Retail Challenges – Unhappy Returns and Other Challenges

Abstract

A house fire at the end of 2004 raged through the upper floor and decimated the wardrobe that I had been lovingly collecting over the years. Once the shock of the loss declined, dressed in a motley collection of donations from neighbors, I headed for the shopping mall.

Article

A house fire at the end of 2004 raged through the upper floor and decimated the wardrobe that I had been lovingly collecting over the years. Once the shock of the loss declined, dressed in a motley collection of donations from neighbors, I headed for the shopping mall.

What started out as a personal project has ended up as an interesting exploration of the challenges related to supplier and retailer issues in the global supply chain!


Buyer Beware – all is not what you think it should be!

My first stop was at a branded retailer that promised to have color coordinated outfits for every occasion. The sales personnel were delighted to learn that I had a complete wardrobe to replace and surrounded me with selections.Then came an interesting discovery – although all the items indicated that they were the same size, once I tried them on I found that this was quite misleading. In fact, the first complete outfit I managed to assemble included items in 3 different sizes! No doubt this had some relationship to the source locations – unlike Europe where country of origin is not indicated on every garment, all clothing sold in the US indicates manufacturing location. My selections had a diverse range of origins – from the ubiquitous “Made in China” to more exotic locales like Peru, Mauritius, and Vietnam.

Another challenge was finding outfits with a “true” color match. The variety of fabrics, although from the same color range, had slight variations in shade. I had never realized before how many varieties of purple there are! In desperation I made several selections but found I still had many “clothing necessities” to purchase. For the balance of my shopping I resorted to the “tried and true” department store. There I was able to assemble a variety of outfits from my favorite Branded Manufacturer. Although each of the items was considerably more expensive than the Branded Retailer, I found that the sizing was accurate, the colors were consistent and it was possible to make purchases without even trying them on. Not surprisingly I found that all of the items purchased were “Made in China” – a single source location.

Rules, regulations, and other frustrations

Curious, I called upon my various expert resources in the clothing and apparel industry, and found that once again, trade manipulation had resulted in frustration for the consumer – me in this case.

In common with the steel industry, clothing and apparel has been one of the most heavily regulated and lobbied areas for years. Special interest groups from the Cotton industry, textile mills, clothing manufacturers – amongst others, have created an environment where the combination of quotas, tariffs and other restrictions has resulted in clothing being manufactured in some of the most unexpected locales. The end result – items from the same fashion range being manufactured in different locations, with inconsistent quality, sizing and color. This was confirmed by my frustrating shopping experiences. Price pressure is another issue, but in many cases this is secondary to the juggling of quota, sourcing difficulties and fluctuation in both price and availability of logistics resources.

The emergence of China as a “factory state” and the convergence between communism and turbo-capitalism has resulted in many state-owned logistics providers and related entities. Today Beijing is poised to become a major logistics hub for the Asia Pacific Region. This is in addition to the influx of service providers – since China became a WTO member, foreign logistics companies have entered into China one after another. 70% of these entities experienced a 30% annual increase in business, and it is estimated that the annual growth rate in this sector was 25% for the period 2002 – 2005. And no wonder – consider:

  • Logistics-related spending in 2002, the most recent year studied, amounted to US$23 billion (190 billion Yuan) – approximately 20% of GDP
  • In comparison, the U.S. spent $936 billion on logistics in 2003 — 8.5% of GDP

The elimination of quota in 2005 set the stage for further domination of the retail sector by items “Made in China”. In common with India, another potential winner for quota elimination, China has invested in infrastructure, technology and training, creating factory cities that are dedicated to creating high quality and low cost items. Certain areas are dedicated to a single item – for example – underwear and shoes, developing skills and economies of scale through vertically integrated specialization. Discussions with one high end Branded manufacture indicate that it will now be possible for them to create more collaborative relationships with suppliers, sharing information and technology to ensure higher quality and reduce time to market.

So who are the winners anyway?

Good news for the consumer – but will the combination of special interest and over regulation stifle the promise of true global manufacturing? The new trade relationships between China and the US, for example, are already strained. And at the recent meeting of the 14,000 member National Association of Manufacturers (NAM) a list of goals regarding trade with China dominated their trade agenda for 2005. This included:

  • Revaluation of the yuan by up to 40% to reduce the US trade deficit with China and create more favorable conditions for other Asian countries to free their currencies
  • Declaring China a Priority Foreign Country and consider taking it to the WTO if the US Trade Representative’s (USTR) out-of-cycle Special 301 review does not show sufficient Chinese progress in meeting previous commitments
  • Retaining China’s non-market economy status for the full 15-year period negotiated unless statutory requirements for market economy status are fully and consistently met
  • Increasing US exports to China by 300% (i.e., to over $100 billion) within three years, especially higher value added manufactured products, through a massive export promotion program

No doubt the economic tug of war will continue – who knows who the winners will ultimately be? In the interim, I am returning to the Mall to continue with my “up close and personal” retail research!

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