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Fashion retail's warehousing woes

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Amid challenges such as Brexit uncertainty and international tariffs, retailers are being forced to make difficult decisions to find the correct path for their warehousing 

UK retailers’ stock levels in relation to expected sales were at their highest on record in October, the Confederation of British Industry reported. The trade body said many retailers had stockpiled ahead of the fourth quarter – typically their busiest period of the year – and in preparation for any potential hold-up to supply that would have been created by a 31 October Brexit

John Bovill, executive consultant for digital and technology at AllSaints, tells Drapers: “We’ve been getting ready for deadlines that have slipped yet again – it’s frustrating. The days of moving towards free borders seem to be reversing, and we have to make provisions for that as a business.” 

Yet the lack of clarity around post-Brexit tariffs and duties that persists after the European Union extended the deadline to 31 January, is just one headache – albeit a critical one – that retailers and brands have to contend with when making decisions about their warehousing arrangements. Low consumer confidence and higher expectations from customers are also weighing heavily. 

Pressures around what stock to hold, where to keep it, and the expenses related to moving it across borders are among the most pressing matters facing the fashion retail supply chain. Retailers have to decide where to invest: whether to manage their own warehouses or outsource, determine what level of automation they need, and tackle the issue of fulfilment from stores.

The macroeconomic environment includes fluctuating foreign exchange rates, and a shift towards greater protectionism, whereby tariffs and quotas are applied to imported goods – exemplified by the ongoing trade scuffles between the US and China, in particular.

To mitigate the uncertainty, some retailers are using bonded warehouse sites, where goods can be stored duty free before shipping.

Customers want instant gratification, and that puts a lot of pressure on the supply chain

John Bovill, AllSaints

Bovill says AllSaints has dedicated distribution centres in the US, the Far East and mainland Europe, and explains that local distribution capability in key territories will continue to be an area of investment for the retailer.

He adds: “The adoption of bonded warehouses has never been more important, and you need to be very strategic and tactical in how you are moving stock, because you need to allow for the macro environment we’re in.”

Lifestyle retailer Joules has opened a warehouse run by a third party in the Netherlands, which will ship orders from the EU, while Pentland Brands, owner of labels such as Speedo and Canterbury, distributes to the EU from its bonded UK warehouse.

Meanwhile, other warehouse challenges facing retail centre on finding ways to support customer demand for newness, speedy fulfilment, and dealing with high return rates. Picking from warehouses quickly and getting product out the door speedily “is non-negotiable in the world of online”, says Jan Tukker, head of logistics at The Foschini Group (TFG), the South African owner of Hobbs, Phase Eight and Whistles. He adds that shoppers are increasingly demanding fast fulfilment and regular progress updates relating to their orders.

Multichannel fast fashion brand Quiz invested £3.8m in its distribution centre in Bellshill, near Glasgow, between 2015 and 2017. It employs up to 150 people, and can be fitted with mezzanine floors to increase capacity at peak periods. 

For Bovill, the role of warehouses needs a rethink in a digitally influenced retail world. Their function has “fundamentally changed because of the multichannel model”, he says, and describes a movement towards “virtual stock pools”, where product is procured from the most optimal part of the supply chain.

“Customers are impatient and want instant gratification the moment they engage with your brand, and that puts a lot of pressure on the supply chain,” he explains. 

Quiz distribution centre (2)

Quiz’s warehouse can add mezzanine floors to meet demand

Speed and transparency, however, come at a cost, which can be more easily absorbed by nimble pureplays such as Amazon and Boohoo, but can leave more traditional multichannel retailers feeling the strain. Amazon’s 2 million sq ft distribution centre in Tilbury, Essex, for example, is one of 17 it operates in the UK. Opened in 2017, the heavily automated warehouse also employs 2,000 human workers – numbers that are simply unfeasible for smaller companies grappling with the costs of bricks-and-mortar stores, such as rent and rates.

Shipping from stores needs a lot of training because, essentially, they are becoming mini-warehouses

Jan Tukker, TFG

Warehousing costs present a big question, says Martin Schofield, the former IT and logistics director at luxury retailer Harvey Nichols, who now runs consultancy Retail247: “Operating costs of warehousing and distribution have significantly increased off the back of the omnichannel onslaught, which includes rising returns for many retailers.

“You are meeting customer expectations, but a consequence is longer warehouse opening hours, more transportation of goods and greater staffing costs – it’s a massive conundrum.”

One way of solving this puzzle is by using stores to ship goods to online customers for home delivery or click and collect. This approach is often viewed as a more efficient way of managing stock, and is growing in popularity among fashion retailers: AllSaints, Jigsaw and Quiz are among those increasing their use of fulfilment from store.

TFG’s Tukker adds: “Shipping orders from your stores is a no-brainer, but it needs a lot of training at a shop level because, essentially, they are becoming mini-warehouses.”

Tom Enright, vice-president of supply chain research at analyst Gartner, says stores and warehouses have to work more closely to optimise fulfilment: “If a retailer has a planned capacity issue in the warehouse in terms of product coming in, they should be using the store to alleviate some of the pressure.”

And, as most fashion retailers use their warehouses for stock that is intended for both stores and ecommerce, he says it is not advisable to ringfence product prematurely: “The trick is not to separate product coming into these channel silos too early because there might be a situation where ecommerce is asking for product [that has been earmarked for] stores, resulting in people in different departments becoming protectionist.”

In order to ensure their warehouses are fighting fit for the future and can cope with speedier fulfilment, retailers are exploring automation.

Like Amazon, many larger retailers, such as JD Sports, Asos and Boohoo, are investing in tech-heavy warehouses and automated solutions for picking, packing and sorting. Boohoo Group invested £36.7m in its Burnley distribution centre for Boohoo and Nasty Gal in the 2018/19 financial year, and completed automation of the centre in April 2019.

However, the combination of human workers and supportive machine power is still popular in the wider sector.

Tukker says TFG is assessing the level of automation it needs but acknowledges it does not come cheap: “If you haven’t automated, at some point it could sink your business. But the question is, which parts of your warehouse do you automate – is it the storage or the picking process?”

Some retailers harbour concerns about how quickly their sector is changing, and steer clear of automation. Huge capital expenditure on automation that becomes obsolete would be “a folly”, says Bovill, who adds that more flexible human labour can be ramped up and down, according to business needs and peak trading seasons.

In addition to these decisions, as retailers expand their operations overseas, they are faced with a new question: build a warehouse, or use a third party?

Amazon robotics (2)

Amazon combines robotics with human workers

It is a business choice that is determined by how much the retailer wants to invest, and often comes down to the volume of goods that will be sold.

AllSaints, for example, has its own hubs in international markets. Asos opened new warehouses in Germany and the US in the year to 31 August. This was logical given the sheer volume at which it trades, but the etailer issued a profit warning in July, and CEO Nick Beighton admitted at the time that “recent performance in the EU and US was held back by operational issues associated with our transformational warehouse programmes”. 

Last month, Beighton said Asos had been “overambitious in tackling two international warehouses at the same time”.

In contrast, Primark entered the US in 2015 with a warehouse operated by Exel, a division of Deutsche Post DHL Group. US menswear brand Untuckit, which opened its first two UK stores this month, opted to use the Manchester distribution facility of its US logistics partner, Radial.

Co-founder Chris Riccobono says consistency was key: “Finding fulfilment centres you are comfortable with can take a long time, so this was a very easy transition for us.” However, he adds that unforeseen warehouse challenges could arise if UK customer demand is unexpectedly high.

Today’s consumers want regular new product, fast fulfilment, transparent order tracking and easy returns. But brands and retailers must consider carefully how to meet these requirements: when it comes to warehousing and distribution, one size very much does not fit all.

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