Fashion retailers are cancelling orders for survival, posing a threat to suppliers and potentially themselves – but logistics offers them options.
Lockdowns in Europe and America due to COVID-19 have dealt a blow to retailers across categories, but those in the business of fashion are in an especially tight bind. While their stores remain shuttered, many have massive orders coming in from overseas, and too much inventory already in stock. Their products may not technically spoil, like food or medicine, but they go out of style with every passing season.
Fashion retailers are trying a variety of strategies to get through the crisis. Some, including Sweden’s H&M and American retailer Gap, have shifted to selling online at deep discounts. Another tactic is to cut orders or cancel them altogether, which a number of big retailers are doing: Britain’s Marks & Spencer suspended orders with its suppliers in late March, and American department store chain Ross Dress for Less announced it will cancel all orders until mid-June, The Economist reports.
Simply stemming the inflow of goods is a prudent course of action. But within fashion’s fragmented global supply chain, inventory management is never simple. For one, as Knut Alicke of McKinsey points out, retailers can endanger the survival of their suppliers if they cut orders too aggressively. The danger is greatest to smaller suppliers, farther down the supply chain. They could lose all of their customers virtually overnight, while larger suppliers tend to be more diverse and less exposed.
Retailers that cut inventory too much could find themselves unable to bounce back when the recovery begins. Survival will depend both on keeping suppliers in business, and also on retaining the talent needed to mount a comeback. This scenario has already played out. In March, British fashion retailer Next was forced to close warehouses and halt online sales. When it reopened its website on April 14, it had to shut it down again within two hours, when it had all of the orders it could handle with the small staff it had retained.
Fortunately there are alternatives to cancelling orders, and they approach the problem from the logistics standpoint. One that is quickly gaining traction is “slow steaming,” literally operating cargo ships at lower speeds, which cuts carbon emissions and lowers fuel costs. It can also help solve the retail inventory conundrum, allowing suppliers to fulfil orders and stay in business, while retailers hold the products in what Mohammed Esa, SVP of Global Business Development for logistics provider Agility calls “floating storage” until they are needed.
Another option, which shipping giants Maersk, MSC and others have been pursuing, is suspension of transit (SOT). As MSC defines it, a suspension of transit programme uses transshipment hubs as “advance storage posts.” This positions suppliers to begin moving goods early when demand starts to pick up, and gives importers such as fashion retailers a more cost-effective option for storing the inventory they don’t need – yet.