A Supply Chain in Crisis: Finding New Ways to Share Risk

The outdoor industry’s chances of emerging stronger than ever from the economic crisis are good if brands, manufacturers, dealers and their bankers can agree in coming months how to reapportion risk in a much faster moving, but slower growing economy.

Consensus is building among outdoor brands that they need to move production and wholesale deliveries closer to need. That will involve moving toward a fashion merchandising model of smaller, more frequent production runs. The goal is less inventory risk, less work in progress and less reliance on credit.

Retailers are already moving in this direction, according to consultants, retailers and industry suppliers.

“We’ve seen huge increases in the reorder side of the business,” said Peter O’Neil, VP of sales and marketing for CenterStone Technologies, which provides a B2B platform that allows reps and dealers to view brand’s inventories and place orders 24/7. “Retailers are loving the fact that they can chase inventory and order when they have one left on the rack. They no longer have to have ten on the rack and wait for them sell. That's driving our business.”

The onus appears to be on brands, their manufacturers and suppliers, who will need to negotiate new terms to ensure a smooth transition. Specifically, brands will have to negotiate with manufacturers and suppliers, such as fabric mills, to lower their minimum product runs or they will have to start paying and absorbing surcharges. That’s something that is also starting to happen with more frequency, according to sourcing experts.

Currently, brands that can’t meet minimum order requirements are assessed surcharges. Until now, brands dealt with the minimums by pressuring their dealers to place larger and larger preseason orders and then liquidating any unsold product at the end of season. But retailers began trimming back preseason orders in early 2008 and have since been canceling orders at an unprecedented rate. Traditional liquidation channels, meanwhile, are having difficulty moving surplus goods at traditional margins because department and chain stores are already selling so much apparel and footwear at up to 70% off retail.

Outdoor brands that can’t convince suppliers to reduce minimums will need to pay surcharges or find more willing suppliers willing to handle smaller runs. The latter has also begun to occur.

Longer term, some experts foresee a shift to a more regional production platform with smaller run/quick turn sportswear production for the North American market moving closer to home.

Horny Toad CEO Gordon Seabury said Zara, a vertically integrated global fashion brand owned by Spanish apparel giant Inditex, provides a glimpse of the future. On average, Zara can deliver goods to its European stores within 24 hours of receiving an order. Orders from America and Asia are fulfilled within 48 hours. The company’s designers receive input directly from buyers at more than 500 stores. Highly automated logistics centers ship product twice a week and each delivery includes new items so that stores are constantly refreshing their offer, according to Inditex’s annual report. In 2006, the company’s EBITDA rose 20% to 2.2 billion, or 22.8 percent of sales.

Despite the clamor from retailers for more domestic production, the bulk of manufacturing is likely to remain in Asia, and particularly China. Asian factories have simply gotten too good at what they do and provide too much value for the dollar, sourcing experts say. It's no longer just the labor differential but the work ethic and willingness to go the extra mile that is separating them from U.S. mills, contractors say.

After all, if Chinese factories can serve the quick turn-around times demanded by the ready-to-wear and fashion industries, they can surely meet the needs of the outdoor industry, experts say.

Horny Toad’s Lizard Lounge retail store in Portland is already moving toward this model. To keep things fresh, the store takes deliveries six times a year and remerchandizes every two weeks. It now turns inventory every six weeks, said Seabury.

“The whole industry is built on the old equipment model – stack it to the ceiling and sell it and then mark down whatever does not sell,” said Seabury. “There is tons of inventory stashed in the back tying up working capital. We need to increase frequency of replenishment to drive traffic through the stores. You are still developing product for two major seasons, but you are staging production and deliveries – phasing it to reduce duration of the cash float.”

Lizard Lounge has taught Horny Toad that in this economy more than ever, edgier more innovative product, rather than core product, is what drives retail traffic and sales. “Even if people are spending less,” he said, “you have to give them a reason to spend. “

Head Local Learning to Blog, Philanthropy, Etc

05/29/2008 16:50 Mountian

Hello Friends,

Head Local of Locals Have More Fun - An Environmentally Cool Clothing Company is slaving away in his cubicle, working hard in order to get a major clothing company off the ground. It is late Thursday afternoon and in 40 minutes I will be free for the weekend.
Lots of Locals work to do on Friday, but looking forward to a great weekend of getting outside as well.

As a newbie blogger/social media artist, I have tapped into the local community to help. Kendall Card of Basecamp Communications is a rockstar blogger and has even made a job out of it. Who would of thought? He linked the local ProBar to hottie Marisa Miller (she is hot) and her diet and voila, a star is born!

Anyways, it has been a productive day. Contacting Zappo's, cousin Har in Santa Fe, and tackling the financial markets (see SBUX popping off a rounded bottom). That leads me to the Philanthropy part of today's post. Working at a non-environmentally friendly, ignorant company to pay the bills at Locals only fuels the fire more to educate the masses about the world's playgrounds and how they must be protected.

I am proud to say that I have been a member of Sierra Club since the late 90's (I was still in college) and that Locals Have More Fun is a part of and a huge proponent of 1% For the Planet (see Patagonia).

Off to talk to the last client of the day.
Brian

Local Shoulder Season

From Friday, April 24th, around 8:30am

The days are long and the snowline creeps higher and higher. With the banner snow year that the Wasatch Mountains had, one has to take full advantage of it. I woke at 5am on Friday as I knew Kendall Card from Base Camp Communications would be waiting at the parking lot across from the Silver Lake fire station (more on that later). I threw my gear into my Ford Hybrid and pulled out of my garage - 17 degrees the thermometer on my car read!

Needless to say, I pulled into the meeting place a few minutes early, geared up and selected my SKI playlist on my ipod. 6:05...6:10...6:15. Departure from the car to see the sunrise from Mt Baldy was to be at 6:00am. Kendall flaked (I woke him to confirm).

I set off at a relaxed pace, able to parallel the Sterling high speed quad and was able to get a shot off of the sunrise coming over the Uinta Mountains. See Brian Kahn's facebook page as I did a little promo shot for http://www.localshavemorefun.com/

I decided not to go all the way to the top as it looked a little windblown (we had a major snowstorm a few nights before). I unskinned, tightened my boots and had 25 sick turns, then a flat run out, where I passed Ryan the construction worker on his way up and then about 15 more windpacked turns.

I skinned back up for one more run, upset that there was someone else out with me, but more secure as bears are hungry this time of year and now I didn't feel the need to whistle every 30 seconds.

An epic day, maybe the last runs of the year. A great day to reflect back on the season we had and to curse my sleeping comrade Kendall as well.