How Fast Fashion Exposes Retailers to Supply Chain Compliance Risks

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How Fast Fashion Exposes Retailers to Supply Chain Compliance Risks

By Cyndi Fulk Lago and Michael Wohlfart, Capgemini - 03/29/2017
Once upon a time, new fashion collections were introduced in the fall and spring. Socialites followed the runway shows to select looks for their charity balls. Families went “back-to-school” wardrobe shopping. Spring looks showcased lightweight fabrics and pastels. A smaller winter show featured cruise wear. 

Gone is that fairy-tale world of well-in-advance collection planning, as fast fashion is the new normal. Today, trends take shape in real time, and these fast-fashion looks compress planning cycles and threaten to burn off profits. 

Fast fashion demands that retailers release new lines four to six times per year, or every two to three months. As retailers embrace this trend, manufacturers have adjusted their design and merchandising processes accordingly. Yet the impact on the supply chain exposes significant compliance risks that threaten long-term success.

The hidden costs of fast fashion
Fast fashion means getting new looks to market quickly. Design, sourcing and manufacturing occur at hyper speed. Items arrive at point of sale in record time and are sold at lower margins. Meeting the new mandate for fast fashion can easily lead to: 
• Increased transportation costs
• Deteriorating quality 
• Not delivering the best available product

Companies manufacturing overseas have absorbed significant increases in transportation costs. For example, opting for air vs. boat can shave six weeks off the delivery schedule, but there’s a high price associated with this option. After goods arrive from overseas locations at a central U.S. distribution center (DC), they must then be broken down and shipped to stores and fulfillment centers. We’re seeing a substantial rise in direct shipments from Asia to stores that include smaller orders sent in more batches, which drives up costs.   

Clothes are being ordered in smaller quantities and are being produced in smaller quantities. Companies are shipping less volume but shipping more often — which means a higher overall freight cost. And that doesn’t even factor in the consumer’s increasing appetite for next-day and same-day deliveries.

In order to leverage the benefits associated with being closer to the consumer, some companies manufacture in, or closer to, the United States. Manufacturers also produce goods in low-wage countries to reap benefits associated with lower labor costs and standards. Ultimately, there are drawbacks to each of these options. Manufactured goods from low-wage countries could lack quality while higher labor costs in the United States may result in compromised fabric quality, and taking shortcuts in garment construction.

Finally, fast fashion’s “rack race” to the retail floor or website means companies have, in many cases, compromised the goods being offered. It’s not unusual for a dress seen on the red carpet one night to be quickly knocked off and shown to a retail buyer the next day. Of course, that mass-produced dress won’t have the same luxurious fabric or level of detail. It also won’t carry a couture price tag, as it appeals to the masses. 

How to mitigate supply chain risks
In the rush to meet the compressed cycles of fast fashion, design and merchandising teams have changed how they do business. But too often, companies are thinking in a silo. Merchandisers may make key decisions about how they need to operate without sitting down with supply chain experts to set new ways to handle logistics. 

As a result, supply chain expenses tied to fast fashion rise, negatively impacting the bottom line.

What’s needed is a close examination of the supply chain to help uncover inefficiencies and identify opportunities for cost savings. And it’s not just for fast fashion. Whenever there’s a strategic change in the way a company is buying and shipping, it’s important to look at the supply chain to explore the origin of any cost increases. 

For example, discern whether items are now handled more than once in the warehouse or DC. If you are not buying the depth and quantity needed to ship cases directly to the store, your DC might end up picking more “individual items,” which drives up labor costs. Examine your use of pre-packs, and take a close look at the minimum quantities established with current vendors and suppliers. Analytics can be used to understand customers’ shopping patterns to place the right product in the right place.

There are many ways to analyze supply chain processes. A smart place to start is to address areas where costs have increased by establishing new, more efficient business processes. 

Next, assess the strategic direction of the company with an aim to reengineer the supply chain and business processes to support fast fashion. Consider whether your delivery method and presentation is in line with your new business model.  Can you renegotiate transportation costs or find alternate ways to transport goods?

Internally, these decisions might require a discussion around whether to use drones or one-hour delivery. If these new ways are adopted, how will they be offered, what are the costs, and what can you afford to offer? Such questions require constant reevaluation in order to optimize the supply chain, as consumer shopping patterns continue to evolve. After all, what was fast delivery a few years ago is now a standard expectation.

Mirror, mirror on the (warehouse) wall
For fast fashion to be profitable, the entire organization must be aligned with the company’s goals and strategy. The supply chain conversation becomes less about how quickly and cheaply a package can be delivered, and more about having the right inventory available when the customer (a retailer or a consumer) decides to make a purchase. 

This level of coordination requires visibility and connected systems to be able to orchestrate and manage the inventory to get it where it needs to be. Combining these requirements with business insight generated from structured and unstructured data and predictive analytics enables the manufacturer to understand shoppers’ desires and behaviors at a deeper level — to know where product is most likely to sell so it can be sent to the ideal locations, in the right quantities, from the start. 

When pursued by manufacturing without regard to the supply chain, fast fashion can bring a steep cost, and maybe more than most companies can afford in the long run. Rising shipping costs and quality issues can easily eat into profits, not to mention the occasional backlash companies face due to an increased carbon footprint. A more strategic approach that considers the full order-to-fulfillment cycle should be undertaken now for a more sustainable and satisfying future in the fast-fashion world that’s upon us. 

Cyndi Fulk Lago is a vice president and leader of the supply chain technology practice at Capgemini, a global provider of consulting, technology and outsourcing services. Michael Wohlfart is a vice president in Capgemini’s retail practice.