Uncertainty is over as a buzzword. That things are up in the air in sourcing and retail across the board is evident—the next step now is figuring out how to do business in this new generation sourcing landscape.
And there’s little simple about the task.
“I think the state of sourcing is being challenged in the same way that retail is being challenged in terms of channel shifts, in terms of increased demand for speed to market…there’s always been demand for speed to market, that hasn’t changed. And also, on the price side, to deliver merchandise that is differentiated, that is saleable, at even more competitive price points.” William E. Connor II, CEO of The Connor Group, told Sourcing Journal at a meeting in Hong Kong.
Here’s the latest on sourcing, according to Connor.
Sourcing’s biggest pressures, and the cost to agents
Before the stress fast fashion, e-commerce and the general cheaper-faster-quicker concept brought to the sector, there was more room in the supply chain to figure costs out, Connor explained. Now, companies are dealing with suppliers that are working on very small margins and facing the increased costs of having to accelerate processes.
“It translates to increased pressure on us in terms of management of the supply chain,” Connor said. “The days of the general trading company that adds little value other than identifying a product and not providing a lot of design to it are pretty much gone. Connor is not a trading company, but a transparent service provider providing essential supply chain oversight.”
Whereas before, sourcing was a lot about the “mysterious East” and companies generally leaving their representative in respective markets to execute on vital sourcing functions, now there’s more visibility into supply chains and greater demand for value added services, and trading companies have to be versed in product development, product management and compliance if there’s any hope of prevailing.
“We live in an analog world. You can’t digitize going in and physically conducting an on-the-ground inspection, but those functions are highly visible now,” Connor said.
How speed to market has affected sourcing
The first thing on most minds when speed to market comes up, is Zara, the archetype of the fast fashion movement, but as Connor explains, there’s more to speed to market than just fast fashion.
“There’s the fashion component, but also a management of inventory that is less fashion driven but more financial driven,” he said. “It’s how you manage from a structural standpoint as well as physically on the ground.”
Speed to market has a whole lot to do with the types of vendors a company counts as allies, and what they ask of those vendors. Beyond finding a vendor that can turn product quickly, it’s becoming increasingly important that that vendor be close to your home market. Companies also need to consider vendors that can manage orders, replenish and work with material suppliers for things like fabric and trims, so that reorders can be made on relatively short notice.
“There’s no silver bullet solution, really, to speed to market. It’s disciplines all the way down the supply chain,” Connor said. It’s also about delegating to associates in the market for streamlined decision making and controlling the number of changes the design side of the business makes. “If you’re continuing to fumble at the front end, at the back end—the supply chain end—there’s no way you can get the disciplines working correctly.”
For speed to market to work, it’s also vital to identify vendor partnerships early as new vendors can’t necessarily be counted on to make the same efforts long-term partners will.
“You have to have an established relationship that induces your partner to bend over backward to make sure that you’re accommodated,” Connor said.
The current trade environment is all but easy to navigate
When asked how the uncertain trade environment and circulating threats to the sector (like the Border Adjustment Tax) might affect sourcing, Connor said, “Really, that is very much the $64,000 question in terms of everybody in the sourcing industry. We have in the new administration a mindset that is more cautious of trading relationships and oriented towards trade in the United States.”
Taking the administration’s current trade decision makers, U.S. Secretary of Commerce Wilbur Ross, current U.S. trade representative nominee Robert Lighthizer and Peter Navarro, director of the National Trade Council, Connor took care to stress the experience among them, but noted that across the group there’s an air of protectionism and anti-China sentiments.
“How these personalities and their viewpoints play out in terms of legislation remains to be seen. If you had to identify an industry that could be more negatively impacted by a Border Adjustment Tax, I don’t know that you could do better than retail,” he said. “If the flow of these imports were to be impeded in any way, it’s not like there’s a domestic alternative you could go to.”
What it means, Connor said, is simply that the consumer will be paying a higher price, and with the already existing weakness in the apparel spend, it won’t bode well for the sector at all.
“I think retail could be very severely impacted in the United States,” he said. “It’s not going to be helpful. I thought that the TPP was a good idea, it was a very hard won treaty on the part of the United States…but the consequences go well beyond the TPP and NAFTA.”
What U.S.-China trade relations could look like going forward
China has been President Trump’s favorite target when it comes to his frustrations over the present state of trade, and the exchanges that have been sent through the press—or Twitter—between leaders in both nations have often been unfavorable at best.
“There’s a very deep, sophisticated multilateral trading relationship with China. It’s not just a binary China-U.S. issue,” Connor said, adding that a disruption of relations between the two could affect global trade as a whole.
And, as he agreed, things aren’t coming up roses right now.
“The rhetoric coming out of both the U.S. and China is not encouraging,” Connor said. “There’s a lot at stake and a lot that has to be managed very carefully for all of us to come out of this whole and healthy.”
Are rampant bankruptcies a sign of the times?
Every other week, it seems, another retailer falls victim to bankruptcy, blaming the overused “challenging retail environment” and the “changing consumer.” But one of the real problems, in many cases, is that there are just too many brands with too many stores.
“Even before the shift to online retailing and the e-commerce buy, it was clear—it certainly was clear to me—five, 10 years ago, that there was too much retail capacity in the United States,” Connor said, adding that a consolidation and restructuring of retail is necessary and forthcoming in fuller force. “You have companies like The Limited, Aeropostale, American Apparel who have gone bankrupt. You have companies that are being challenged, Macy’s being one. You have the Targets that need to rethink the way they do business. When you add all this stuff up, it’s the perfect storm.”
Looking down the road, there will be very clear winners and losers in retail, as has already begun to be the case.
What’s next for W.E. Connor?
For W.E. Connor the company, the coming years will be about further refining what its supply chain offering is.
“We’re not a trading company. We are the alter ego, boots on the ground, the global footprint that a retailer in the U.S. would need,” Connor said. “The issue for us is how do we get better at doing that?”
For now, when it comes to new markets at least, Connor said the company is focused on ensuring it has a knowledgeable team in place in Myanmar to capitalize on the growth in sourcing that’s expected to come out of the country.
Beyond that, he said, “I think that markets are evolving and the two fastest growing markets for us over the last few years have been Vietnam and Bangladesh and they’ll continue to be strong because of different considerations in the market.”
Connor clients are requiring a broad-brushed array of sourcing markets, so the way forward now is less about identifying what the hot new market is and more about having a knowledgeable presence in many markets in order to be able to shift production as needed.
Going forward, W.E. Connor will be working to streamline and perfect its value-added services. In addition to its core sourcing partnerships, Connor is working to perfect both its upstream compliance services and it’s downstream designed, produced and landed model.
“Retail, especially brick-and-mortar retail, is undergoing probably the greatest challenge they have faced,” Connor said. “If you look at the long-term trends, this was something that was coming. It was something that was inadequately prepared for and we’re in the midst of an incredible shift…and the new administration must be careful not to complicate what is already a challenging dynamic.”