fashion & luxury: nuova architettura prodotto, supply ......is to rethink the whole internal and...
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Fashion & Luxury:Nuova Architettura Prodotto, Supply Chain e Filiera
EY WEBINAR
EY WEBINAR | FASHION & LUXURY
Nuova Architettura di Prodotto, Supply Chain e Filiera
Benvenuto - Stefano VITTUCCI, Consumer Products and Retail Italian Leader
Coordinamento - Armando BRANCHINI, Fashion & Luxury Senior Advisor
La nuova Architettura di Prodotto nella moda Lusso e PremiumArmando BRANCHINI, Fashion & Luxury Senior AdvisorElena DE CO', Head of TAS-Strategy Fashion & Luxury
Il punto di vista di Alessandro VARISCO, CEO, Twinset
Ridisegnare la Supply Chain del futuroCristiano GELLERA, Fashion & Luxury Advisory Leader
La gestione della filiera nella moda lusso e premiumArmando BRANCHINI, Fashion & Luxury Senior AdvisorElena DE CO', Head of TAS-Strategy Fashion & Luxury
Q&A e ConclusioniArmando BRANCHINI, Fashion & Luxury Senior Advisor
Benvenuto
Stefano VITTUCCI
Consumer Products and Retail Italian Leader
Coordinatore
Armando Branchini
EY-Parthenon Fashion & Luxury Senior Advisor
New Product ArchitectureImplications for Luxury and Premium brands:
Armando Branchini – EY Fashion & Luxury Senior Advisor
Elena De Cò – Head of Strategy and Transaction Fashion & Luxury
New Product Architecture – Luxury Brands
Pre collections
► Originally requested by theDepartment Stores but laterturned out to be useful alsofor DOS and FranchiseBoutiques
► Buyer presentations takeplace in November for theFW and May/June for the SScollections
► Collections are delivered instore in June/July for theFW and inNovember/December for theSS
Main/Catwalk collection
► Buyer presentations takeplace in;
▪ January for the FW and inJune for the SS for Men
▪ February for the FW and inSeptember for the SS forWomen
► Collections are delivered instore in August (for the FW)and in January (for the SS)for Women
Resort/Cruise collection
► Dedicated originally to the"happy few" who go on holidayto the hot climate at the end ofthe year
► Later on it became a sort ofconjunction between autumnand summer collections, due toglobal warming and the highnumber of frequent travellers
Capsule collection
► At least 2/3 capsules perseason is essential
What about the collections as of today?
New Product Architecture – Luxury Brands
Excess of offer
Tourists vs. residents
▪ In recent years, there has been an excess in terms of variety ofoffers, dictated by the difficulty in understanding the needs ofcurrent consumers and those potentially achievable, but alsoby the fact that demand has tended to favour relatively fewbrands with a strong polarisation to the disadvantage of all theothers.
▪ Excess offerings lead 40% of cancellations of styles after acouple of weeks of launch.
▪ The importance of the purchase volumes of tourists in thefashion capitals (up to over 50% of the total) and in certaintourist resorts, in the last 20 years has forced brand to deliverFW garments in stores in June and SS garments in November,with the result of having each season collection in store to lastat least 8 months
▪ Brands had to put more effort on the attractiveness of thestores, and they have chosen to add "capsules" to allowrenovated store windows and to refresh the assortmentthinking of the attractiveness of residents
If 2021 sees a recovery inconsumption and markets, itwill be the time toexperiment the innovationsof product architecture andcalendars of store release
What are the issues for existing product architecture?
New Product Architecture – Luxury Brands
The inefficiencies of current product architecture
It is always "planned" (for Luxury brands) with rather long lead times. So, there is no possibility of interveningduring the season, even when there are evident gaps of the product that has been planned well in advanceversus ongoing fashion trends. This affects particularly "capsules" which, sometimes or often, succeed only to alimited extent in becoming an engagement factor for end-consumers.
Main Collections, primarily, but also Pre-Collections consist of many SKUs. After two weeks of salecampaign 40% or more are cancelled from the collections. Main reason is the difficulty ofunderstanding consumers' expectations much in advance. Organizational impact (prototypes,developments, fabrics, accessories, ...) and costs are really high.
Brand DNA ends up being less present in Pre-Collections. Many designers use them as a"carry-overs" of the previous season or a "basic style + logo" (bread and butter) product.Designers should focus on communicating with brand DNA instead of focusing on changingfabrics, colours and lines of the main collection.
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New Product Architecture – Luxury Brands
Why to change the product offering?
Plethoric & rigid
collections
Long cycleproduction
Garments atthe risk of
unsold
Store windows
Intelligentretail buying
Production optimisation
The traditional structure of the offer has too manySKUs, too rigid in planning with long lead times anddoes not favour the attractiveness of physical anddigital shops
Companies must ensure production of at least"short cycle capsules" in a maximum of 6/7 weeks
Planned is identified as "potentially old" or as "atrisk of unsold", while "short cycle" is considered as"potentially very appealing"
It is necessary to be ready to realize 12 differentwindows during the year, so "capsules" must bemore than 6 in a year
It’s important not to fill stores with Pre-Collectionapparel and accessories at the beginning of theseason, to have the opportunity to introduceinnovative products (short cycle) during the season
The use of the "full service model" can be a way togo towards the "short cycle", but the real challengeis to rethink the whole internal and externalproduction organization
Shopper dynamics
Departments’ collaboration
Make aesthetic and semantic analysis on Googleanalytics, Instagram and other social media, usestore managers as cool hunters
Collaboration between Merchandising and ProductDesign Managers appears to be increasinglynecessary and strategic, to manage a direction thatis expected to become even more complex
New Product Architecture – Luxury Brands
The New Product Architecture should therefore go in this direction
Precollection
Maincollection
Capsulecollection
Brand DNA SKU # Production cycle
Strong Fewer Planned cycle
Very strong Fewer Planned and short cycle
Strong Few Short cycle
New Product Architecture – Premium Brands
What is happening NOW
Covid Implications on SS20, FW20 and SS21 seasons
SS20 Stock Management
Calendaradaptation
Sales campaign
Delivery optimization
Identification of SS20 carry overs to sell in SS21
2 months delay on calendar
Sale campaign of SS21 postponed from June toJuly 2020
Delay delivery of (Pre) FW20 from June toNovember, as first drop of SS21
New Product Architecture – Premium Brands
What will happen NEXT
From «Make People Want Things»To «Make Things People Want»
► Wide commercial offering
► Wholesale channel pushed to buy
► Low product uniqueness
► Carryovers increase
► Frequent promotions
► Unsold stock to manage
► Collections organized by fashion trends
▪ Clear for operators
▪ Less clear for buyers
▪ Unintelligible for consumers
Pre CovidISSUES
Decrease the # of styles and collections
Understand contemporary trends and customer expectations
Effective cool-hunting
Focus on brand DNA, values to communicate
Balance WOW-effect and functionality
Organize collections by usage occasion / product category
as in customers wardrobe
New Product Architecture – Premium Brands
Monobrand Retail Channel → increase of appeal and repetitive visits
Target collection structure Target “newness” in store
40% - 50%
50% - 60%Planned
collection
New, «short cycle» offering
I drop
II drop
III drop
… Last drop
…
100% collection
Limited new offering
Mainly new offering
Increasingly new offering
Collection – PLANNED
► Items that require sophisticatedmanufacturing or craftmanship(ex: embroideries)
Carry Overs / Best Sellers
► Best sellers and brand iconic itemsto be launched during suppliers offpeak times
Capsules – NEW in season
► Apparel made with fabrics that canbe ready available or stocked,plain colors or printed fabrics
How to plan the collection. Short time production cycle is the new challenge for manufacturers
80% Planned20% New in Luxury
New Product Architecture – Premium Brands
Wholesale Channel → Increase of brand market share in buyers budget and consumer spending
Wholesale channel strategy target How to get there
Increase brand share of consumer spending and space in customer wardrobe
Increase share of wallet of wholesale clients purchasing
Preserve the distribution channel with a win-win approach
Allow in-season reassortments and a progressive reduction
Strong B2B and e-commerce platform
Allow flexibility and reduced stock risk for wholesalers: i) Allow change/returns and a progressive
reduction of first order volume ii) Use outlets to destock during transition seasons
Introduce new items in-season in line with contemporary fashion trends with high full price sell through potential
Il punto di vista
Alessandro VARISCO
CEO Twinset
Supply ChainRecipe for an optimal supply chain management:
Cristiano Gellera – EY Fashion & Luxury Senior Advisor
Supply chain - Getting products from catwalk to customer requires continuous innovation – the ability to respond with agility is a key for staying ahead …
Supply chain accounts for 80% of total business costs and it’s the root cause for
higher inventory, low reactivity and flexibility and poor service level to the customer
BOOST
MARGINS
REDUCE
TIME TO MARKET
GROW
MARKET SHARE
By improving Supply Chains, it’s therefore possible to…
Supply chain - Today Supply Chains are no more linear, they are really digital ecosystems in which different actors are interconnected…
Cloud-based SW platforms
External Systems
Integration
On-Premise IT-
Systems Le
ve
l o
f s
ys
tem
an
d d
ata
in
teg
rati
on
/ u
sa
ge
of
clo
ud
-ba
se
d
IT s
ys
tem
s
Degree of Taylorism / distribution of value creating processes on multiple entities within partner ecosystem
InternalBusiness Functions
Collaboration with Partners
Service & Platform-basedBusinesses
The old world: Value-creation within
entities, on premise IT
“SUPPLY CHAIN OF THE FUTURE”Compe-
titor
Eng. contractor
Supplier
Supplier
ContractManu.
Logisticcont.
SC as a Service
Customer
Retail/consumer
CustomerOEM For-
warder
Customer
Con-nector
Retail/consumer
The new world: Ecosystems on
cloud-enabled platforms
Supply chain - Time dimensions on which to compete, even more important passing from traditional “programmato” to “programmato evoluto” …
Responsiveness
Flexibility Reliability
InventoryCost
Push vs Pull
Performance Trade-offs in Supply Chains Time dimensions on which to compete
Reduce lostsales due to availability
Reduce markdownsand promotional
sales
Reduce obsolescence in the warehouse
Time to Market
Time to React
Time to Serve
Supply chain - Therefore, agility is a key characteristic of the supply chain for time reduction and the pursuit of competitive advantage
Agile
Supply Chain
Integrated Process
Network based Demand Driven
Virtual
Unique framework that spans entire supply chain – from strategy to implementation, can assist in all aspects of strategic and tactical assessments
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Agile-buying &
Merchandising
End-to-end supply chain
design & Optimization
Omni-customer
Fulfilment
► What are the right products to sell? What volumes are required by product & channel?
► How do we achieve a single view of product to support effective decision making?
► How we do support the end-to-end buying cycle?
► What’s the best way to manage disciplined sourcing, product lifecycle and category management?
► How to deal with omni-merchandise optimization?
► Where should we locate our fulfilment centers?
► Which partners offer the most agile distribution?
► How to build integrated demand and supply planning?
► How to configure the omni-channel network?
► How to manage suppliers effectively?
► How to build end-to-end cost to serve visibility to drive profitable decision making?
► What is the most effective method of fulfilment?
► How can we track stock at each location?
► How to design scalable and agile order management solutions?
► How to build an accurate view of stock across the network?
► What the best configuration for profitable pick, pack and dispatch for delivery to stores and direct to customer?
FilieraImplications for Luxury and Premium brands:
Armando Branchini – EY Fashion & Luxury Senior Advisor
Elena De Cò – Head of Strategy and Transaction Fashion & Luxury
Pipeline - Luxury Brands
How to safeguard the network of suppliers, when the recovery (2020?) and when it is fully operational (from 2021)?
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20
21
Local suppliers
Government
Banks
Business model
Production cycles
Consumer behaviour
The Italian suppliers are enterprises - network, strongly rooted in theproductive realities of the Italian industrial districts. The protection of thesurvival of the networks is fundamental for the system.
The government support measures will soon reach the companies that livewith subcontracting. Counting on the Government to take furthermeasures to support the Italian manufacturing industry.
Brands are continuing to support their suppliers/subcontractors in front ofthe banks in case of the necessity for any financial support.
Post-Covid will be crucial for understanding and adapting the newbusiness model, policies and technicalities.
Will be crucial to able to produce flexibly in a much shorter amount of timerespect to the traditional cycles
Consumer individualism will lead to a further average reduction in thenumber of items sold per model. It is necessary to evolve productionsystems and the timescale
Pipeline - Luxury Brands
What about the segmentation of supplier? How doable is it?
Strategicalsuppliers
Generalists
Localsuppliers
► Some of suppliers are more strategic because they have the ability to operate also in thedesign and industrialization of new models, others have specific skills in the productionof certain categories of clothing or footwear or bags: light sewing, shoulder garments,evening wear, heels, sandals, processed leather bags.
► With these subcontractors the brand owners usually create symbiotic relationships.
► Due to the functionalities of the supplier they can also be generalists. Those suppliersare mainly the one working on the bulk orders with less technicalities
► In January and February it seemed that China was the only country affected by Covid-19and many - especially journalists - started talking about reshoring to Italy. Then deniedby the realities of the events. In reality Italy is even more affected by the pandemic thanChina.
► On top of this in this very situation it is kind of impossible to dimension the othergeographies’ risks. Made in Italy and local suppliers should be supported.
► Custom duties war impact will be lessened by supporting the local suppliers.
Pipeline - Luxury Brands
What are the critical success factors that a supplier should have to deal?
Success factors Recipe
Lead time management
Flexibility
Customer analysis
Collation of differences
The reduction in lead times will be a critical success factor for all companies andluxury fashion brands
The system has to become more flexible. Flexibility has been one of the strongpoints of Italian Fashion for decades. As Italy we must be able to recover it.Otherwise other countries to adapt flexibility will beat us, Turkish, Chinese etc…
At the moment everything is stiffened by a planning that only takes a long time.It is very difficult to give a quick response if the final consumer's tastes changeduring the season in terms of colours, volumes or lengths, or styles
Maximize the efficiency and velocity by mixing both types of sourcing models;subcontracting and full-service model
Pipeline - Premium Brands
SUBCONTRACTING – “Industrializzato” FULL-SERVICE MODEL – “Commercializzato”
«Brand purchases raw materials and accessories, specialized third parties produce items»
«Full-service suppliers manage the entire production cycle from components purchasing to items delivery»
Quality standards consistent with brand positioning and over time
Technical ability for sampling and production, flexible production capability to handle brands volumes
Organization and financial capacity to respond to brand needs of planned production and ability to handle production of in season capsules
Ability to propose innovative materials, washes and products
Reliability in terms of respect of delivery timing and product confidentiality
In the upper premium market segment, the Supply Chain is mainly international (Eastern European countries, Iberian Peninsula, Maghreb countries, Far East, People's Republic of China etc…)
Main sourcing business models
Main suppliers selection criteria
Pipeline - Premium Brands
Brands supply chain management takes different forms with different degrees of controlControl mechanisms have common traits but can be more complex in the upper premium segment due to the international span
Executioncontrol
Managementcontrol
Equitycontrol
• Focused on contract matters. It involves contract negotiation and execution monitoring.• It requires a team responsible for verifying and ensuring that suppliers carry out the activity or
process as regulated by the contract
• Focused on strategic planning and budgeting processes to set economic and financial objectivesof the outsourced activities.
• Plans are developed by the brand alone or together with the most important supplier.• Brands sometimes create symbiotic relationships with strategic subcontractors
• Brands invest directly in the equity of strategic suppliers in case of rarity of raw materials (ex:alligator or exotic animals skin) or specialized know how, to ensure exhaustive supply of elementsthat are at the basis of the brand exclusivity and superior quality allure
Conclusione
Contatti
Stefano Vittucci
Armando Branchini
Elena De Cò
Cristiano Gellera
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