MHW Magazine News and stories from the Materials Handling Industry
Fashion retailing is increasingly a global business, with design, manufacturing, brand management and retail channels spanning oceans and crossing continents. Brands that have succeeded in one territory are keen to replicate that success in other countries, especially through expanding their online fulfilment offers. But it is a fast-moving industry with ever more demanding customers and the chances of failure can be high, even for established brands, let alone for relatively new companies.
What are the success factors for international expansion, either for overseas companies moving into the British market or for UK firms extending abroad? What should be the initial steps and how do you drive optimisation to support strategic ambition?
The web site is the first imperative. Some companies have attempted to serve overseas markets through their domestic website, but this is rarely operationally satisfactory, or convincing to demanding and suspicious consumers. A local website is vital, in the local language and adopting local usages (British court shoes are pumps in the US), but also reflecting local factors such as customer pricing e.g. sales tax.
Locality reassures the consumer about all-important service levels. Fashion customers are accustomed to next-day or 48 hour fulfilment – a foreign website suggests a four or six-day cycle or worse, which seems like a lifetime in this market.
Handling international returns properly is critical
Similarly, consumers are keenly interested in returns policies. In fashion, it can be almost de rigueur to order three pieces, choose one and send the others back. Returns, which typically run at 20-30 per cent of deliveries, are not failures: they are part of the process. Consumers need the assurance that both the physical return process, and the re-crediting to their accounts, will be swift and painless. At the same time, the ability of the vendor to convert returned items back into available stock, within the often very short life-cycles of the fashion industry, has a critical effect on margins and profitability. To an extent, getting product out there, even internationally, is relatively straightforward – handling returns is not.
These complex factors raise some big questions for the expansion minded fashion retailer. Should they go for a ‘big bang’ approach, creating a complete infrastructure of marketing, sales, distribution centres and networks, returns handling facilities and the rest, in the new territory from the word go? Most companies starting a new web-based business want to establish a strong market presence quickly, not least to beat the copy-cat competition. But on the other hand, is a scalable, phased approach – perhaps at least initially, with a greater dependence on third parties – a lower risk? Again, should the company own, directly or through a subsidiary, all its assets in the new territory, or is a franchise model preferable? The latter has been successful for, amongst others, M&S and Monsoon.
How to decide on the best approach
There are no easy, right or wrong answers. They depend on the nature and strengths of the company, the financing available, the precise nature of the market, conceivably on local laws concerning company ownership, taxation, tariffs and so on. Importantly, a logistics service provider should be able to actively support any of these models and assist, if required, with the transition from one to another as the business grows and expands.
Looking at the returns challenge a little more closely, as long as returns are within the system, the retailer is still buying and holding possibly unnecessary stock. As returns materialise, it is imperative to move them swiftly back to the (virtual) shelves, otherwise, excess stock may be ordered and at the end of the season (which for some lines may only be a couple of months), margin-destroying markdowns become inevitable.
The returns infrastructure is not a running of the initial fulfilment network in reverse. It may for some retailers be feasible to supply, say, US orders from the UK. It does not follow that it makes sense in terms of time or money to bring returns all the way back to UK DC’s if it may be resold back in the United States. On the other hand, if the returned item is just as likely to be resold in say Germany, it may make perfect sense. There are complex issues around inventory and systems, as well as costs, duties, taxes and tariffs – which may also be influential. So the logistics service partner you work with needs to be highly experienced in analysing and balancing these complex factors of global supply chains.
