Canadian merchants are discovering the value of outsourcing all or part of their supply chain needs to third-party logistics company (3PL). In the hyper-dynamic world of retail fashion, partnering with a 3PL may be more necessity than choice.
There are many factors that contribute to success for fashion retailers, including brand management and marketing, revenue/cost control and supply chain management. One could argue that a reliable supply chain is actually the most critical. It doesn’t matter how strong the demand is for your lines if you can’t get them from fabric to finished garment to consumer at a pace that satisfies that demand at a cost that makes it worth it.
Meanwhile, the digitally connected world (social media in particular) has flipped the game for fashion retailers. Celebrities and other online influencers have effectively co-opted much of the power to set trends and, with that, the power to set them according to a schedule. Stocking for seasonal trends simply doesn’t work in today’s fast fashion world where trends can change from week to week. Retail fashion has always dealt with specialized production demands – products have to meet delivery and quality standards across a wide range of colour and size differentiation. The addition of shorter product life cycles puts a lot of pressure on what is already a stressed supply chain.
3PL Advantage: Scalability on Demand
In an environment like fashion retail where there is rapidly changing inventory, scalability and agility become increasingly important in the post-production supply chain. 3PLs have the built-in ability to quickly adjust warehouse configurations (including locations) according to changing demand levels. 3PL warehousing and transportation systems are literally engineered to be flexible. The simplest example of this is strategic shared facilities where one industry’s warehousing pain becomes another’s gain and vice versa. Non-competing companies sharing space can offset the cost of seasonal (or more complex) space requirements, while taking advantage of other shared resources such as equipment, staffing and operating systems.
Strategic placement of inventory is another big advantage that 3PLs can offer. With a network of its own and partner locations, a good 3PL can ensure that inventory is also stored as close as possible to shelves and direct consumers. Retailers can experiment with multiple warehousing and distribution configurations without the corresponding investment in infrastructure.
3PL Advantage: Mitigating the High Cost of Returns
In a recent Forbes piece, retail contributor Steve Dennis called e-commerce returns a “ticking time bomb”. It’s a metaphor that’s been used more than a few times lately. Dennis explained that liberal return policies have been part of legacy brands’ value proposition for years while startups have leveraged hassle-free returns as a key component of their growth strategies. In both cases, “it’s increasingly hard to put the genie back in the bottle”.
In “high try-on” retail sub groups like fashion and home furnishings, where we see the “buy three/return two” phenomenon, the outlook is that much worse. Apparel returns can run as high as 40%. Without the ability to mitigate the associated costs, this level of return rate can eat up marginal gains as the direct-to-consumer portion of a company’s retail business grows. Controlling customer expectations doesn’t appear to be an option. In today’s consumer culture, the expectation of on-demand gratification extends online. Customer loyalty is increasingly “returns policy sensitive”. While some legacy retailers are experimenting with subtle tightening of policies, it’s not certain if even they have the brand equity to get away with it. For newer brands, with fierce competitors (think online eyeglass retailers), the response to a perceived increase in return/exchange complexity is likely a brisk defection to a competitor with more liberal terms.
It would seem then that the way to mitigate return/exchange costs is simply to get better/smarter/faster at handling reverse logistics. This is where a 3PL really becomes indispensable for fashion retailers who, by nature, have more complicated return and exchange requirements. Reverse logistics is a highly specialized competency. Every return includes complexities from processing an exchange according to the customer’s expectation through making a determination about the final designation of returned items. This is a core competency of logistics companies. The expertise of a 3PL can help fashion retailers manage these intricacies and realize maximum revenue from each transaction.
There are myriad other ways a third-party logistics partner can add measurable value to fashion supply chains. By definition, logistics companies are continuously focused on the most efficient movement of the right amount of product at the lowest possible cost. When you partner with the right 3PL, not only can you leverage their investment in innovation and infrastructure, you also gain access to the collective body of analytics and intelligence that’s used to streamline and protect supply chains across multiple industries. 3PLs are becoming the backbone of online shopping because they offer the essential structure and service that internet-based apparel retailers need to take products from the eye-catching online storefront to the shopper’s front door.
Find out more about National Fulfillment Services, a complete fulfillment service providing a full range of solutions for multichannel distribution, order management, customer care and value-added services.