Fashion retailers struggling to remain competitive as sourcing costs rise, Accenture study finds
Fashion brands and retailers are facing strong pressure on growth and margins. Faced with consumer demand for fast fashion at competitive prices and a proliferation of choice, many continue to struggle with high inventories and slow sales. Simultaneously, rising apparel sourcing and production costs are heavily impacting margins.
The 2017 Global Sourcing Reference report from Kurt Salmon, part of Accenture Strategy highlights that retailers shifting production purely to capitalize on more cost-effective markets are chasing a temporary fix to a much bigger problem as costs continue to rise in all sourcing regions. Instead, retailers need to move away from a sourcing cost obsession and focus on reinventing their operating model to unlock trapped value in their supply chains.
Key insights from the report include:
- Pure sourcing country cost shifting is not the answer to long-term profitability: While shifting sourcing volume to more cost-effective markets (i.e. Bangladesh, Pakistan, Cambodia) might hint a possible way out of the gross margin trap, it is in fact rather a basic necessity. Shifting sourcing from one country to another will only provide a temporary fix as almost all sourcing countries continue to become more expensive.
- Technology innovation to unlock trapped value: Digital technologies can enable better collaboration, visibility and control across the entire value chain which will improve product innovation, time to market, reliability, execution, and quality. Analytics will help retailers improve sell-through performance, stock turns, markdown, and gross margins. Cut and sew robots are improving production efficiency, and 3D printing is enabling quicker product development and cutting down sample iterations.
- Customization is a key investment area: As consumer demand for personalized and customized fashion rises, retailers and fashion brands will have to find a way to serve this market on a mass scale, while keeping costs down.
- Priorities for global sourcing leaders: Speed to market is the current number one priority for global sourcing leaders, followed by social and environmental compliance, quality and innovation management.
“Retailers that focus on shifting sourcing countries as the primary route to cost-cutting will ultimately fail. Analytics-driven sourcing and supply chain management can help retailers unlock trapped value. 3D printing is improving efficiency and cutting down sample iterations. And cut and sew robots are paving the wave for greater production efficiency. This by far compensates for slightly higher production costs,” said Dr. Peter Rinnebach, Managing Director, Kurt Salmon, part of Accenture Strategy.
“Fashion brands and retailers will reinvent their operating model to integrate suppliers across the supply chain to deliver better value for customers. Predictive analytics and artificial intelligence can optimise decision-making across the ecosystem which is critical when operating in a volatile environment and on short timelines,” said Helen Mountney, Managing Director, Kurt Salmon, part of Accenture Strategy.