In past blog posts we’ve discussed key trends (the impact of the economic downturn, and how technology has empowered the consumer in the area of price comparison, etc.) and various strategies retailers are employing (markdown optimization, multi-channel, etc.) to address these pricing pressures. Pricing is one side of the equation; today I’d like to look at the other part of the equation—cost.
Retailers are feeling the squeeze—sales volume is down, pricing pressures are tremendous, and costs are also skyrocketing on the supply chain side. It’s the Perfect Storm!
Many retailers are grappling with a real dilemma—do they dare raise retail prices to protect their margins? And if so, will this result in fickle and moody consumers taking their business elsewhere? Not wanting to tempt fate, many retailers are reluctant to raise prices until they exhaust all other options.
On the supply chain side, we’re seeing retailers adopt a number of strategies. For one, retailers are expanding their time horizon and locking in prices on raw materials further ahead than ever before. They’re also diversifying their supplier base to mitigate risk. By sourcing from different suppliers, retailers are avoiding “putting all their eggs in one basket,” and looking to eliminate dependencies, take advantage of lower labor rates in certain geographies, and lessen the impact of inevitable weather issues, natural disasters, and socio-political unrest. We’ve also noticed heightened interest in sourcing and Product Lifecycle Management (PLM), as retailers look to trim costs in order to preserve margins.
In the past, the value proposition for PLM was primarily time-to-market. Retailers who sourced raw materials and then assembled them into finished goods commanded better margins, but also introduced more complexity to get their goods to market -- managing and coordinating all the various business processes and timelines, as well as the shipping, duties, freight, customs, and regulatory requirements. PLM helped retailers manage these aspects, helping to wring out excess costs and increase efficiencies, breaking down silos and centralizing information for improved collaboration.
Today, PLM is being used to optimize costs. Retailers are using PLM to design and configure products from the ground up in the most cost effective way. Case-in-point: Cotton prices are starting to come down after reaching record highs, but the effects of higher prices still are having ripple effects through the apparel production chain. Designers have begun doing more with less by cutting out pockets, cuffs and hoods on garments and creating more sleeveless and capped-sleeve pieces to cut down on the amount of cotton needed to produce them. However, some analysts expect consumers to feel the effects of high cotton prices for the next two to three years.
So the real question is how will all these behind-the-scenes strategies affect what we as consumers will see on the racks going forward? Higher prices on garments, or prices that remain steady, but with stripped down, minimal details? While retailers weather ‘the Perfect Storm,’ will consumers be plunged into a new era of minimalism?
Posted by Diane Neaven, Director of Product Management, Epicor