Retailers feel a chill in warm weather.
It is only one week away from the start of the ski season in south east Australia and there is not a sign of snow on the mountains. Retailers selling fashion garments and sporting goods are feeling very chilly – there is warm weather at the start of winter!
Winter fashions are in stock and ski wear on show at sports shops, but consumers are not buying; instead they are outdoors enjoying the sun and the food offered by cafes. Directors of department stores and fashion chains are holding crisis meetings to decide when to put up the ‘special sale’ signs.
Why the crisis meetings – its because of inventory. Winter stock is sitting on shelves and in warehouses, with spring and summer styles arriving in a few months; the accumulation of inventory will make stock turn figures look very bad – and drive more ‘special sales’ promotions.
Fashion retailers inventory stock turns average about 5 (that is more than 70 days), but some companies can hold more than twice this figure!
Most retailers in Australia import the majority of their seasonal fashions from China and other countries in Asia. The likely lead time from order to delivery into the retailer’s warehouse is between 12 and 16 weeks (84 and 112 days). If a retailer has three seasons in the years, they average 122 days each.
So the balance between selling days, lead time and inventory is very tight, which influences working capital, because a forecast mistake or a weather variation will affect cash flow, so additional financial support from shareholders or banks is needed.
Manage your lead times
Do you have the challenge of buying items that are seasonal or one-off? Your critical challenge is to measure and respond to lead time variability(supplier’s output and inbound transport) in your supply chains. Shorter lead times means less scope for variability, therefore lower safety stock to compensate for variability.
With retailer buyers in the southern hemisphere, their lead time from Asia are long, with variability more likely. As volumes are relatively small in comparison to those from northern hemisphere buyers, it is likely that only one order can be placed for a season’s requirements. Repeat orders will be difficult, as suppliers are satisfying orders for different season products from northern hemisphere buyers.
So the risk of product sales for a season being potentially above or seriously below forecast are high and safety stocks that enable response to any positive variations in demand will be expensive to carry. These factors should affect decisions about where to buy from.
Given that you have designed or purchased the appropriate products for your market, the essence of seasonal selling is minimising lead times. You have less variability to contend with and shorter lead times allows for quick response to changes in demand. Attaining shorter lead times for seasonal items means developing domestic suppliers in a ‘just in time’ style relationship or developing suppliers and LSPs in low cost countries that are located in close proximity.
