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POOR SUPPLY CHAIN MANAGEMENT IS KILLING APPAREL BRANDS LIKE BANANA REPUBLIC

Traditional apparel companies in the United States are in trouble, and one big reason why is their slow adaption to the new world order of supply chain management. Put simply, many top brands are doing a terrible job of inventory control.

Many top brands are doing a terrible job of inventory control.

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This isn’t the only issue for stores like Banana Republic, Nordstrom and Macy’s. The tidal wave of e-commerce has overwhelmed many companies, as customers can seamlessly price-compare online and force the stores to constantly cut costs. And Banana Republic in particular is facing an inventory backlog that began by making some uninspired design choices that has turned their brand into a shell of itself. But if the global economy is an ocean, these stores are going down with their ships, stuffing stones into their pockets, rather than swimming for the surface and seeing what new methods can help them stay afloat.

Indeed, poor supply chain management isn’t the core issue for struggling apparel brands — but it does exacerbate existing issues and create a cycle of failure that some are finding tough to break out of.

THE STRUGGLES OF BANANA REPUBLIC AND OTHER TOP APPAREL STORES

Business Insider recently conducted a walkthrough of a Banana Republic retail location and identified two major issues the brand was experiencing:

Fashion design choices that haven’t resonated with customers — Banana Republic appears to be aping other brands, and poorly, rather than maintaining its “updated classics with a twist” vision. Banana Republic hired and then ousted designer Marissa Webb after just 18 months due to lagging sales.

Poor inventory management that has led to constant, massive markdowns — The store emphasizes monster sales (recent signs showed a 40 percent off all purchases sale) to help get rid of a backlog of unsold inventory. Regular customers now know they can wait out the company until another big sale arrives, and the stores and inundated with large clearance sections that are both unsightly and represent their back-end failures, as well as a financial loss.

The first problem doesn’t have an easy answer: The company says they’re addressing issues with style and fit. That’s fine — it’s a problem with a solution (make better clothes? That’s easier said than done), but there are enough talented designers in the world that it’s possible to get the brand back on track.

The second problem has a clearer path to resolution: Banana Republic needs to step up its supply chain management system. Other brands such as Nordstrom’s are also eroding their status as a high-end retailer by offering constant promotions and sales, which consumers happily take advantage of in an era where fast and cheap clothing has become the standard.

THE RISE OF FAST-FASHION — THANKS TO SUPPLY CHAIN MANAGEMENT

While traditional brands with their traditional methods are struggling to stay relevant, “fast fashion” has swept the industry, eliminating the typical four seasons of fashion and creating an entirely new timeline for debuting, producing and selling clothing.

Brands like Zara, Topshop and H&M are pioneers in this field, where companies debut new styles on the catwalk at fashion week, and have them ready to purchase almost immediately — and at a lower cost. Mass production of rapidly changing styles means more affordable pieces that may go out of style quickly, but at least they’re available while the buzz around them is still hot.

As a result, top fast fashion retailers grew 9.7 percent over the past five years, almost three percent more than traditional apparel companies. Customers are responding better to the lower prices, but also these companies’ ability to meet their demands swiftly. So even if companies don’t believe their model is cut out for fast fashion — and there are certainly drawbacks to the practice, such as increased waste and pollution by both consumers and companies who now operate in a cheaper space — they can learn a lot from the supply chain practices of these more agile retailers.

HOW SUPPLY CHAIN MANAGEMENT CAN HELP

Supply chain management is the oversight of materials, information and finances as they move down the “supply chain,” which begins at the supplier of raw materials and ends at the front door or in the hands of the consumer. This is central to fast fashion, or any company that hopes to speed up production and add value to the traditionally long process of creating goods, moving them into stores and selling them.

Businesses that don’t use automated inventory management (one of the crucial tools in managing the supply chain) — and a surprising percentage of small businesses polled in Wasp’s State of Small Business Report admit to this — often find themselves guessing how much inventory they require to stock the shelves, rather than reading the market and deciding how to respond to historic buying patterns, or recent shifts in demand.

This results in a distressed inventory turnover ratio: On one hand, companies can produce too much inventory and find themselves spending heavily on the carrying costs (such as storage and security costs), where the only solution is to mark the items down (though this isn’t always a death knell) or get rid of them, as Banana Republic is doing; on the other, businesses may not have enough inventory on hand to meet surging demand, losing business unnecessarily.

So while Banana Republic may never want to pivot their business to be completely “fast fashion,” they clearly see the value in some of the fast fashion practices, mostly related to supply chain management: They recently experimented in the fashion week strategy of immediately having their debuted clothes available for purchase, making their top hits more accessible to consumers. This simply isn’t possible without a streamlined supply chain, where the company can communicate seamlessly both internally and with external vendors.

Companies across a variety of industries are facing a similar issue, highlighted by sub-par control over inventory. All retailers are currently looking up at companies like Wal-Mart and Amazon, two behemoths that have prioritized inventory control and management and thus almost always able to meet customer demand, with low prices — and are increasingly able to fulfill orders within a couple of days, if not the very same day. Supply chain management makes that possible.

MOVING AT A NEW SPEED

Traditional retailers and department stores are now operating in a much bigger marketplace, where customers can access seemingly unlimited choices. This means that not only will these brands need to continue to create fun, energizing designs that capture customer attention, but be able to fulfill that demand as soon as possible.

In order to enact that positive change, companies that don’t already utilize inventory management software, or haven’t looked to see where their supply chain can cut bloat and inefficiencies using automated systems, must look into an upgrade. The world moves much faster now — social media gives users access to new developments instantly — and companies that don’t upgrade their supply chain to follow suit will be left in the dust.

QUESTION:

1. What are the issues with regard to supply chain management? (Make sure you do some research about the organizations discussed)