It is no longer acceptable to take two years to bring a new product to market; the profitable life cycle of merchandise continues to shrink. Some of this compression is self-induced as retailers and their partners have driven up the rate of new product introductions, switching out merchandise every four to eight weeks in an effort to improve merchandise turn rates.
Compression is also a byproduct of the digital "I want it now" era dominated by "I want it now" consumers, who expect new sexy fashions and new sexy digital appliances every three to four weeks. Pressure to be relevant to this new breed of consumer drives the need for more speed.
Whatever the cause, brand managers must get faster, even as their supply chains get longer. RSR's most recent survey on the issues and opportunities associated with private label merchandise shows that indeed, retail brand managers have risen to the challenge. As illustrated in Figure 1 below, average time to market has decreased sharply with a strong plurality of respondents able to ramp up to full volume in six to 12 months.
Average Time to Volume Decreases Sharply
Source: RSR Research, February 2008
Collaboration Driving Speed for Retail Winners
Retailers have added more private label merchandise to their assortments in their quest to reduce time to market, decrease their costs and control their own destinies. They have also increased the percentage of that merchandise they design in collaboration with suppliers. In a recent RSR survey, 57 percent of respondents reported an increase in this collaboratively designed private label merchandise.
RSR holds a core belief, supported by our benchmark surveys, that retailers who outperform their peers in year-over-year comparable store sales (who we call "retail winners") don't just stumble into superior sales performance. Instead, we find a fundamental difference in their thought processes, business processes and technology usage. We have found these differences in the way they manage their multiple selling channels, their management of the in-store work force and their approach to merchandise planning and allocation.
With that as backdrop, it is not surprising to see that while collaborative product design is catching on across the retailing landscape, nowhere is it more prevalent than among retail winners. Figure 2 shows the dramatic differences in adoption rate of collaborative design across our entire respondent base.
Collaborative Design A Key Strategy of Retail Winners
Source: RSR Research, February 2008
Product Lifecycle Management Technology Driving Speed to Market
Clearly, sourcing and product lifecycle management technologies have helped bring products to market faster. Thirty-seven percent of our respondents report a 10 percent to 25 percent increase in speed resulting from the use of these tools (see Figure 3). Fully one-fifth report improvements of more than 25 percent.
Source: RSR Research, February 2008
But what are the specifics? What are the most widely used components of Product Lifecycle Management and what do retailers see coming in the future? Our data tells us that the number of software applications used to manage private label merchandise has remained relatively consistent over the past year, with 52 percent reporting they use between two and five different applications to manage the process from "sheep to shelf" or "farm to fork." Only 21 percent of respondents report using a single application for the full Product Lifecycle Management process.
Visibility Emerges as a Key Tool to Manage Private Label Production
Not surprisingly, product specifications and requirements topped the list of software components in use the longest, but we were also interested to find buying intentions around less heavily used components such as process and workflow management, collaborative design management, quality management and supplier relationship management. A fifth or more of respondents have budgeted projects to implement these software technologies.
The most prized and critical technology component cited by survey respondents is "visibility." While visibility is typically thought of as knowing the status of a specific order, the notion of visibility extends in a collaborative design process. Just as the "perfect order" has become broader than just the right quantities of merchandise received at the pre-agreed upon time, visibility has grown beyond just tracking finished goods through the supply chain. The perfect order has morphed to include "designed and constructed to specification." Similarly, visibility has morphed into "confirming that pre-production processes are in conformance with specification."
Retailer buying intentions are now reflecting that importance. Twenty-four percent of our survey respondents have budgeted projects to implement visibility applications, with another 15 percent reporting implementing these applications over the past year, and another 9 percent with planned, but not-yet-budgeted projects. RSR believes these to-be-purchased technology tools will be more sophisticated and alert-oriented than their predecessors (15 percent of respondents have been using visibility tools for more than one year). Specifically, we expect mutual alerts to both retailers and their suppliers when critical sub-tasks such as factory audits of components such as fabric and trim are overdue.
A Downward Trending Economy Drives Merchandising Precision
For retailers and other apparel brand managers to continue enjoying healthy gross margin and return on invested capital, consistent quality is critical. Even as these brand managers crave long-term relationships with trusted suppliers, they still need tools and processes to verify that this trust is warranted. Visibility, workflow and exception reporting are key components of an efficient and effective product development strategy.
About Paula Rosenblum & Retail Systems Research LLC
Paula Rosenblum is widely recognized as one of the top analysts in the retail industry. She formerly served as Vice President of Research & Content at Retail Systems Alert Group (RSAG), and as Vice President of Aberdeen Group's Retail Research practice. She was also retail research director for AMR Research Inc.
Previous to that, Paula spent over 20 years as a retail technology executive and CIO. She is a member of the American Apparel and Footwear Association's Supply Chain Leadership Council, and a member of the advisory board for its semi-annual Material World trade show. Paula received her MBA in 1991 from Northeastern University, with a major in management of high technology firms.
Retail Systems Research ("RSR") is the only research company run by retailers for the retail industry. RSR provides insight into business and technology challenges facing the retail industry ecosystem, and thought leadership and advice on navigating these challenges for specific companies and the industry at large.
RSR covers all things retail: from store operations, to merchandise optimization, through cross-channel and multi-channel issues and private label management. From benchmark reports on the state of the industry, to analysis of breaking news, RSR turns data into easily digestible information. All RSR research is available for reading free to qualified retailers and their business partners.
To learn more, visit, www.retailsystemsresearch.com.