We see margins dropping. AND, we’re starting to see factories in this hemisphere actually fire customers!

This comes from several factors:

1.    It just makes sense if you aren’t making money

2.    They’ve invested in becoming ‘full package’ producers

3.    They’ve seen ‘speed to margin’ work with their other customers

4.    They know if they can make small first runs then ramp up, they can do anything

5.    They know that if a customer commits to them, they both make money

Producers in this hemisphere, including the US, are amazing in what they can do – close by, quickly and continuously. Zara proves that by sourcing most of their apparel from local factories.......now including THIS hemisphere.

Speed is built into their business model. They’re speed thinkers. But its not speed to market, but to ‘margin’ that sets them apart.

It’s possible in this hemisphere too. We know. We’re one of the very few seeing it first hand.

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