I’ve noticed that plenty of students in the course have taken the time to either present or write about how technology and social media has impacted the world of fashion. We’ve seen a variety changes across the industry, whether it be the new socialized way to shop or instant live stream of runway shows. There is not doubt that the way the fashion world works has changed, but I’ve yet to see a piece on debatably the sexiest part of fashion itself. That’s right, I’m talking about the supply chain.
At the end of the day, the logistics behind the inventory of a clothing line will have a major impact on how the company selling said clothing pulls a profit. Consider this, if Abercrombie and Fitch orders 100,000 units of blue sweatpants, but only 30,000 males want to be like Mike (“The Situation”) from Jersey Shore, then A&F’s inventory is going to be huge at the end of the fiscal year. Eventually, the company will want to push out the old and get in with the new. So A&F will have to sell their pants at a discount and suffer a smaller margin given that the costs of goods sold will reflect that of their original order cost, not their discounted price going to the customer. While obscure, I made this example up in order to quickly show how poor ordering can negatively harm business. In fact, the example I made up is now impossible. A&F literally pays The Situation to not wear their clothes. That’s how bad it got. You think I’m kidding? Well, I’m not. There was a lawsuit and everything.
So despite the confounding variable of a guido in this situation, the bottom line is this: What you order, how many you order, and from where you order matters. And technology has managed to ease the process.
At a bare minimum, think of how the process of the supply chain has changed just like how it has changed when you order a pizza from Domino’s. The old days you used to call in to a store, give your order and then wait for the knock at your door by the friendly pizza delivery guy. Nowadays do you expected me to just anxiously wait for my meal to arrive? Of course not. We use to the Domino’s tracker to know exactly who is making our pizza, when it leaves the oven, and when it’s on the way to my unclean, off-campus house.
In a sense, the supply chain is a lot like Domino’s Pizza Tracker. Companies depend on social media to see reviews on material goods, understand the nature of the delivery, and know when the shipment will arrive. Rather than go into detail on full logistics, I found a good image to explain a sense of the supply chain nowadays with reference to social media and technology so we can focus on the more important stuff.
Now if you followed the images above, you can tell that there are multilple steps to running an efficient supply chain. It’s all about how you use technology to prepare distribution plans, meet the right supplier, understand what your customer wants and record data for future planning.
In my opinion, Zara one of the best players in the game regarding the execution of the supply chain in fashion. They have a unique business model that allows for an optimal operational strategy that is unique to each store with their quick inventory turnover that allows for lower markdowns and a higher profit margin on their units for sale. But before I dive into how Zara pulls such a high-profit margin, it’s important to know what the traditional retail for clothing chain looks like.
Consider Gap. Their designers use data and try to guess the next trend for the
upcoming season. They slay away coming up with their best designs and try to guess their best on what will sell based on their reports. The designs get approved and the company works to purchase the raw materials, assemble them and eventually distribute them across the nation to their stores. And this is where my A&F example comes into play. If the designs made by Gap miss their target audience preference, lack enough of a specific unit in one store, or the customer just doesn’t like the way the new line of clothes fit, then that’s a tough quarter for Gap. There is nothing they can do about it and they have to keep their heads down and hope for the best for the next season trends.
Zara, on the other hand, has a completely adaptable system. With a close knit, vertically integrated supply chain, it can purchase its raw materials for cheap. But what’s more important is how they decide to purchase new materials. Each employee at a Zara store is equipped with a Personal Digital Assistant which can track data on customer preference. With more than 2,100 stores, Zara has been able to successfully gather data to accurately adjust to their customer’s preferences. They order in small amounts to each store so that a fashionable item retains its prestigious perspective and doesn’t drop from full price.
For example, a customer shopping in a Zara sees a dress and likes the design of the item, but would prefer a different fabric and a slightly lighter color. The information put into the Personal Digital Assistant by the employee after talking to the customer could signal a new shipment of that exact same design with the more preferred qualities in a 2-3 week turnaround. No Zara store is the same as it was half a month before, and no two Zara’s are the same. It’s what fashion was originally intended to be: unique, changing, and popular.
At the end of the day, the shareholder’s are very happy about their profit maximization. Overtime, Zara has been able to rise to #53 for most valuable brand name. And I’m just skimming the surface at the practical applications of technology and supply chain. Big data, AI, and machine learning will become a factor in how to optimize selling a product. Soon we could move beyond the plan-o-gram system, and truly automate how our retailers work to maximize their profits.