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Dealing with Disruption Helping Fashion Retailers and Manufacturers to Face an Increasingly Fragmented Future

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Dealing with Disruption Helping Fashion Retailers and Manufacturers to Face an Increasingly Fragmented Future SAP White Paper Retail Fashion & Manufacturing Dealing with Disruption Helping fashion retailers and manufacturers to face an increasingly fragmented future © 2020 SAP SE or an affiliate company. All rights reserved. 1 / 11 > Table of Contents 3 Overview • Imagination and innovation hold the key to combatting the COVID-19 outbreak 5 Pinpointing patterns • Understanding the past is critical to creating a brighter future 7 Weathering the economic storm • Factors in Hong Kong’s favor • Defining Retail 3.0 • Taking the next step 9 Creating new capabilities • Mixing online & offline • Merging inventory • Drop shipping • Increasing collaboration between retailers and manufacturers 11 How can SAP help? < 2 / 11 > © 2020 SAP SE or an SAP affiliate company. All rights reserved. Dealing with Disruption Overview IMAGINATION AND INNOVATION HOLD Whether the fears are real or imagined, the THE KEY TO COMBATTING THE COVID-19 outlook for the global retail industry appears OUTBREAK likely to mirror Hong Kong’s, as people take precautions to limit their contacts and reduce Hong Kong’s retail economy has been hit hard, the risk of contagion by avoiding large malls suffering the double blow of anti-government and popular stores. That is unwelcome news protests in the second half of 2019 and the for any retailer, but it poses a particularly acute COVID-19 novel coronavirus outbreak in 2020. problem for the fashion and apparel sector, These twin crises are keeping customers out of where so much of consumer demand is driven stores, restaurants and shopping malls, and by desire rather than a pressing and immediate border controls have cut the flow of tourists need for an item of clothing. from Mainland China and around the world. As a result, retail Sales figures, which plunged This has left fashion outlets and garment and 60% in Q4 2019, could be heading lower in Q1 apparel manufacturers facing a number of 2020. strategic questions, including: • What can I do? In the original epicenter of the outbreak – • How can I swing my current focus away from Mainland China – many manufacturers have empty physical stores towards expanding been forced to shut down production lines to online opportunities. protect staff from the risk of infection. • Where do I start the process? Predicting when these factories will restart, let • What will bring the most immediate benefits alone return to full capacity, is impossible. and the biggest long-term returns? • How can I retain flexibility and build more The slowdown in apparel-intensive provinces agility into procurement, sales ordering, and like Zhejiang will have a domino effect inventory allocation to deal with current and throughout the supply chain, creating pressure future market disruptions? on stock and logistics systems, and ultimately affecting retailers’ stocks. At the moment, The answer is that changing times call for a global retailers buy approximately 20% of their combination of new solutions and innovative goods (by value) from China, although when it business models. That means adopting comes to seasonal categories, that percentage imaginative ideas to exploit booming online rises substantially. The impact on larger markets, squeezing maximum value out of all manufacturers who are fortunate enough to available data, and changing the way inventory have multiple production sites in different and production is handled. countries will be lighter than those mainly or only producing in China, but shortages are For example, eCommerce is definitely a key inevitable. focus for retailers. But, building up all of the usual infrastructure can be an expensive and The number of COVID-19 cases outside of time-consuming process. Alternatively, China is increasing steadily. Ironically, in some exploring a relatively new concept like drop places this has led to a minor retail uptick due shipping – where goods purchased online are to the panic buying of essential items, such as shipped directly from the logistic partner (or food, toilet paper and hand-sanitizer. So far, manufacturer)’s warehouse and delivered the biggest beneficiaries of the outbreak straight to customers – can offer tremendous appear to be digital entertainment platforms, advantages, both in good times and bad. which have seen demand explode as people choose to stay at home instead of going to clubs, concerts or the movies. << < 3 / 11 > © 2020 SAP SE or an SAP affiliate company. All rights reserved. Dealing with Disruption Implemented effectively, drop shipping enables Much like drop shipping, postponement allows retailers to cut supply chain lead times. In retailers to cater more closely to customer addition to boosting customer satisfaction needs by adding flexibility, shortening lead through faster delivery, it also reduces logistics times and reducing the risk that something and warehousing costs, thus enabling the won’t sell. vendor to reduce prices or improve their margins – or both. Ultimately, recognizing a threat is one thing. The real challenge is deciding what actions Other ideas include strengthening the need to be taken, and determining the correct collaboration with upstream manufacturers to order in which to take them. SAP’s advice is exploit the potential of innovative simple – start at the beginning. arrangements, such as “postponement.” In practice, postponement can take some of the guesswork out of the retail equation. The retailer makes a commitment to a specific quantity of goods, but delivery is carried out in stages. This enables the retailer to “test the market” with a small quantity of goods. They can see which styles, prints and colors prove the most popular, before finalizing the specifics of the main order. < 4 / 11 > © 2020 SAP SE or an SAP affiliate company. All rights reserved. Dealing with Disruption Pinpointing patterns UNDERSTANDING THE PAST IS CRITICAL Markets can be resilient, and typically enjoy a TO CREATING A BRIGHTER FUTURE rebound after an incident. During the SARS outbreak in 2003 – which in many ways Hong Kong’s reputation as a shopper’s mirrors the current COVID-19 crisis – China’s paradise has been well earned. Crowded retail market plunged dramatically between streets, malls and markets have put the city March and May. Then it recovered almost as ahead of the world in average sales quickly, and ended the year slightly ahead. per-square-feet and retailers were willing to pay the price of such success in terms of high In March 2011, the panic around Japan’s rents for floorspace. Fukushima nuclear disaster triggered a precipitous drop in retail sales, which plunged In recent years, a seemingly unending series of rapidly in a single month. Yet, by June the disruptions has altered that positive picture. figures had returned to pre-crisis levels, Financial crises, pandemics and protests, although the rest of the year proved to be a coupled with tremendous fluctuations in one of bumpy road for the retail sector. Hong Kong’s retail mainstays – tourism – have reduced both the appetite and ability to pay Most recently, the 2015 MERS outbreak in premium rents. These issues have also Korea took retail sales to rock bottom for four magnified competitive pressures, further long months, before recovering rapidly and reducing margins and threatening the viability surging ahead with the arrival of the peak of many businesses. Mid-Autumn retail season. < 5 / 11 > © 2020 SAP SE or an SAP affiliate company. All rights reserved. Dealing with Disruption Although the statistics demonstrate that At the same time, the border between off and markets can bounce back from serious online is blurring, as the two domains merge disruptions fairly quickly, that doesn’t and complement each other’s strengths. necessarily mean they remain the same. The reality is that each impact creates an incentive For example, eCommerce feels fast at the point to change, and successful enterprises learn of purchase, but customers sometimes find the from each new lesson and evolve strategies wait for delivery frustrating. The introduction of and solutions to take advantage of them. an Omni-Channel business model can eliminate that problem by allowing customers to browse In recent years, one of the biggest changes has and buy products online, and pick them up the been the inexorable rise of eCommerce, which same day at the nearest physical store. has been fueled partly by increasing competitive pressures and as a response to a eCommerce isn’t a parallel universe. The reality steady stream of crises. is that today the online dimension is an increasingly important part of the commercial Looking at the global market situation, landscape. It may even be the key to worldwide ecommerce sales topped US$3.5 overcoming the current COVID-19 crisis, and trillion in 2019, representing an increase of whatever comes next. approximately 18% on the previous year. By 2023, eCommerce is expected to nearly double to top the US$6.5 billion mark. << < 6 / 11 > © 2020 SAP SE or an SAP affiliate company. All rights reserved. Dealing with Disruption Weathering the economic storm Improving margins and boosting topline growth are critical concerns for C-Level executives. That explains why so many are aggressively pushing their businesses to reap the rewards of eCommerce. The results, however, differ dramatically from geography to geography, as well as within markets. According to the most recent Global Retail ANNUAL GROWTH: In 2017, UNCTAD’s Payments Trends report from worldpay by FIS Business to Consumer index ranked Hong published in June 2019, online sales in the Kong as the 16th most e-commerce-ready United States represent 14.3% of the total country in the world. In 2018, it rose one place, retail market, while in Hong Kong, the average and that trend is expected to continue as the is closer to 4%. growing number of internet and smartphone users simultaneously leads to an increase in That means there is an enormous opportunity online spending. for the city’s retailers to expand online, and many are already doing so.
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