Straight talk from Ed Gribbin, President, Alvanon
Speed to market, for apparel retailers and brands, has been a topic of interest for only about four to five years, but today, it has become one of the top priorities, if not the top priority, for nearly every retail organization.
During the years leading up to 2008, retailers all followed pretty much the same game plan when it came to developing product. Seasonal product development calendars were typically 14 to 20 months or longer. The first two to three months were the creative phase, assembling design ideas and mapping out a line plan. The next two to three months were spent building tech packs, finding vendors, and producing prototypes. The following six to eight months were spent reviewing, rejecting, modifying, replacing, substituting, redesigning, and redeveloping. The average retailer would go through up to six or more iterations of any given style before it actually went into production. Why? Well, by the time the first or second prototypes arrived, the merchants were eight months smarter; they saw what was trending, what their competitors were doing, what was happening in pop culture, and as a result of all the new information, they wanted to tweak. What they decided would be a great line eight months earlier did not look so fresh or exciting anymore. By then, though, you only had a few months left to make and ship the product to get it on the retail floor in time for the seasonal launch date.
Retailers got away with this for two simple reasons: one, they owned the customer; and two, no one broke ranks and gave the consumer something different or better to consider. They all followed the same calendars, all of which were increasingly misaligned with what consumers wanted and needed. The fall collections, with sweaters and coats would show up in stores in August and September, when it was too warm for consumers to care; and the Spring collections would show up in February and March when it was too cold for consumers to even look. This usually forced retailers to take markdowns on new product as soon as it went out on the sales floor. Not a healthy financial model, but they got away with it for a long time, because consumers had few or no alternatives to how they bought clothing.
CUSTOMERS TURN THE TABLES
Consider that through most of the boom years for retail, smartphones and mobile apps did not exist; there was no such thing as omnichannel; and Internet sales represented less than three percent of total sales. Retailers, by and large, owned the customer. They dictated what they would sell, when they would sell it, and how much they would sell it for. The consumer had no choice but to comply. A key reason why mall traffic increased so dramatically through the ‘90s and ‘00s was that if you didn’t like what one store offered, you could go right down the line and hit them all. Today, you could roll a bowling ball down the aisles of two-thirds of the malls in the U.S. and not hit anyone.
Shoppers can find what they want, when they want it, and in many cases dictate just how much they’ll pay for it. The gravy train is over and retailers know it. They know they have to find new, innovative ways to engage shoppers, daily. Unfortunately (for them), much of that engagement has, and still is, taking the form of promotions: sales, markdowns, discounts, special offers, and closeouts. There’s no question that price promotion drives conversion, but at what cost? Since the beginning of the recovery there has been steady downward pressure on margins across the retail landscape even though there has actually been little to no increase in actual product costs for most categories. Net margins for publicly held retailers have declined from the mid-to-high teens in the early 2000s to less than six percent today, and the slide shows no sign of stopping. Customer engagement through price promotion may drive short-term conversion, but it is not a sustainable survival strategy, much less a long-term growth strategy.
ONE RETAILER PILES ON THE PRESSURE
Add to these pressures the fact that disposable income has remained basically flat since the last recession. In 2015, auto sales hit an all-time high, and a higher percentage of income is now going to home repairs, building supplies, electronics, and dining out. These retail competitors are taking income away from apparel and footwear, and they are not even on the radar as a threat at most retailers. And then there are the non-traditional apparel and footwear retailers (actually, I should say “e-tailer,” as in Amazon), taking additional market share in huge buckets.
Things already look bleak, but now, let’s just put a little gasoline on the fire: a little mom and pop retailer out of the northwest corner of Spain has been on a path to reinvent the retail apparel business model for the better part of two decades now. In 2010, it surpassed Gap as the largest retail apparel seller in the world. As you have read in this issue’s lead article, Zara has put even more pressure on its peers by shipping new, fresh product to their stores every two weeks. Something new 24-26 times a year, when the average retailer has something new four to six times a year. Zara has become synonymous with speed to market and they’ve created a product development model that almost no one else is able to, or willing to, emulate. They invest in fabric when everyone else is negotiating packages; they make most of their product in proximity to their home base when everyone else makes everything on the other side of the planet.
CONTINUAL ENGAGEMENT IS KEY
Customers are no longer willing to wait around for those four, six or eight new deliveries a year when they have so many more choices, and they are inundated with so many more enticements, elsewhere. This is why speed really matters. Zara gets the shopper’s attention four to five times more often than other retailers and the other retailers want to know how they can keep up. It’s important to keep in mind, though, that speed for speed’s sake, is not what matters. Customer engagement is what matters. How do I capture and keep my customer’s attention? How do I get them excited with anticipation? How do I get them to check back daily or weekly to see what’s hot, what’s new? How do I create enough buzz that I’m getting new visitors every day?
New product, continuously released in smaller increments, is certainly a better tactic for increasing customer engagement than promotions and markdowns in the long term. Smaller collections, delivered more frequently are not only a reason for the shopper to look more often, they also bring numerous ancillary benefits, as Zara has proved. Higher full-price sell-throughs, fewer markdowns and closeouts, and higher inventory turns all go right to the bottom line.
STRATEGY FOR SPEED
There are many tactical ways to get faster. One large U.S. retailer bought two 747 aircraft and flies them weekly back and forth to Asia to bring new product to its stores faster and more frequently than its competitors who take two to three months by boat, train, and truck to get product into stores. Another large U.S. brand has shifted the majority of their jeans production back from China to Central America and the Caribbean, partially because of rapidly rising costs in China, but mainly to get new product into stores faster than their competitors. Other retailers have implemented new PLM technologies that have streamlined their product information platform, improved information accuracy and accessibility, and cut weeks out of product development lead times in the process. Burberry, Tom Ford, Tommy Hilfiger and about a dozen other brands have announced that they are realigning their development calendars to have new in-season product available for immediate sale when it’s shown on the catwalks. These tactics can all help, but improvements in logistics, or near-shoring, new
technologies, or calendar shifts may only yield incremental improvements.
Real speed to market is more complex and requires strategic, structural, and cultural change. Retailers and brands cannot, and should not attempt to, copy the Zara business model. They can, however, radically and methodically reinvent their product development process to remain relevant, survive, and thrive in this new retail landscape. These key principles of process reinvention, if successfully executed, will result in sustainably faster product development and greater competitive advantage.
- Product development is not an art; it is a science, driven by data, with timely customer engagement as the primary focus.
- Product development is a team sport, but not everyone is on the field at the same time. Designers design. Merchants select and assort. Technicians execute. There needs to be a hard stop at each process step so that the next team member can do their job quickly and without interference, and this only happens with clear ownership, trust, and accountability at each step.
- Product development utilizes technology, but is not a slave to technology. PLM and 3D virtual product development technologies can combine to dramatically reduce cycle times, but they can also become a costly distraction or a black hole. Plan, map, and test carefully; then implement decisively. With 3D, it’s not necessarily an all or nothing proposition. Implementing 3D technologies in one part of the process at a time can yield incremental time-savings while demonstrating proof of concept.
If a company’s entire product hierarchy—designers, merchants, technical and sourcing teams—continue to work, as they have in the past, bound together in a collaborative process, for 12, 16, 20 months to fine tune, tweak, and perfect a seasonal launch, that company may be out of business very soon.
Speed does matter and it will matter even more as we move forward into this new, unfamiliar landscape of consumer empowerment.