Will It Take a Supply Chain Moonshot to Save Apparel?

There have been 97 major retail bankruptcies in the last four years. A big majority (57%) were in apparel. Clearly, the apparel business model is broken. Here’s how to fix it.

After the herd-culling event that occurred during the Great Recession of 2008-2009, major retail bankruptcies stabilized until 2017. Then it doubled.

The surprising jump led to many high-profile announcements of massive store closures, which in turn spawned the mass-media click-bait term “retail apocalypse.” Studying the data, I found 62% of the bankruptcies were concentrated in the apparel segment in 2017 and wrote a blog about the bursting of the apparel bubble.

Since then major retail bankruptcies have remained steady at more than 20 per year and store closings have kept pace. Also keeping pace were apparel bankruptcies, which continued to playing the leading role in store closures.

The pandemic of 2020 has accelerated retail business failures, which are now on track to double from the pace of the last three years, a rate once considered so alarming it spawned the so-called “retail apocalypse.” So far in 2020, there have been 36 major retail bankruptcies and of these 19 have been apparel retailers. (For a detailed historical look at retail bankruptcies check out the CBInsights database.)

With a multi-year record of failure behind it, which shows no signs of slowing down, is it fair to ask: Can major apparel retailers be saved?

Supply Chain Moon Shot

More than any other subject covered in my 2020 blogs so far, fixing problems in the retail supply chain has emerged as the topic of highest urgency. The reason is that the pandemic brought to light painful blind spots and gaps that have long existed in the traditional supply chain model, a problem that has left apparel retailers especially vulnerable due to their long timelines and long-haul transportation needs from Asia and around the world.

A long list of these pandemic blind spots was highlighted in the recently published RIS Supply Chain Technology Study 2020.

To get some expert thoughts about what can be done to fix supply chain blind spots, especially in the apparel segment, I recently spoke with Mark Burstein, president and chief strategy officer of NGC Software.

Burstein’s approach to fixing the problem includes such disruptive strategies as “shifting to new product introductions 15-plus times per year instead of three to four, which will help double foot traffic to stores from the current level of just three to four." He also recommends "doing A/B testing in 48-hour cycles instead of testing long-range for next year’s product line, which will enable retailers to chase hot sellers immediately and replenish in three weeks.”

These are just a few of Burstein's comprehensive plan, which will essentially overhaul the apparel retailer’s supply chain. Other recommendations include “over-developing product lines, committing to production capacity with key vendors, developing the ability to position core materials for quick availability, allocating and creating production orders for vendors in hours and not weeks, adjusting production schedules based on short-term sales predictions, and enabling shipping to stores and consumers directly from the factory.”

To accomplish these goals, Burstein envisions the creation of a digital supply chain, which can be displayed in a series of dashboards that will holistically integrate critical supply chain and merchandise management data. Instead of data residing in silos under separate job functions, this approach will aggregate end-to-end supply chain data from product info to logistics, forecasts to customer segments, channels to sources, and sales to margins.

Once in place, the digital supply chain will enable decisions to be made holistically and automatically using artificial intelligence.

For example, if a manufacturer is disrupted and a product needs replenishment, the digital supply chain can search for what Burstein calls “a digital thread” to fix the problem. The system searches through a database of compliant fabric vendors, fabric mills, plants for finished-goods manufacturing, and transportation nodes. It connects this “digital thread” all the way to the store at the speed of AI and does it while optimizing delivery, prices and margins.

Benefits of this approach, according to Burstein, include:

• Going from four seasons to 15 seasons makes each season’s bet less critical to overall financial success.
• Enables the use of continual analysis to adjust product supply based on current demand predictions and sales trends.
• Enables continuous planning and connected execution throughout the product lifecycle.
• Reduces markdowns and stockouts that directly hit the bottom line.
• Helps drive store revenue and profits that have been flat or declining for years.

The apparel business model has been broken for nearly a decade. A supply chain moon shot, inspired by the pandemic, is just what is needed to enable apparel retailers to break a self-destructive pattern.