admin
October 15, 2007
By Devangshu Dutta
admin
September 15, 2007
By Sharmila Katre
Indian fashion has true potential to grow exponentially in
the next decade. But before that, argues Sharmila Katre, there
are many issues that the creators and producers of fashion
need to address.
Students of fashion design are taught the definition of fashion as ‘a reflection of lifestyles’, and truly the growth of the fashion industry in India in the past decade substantiates this. Fashion as a lucrative business proposition came to pass in the late 1980s with the advent of ‘salon’ stores like Ravissant and Vichitra Sarees that were the natural progression of the ‘boutique’ culture of the late 1960s and 70s. What caused this fast forward demand for ‘designerwear’ labels and home-grown couture apparel could be attributed to the liberalisation of the economy in the last decade of the previous millenium.
Fashion is a reflection of lifestyle. It is a reflection of the growing affluence of urban India – the upwardly mobile middle class, more so, the upper middle class The growth and progress of the fashion industry in the last ten years has even warranted the institution of the bi-annual fashion industry event known as the WIFW, the Wills Lifestyle India Fashion Week, which is eagerly awaited both by the producers and buyers of fashion in India. And, every year the fashion fraternity, glitterati and media await this event with much excitement and impatience. For weeks leading up to the event one reads of the who’s who of the international fashion scene, the top of-the-line buyers expected to attend the event. And yet, Indian fashion is yet to truly make its mark on the international scene. The Indian fashion fraternity is still waiting for its Issey Miyake to make his triumphant appearance on the international fashion arena and put India on the global map of the fashion world and make Delhi an international fashion destination.
What is it that ails our industry that we are not able to bridge that last gap? Are we so overwhelmed by our traditional crafts and cultural heritage that we cannot break free of its shackles and come up with innovative design? For India to have a true design identity, do we have to link it to its ‘craft’ design past? Is there not a designer amongst its design fraternity that can create modern Indian design sans chikankari, dabka, kasab et al, or give these traditional techniques a modern international identity and acceptability to create global fashion? Where is the innovation in form, use of textiles, textures, finishes, print designs and value-added techniques? Where is the spirit of entrepreneurship, a sense of business purpose?
Internationally, the Indian apparel industry is better known as a supplier of competitively priced, mass produced, ‘fashion basic’ apparel merchandise sold by various retail chains and discount stores. In design terms however, the merchandise in no way can be distinguished from any of the other merchandise on sale in the same outlets that have been produced in other Asian, Caribbean or east European countries. So where is the uniqueness of Indian fashion/design visible globally? And yet, when India forayed into the global clothing business in the late Sixties, it was its design identity of unique silhouettes, textiles and value-addition techniques that gave it international acceptance and demand. What sold very happily and profitably at that juncture was ‘Brand India’ through its cotton crepe kurtis and ‘drawstring pants’, and its handblock printed wrap skirts. Indian fashion laid the foundation of an industry that today employs over 35 million people and contributes 14 per cent to the GDP of the nation. Indian fashion has true potential to grow exponentially in the next decade but before that there are many issues that the creators and producers of fashion need to address.
“To grow, the fashion business fashion merchandise has to reach out to market segments beyond the fashion leaders and innovators and consumers of bespoke fashion or couture apparel. Product design through design discipline should enable a product to be scalloped and extend the product’s life span to justify the cost of design development. The product line has to evolve beyond the all-encompassing design technique perspective.”
Most importantly what comes to mind is design discipline combined with business discipline, understanding the commercial viability of design and realising that the business of fashion is like any business enterprise. To grow, the fashion business/ fashion merchandise has to reach out to market segments beyond the fashion leaders and innovators and consumers of bespoke fashion or couture apparel. Product design through design discipline should enable a product to be scalloped and extend the product’s life span to justify the cost of design development. The product line has to evolve beyond the all-encompassing design technique perspective. It has to have an individual signature that has a sense of permanence and identity of ‘unique’ design like an Hermes scarf, a Chanel jacket, a Bill Blass sheath dress, or a Louis Vuitton handbag. The signature design element itself becomes the product’s brand identity.
“The business of fashion needs to be pre-emptive, and proactive rather than reactive. Product design needs to be clever and production-friendly to ensure timely deliveries without taking away from the design innovation factor. Market potential needs to be studied vis-à-vis the adaptability of the design/fashion content of the product to enable growth in the market share and business, by straddling consumer segments.”
The business of fashion requires business strategies, planning, organised marketing and selling, promotion and positioning. Design research based on market and consumer feedback, lifestyle trends, market economics, raw material resources, colour palettes, textile trends and other factors need to be done in depth and in all seriousness. Fashion merchandise is highly perishable and dynamic. Product research and development needs to become an ongoing and continuous process, very much like the R&D processes, that are the norm for all other lifestyle products. The business of fashion too, therefore, needs to be pre-emptive, and proactive rather than reactive. Product design needs to be clever and production-friendly to ensure timely deliveries without taking away from the design innovation factor. Market potential needs to be studied vis-à-vis the adaptability of the design/fashion content of the product to enable growth in the market share and business, by straddling consumer segments.
International fashion designers have to realize that for fashion to last and be profitable, and businesses to grow, designs have to move down several market segments, evolving as it moves down, but holding true to the design concept/signature. And rather than have an original and innovative design idea copied and morphed into a product that would shorten its life cycle with the fashion leaders and fashion followers, it is better to give the original design idea to the followers of fashion in the form of a prêt collection. Prêt-a-porter collections allow designers to expand their market reach, give the much required production quantity volumes and also contribute to a healthy bottom line to grow the business. The success of Giorgio Armani’s business model of Emporio Armani and Armani Exchange is a good case in point. Roberto Cavalli is another successful business model of a fashion designer’s label straddling several market segments. Roberto Cavalli: the premier couture line featuring women’s clothing, sunglasses, men’s clothing, women’s and men’s shoes, handbags, timepieces, underwear, beachwear, and eyewear; Just Cavalli – a more affordable Cavalli line, well-known for its denim, featuring men’s and women’s apparel (mostly sold in upscale department stores) and men’s and women’s accessories; Roberto Cavalli Angels – the childrenswear line.
The fashion industry in India most certainly needs to wake up and smell the coffee. It needs to grow out of the ‘fashion boutique’ business mould of designing wedding trousseaus and ‘diffusion’ collections, and think ‘fashion corporate’ business. International brands, both the prêt collections of well known design brands, and the lesser known ones, have started entering the domestic market. If the fashion industry is not quick to react, the fashion followers and the large upwardly mobile middle class segments would gladly convert for the want of innovative and exciting home-grown design merchandise. And then we could be witnessing a unique ‘trickle up’ situation in the fashion scene where the fashion leaders may follow the fashion followers and shift loyalty to the better known international design labels!
admin
September 14, 2007
THE GROWING BLIP ON SMALL SCREENS
It is just about taking off in India, but mobile marketing is getting a lot of attention. A special report on how marketers are planning to invade your mobile phones – and why.
The soft taps of thumbs on mobile phone number pads are getting louder for Rajiv Hiranandani, co-founder, Mobile2Win, a digital and mobile entertainment company. "Clicks in this medium are 5-8 per cent and outperform clicks in the internet," he says. He is talking about the short message service (SMS), the most widely-used messaging vehicle in mobile marketing. Mobile2win provides information and entertainment ranging from news, jokes and horoscopes to sports scores, stock info and mobile games through the ubiquitous headphone. Hiranandani is not the only one who can hear opportunity knocking. Telecom service providers too are hungrily looking at a market that can only explode – just 23 per cent of India’s 1.1 billion-population owns a cell phone. Marketers and advertisers are equally excited. So are media companies. But what exactly is mobile marketing?
As a generally-accepted definition, mobile marketing is the process of sending spam free, personalised, permission-based marketing messages to receptive consumers through their cell phones. Mobile marketing can be either push-based which refers to communication such as SMS and alerts sent to mobile phones. But to send pushbased messages, firms should have the consumer’s permission. The pull-type refers to information a user requests from a service provider or advertiser. While mobile marketing today is almost totally SMS-based, the increase in the number of large-screen phones and MMS enabled phones will shape the industry soon.
Mobile technology is witnessing new applications and services. This combined with the rapid integration of the internet, mobility and communications at the device, service and transport levels has created a new set of business opportunities. For consumers, mobile phones have become much more than entertainment handsets. Already experiencing a high-end electronics experience from state-of-the-art digital cameras, camcorders and game consoles, they are beginning to expect the same on their mobile phones – a broad range of compelling, interactive content. Therein lay the opportunity for marketers and advertisers. As a medium, the mobile phone screen has the potential to support brand building and strengthen consumer relationships. And marketers have been quick to cash in. One of the early selling points was the possibility of generating immediate responses from consumers at any time and from any location. But marketers and advertisers have proceeded with caution because nothing puts a consumer off than indiscriminate spam.
Operators are increasingly looking for applications that attract users to avail of the services offered. Value added services (VAS) have begun to add significantly to the bottom line of most telecom operators. Almost 10 per cent of an operator’s revenues come from VAS services and this figure is all set to grow. Business generated from VAS rose from Rs 2,851 crore in 2006 to Rs 3,700 crore in 2007 – up by 30 per cent. Marketers, agencies and media companies, especially mobile telephone service providers are facing a new environment. The mix of media channel has shifted from the one-way broadcast channel to two-way communication. Consumers, today, not only want to talk back to marketers and interact with marketing messages, they also want to share this message amongst like-minded communities.
This shift brings in more direct dialogue between marketers and consumers and is being facilitated by telecom companies. In the past, marketers could never get real-time feedback from end-users. Firms are developing powerful branding in the mobile arena. They are working out ways to clearly state how their business is relevant to the mobile world and how they can reach their customers, partners and suppliers, whether through clever messages or advertising. So far, most of the advertising on cell phones has been from phone companies themselves. That is changing. Car-makers, movie studios, financial service providers, FMCG companies and others are testing the waters vigorously. Research firms estimate the mobile advertising market at Rs 35 crore (not including revenues of media companies from SMS contests and the like) for 2007 and grow at 40 per cent over the next few years. That revenue is going to have to come from more areas other than the highly popular SMS, ringtones or wallpapers.
For now, mobile marketing – everything from ads to text-message voting campaigns seen on shows such as Indian Idol – remains limited in its appeal to advertisers. Mobile marketing is the best option for brands which wish to connect to the youth. "But currently all the major advertisers just allocate, say, 1 per cent of their marketing budgets to mobile marketing because of the limited options within the medium," says Viren Popli, senior vice president, STAR India. But he thinks it will get better. "As a medium, mobile is powerful. I can reach you wherever you are because the mobile is with you all the time," says Chaitanya Nallan, CEO, Gingersoft Media. The company owns mGinger, a service that provides advertisements on mobile phones. These are targeted at consumers who have opted for the service. When it comes to communicating with consumers on the move, the mobile phone is the most ubiquitous outlet. The different ways that mobile marketing can be used includes direct response, media interactivity, content downloads, sales promotions and coupons, advertising, customer service, and customer relationship management. So, what works best in a country like India?
IT MAKES GREAT BUSINESS SENSE
India has 267 million mobile phones. And the market is growing at the rate of five million phones per month. As a result, companies are quite busy leveraging the medium.
This dynamic platform has paved the way for the new credo: from massmedia push to mass-customization pull – pull in anyone, anytime, anywhere. Therefore, it has the potential to grow rapidly, providing brands, agencies and marketers the opportunity to connect with consumers beyond traditional and digital media. Onground reality could be different. And many questions arise. What are the mobile media channels or formats available to advertisers? How does a marketer optimise the effectiveness of a campaign and strengthen consumer satisfaction?
There are many sectors which are using the advantages a mobile phone offers, to good effect. The financial sector is one. Says Vishal Gupta, associate director, marketing, Aviva Life Insurance: "We have a database of policyholders to whom we send SMSes to remind them of due dates, initiatives and offerings." Just recently, makaan.com, the People Group’s online property site announced the launch of Makaan Mobile. According to the company, it is the country’s first pure SMS-based real estate mobile application. Developed by Mauj Mobile, the application is aimed at enhancing the overall consumer experience for property sellers who currently need to log on to the internet either to list their property or to view responses from interested buyers. Now, they can do it on their hand phones. Events like the IPL cricket series are heavensent opportunities for players in this arena. Indiatimes, one of the oldest in the field, used its short-code and asked people to predict the winner of the day by calling 58888 or sending an SMS on 58888 for the chance to win Rs 58,888 everyday. Indiatimes has in its portfolio, multimedia messaging, dating, chatting and email – all on mobile. Others are getting into the mood. Take Pizza Hut. For the first time, the pizza maker launched a mobile campaign in Delhi, Mumbai, Bangalore, Chennai, Hyderabad and Pune. Executed by mobile2win, the campaign includes promotions on both SMS and the mobile web (works on sets which are GPRS-enabled). The objective was to get people to register for the VIP Club, a virtual club, either on their mobiles or its WAP site. It entitles members to free coupons and a chance to win prizes and discounts. There are legal issues connected with SMS marketing. Only a few marketers follow the concept of permission-based messaging, whereby the customers register themselves with the advertiser pointing out their areas of interests.
The Telecom Regulatory Authority of India (TRAI) has issued stringent norms on tele and SMS marketing to avoid companies from spamming consumers indiscriminately. It has set up a national level registry where customers who do not want to be disturbed can register their numbers. All marketers need to adhere to this request. But if a mobile user is not registered on TRAI’s Do-not-disturb list, s/he is likely to be bombarded on the phone. The danger? It could put them off any kind of message from any marketer or brand.
Many firms are coming around and are taking care not to alienate consumer as they realise the value of the mobile as a direct medium. Especially because it is well-suited for a vital role in fully integrated cross-media campaign plans, including TV, print, radio, outdoor, cinema, online and direct mail.
One reason why the effectiveness of mobile marketing is pegged so high is because of its ability to reach the target demographics throughout the day instead of a particular time or when they are engaged in a specific activity – like watching TV. The other reason is that mobile marketing can leverage other media such as including a SMS short code on any other type of campaign (for instance, a TV ad could say, ‘SMS 12345 to get free information’). SMS has proved to be a boon to telecom operators since they get to take away a chunk in the revenue sharing. The deluge of responses – or voting, as the industry calls it – from viewers to shows such as Voice of India or STAR Parivaar Award are proof. "But I am afraid that if newer shows or new formats have to work, they have to put in more energy or think of innovative methods to seek higher consumer engagement," cautions Popli of STAR because the excitement or buzz around the SMS voting is sure to die down. The biggest reason for this mobile marketing push is that it is cost effective – the message reaches the audience directly. However, despite the growth potential, most brands don’t have a specific marketing strategy for mobile – it is yet, to be considered a serious supplement to conventional media plans. The most effective forms of messaging will be those that revolve around activities that build relationships with customers and deliver something of value to them, based on their interests and demographics. The marketing techniques in this scenario will depend on the software and device infrastructure, definition of the customer profile, data acquisition and customer segmentation. There are formats like WAP (wireless application protocol) – by which the user can access the internet – developing with the availability of new-age phones. But the biggest impediment is that the advertiser has to partner with mobile operators to deliver the message.
THE HOW AND THE WHY
The universe of mobile phone subscribers is the newest mass media platform. But techniques which succeed on television or the internet can’t simply be transferred to the phone. On TV as well as the internet, advertising grew alongside – and with – the genre. In this case, the marketer has to hit the ground running. The budding channel carries outsized expectations. "There will be more event and community specific campaign initiation," says Harish Bijoor, a brand consultant. "There will be more direct targeting of the consumer through various channels – age, demographics, individual statistics and preferences," he adds. One of the big boys in this space is mKhoj. It calls itself a ‘mobile advertising marketplace’ that gives advertisers a targeted way to reach out to consumers directly on their cell phones around the globe. It also claims to give mobile publishers a way to monetise their traffic. Advertisers can use this precise medium to create a strong brand and generate leads. Publishers use mKhoj to get contextual ads for its customers. But, what are the options available to marketers currently?
Nothing reflects the impact of the SMSvoting frenzy more startlingly than Indian Idol, the show that went on Sony Entertainment Television in October 2004. Between November 2004 and March 2005, it saw more than 55 million votes via SMS, each message cost the voter Rs 3. It was boom time for the mobile operator followed by the channel. A close cousin to SMS is MMS or multimedia messaging service. MMS supports graphics, pictures, audio and video. As a result, it provides mobile marketers with additional tools on this format. "But the biggest limitation is the MMSenabled handsets used by mobile-phone users," feels Raj Singh, co-founder and executive director, ActiveMedia Technologies. This perhaps is the reason for the popularity of SMS, which is simpler to use and can be sent in the regional languages too. "Also," says Gupta of Aviva Life Insurance, "Since all SMS replies are track-able, evaluating effectiveness is much better this way."
The benefits
1. Extending marketing communications beyond traditional media
2. Complementing traditional media in order to increase awareness
3. Allowing companies to target specific audiences
4. Encouraging the audience to take action as soon as it sees an ad or promo, rather than waiting until later.
5. Providing opportunities to generate revenues every time users interact with messaging.
THE 5C IMPACT FOR SUCCESSFUL MOBILE ADVERTISING
Content, cross-media marketing, campaign management, customer database and carrier cooperation are vital for the success of mobile advertising efforts. Though, at the moment mobile advertising value chain is fragmented. For mobile marketing to succeed, business models that can capture the synergy of two existing industries, advertising and telecommunications must be conceived. In any future sustainable business model, all players will have to reach a consensus on the structure of the value chain and on the importance of each player in that value chain.
WAP and Mobile Web
Wireless Application Protocol (WAP) is a technology platform used to create websites that can be easily accessed from mobile handsets, especially those with a small screen and limited processing power. Today, WAP 2.0 is standard supported by most mid-level models. Moreover, WAP allows mobile phone users to access a wide range of content and services, including streaming audio and video. Considering that WAP supports banner advertising, traditional marketers see it as the closest clone to internet. Says Hiranandani of mobile2win: "With news and information being the two most widelyaccessed features by WAP-users, marketers need to look at producing content focused to go with this genre." Even so, wallpapers, games and applications are the most widely-used mobile content that is delivered using WAP-push. "The trick with WAP-enabled services is to keep the number of steps taken to achieve the end-result to the minimum," says Singh. Even assuming that mobile internet access is becoming easier, the cost of accessing WAP still does not justify reasons for cell phone users to opt for these. Once costs of services fall further, this one has the potential to sweep in the internet users from PCs to phones.
The benefits
1. Mobile WAP can be a fairly cost-effective way to extend mobile and online marketing efforts.
2. It can support consumer’s needs to browse and pre-select key content on the desktop for access later on
3. WAP banner advertisement is now a viable way to reach consumers
4. A WAP page can be pushed to a consumer’s phone, making the site discovery process easy
Downloadable Content
Downloadable content is often used to entice consumers to participate in a mobile marketing campaign. For instance, the download may be a song, a ringtone, theme or wallpaper, video, game or any other application. "Technology to support this format is still inaccessible to the critical mass, but it is encouraging to note the number of people using GPRS," says Manoj Dawane, CEO, Mauj Telecom. GPRS (General Packet Radio Service) is a technology necessary for WAP to function on phones. "When using mobile campaigns brands need to educate consumers about how to participate in such events to get the best results," feels Jagdeep Kapoor, CMD, Samsika Marketing. This brings in its share of complications. For instance, it demands download instructions that are easy to understand. Downloadable content has been the next most successful tactic for mobile marketing, after SMS. But there are technology issues which force a tie-up between mobile providers and marketers. There are adaptability problems when it comes to handsets. Says Gupta: "Sometimes, it is effective to tie up with an operator or a third party service provider who will manage the campaign across telecom service providers that is supported across handsets." But, experts agree that simplicity in mobile is the key to effective mobile marketing. That’s the one lesson that can be learnt from SMS-driven VAS.
The benefits
1. Relatively inexpensive for certain type of content, especially when you have a web campaign ready.
2. As a mobile phone with cutting-edge is hip, the brand reaching this class is perceived to have a higher recall.
3. Easiest to supplement an existing web campaign.
Though the above are the most widely-used delivery mechanisms to reach consumers, technology helps the latter receive and manage some of the content via Bluetooth and infrared delivery mechanisms. Two years ago, Lee became the first brand in India to use Bluecasting – marketing through Bluetooth technology – to promote its new catalogue. Bluetooth devices were installed in Lee’s stores in Mumbai and Bangalore. Walking by, the customer’s phone beeped a simple quiz in which they were offered discount coupons. Lee claimed to have a click-through of 27 per cent. Makemytrip, Bookmyshow and STAR Plus are a few who have done Bluetooth marketing. Technology-enablers help manage mobile phone content on a laptop or desktop. The challenge here is to make the consumer aware of these technologies. Considering that a mobile ad can reach the consumer at a fraction of the cost of a billboard, marketers need to do the needful and, at the same time, make sure that they don’t alienate consumers.
PUTTING THE JIGSAW TOGETHER
Traditional advertising players such as ad and media agencies have not been the first movers in this category. So, who is involved?
On the face of it, it would seem that there are two different and quite distinct components making up the mobile marketing industry – marketing-advertising and telecom. But it is actually the mobile marketing firms and technology providers who have driven the emergence of this medium.
Mobile marketing was born of the internet revolution. Today, there are more mobile phone subscribers in India than there are landlines or even TV sets. "With the mobile phone becoming a primary means of communication, not only for voice but also for digital services, email, digital photos and navigation, it is an important medium for marketing," says Singh of ActiveMedia. While traditional advertising and telecommunications are well-established and have their own revenue models, mobile marketing and advertising has failed to integrate these two different industries. To analyse the mobile marketing medium, it is necessary to understand who the key players are. According to the MMA Global (an industry trade association for companies involved in mobile marketing), the mobile marketing ecosystem comprises four interconnecting strategic spheres – product & services (brands, content owners and marketing agencies), applications (discrete application providers and mobile (ASPs) Active Server Pages technology), connection (aggregators and wireless operators) and media and retail (media properties, "brick ‘n’ mortar" and virtual retail stores).
"However," says Devangshu Dutta, chief executive, Third Eyesight, a Gurgaon-based marketing consulting company, "The main players in the value chain are the advertisers, the mobile marketing companies, the media owners, the traditional ad agencies, the network operators/carriers, the technology providers and the customers." The mobile operator has a unique place in the mobile marketing value chain. Never before has one player had such a big influence on the development of a new marketing channel. "It is as if the print shop would rule the world of print advertising," comments Singh of ActiveMedia. To understand mobile marketing better, it is pertinent to consider three segments that drive it – the marketing, connection and the enabling clusters. "Integration across these helps get a clear sense on how each fits into the value chain," says Dutta.
The players in the marketing cluster focus on, well, marketing. Their activities include customer identification, managing the brand, promoting a product or service, creating the content that is disseminated to the end-users, developing the applications used to stage, launches and report on mobile marketing campaigns.
This cluster consists of application providers, network aggregators and telecom operators who create the ‘medium’ used to connect and deliver mobile marketing content to the enduser. "This cluster manages the network infrastructure, thereby connecting the marketer with the customer, and enables the one-to-one relationship which is the hallmark of mobile marketing," sums up Dutta.
Overall, the role of the telecom operator is the most important one. For instance, as enabler, the mobile operator needs to demonstrate his reach for advertisers to be interested in the media. In order to make this happen it is very important that telecom operators strive to set common commercial and technical standards, not just nurturing their own revenues.
In the initial phase, the value-added services from mobile operators were restricting. They were on offer only to those on their networks. "The services are now uniform across operators, with some customisation, but the look and feel is uniform," says Hiranandani. For the service provider to grow, standards and formats have to co-exist for the development of the industry.
As advertisers, with access to a wide customer base, mobile operators have demonstrated their effectiveness. "From simple billing plans to pushing new VAS, they have demonstrated it all for marketers to be convinced of the advertising success," says Dutta. After all, if the mobile operators themselves aren’t using mobile marketing, who else would?
It is dawning on mobile operators that there might be a new revenue stream in mobile advertising. Their portals will have to provide the best reach and detailed segmentation information for advertisers to make the latter interested.
The mobile operators’ contribution is necessary to continue to drive mobile marketing and advertising forward. But to reach full potential, they must not only get the above three roles working internally but must also work together.
admin
September 13, 2007
In recent years, sourcing and supply management has emerged as one of the greatest opportunity areas for retail business as well as for suppliers to leading retailers. At the same time, it is possibly also the one most prone to risk. This set of activities holds the key to improving service, product offer and overall profitability, and yet also provides some of the most difficult challenges of doing business globally. Certainly, you need to have winning products. Of course, you need to pick the best supply countries to source from and the best suppliers. Certainly negotiation and cost management are an important part. But the only way to achieve these many “bests” is by ensuring that sourcing is well and truly integrated within your overall business strategy, and that sourcing activities closely follow the direction set by overall business strategy.
Setting the Scene
Let us cast a quick glance over the major changes taking place in the textile and apparel trade globally. The of the most important questions in sourcing are “From where/whom?” and “How?”. They also provide most of the unpredictability and the risk that so characterises sourcing.
For this heavily protected trade, one of the most important
developments is the transition from the General Agreement on
Tariffs and Trade (GATT) to the World Trade Organisation (WTO).
Put simply, the WTO is driving towards increasing mutual market
access for producers in countries that are a part of the WTO.
The major aim is to remove quantitative restrictions, including
quotas, and to reduce import duties, which act as a barrier
to cross-border trade. If all goes as planned, 1 January 2005
will see a textile and clothing world trade free from quota
restrictions. That one element, which possibly guides apparel
and textile sourcing more than anything else, will cease to
exist. However, to minimise the “cliff effect”, quotas are being
phased out in four stages, rather than abolished at one stroke.
So, the WTO agreement should lead to greater supply and lower
prices due to lower import duties and no quota premium, and
make our lives simpler overall.
Thus, due to these factors, many more cost effective supply bases are developing quickly, adding to the complexity of choice. Many of these are low cost supply countries that now exist not only in Asia, but in Europe and the Americas as well. So which countries should you pick? Is Hungary better than the Hong Kong, the Caribbean better than Cambodia? Should you still be sourcing from the high-cost countries such as Italy, the UK etc. when there are so many low cost bases from which to choose?
Then there is the question of the sourcing method. Virtually every kind of relationship and business structure possible is included in the textile and apparel supply chain:Some of these methods are declining, some are increasing in popularity, while others are stable. Should you apply more than one? Should you differentiate depending on the supply country or should you adopt one as “the way” for your business?
Taking the Gamble Out of Sourcing
The problem, clearly, lies in the unpredictability about the benefits from each country and method of sourcing. And, simplistically, the solution lies in taking as much of the uncertainty out. The way to do that successfully is to ensure that your sourcing strategy, organisation and processes are led by your overall business strategy. Many organisations, retailers as well as suppliers, have built up highly successful businesses in the last few years by ensuring that sourcing is one of the core management areas of their business rather than an afterthought. But in many more, sourcing is relegated to the “back-room”, as something that happens mostly outside the company’s boundaries. How can you bring sourcing within the mainstream of your business?
Imagine the sourcing process. Some people might imagine conceiving a product, a style, putting together the fabric and trims, creating a sample, getting it produced within a given time and cost. Others would visualise it beginning with next season’s business plan, a plan to sell certain numbers of a product at a particular price, bought in at a certain cost with a planned profit and mark-down allowance. Still others might remember exchanging endless overseas telephone calls and faxes with their suppliers, the dreaded messages from the shipping company about late deliveries. All of those unpredictables that make sourcing a gamble.
Stop! If you are a retailer, I would ask you to now visualise your retail store, your catalogue, your website. If you are a manufacturer, I would ask you to visualise your customer and their consumers. That is where the sourcing process truly begins. Your business is defined by your consumer or customer, who has certain expectations – a product, a particular price, a time limit, a certain quality. Naturally these demands and expectations are what you are trying best to understand and fulfil. So should your associates who support the process.
No matter what you are, a retailer or a manufacturer, you need to focus on the consumer. The “push” system of supply is outdated – customers have greater, easier access to a much wider choice of goods and services, and expect ever-greater standards of quality, service and customisation. The sourcing and supply process must change too. Previously one end of the supply chain understood consumer demand, and translated that understanding into a product concept that was manufactured, shipped and sold to the consumer through retail stores. Increasingly now, the functions of Design, Development (production), Distribution and Display (retail) must link together to share skills, knowledge and capabilities that allow joint market analysis, product development, common measurement and accurate forecasting, and create a delighted rather than merely “satisfied” customer.
Too often sourcing decisions are made as a reaction to the immediate present and the recent past. Factors such as past relationships, past experience of individual buyers, gut feel and immediate price comparisons are commonly the driving forces. These are all internally focussed; the decisions based on what is available within the business (and its supply base), rather than what the consumer or customer wants.
Let us take business strategy first. Generally, three major
areas define and differentiate one business from another: Product,
Price and Service. A study by global management consultants,
Kurt Salmon Associates in 1998-99, showed that successful businesses
had a clear positioning in being focussed on a single or a combination
of two aspects. On the other hand, business that were not successful
financially, were generally fuzzy in their positioning, in their
definition of what the business stood for. Are you clear about
where your business stands and what is your platform, on which
you sell to your customers? If you are, you have taken the first
step to sourcing successfully.
What are the obvious links with sourcing? If you are price-oriented, surely your sourcing must be driven very much by sourcing cost. But not the FOB cost alone – you need to factor in import duties, transport costs, costs of rejections, costs of maintaining a supplier relationship, and many other factors that are often invisible. If, on the other hand, you are oriented towards Product and Service, surely you need infrastructure within your business or in your supply base to create innovative products, turn sampling around quickly, and ensuring that quality, accuracy and timeliness are the benchmarks used to measure success or failure.
So you now understand what your business is all about, and what your sourcing needs to be. Let us ask a third question, do your buyers, merchandisers, technologists, suppliers and logistics providers have the same understanding as you about the defining factors and the objectives? Unless you draw these links, and make sure that everyone around the business shares a common understanding, you will have to resign yourself to live with unpredictability.
A final point: there is a wide variety of suppliers and supply bases out there. While defining your business, you also should clearly define how much capability exists within your business to handle the sourcing process from concept to delivery. Define your competencies: can you conceive the product, can you design it, prototype it, define technical specifications, produce (or manage the production) and ship it? What are the things you absolutely wish to control, and what are the activities that you want your suppliers to carry out? Once you have done that, choices become simpler. The future direction for selecting supply countries becomes clearer and identifying the winning suppliers becomes a more rational process.
Yogi Berra is quoted as saying, “It’s tough to make predictions, especially about the future.” Certainly, sourcing is a lot about getting your predictions right – the right product, the right quantities and the right timing, the right supply base for future growth. But it helps to make sure that sourcing activity is led as much as possible by targets and business objectives, rather than only by short-term reactions to changes in the environment. Define your business and the business requirements, and let those define your sourcing – that’s the only way to get some of the unpredictability out of sourcing.
This article is based on a presentation to the Textile Institute’s London and South East England Chapter and draws on experiences with developing global sourcing strategies of a number of retailers and manufacturer-suppliers.
© Devangshu Dutta, 1998
admin
September 12, 2007
By Diwakar Kumar
Indiaretailing.com
It is being said that it might be easy to turn cash into inventory but the main challenge is to turn the inventory back into more cash. According to researchers and analysts, many retailers fail to make more money just because of inefficient utilisation of space, labour, or product assortment in their operations. Tracking Gross Margin, which indicates the additional amount that a customer pays to the company for its product over and above the costs that the company incurs to procure or make it, has thus become critical for modern day retailers.
Managing a sustainable gross margin poses many challenges to
a retailer. For any retailer, with limited space in a store, it
becomes difficult to attain margin goals because high-priced products
may fetch the business immediate gains – and higher gross
margin, but the retailer could lose out to more competitively-priced
retailers in the long run. In fact, a higher gross margin is not
always an accurate reflector of a retailer’s health.
Improving business efficiency
The efficiency of the business can be improved with careful steps
in the line of operation like highly efficient supply chain management,
inventory management, demand forecasting, leveraging on technology
etc. In an effort to generate sales from higher gross margin products,
retailers typically lean on private label development.
“Compared to the western retailers, the Indian retail
industry has much thinner gross margins and comparatively higher
operating costs (most importantly the rental costs), and there
is definitely a need to locate higher gross margins through areas
such as private labels (PL),” remarks Devangshu Dutta, chief
executive, Third Eyesight. This is one of the reasons behind retail
giants like Shoppers Stop, Trent, Pantaloon Retail, Reliance Retail,
Spencer’s Retail and Vishal Retail moving towards PLs to
address consumer needs and to increase profitability, he states.
The poll question and experts’ view
As a follow up on the subject, IndiaRetailing’s weekly poll
question — Is a retailer’s Gross Margin always an accurate
reflection of its health? — had 58.82 per cent of the respondents
supporting the theory, whereas 37.25 per cent of them negated
the same and the remaining 3.93 per cent preferred to stay neutral.
Commenting on the poll question, Dutta underscores that
net margin should be the only true reflection of a retailer’s
health. “Gross margin is only the starting point. The maximum
potential gross margin, to me, is the difference between the cost
of the product and the highest price the consumer is willing to
pay. A retailer has to decide on balancing the two sides of the
equation. The first one denotes the maximum price that the customer
would be willing to pay, and the other is the lowest possible
sourcing cost without affecting the quality of the product itself,”
he analyses.
“Obviously, a higher gross margin allows the retailer
much more scope in deciding the operating costs. However, there
are businesses with a high gross margin on products but slow inventory
turn and high markdowns as well,” underlines Dutta.
