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Exploring replenishment in the luxury fashion Italian firms: evidence from case studies Elisa d’Avolio and Romeo Bandinelli Department of Industrial Engineering, University of Florence, Florence, Italy Margherita Pero Department of Management, Economics and Industrial Engineering, Politecnico di Milano, Milano, Italy, and Rinaldo Rinaldi Department of Industrial Engineering, University of Florence, Florence, Italy Abstract Purpose – The purpose of this paper is to investigate how luxury Italian fashion companies manage the replenishment process, and how they leverage supply chain (SC) to be able to match supply and demand of fashion products. Design/methodology/approach – Literature review was the first step performed; then, a case study research has been conducted in order to have a comprehensive view of the real context of luxury Italian fashion companies concerning merchandise planning and replenishment processes. After the sample was individuated, a questionnaire has guided the interviews and then data have been collected. Analysing data has concerned a primary case analysis and then cross-case patterns have been searched. Finally, several variables coherent to the aim of the study have been pinpointed and a framework has been designed. Findings – The paper provides a characterization of the luxury Italian fashion industry concerning merchandise planning constraints and the replenishment processes. To guarantee the flexibility required to match supply and demand when there is a high percentage of seasonal products in the collection, companies leverage on both downstream and upstream SC alignment. Originality/value – The enhancement of performance within the fashion SC is a topic not too much examined in depth, in particular referring to the luxury fashion companies and to the Italian context. Aligning upstream and downstream activities, information sharing between vendor and retailer and securing strategic alliances with the suppliers constitute important steps to reach flexibility and reactivity and to be in step with the market needs. The paper provides valuable insights to companies that are trying to decrease their lost sales and to increase their sell-out and customer service through a review of their SC processes. Keywords Luxury, Fashion, Alignment, Supply chain management, Replenishment Paper type Case study 1. Introduction Managing fashion products is challenging, not only for creative and stylists, but also for supply chain (SC) managers. Customers are more and more demanding high product variety and innovative products (Caniato et al., 2013), and competition in the fashion industry is more and more centred on the ability to react timely to changes in customers desires. Therefore, fashion companies have to balance the need to reduce lead times of the collections, while minimizing stocks and the obsolescence risk. In this context, being able to manage the SC, e.g., by achieving partnership between all the SC players, is becoming a strategic imperative in the fashion industry. These represent highly ambitious objectives, given the key characteristics of the fashion product (Chrstopher et al., 2004): short life-cycles, high volatility International Journal of Retail & Distribution Management Vol. 43 No. 10/11, 2015 pp. 967-987 © Emerald Group Publishing Limited 0959-0552 DOI 10.1108/IJRDM-07-2014-0098 Received 11 July 2014 Revised 10 November 2014 28 February 2015 Accepted 6 May 2015 The current issue and full text archive of this journal is available on Emerald Insight at: www.emeraldinsight.com/0959-0552.htm 967 Luxury fashion Italian firms
(the demand for these products is rarely stable or linear), low predictability and high impulse purchasing. To be able to cope with such challenges, fashion companies have to make the SC more flexible, by changing the way they manage their processes. Flexible SCs are able to adapt effectively to disruptions in supply and changes in demand whilst maintaining customer service levels (Stevenson and Spring, 2007). Moreover, increasing collaboration, both inside and among SC partners, is often seen as a powerful instrument in achieving effective and efficient SC management (de Leeuw and Fransoo, 2009), as well as higher SC agility (van Hoek et al., 2001). Being replenishment the process that encompasses all the activities related to the fulfilment of stores during the selling season, it is the one key process to be managed to increase company ability to be closer to the customers and ready to the new emerging trends. Researchers have proposed different approaches to redesign and automate it (Iannone et al., 2013), e.g., identifying the variables influencing the replenishment process. The paper presents a case study research conducted in a sample of Italian luxury fashion companies with the aim to study the replenishment process in the fashion luxury industry, and how they coordinate with the other partners of their SCs to be more effective and demand driven. Many classifications concerning the fashion industry exist in literature. Saviolo and Testa (2005) distinguish five market segments basing on price and quality of the products: Couture (or High Fashion), Prêt-à-porter, Diffusion, Bridge and Mass. Moving from the high fashion to the lower segments companies sell products having less quality and a lower price. High fashion companies favour style and premium quality and their products are often unique pieces (Brun and Castelli, 2013). The most important critical success factors (CSF) are brand image, innovation and quality (Bandinelli et al., 2013). François Pinault (founder of the Kering holding company) identifies three different market segments, basing on price: high luxury, accessible luxury and mass market. The first one is based on exclusivity and unaffordable price and firms belonging to this category are almost trendsetters. The accessible luxury companies focuses on the availability of the product to the customer and the price is still high, but affordable. Finally, the mass market is centred on low price and its companies are essentially trend followers. Another important classification that will be a leitmotiv within the paper is that one concerning the product classification, distinguishing from basic, seasonal and fashion (Şen, 2008). Fashion products, with a ten-week product life (approximately 35 per cent of the market); seasonal products, with a 20-week product life (approximately 45 per cent of the market) and basic products, sold throughout the year (approximately 20 per cent of the market). Given this background, the paper is arranged as follows. Section 2 presents a literature review about the fashion merchandise planning, showing also the main characteristics of the replenishment process. Section 3 better outline the research questions whilst in Section 4 the methodology is presented, introducing the main features of the companies involved in the performed case studies. Section 5 regards the findings of the research, as an analysis of the results. Finally, Section 6 presents some concluding remarks and suggests further developments. 2. Literature review In this section a presentation of the main literature about replenishment process is provided. It should be noted that replenishment process is highly connected to the merchandise planning process. In fact, on the one hand, variables, e.g., the planned overproduction, 968 IJRDM 43,10/11
defined during the merchandise planning process influence how the replenishment process has to be managed. On the other hand, the merchandise plan definition and the percentage of the OTB used by the companies, derived from the product’s characteristics (e.g. seasonable or not) and the characteristic of the SC (e.g. production offshored or outsourced) can determine several constraints to the replenishment process. Moreover, both replenishment and merchandise planning are processes specific of fashion companies: authors like Şen (2008) and Jacobs (2006) wrote about their main characteristics and implication in the fashion companies. The merchandise planning process includes all the activities of planning the delivery of finished products to retailers before the beginning of the season and the continuous improvement of the delivery plan during the season (Şen, 2008). At this level, every item is defined uniquely through a code named stock keeping unit (SKU). Main actors of this process are the merchandise manager and the buyers of the stores. Buyers are in charge to decide what (the SKUs) and how much (the quantities) have to be delivered to the stores. The merchandise manager, supported by the operation manager, has the responsibility to ensure the production and the delivery of the products to stores. The buyer’s decisions are controlled by a budget set by the merchandise managers. A buyer’s budget is usually updated each season based on his performance and consumer trends in the apparel line she/he is buying. The replenishment process encompasses all the activities carried out by the retailers and the brand owning companies to issue and gather orders, allocate and delivery products from the company warehouse to the stores, within a season. Replenishment programmes can be also used in order to reduce merchandise planning process errors (Castelli and Brun, 2010). 2.1 The merchandise planning process and the open-to-buy Şen (2008) provided a comprehensive analysis of the main processes carried out within the upstream and downstream SC. Within the second one, merchandise planning process and a particular metric known as OTB (Goodwin, 1992; Fiorito et al., 1998), mostly used to in the in-season ordering, are described. Merchandise planning process is performed by the brand owning company, and consists of planning finished product availability at the retailers, with the aim to offer consumers a balanced assortment of merchandise in the right store, at the right time, trying to meet corporate financial goals. In fact, merchandise plan errors result in either stock outs, thus margin lost, or excessive inventory levels (Abernathy et al., 1999). Two different planning periods may be distinguished: (1) Pre-season planning. Planes are developed at least six months before the selling season. Even if historical data are used to identify trends and seasonality, a proactive approach to management is crucial. The planner, in fact, must be farsighted and look to the future (e.g. planning promotional activities much time early), without renouncing to the opportunities to maximize profits and return on investment. In fact, since production and distribution lead times usually exceed the length of the delivery times expected by customers, production planning and procurement of raw materials have to start before the end of the order gathering period, using forecasts of total demand, thus increasing the complexity of planning (Ait-Alla et al., 2014). (2) In-season planning. It ensures accurate management of the business through continuous comparison between current and planned pre-season performance. Planner updates forecasting using data extracted from in-season sales and 969 Luxury fashion Italian firms
determines whether or not stocks are enough to support the demand. In this phase, planners use the abovementioned metric called OTB, which measures the deviation between planned stock and the stock on-hand, giving indications on whether or not to buy more merchandise. In addition to pre-season and in-season planning, a third period should be considered (e.g. the post-season), in which analyses are conducted to evaluate the real performance during the selling season and the objectives previously determined. The OTB represents the availability of funds for a given period, in order to reach the planned stock level. Therefore, the maximum amount of funds the buyer can allocate for new purchases OTB. OTB is calculated using the following formula (Şen, 2008): OTB¼ budgeted closing stock+budgeted sales+budgeted reductions (markdowns, thefts)−opening inventory−purchases already received−purchase orders placed but not yet received. The goal in using OTB as a control instrument is to align orders and loads to ensure the maximum result in selling with a minimum investment in merchandise. The main goal of the entire planning in-season process is to control trends in a proactive way, optimizing inventory levels in order to maximize margins. In practice, OTB tries to maintain a minimum level of liquidity to enable purchasing activities or as a safety buffer, when sales do not reach the planned level. The budgeted components of OTB, developed before the start of any season, comes from the corporate merchandising budget. First, demand forecasts are used to determine budgeted sales, which are then used to calculate the budgeted closing stock level. During the season, the opening inventory is updated by the flow of merchandise that occurred since the beginning of the season. This updates the OTB formula, which drives the new purchases, sales or reductions. Such a system has two potential criticalities. First, the calculation of OTB uses only the predicted market demand (i.e. budgeted sales), without taking into consideration the uncertain nature of the fashion industry. Second, most retailers do not update their budgeted sales (thus budgeted closing stocks) during the season. Therefore, especially when the preseason forecast is conservative, the service level deteriorates, because of the fact that new orders can be placed only if OTB becomes available. At soon as the season starts, some buyers choose to spend all of their OTBs, some others choose to hold back some of their OTBs for opportunistic buying placed after a more understanding of popular styles, colours and trends of the current season. Initial orders constitute between 60 and 100 per cent of the total order for a given product category (Bandinelli et al., 2012). Another important aspect of merchandise planning process is assortment planning, i.e., the process conducted by a retailer to decide how many and which products to include in the product line (Rajaram, 2001). Merchandise is grouped in various levels and each level is comprised of product subsets. The questions of how many and which products to include at each level relate to other basic issues such as determining the mix between basic and fashion products and the level of inventory depth and variety breadth for a given level of budgetary constraint. 2.2 The replenishment process Replenishment management is one of the most critical tasks in the downstream SC in fashion industry. Literature supports that replenishment systems are used to 970 IJRDM 43,10/11
mitigate merchandise planning errors, by employing demand estimation and multiple deliveries along the selling period to adjust merchandise volume and assortment (Hunter et al., 1996; Kunz, 2005). To this aim, replenishment process can be differently managed (Bandinelli et al., 2012). In particular, during the selling season, brand owning companies may decide to develop and then sell other items than the one already launched into the market, or to replenish the products already presented to the customers. The first one is the case of fast-fashion companies (Bhardwaj and Fairhurst, 2010), that generate mini-collection during the selling season, such as Zara. They need a partnership with the upstream company able to create quickly new items, having massive raw materials stock. A fast fashion system is able to both design “hot” products that capture the latest consumer trends and exploit minimal production lead times to match supply with uncertain demand (Cachon and Swinney, 2011). In the latter case, brand owning companies have already developed their collection during pre-season and they react to retailers order for new quantities of the same item. This is the case for example of the companies producing Prêt-à-porter products. A mix of the two cases is also possible. Because most fashion firms rely on other partners for an important part of their value systems, shortening the SC requires increased fine-tuning with these partners. From the moment that re-ordering becomes an important part of the business model, make more agile the pipelines is the main issue to be addressed ( Jacobs, 2006). Since 1990s, many authors focused their attention on automatic replenishment (AR), as a system enabling the improvement of collaboration and partnership among the main actors along the entire SC. In fact, AR systems trigger inventory restocking by immediately identifying what has been sold and the actual needs of the store, rather than relying on long-range forecasts and layers of safety stock (Bandinelli et al., 2012). Nowadays a number of AR programmes are in use. The most common type includes Vendor-Managed Inventory and Continuous Replenishment Programs. Industryspecific programmes such as Efficient Consumer Response in the grocery industry and Quick Response (QR) in the apparel industry have also been developed. QR has been widely adopted by fashion retailers (Al-Zubaidi and Tyler, 2004; Birtwistle et al., 2006) and their suppliers in response to the fast fashion trend, and it is focused on the possibility for retailers to store and replenish stock using customer demand rather than forecasts. This is done by applying an industry standard in information technologies (e.g. barcode, EDI, shipping container marking, roll ID, etc.) and contractual procedures among the SC members (Fernie and Azuma, 2004). The most significant difference between QR and more traditional apparel SCs is the focus on collaboration and vertical integration in order to improve efficiency in the SC. Like agile SCs QR SCs are considered to be information driven, but rely on a measure of trust in sharing information. Within the fashion industry, QR is centred on the notion of minimal pre-season ordering, taking advantage of improved speed and flexibility in the SC by placing more frequent, in-season, small orders (Bruce and Daly, 2006). Production may be pre-booked, but final product specification is not confirmed until nearer delivery time: the proportion of OTB budget may increase significantly. Several case study researches suggest that these programmes have been widely used in the Australian textile, clothing and footwear industry (McMichael et al., 2000; Perry and Sohal 2001) and in the US apparel industry (Ko et al., 2000). The replenishment process is affected by several variables, related to upstream SC, downstream SC and structure of the collection offered by the brand owning company. Lead-times in the apparel industry are traditionally long (Mattila et al., 2002). To reduce 971 Luxury fashion Italian firms
lead time, thus allowing for fast and frequent replenishment during selling period, the SC should be changed. For example, shortening of the supply pipeline can be achieved by moving onshore production facilities, thus choosing local suppliers, by improving information exchange, and collaborative relationships between organizations along the SC (Ernst and Whinney, 1988; Al-Zubaidi and Tyler, 2004; Caridi et al., 2010). Merchandise assortment has been found to affect the ability of replenishment strategies in mitigating merchandise planning errors (Yu and Kunz, 2010). 3. Research questions Literature review has provided an overview of replenishment management-related issues. Different approaches emerged, due to the peculiarities related to the considered geographical area and businesses. In particular, literature has mainly focused on the management of replenishment process in the Australian and US companies. However, the specificity of Italian fashion luxury industry structure may show other approaches and solutions to the replenishment process management problem. Therefore, two research questions emerge: RQ1. How do Italian fashion brand owning companies manage the replenishment processes in order to meet customer’s demand? Replenishment process can be differently managed, by mixing and matching the following elements: first, mini collections: replenishment of new item developed during the selling season; second, replenishment of all the product range already developed in the pre-selling season; third, replenishment of part of the product range already developed in the pre-selling season. Replenishment process is tightly linked to merchandise planning. Merchandise planning can be done both in pre-season and in-season, with a certain percentage of OTB, or only pre-season: RQ2. How do these companies coordinate upstream and downstream SC in the replenishment process? Coordination with upstream and downstream SC seems fundamental for assuring replenishment process efficiency and effectiveness. We aim at investigating how Italian companies manage the upstream and downstream SC in the replenishment process. In particular, as far as the upstream SC is concerned, literature suggests the following variables: (1) Degree of upstream SC alignment: it is measured against the level of vertical integration and the degree of information sharing with suppliers (Christopher et al., 2004). (2) Degree of local sourcing: offshoring does not help the replenishment process, due to the costs of using suppliers that are inflexible and unresponsive to changes in demand (Christopher et al., 2004). (3) Strength of suppliers’ relationships: it measures the width of the supplier base and the strength of the relationships with suppliers. Replenishment is more suitable in case of single sourcing and the propensity for strategic alliances (Christopher et al., 2004). As far as the downstream SC, replenishment process is affected by the degree of downstream SC alignment (Castelli and Brun, 2010). In line with Castelli and Brun (2010), this variable encompasses several items presented in Table I. To measure the variable, a score has been assigned to each item according to Table I. 972 IJRDM 43,10/11
Finally, the percentage of basic products over the whole collection determines the frequency of replenishment: the longer the products’ shelf-life is, the more frequent replenishments are ( Jacobs, 2006). This preliminary list has been integrated with the results coming out of the interviews and reported in Section 4. 4. Methodology In order to achieve the aim of the research, a case study research has been conducted to describe the SC of the luxury Italian fashion companies and to identify links between variables related to organization, process, information and management choices. In fact, case studies are normally used to gain a more in-depth understanding of the research, often in an effort to answer “how” and “why” questions (Yin, 1984). Multiple-case sampling was used to increase confidence in the findings (Miles and Huberman, 1984) and supports their external validity. The research involved a sample of seven fashion companies (Table II), belonging to the luxury fashion industry, internationally recognized and facing the challenge of competing globally. In order to be included in the sample, the fashion firms considered must have some key features: have at least a business unit in Italy, an international profile, to be medium or large fashion companies in different market segments and have been established in the fashion business for several years. The cases investigated regard medium and large firms, who usually face great challenges in designing their collection and replenish products in their retail channels. In the fashion industry the number of SKUs treated by a company may be an indicator of its dimensions: companies interviewed manage at least 500 SKUs per season. Most of the firms considered manage their own brands in Europe and Asia through direct operated stores and franchising mono brand: the research is focused on brand owner companies. They belong to the higher segments of the fashion market and their core business is mainly based on apparel and accessories. This homogeneity is due to the features of the industrial area in which the case study has been conducted: the Tuscan-Emilian district includes especially apparel- and leather-based firms. The sample appears more heterogeneous in the percentage of basic, seasonal and fashion product treated: in two cases, more than 50 per cent of basic product is managed, while in the other cases the seasonal product predominates. The companies’ market segment is clearly reflected in the low percentage of products having a ten-week shelf life: high fashion companies generally launch two collections per year, differing by the mass cases such as H&M or Zara. Items Instances Points (%) Kind of information exchanged between retailer and manufacturer Orders Sales information Inventory information Demand forecast 25 25 25 25 Communication tools Telephone/fax Internet Barcodes Integrated information systems 25 25 25 25 Alignment through Incentives Contract obligations Vertical integration 33.3 33.3 33.3 Table I. Items explaining the degree of downstream alignment 973 Luxury fashion Italian firms
Case study Employees Turnover (Million €) No of SKU Interviewees’ role Fashion market segment Main product Percentage of basic product/seasonal/fashion Assortment width Channels 1 ≈250 150 500-1,000 ICT Manager Prêt-à-porter Apparel 10/80/10 Low R+F 2 W100 100 500-1,000 ICT and Retail Managers Diffusion Apparel 0/90/10 High R+F 3 ≈120 45 W1,000 ICT and Retail Managers Diffusion Apparel, Accessories 60/30/10 Low R+F+W 4 ≈394 230 W1,000 ICT, Retail Managers and buying team Prêt-à-porter Apparel, Accessories 3/97/0 Medium R+F 5 W3000 625 W1,000 SC Manager High Fashion Leather accessories 90/10/0 Medium R+F 6 ≈625 204 500-1,000 SC and Retail Managers High Fashion Apparel 0/100/0 Low R+F 7 ≈700 160 W1,000 ICT Manager Prêt-à-porter Accessories, Apparel 20/80/0 Medium R+F+W Notes: R, retailer; W, wholesale; F, Franchisers Table II. Sample 974 IJRDM 43,10/11
The case study is a research strategy, which focuses on understanding the dynamics present within single settings. According to Eisenhardt (1989) a number between four and ten cases usually works well in these researches, so the considered sample is sufficient to give an accurate account in an empirical research. A questionnaire has been designed in order to support the interviews conducted. The direct contact to SC and ICT managers allowed us to carry out structured interviews, often backed up by unstructured interviews and interactions. Multiple methods such as questionnaires, direct observations and content analysis of document has been used to perform data triangulation. The latter, through the employment of different methods of data collection, has been used in order to strengthen the validity of the research (Voss et al., 2002). Data collected have been recorded and then analysed. The interviews were carried out basing on a questionnaire divided into three sections. In the first one, general information about the companies have been gathered, e.g., the competitive context and the organizational structure; the second section is devoted to describe the features of upstream and downstream SC. Finally, the third section aims to understand how the companies decide to manage the replenishment process and consequently the OTB. In order to become familiar to each case as a standalone entity a primary within case analysis has been performed. Then a comparison between the cases has been conducted and a cross-case analysis has been carried out. Moreover, qualitative and quantitative evidences have been combined: the qualitative data are useful in the understanding the rationale of theory, underlying relationships revealed in the quantitative data, or may suggest directly theories, which can then be strengthened by quantitative support (Eisenhardt, 1989). 4.1 Case studies Before reporting the case studies, it is important to present the full set of variables used in order to analyse the replenishment process. As introduced in Section 2, variables coming from the literature have been validated and, during the interviews, other ones have been introduced: • enabling technologies implementation: the kind of technologies used to manage replenishment and coordinate with upstream and/or downstream SC partners; • production restart of fashion collection: companies manage differently the production of fashion items during selling period; • order frequency: the interval between and order from a store and the following one; • trans-shipment: the movement of a good to a store and then to another store at the same level of the SC; and • lead time: the replenishment lead time, i.e., the time needed from the re-order to the delivery of the product to the store. This way, the full set of variables considered in this paper is reported in Table III. Any other alternative approaches has to be considered depending from the specific business and its needs and therefore not to be included in this list. Case 1 sells basically apparel products, belonging to the high fashion segment. In season, replenishment of both retailers and wholesales is done by using goods stored in a central warehouse, both already produced before the selling season and 975 Luxury fashion Italian firms
Case 1 Case 2 Case 3 Case 4 Case 5 Case 6 Case 7 Replenishment process management Mini collections and replenishment of all the fashion items during selling season No replenishment, except for transhipment and substitution Replenishment of part of the fashion collection Mini collections No replenishment, except for transhipment and substitution t Replenishment of part of the fashion collection Replenishment of part of the fashion collection Merchandise planning management Pre-season planning and overproduction Pre-season planning Pre-season planning and overproduction Pre-season planning and overproduction Pre-season planning and overproduction Pre-season planning Pre-season planning Degree of upstream alignment Medium: the firm is not vertically integrate Medium: the firm is not vertically integrated and information sharing is not completely achieved Medium: the firm is not vertically integrated and information sharing is not completely achieved Medium: the firm is not vertically integrated and information sharing is not completely achieved Low: the firm is not vertically integrated and information sharing is not achieved Low: the firm is not vertically integrated and information sharing is not achieved Medium: the firm is not vertically integrated and information sharing is not completely achieved Degree of local sourcing Medium: offshore for seasonal products, onshore for fashion ones Low: offshoring is a consolidated practice Low: offshoring is a consolidated practice Low: offshoring is a consolidated practice Low: offshoring is a consolidated practice Medium: near shore Low: offshoring is a consolidated practice Strength of suppliers’ relationships Low: multiple suppliers without drawing up strategic alliances Low: multiple suppliers without drawing up strategic alliances Low: multiple suppliers without drawing up strategic alliances Low: multiple suppliers without drawing up strategic alliances Medium: several strategic alliances Medium: several strategic alliances with skilled suppliers Low: multiple suppliers without drawing up strategic alliances (continued ) Table III. Case studies data 976 IJRDM 43,10/11
Case 1 Case 2 Case 3 Case 4 Case 5 Case 6 Case 7 Percentage of basic products Low: majority of seasonal products Low: majority of seasonal products Medium: coexistence of basic, seasonal and fashion products Low: majority of seasonal products High Low: majority of seasonal products Low: majority of seasonal products Enabling technologies implementation High: ERP integrated to EDI High: ERP integrated to EDI High: ERP integrated to EDI Medium: ERP Medium: ERP Low: spreadsheets High: ERP integrated to EDI Kind of information exchanged between retailer and manufacturer Orders, sales information, inventory information, demand forecast Orders and sales information Orders Orders None Orders Orders Communication tools Telephone, internet, barcode, IIS Telephone, internet, barcode, IIS Telephone, internet and barcode Telephone, internet, barcode, IIS Telephone and internet Telephone and internet Telephone, internet, barcode, IIS Alignment through Contract obligations None None None None Contract obligations Contract obligations Production restart of fashion collection Restart the entire collection None Restart part of the collection Replacement campaign None Restart part of the collection Replacement campaign Order frequency Weekly Weekly Weekly Weekly Weekly Weekly Weekly Trans-shipment Yes Yes Yes Yes Yes Yes No OTB percentage ≈20% 0 ≈20% ≈20% ≈20% 0 0 Lead time W4 months (but shorter for fashion products manufactured onshore) W4 months 2-3 months W4 months 2-3 months 2-3 months 2-3 months Table III. 977 Luxury fashion Italian firms
manufactured during the season. The firm manages replenishment orders coming from all the stores, that are different in terms of shop dimensions (e.g. assortment), its geographic area and its flagship importance. A structured process for managing replenishment does not exist. Buyers use forecasts, trends and their experience without a standardized approach to pre-define the quantities to replenish. Retail manager makes the final decisions regarding replenishment. The configuration of the SC (e.g. production sites located outside Italy) does not permit to reduce lead times. Nonetheless, some suppliers are able to manufacture the entire collection within the season. Case 2 sells apparel product and belongs mostly to the diffusion segment. The company has just opened its own retail channel. This innovation is the cause of lots of changes within the company. Each store (either retail or wholesale) makes a first order, at the beginning of the selling seasons, considering the entire new collection according to its demand forecast. The head of retail manages the replenishment process, analysing the top seller, the selling capability of the stores and the merchandise available in the central warehouse. In fact, stores are replenished with goods produced before the beginning of the season (based on a forecast), and then stored in a central warehouse. Case 3 sells both apparel and accessories mostly for the diffusion sector. The company has both the retail than the wholesale channels, where is able to replenish goods in season, picking them from a central warehouse. Part of items of the collection can be manufactured again during the season, to be used for replenishment. A merchandise plan during the season supports the replenishment decisions: sell-out is weekly analysed to understand the product trend. The orders of the stores are coordinated: the store manager decides the replenishment quantities of the single store, whereas the district manager coordinates the overall orders, to be sent to the central warehouse. Case 4 is a competitor of Case 1, since it sells the same kind of products in the same fashion segment (apparel in the high fashion segment). Orders depend from several variables, including the typology of store, (e.g. its number of shop windows), geographic area and selling performance. Store managers and buyers takes decision regarding the replenishment process without a structured process, according to the availability of products in the central warehouse composed by substituted items and a portion of overproduction decided before the selling season. Several replacement campaigns are also possible among the owned stores. Case 5 sells leather accessories for the Prêt-à-porter sector. The replenishment process of this company differs from the previous ones, because it is managed locally by boutique managers. They have in fact the responsibility to decide which items to replenish. Items are replenished using merchandise available in the central warehouse. Orders are satisfied using first in first served rule: the first replenishment order arrived at the central warehouse is the first that is satisfied. When there is no more good in the central warehouse, replenishment orders are not satisfied any more. Case 6 sells apparel product and belongs to the high fashion segment. The company owns a small part of flagship stores, taking advantage mostly of the wholesale channel. For each store, a list of “must have” has been decided. Based on it, during the season, the retail manager and the buyer together define whether and how much to replenish. Stores are replenished using good available in the central warehouse. The SC manager, together with the retail manager, may decide to restart the production of some items, if their lead time is compatible with market needs. 978 IJRDM 43,10/11
Case 7 sells high fashion accessories and apparel products for the Prêt-à-porter sector. They do not restart the production during the selling season and replenishment orders are satisfied using overproduction of pre-season or replacement campaigns among the owned stores. Buyers and retail managers use the stores’ sell-out information to monitor trends, to improve the replenishment process and to draw up the merchandise plan for the same season of the next year. Table III summarizes the gathered data. 5. Findings The seven case studies examined allowed us to identify the main characteristics of the sample in order to describe the Italian context and how Italian companies manage the merchandising and replenishment process. With the purpose to obtain comparable descriptions of the different firms, data obtained during the interviews has been organized in defining, as a first step, the typology of product sold by the firm and describing its SC structure. In the following sub-section several variables influencing the replenishment process are presented in order to perform a cross-case analysis and answer to the RQ1. Then, variables influencing the coordination between upstream and downstream SC have been deepened in relationship with the replenishment process, answering to the RQ2. 5.1 The SC in the analysed sample The majority of the firms interviewed manages seasonal product. In fact, the Italian luxury fashion industry is based mostly on two seasonal collections (F/W and S/S); just in two cases the majority of product is basic because of the presence of accessories sold throughout the entire year. This evidence is coherent to the CSF that the firms choose as the most important: time to market and quality. These are two opposed factors because it is not easy to reach, at the same time, the maximum velocity in the market and a superior product quality. Time to market is the most critical time that has to be managed by an organization that seeks to compete successfully in fashion markets (Christopher et al., 2004) and expresses the necessary time for the business to recognize a market opportunity and to translate it into a product to bring on the shelves. An agile SC and an automatized replenishment process may help companies who choose time to market as their CSF to be more efficient and effective. Given this primary information about the firms, the case study research allowed us to investigate the SC structure of the companies interviewed. Even if each firm defines its pipeline according to its needing and strategy, it is possible to describe a generalized SC configuration. During the first interviews, we realized that the players and roles were almost the same in each organization. The upstream SC is represented by the suppliers, who manufacture the merchandise. In fact, by analysing the collected data from the case studies, on average the companies in the sample are not vertically integrated. The consequence in the outsourcing of the manufacturing process is that the suppliers are often really far from the retailing zone (Asia and North Africa). The effect is a long lead time and the difficulty to restart production during the selling season. Consequently, the analysis of the sample reveals that the analysed companies seems to be not strongly integrated with suppliers neither. Coming to the variables related to management of onshore processes, companies tend to avoid strategic alliances with suppliers. A set of central warehouses ensures to stock the end product; then, company-specific rules decide to assign products to retail stores or to the wholesaler. The downstream SC is dominated by the retailer, who sells in his owned stores, and by the wholesaler: both allow 979 Luxury fashion Italian firms
the product to reach the final customer. Warehouses are present both in the central warehouses than in the stores. Additionally, the case studies showed the importance of product development and style in the fashion industry: product design can make the product unique and the customer is really able to recognize it. In the fashion companies, style is the department that mostly influences the downstream SC: during the merchandise planning, managers have to respect the choices of the style department. Therefore, product development is an activity that is not outsourced in the companies interviewed. Instead, production is the most outsourced task in the sample considered: the rationale is that the firms prefer to take advantage of the cheap labour and to retain in house their know-how contained in the ideation and development of the product. RQ1. How do Italian fashion brand owning companies manage the replenishment processes in order to meet customer’s demand? All the interviewed companies perform similarly the merchandise planning process. Interestingly, it is not as structured as literature suggests, nor it is divided into three phases. In fact, all the companies perform it only in pre-season. This might be due also the predominance of seasonal products in the merchandise assortment, and the length of the lead time (always more than two weeks). On the other side, the OTB is not applied in season, in fact it is low in all the cases, but retailers and store managers can resort on the planned (in pre-season) overproduction or transhipment. It should be noted that the cases resorting to overproduction, are those where an OTB is 20 per cent, with the only exception of Case 5 that also operates changes and return among retail stores in order to increase the OTB. The pervasive role of style department in the process, normally used to more qualitative and creative approaches, make standardization of the same process difficult. Their decisions have an impact also on the other departments, which cannot define a budget independently. In the buying teams, the figure of the buyer emerges compared to the planner and the controller. Also the definition of OTB never follows the mathematic formula, but it is indeed treated as the amount of funds that the buying team decides to allocate for a particular SKU or collection. Despite they share the same value of OTB (e.g. Cases 1, 3, 4 and 5 have 20 per cent), the same merchandise planning management approach and same lead time (less than four months), the interviewed companies show different approaches to replenishment. The following main different approaches have been observed: (1) No replenishment, except for transhipment and substitution. This is the case of Cases 2 and 5. Case 5 manages mainly basic products, while updates every year its products with the main trends. In case of transhipment, it up to the store manager and retail manager to ask for the product availability to another store, and then the merchandise is exchanged among the stores. In case of substitution, merchandise is instead requested to the central warehouse. Then a change between different products having the same value is performed. (2) Replenishment through mini collections or replenishment of part of the fashion collection. Case 4 proposes several new mini-collections within the selling season in order to satisfy the needs of a customer more and more exigent. While Cases 3, 6 and 7 are able to replenish stores during the selling season, only with a part of the fashion collection. In these cases, store managers request the “best seller” products to the retail manager. This request is shared with production manager. If it is feasible, then, part of the fashion collection is manufactured again. 980 IJRDM 43,10/11
(3) Replenishment through Mini collections and replenishment of all the fashion collection. Only Case 1 is able to replenish all the fashion collection during the season. As it happens for the case described above, store managers request products to the retail manager. If the demand of replenishment is higher than the availability in the warehouse, the retail manager, together with the production manager, can decide to manufacture the product again within the season. This process can be done for every SKU of the actual season, up to the entire collection. As a result for RQ1 it is possible to observe a general lack of use among the interviewed Italian fashion companies, differently from the experience reported in literature in Australia and USA, of frequent and in season replenishments by small orders. Therefore, it seems there is a difficulty in applying QR approaches in Italian fashion companies. This is exacerbated also by the fact that these companies, as it emerge from the case studies, have to manage a merchandise assortment made up mainly of seasonal and fashion products. RQ2. How do these companies coordinate upstream and downstream SC in the replenishment process? By comparing the different ways of managing the replenishment processes, it can be observed that Case 1 is, differently from the other cases, able to propose mini collections along the selling season and to replenish all the fashion items. The opposite apply for Cases 2 and 5. Seeking to find the variables that might help in understanding such a difference, a comparison between the ways in which the analysed cases coordinate the downstream and upstream SC has been done, by considering upstream and downstream alignment. Additionally to the listed drivers, during the interviews, we observed that a major recurrent topic, outlined by the SC managers and merchandise planners, as a relevant element shaping the replenishment process, is the production restart of fashion collection. This refers to the ability of the company to leverage on suppliers able to manufacture, during the selling season, part of or the whole collection. In particular, four situations apply: (1) None: the company’s suppliers are not able to produce again, during the season, the items of the fashion collection. (2) Replacement campaign: the company does not restart the production during the selling season, but it is able to move products to the stores where they are required. (3) Restart of part of the collection: the suppliers are able to produce again part of the collection. The brand owning company decides to restart just a part of its collection, following the recommendations of the style department. (4) Restart of the entire collection: the suppliers are able to produce again the entire collection during the selling season. By comparing Cases 1, 2 and 4, we noticed that one of the main differences among them is that their ability to follow market trends is limited by both their ability to gather information from the downstream SC (e.g. trends and sales) and their ability to restart the whole collection production. Therefore, we have plotted the case studies in a matrix (see Figure 1) composed of two axes: downstream alignment and production restart of fashion collection. 981 Luxury fashion Italian firms
5.2 Characteristics of cases of “no replenishment, except for transhipment and substitution” Case 5 and 2 are both not able to leverage on production restart and share no or limited information with downstream SC. In fact Case 5 sells mainly basic products, and, differently from all the other cases in the analysed sample, resorts mainly on strong upstream alignment (as strategic alliances with its suppliers), without leveraging on production restart and downstream alignment for following demand. Vice versa, in all the other cases the percentage of basic products is low, and the companies, with different levels, are able to restart production and/or exchange information with downstream SC. Case 2 represents a company that is not fully exploiting the potential of having medium alignment in the SC; at the moment, it controls a small number of owned stores: the retail channel is grown recently. Even if these stores are able to exchange information through advanced systems, there is a lack in the alignment with upstream SC that impedes the firm to restart the production and to manage an in-season planning. In the near future the company will improve its policy to restart the production (moving up in the matrix), given the increasing importance of the retail channel. 5.3 Characteristics of cases of replenishment through mini collections or replenishment of part of the fashion collection Case 3, 4, 6 and 7 are similar in terms of strategies in responding to market needs. Moreover they are trend setter or trend follower companies. Therefore, they either restart part of the collection or only perform replacement campaigns. In particular, Case 6 represents a company that sells a luxury niche product. Its merchandise planning process is not structured and the company owner forces to restart partly the production only based on qualitative considerations. Hence, a high alignment through the SC is not needed. In Case 7, overproduction is used to satisfy the in-season orders. The company takes advantage of wholesale and retail channel. While the first does not Production restart of fashion collection Restart the entire collection Restart part of the collection Replacement campaign None Low Medium High Downstream alignment No replenishment Mini or partial collection replenishment Entire collection replenishment 1 6 3 4 7 Figure 1. 5 2 Matrix alignment/ production restart: the cases analysed 982 IJRDM 43,10/11
manage trans-shipment and production restarting, alignment with the owned stores is leveraged to manage replacement campaign. As for as Case 3, it shows good performance in the organizational activities, such as the possibility to conduct trans-shipment and to manage OTB; however, medium skills in the policy adopted to restart the production correspond to a medium alignment through the SC. Finally, Case 4 is able to successfully follow market trends but it is limited to mini collections and to sporadic replacement campaign, since it shows a lack in advanced communication tools and information exchanged. 5.4 Characteristics of cases of replenishment through mini collections and replenishment of all the fashion collection Case 1 can propose mini collections and replenish all fashion products of the collection leveraging on: the one hand, the ability to restart production of the whole collection resorting on onshore suppliers with which information sharing is high; and on the other, its strong connection with downstream SC, with which Case 1 shares information to plan the production replenishment. For example, the company uses data regarding sell-out per item to decide whether a production restart is necessary. It is interesting to observe that the characteristics of the distribution channel (retail, franchising or wholesale) do not affect the way companies manage the replenishment process. For instance, Case 3 and 7 have the same behaviour of the others, even if they distribute through wholesales. In the same way, companies having the same distribution channel show different behaviour. Summarizing, based on the matrix presented in Figure 2, it can be argued that the companies having a lack in advanced communication tools and information exchanged with downstream SC are not able to restart the production of the entire fashion collection because of the dearth of integration within the SC. On the other hand, despite Production restart of fashion collection Restart the entire collection Restart part of the collection Replacement campaign None Low Medium High Alignment Management by sensation Info shared for production restart Loss of opportunity No info used Figure 2. Matrix alignment/ production restart: four main areas 983 Luxury fashion Italian firms
they do not use AR systems, companies that resort on communication tools with downstream SC, as well as on local suppliers with whom information exchange is high, succeed to manage to replenish the collection during the selling season. 6. Conclusion and further developments In this paper, replenishment strategies of a sample of Italian fashion companies have been investigated. A literature review has been conducted concerning the topics of merchandise planning and replenishment process. Given the results obtained, a case study research has been designed and several interviews have been addressed to retail managers, SC managers, buying teams and ICT managers. It is possible to underline one of the main gap in the literature and how we sought to fill it through our case study research. The papers analysed in the state-of-the-art mostly present cases from Australia and USA. Our sample is composed by Italian fashion firms, that have shown particular features and often unique needs different from the ones already deeply studied in the literature. Furthermore, the merchandise planning process discussed in literature has been presented as a structured process. The companies of our sample behave differently. In fact, most of the planning process is conducted pre-season with an unstructured approach, and OTB is not calculated using the formula. The research has revealed that the replenishment process in not yet automatized, due to the difficulties in aligning processes within the entire SC and to the kind of product sold by the companies. Nevertheless, there are companies able to propose customers mini collections and replenish fashion products during the selling season. These are resorting on a complete alignment along the SC, obtained by strong communication with downstream channels, as well as with upstream local suppliers. In fact, being able to exchange information with downstream SC is by itself not enough: this information should be used to activate upstream SC. In particular, four different situations might happen (see Figure 2): the bottom left area represents the situation of misaligned companies in which information is completely unused. Therefore, companies cannot replenish any item during selling season, but should resort on available stock through overproduction or transhipment, to satisfy demand. In the bottom right area, we find companies that have information regarding downstream SC, but they are not able to use the information. They are not able to communicate with their supplier in order to speed the production process. The opportunities to use information to support the replenishment process are lost. Companies in the upper left are still not able to gather proper information from the downstream SC, but they have understood the importance to restart the production in season and to have strategic alliances with the suppliers. Therefore, replenishment decisions are based on “sensations” coming of the managers. This is unluckily – based on the experience in the sector of the authors – a common situation in the fashion industry: processes are mostly managed by sensation, basing just on qualitative decisions. Finally, the upper right area stands for the context in which information from retailers really supports the decision to restart the production during the selling season. The matrix can support companies in defining in which direction to move to increase their ability to match supply and demand. In fact, companies can find their positioning in the matrix, to have a preliminary insight on their weak points in terms of downstream and upstream alignment. Along the x-axis, they can see whether they need to rethink the replenishment process, leveraging on information sharing with their suppliers and distribution channels or, along the y-axis, whether they need to improve their capability to 984 IJRDM 43,10/11
restart the production within the season. Moreover, we believe that companies might need to improve their ability to perform in-season planning, also by adopting OTB as a quantitative metric. This could improve the overall planning and replenishment processes, supporting the already used qualitative analyses. The present study has also provided implications for researchers, analysing the current situation of the fashion luxury segment in Italy, deepening its SC configuration, criticalities faced in managing replenishment and implementing ARPs that are, instead, adopted in other countries (according to the relevant literature). A further emerging issue is to extend the case study research to other kind of fashion products, in order to understand the different approaches to replenishment deriving from the product typology sold. A research may be conducted in a context of companies, which are able to restart the production in order to understand how much the alignment of processes permits to reach an optimization of the replenishment process. In fact, it is expected that renouncing to offshoring, a major partnership between vendor and retailer might be triggered and the replenishment process may be optimized. The development of tools and algorithms optimizing merchandise planning and OTB management may represent the future research being carried out as a result of this first study. Finally, an investigation of the main KPIs used by the luxury fashion firms may be an interesting insight. In fact, a correlation between an organized replenishment process and the consecutive improvement of performance could be carried out in order to understand the different capabilities linked to strategic choices concerning SC management. References Abernathy, F.H., Dunlop, J.T., Hammon, J.H. and Weil, D. (1999), A Stitch in Time: Lean Retailing and the Transformation of Manufacturing-Lessons from the Apparel and Textile Industries, Oxford University Press, New York, NY. Ait-Alla, A., Teucke, M., Lütjen, M., Beheshti-Kashi, S. and Karimi, H.R. (2014), “Robust production planning in fashion apparel industry under demand uncertainty via conditional value at risk”, Mathematical Problems in Engineering, Vol. 2014, 10pp. doi: 10.1155/2014/901861. Al-Zubaidi, H. and Tyler, D. (2004), “A simulation model of quick response replenishment of seasonal clothing”, International Journal of Retail & Distribution Management, Vol. 32 No. 6, pp. 320-327. Bandinelli, R., d’Avolio, E. and Rinaldi, R. (2012), “On the relationship between the automatic replenishment programs and vendors’ and retailers’ strategies in the fashion luxury industry”, Proceedings of International Conference of Luxury Management, Milan, 3rd-4th, December. Bandinelli, R., Rinaldi, R., Rossi, M. and Terzi, S. (2013), “New product development in the fashion industry: an empirical investigation of Italian firms”, International Journal of Engineering Business Management, Vol. 5, Special Issue: Innovations in Fashion Industry, pp. 1-9. Bhardwaj, V. and Fairhurst, A. (2010),“Fast fashion: response to changes in the fashion industry”, The International Review of Retail, Distribution and Consumer Research, Vol. 20 No. 1, pp. 165-173. Birtwistle, G., Fiorito, S.S. and Moore, C.M. (2006), “Supplier perceptions of quick response systems”, Journal of Enterprise Information Management, Vol. 19 No. 3, pp. 334-345. Bruce, M. and Daly, L. (2006), “Buyer behaviour for fast fashion”, Journal of Fashion Marketing and Management: An International Journal, Vol. 10 No. 3, pp. 329-344. Brun, A. and Castelli, C. (2013), “The nature of luxury: a consumer perspective”, International Journal of Retail & Distribution Management, Vol. 41 Nos 11/12, pp. 823-847. Cachon, G.P. and Swinney, R. (2011), “The value of fast fashion: quick response, enhanced design, and strategic consumer behavior”, Management Science, Vol. 57 No. 4, pp. 778-795. 985 Luxury fashion Italian firms
Caniato, F., Caridi, M. and Moretto, A. (2013), “Dynamic capabilities for fashion-luxury supply chain innovation”, International Journal of Retail & Distribution Management, Vol. 41 Nos 11/12, pp. 940-960. Caridi, M., Crippa, L., Perego, A., Sianesi, A. and Tumino, A. (2010), “Measuring visibility to improve supply chain performance: a quantitative approach”, Benchmarking: An International Journal, Vol. 17 No. 4, pp. 593-615. Castelli, C.M. and Brun, A. (2010), “Alignment of retail channels in the fashion supply chain: an empirical study of Italian fashion retailers”, International Journal of Retail & Distribution Management, Vol. 38 No. 1, pp. 24-44. Christopher, M., Lowson, R. and Peck, H. (2004), “Creating agile supply chains in the fashion industry”, International Journal of Retail & Distribution Management, Vol. 32 No. 8, pp. 367-376. de Leeuw, S. and Fransoo, J. (2009), “Drivers of close supply chain collaboration: one size fits all?”, International Journal of Operations & Production Management, Vol. 29 No. 7, pp. 720-739. Eisenhardt, K.M. (1989), “Building theories from case study research”, The Academy of Management Review, Vol. 14 No. 4, pp. 532-550. Ernst and Whinney (1988), “The quick response advantage”, Apparel Industry Magazine, Vol. 49 No. 8, pp. 94-102. Fernie, J. and Azuma, N. (2004), “The changing nature of Japanese fashion: can quick response improve supply chain efficiency?”, European Journal of Marketing, Vol. 38 No. 7, pp. 790-808. Fiorito, S.S., Giunipero, L.C. and Yan, H. (1998), “Retail buyers’ perceptions of quick response systems”, International Journal of Retail & Distribution Management, Vol. 26 No. 6, pp. 237-246. Goodwin, D.R. (1992), “The open‐to‐buy system and accurate performance measurement”, International Journal of Retail & Distribution Management, Vol. 20 No. 2, pp. 16-23. Hunter, N.A., King, R.E. and Nuttle, H.L. (1996), “Evaluation of traditional and quick‐response retailing procedure by using stochastic simulation model”, Journal of Textile Insitute, Vol. 87 No. 1, pp. 42-55. Iannone, R., Ingenito, A., Martino, G., Miranda, S., Pepe, C. and Riemma, S. (2013), “Merchandise and replenishment planning optimisation for fashion retail”, International Journal of Engineering Business Management, Vol. 5, pp. 1-14. Jacobs, D. (2006), “The promise of demand chain management in fashion”, Journal of Fashion Marketing and Management, Vol. 10 No. 1, pp. 84-96. Ko, E., Kincade, D. and Brown, J.R. (2000), “Impact of business type upon the adoption of quick response technologies – the apparel industry experience”, International Journal of Operations & Production Management, Vol. 20 No. 9, pp. 1093-1111. Kunz, G.I. (2005), Merchandising: Theory, Principles and Practice, Fairchild, New York, NY. McMichael, H., Mackay, D. and Altmann, G. (2000), “Quick response in the Australian TCF industry. A case study of supplier response”, International Journal of Physical Distribution & Logistics Management, Vol. 30 Nos 7/8, pp. 611-626. Mattila, H., King, R. and Ojala, N. (2002), “Retail performance measures for seasonal fashion”, Journal of Fashion Marketing and Management, Vol. 6 No. 4, pp. 340-351. Miles, M. and Huberman, A.M. (1984), Qualitative Data Analysis, Sage Publications, Beverly Hills, CA. Perry, M. and Sohal, A.S. (2001), “Effective quick response practices in a supply chain partnership. An Australian case study”, International Journal of Operations & Production Management, Vol. 21 Nos 5/6, pp. 840-854. Rajaram, K. (2001), “Assortment planning in fashion retailing: methodology, application and analysis”, European Journal of Operational Research, Vol. 129 No. 1, pp. 186-208. 986 IJRDM 43,10/11
Saviolo, S. and Testa, S. (2005), Le imprese del sistema moda. Il management al servizio della creatività, ISBN 88-453-1303-4, Etas Libri, Milan. Şen, A. (2008), “The US fashion industry: a supply chain review”, International Journal of Production Economics, Vol. 114 No. 2, pp. 571-593. Stevenson, M. and Spring, M. (2007), “Flexibility from a supply chain perspective: definition and review”, International Journal of Operations & Production Management, Vol. 27 No. 7, pp. 685-713. van Hoek, R.I., Harrison, A. and Christopher, M. (2001), “Measuring agile capabilities in the supply chain”, International Journal of Operations & Production Management, Vol. 21 Nos 1/2, pp. 126-147. Voss, C., Tsikriktsis, N. and Frohlich, M. (2002), “Case research in operation management”, International Journal of Operations & Production Management, Vol. 22 No. 2, pp. 195-219. Yin, R.K. (1984), Case Study Research: Design and Methods, Sage Publication, Thousand Oaks, CA. Yu, U.J. and Kunz, G.I. (2010), “Financial productivity issues related to assortment diversity and supply chain merchandise replenishment strategies”, Journal of Fashion Marketing and Management: An International Journal, Vol. 14 No. 3, pp. 486-500. Further reading Brun, A., Caniato, F., Caridi, M., Castelli, C., Miragliotta, G., Ronchi, S., Sianesi, A. and Spina, G. (2008), “Logistics and supply chain management in luxury fashion retail: empirical investigation of Italian firms”, International Journal of Production Economics, Vol. 114 No. 2, pp. 554-570. Buzzell, R.D. and Ortmeyer, G. (1995), “Channel partnerships streamline distribution”, Sloan Management Review, Vol. 36 No. 3, pp. 85-96. Daugherty, P.J., Myers, M.B. and Autry, C.W. (1999), “Automatic replenishment programs: an empirical examination”, Journal of Business Logistic, Vol. 20 No. 2, pp. 63-82. Easey, M. (2009), Fashion Marketing, ISBN 978-1-4051-3953-3, John Wiley & Sons, Chichester. Hines, T. and Bruce, M. (2007), Fashion Marketing, Contemporary Issues, ButterworthHeinemann, Oxford, ISBN 978-0-7506-6897-2. Lamberti, L. and Pero, M. (2013), “The supply chain management – marketing interface in product development: an exploratory study”, Business Process Management Journal, Vol. 19 No. 2, pp. 217-244. Leeman, J.J.A. (2010), Supply Chain Management: Fast, Flexible Supply Chains in Manufacturing and Retailing, Institute for Business Process Management, Düsseldorf, ISBN 9 783839 137918. Masson, R., Iosif, L., MacKerron, G. and Fernie, J. (2007), “Managing complexity in agile global fashion industry supply chains”, The International Journal of Logistics Management, Vol. 18 No. 2, pp. 238-254. Waddell, G. (2004), How Fashion Works: Couture, Ready-to-Wear and Mass Production, Blackwell Publishing, Oxford, ISBN 978-0-632-0575-8. Corresponding author Dr Romeo Bandinelli can be contacted at: [email protected] For instructions on how to order reprints of this article, please visit our website: www.emeraldgrouppublishing.com/licensing/reprints.htm Or contact us for further details: [email protected] 987 Luxury fashion Italian firms
Supply chain strategy for companies in the luxury-fashion market Aligning the supply chain towards the critical success factors Cecilia Maria Castelli and Andrea Sianesi Department of Management, Economics and Industrial Engineering, Politecnico di Milano, Milano, Italy Abstract Purpose – The purpose of this paper is to show how it is possible to take into account the objectives that fashion-luxury companies pursue on the final market (i.e. critical success factors (CSF) – of luxury) and propagate them in the upstream steps of the supply chain (SC) in order to understand how the latter can be aligned to the market. Design/methodology/approach – An extensive literature review allowed the identification of SC objectives. Case studies were used in order to asses choices and practices applied along the SC of luxury companies were assessed through in depth case studies; hence, the relationship between choices/practices, SC objectives and luxury CSF was explored. Findings – The paper documents that success in the luxury market not only depends on branding and marketing but also on the choices made along the SC, to the point that it is possible to identify some SC choices and practices that support the achievement of luxury CSF. Research limitations/implications – The results presented represent a useful guideline and offer some methodological suggestions; however, the precise set of SC objectives have to be tailored on each specific brand, according to the uniqueness that characterizes luxury companies. Practical implications – The paper suggests which areas of the SC should be mostly targeted in order to achieve success in the luxury market, also indicating some possible concrete choices. Originality/value – The main value of this paper consists in shaping a first explicit connection among the world of luxury as it is perceived by the consumers and the world of the SC. Keywords Fashion luxury, Fashion supply chain, Luxury critical success factors, Luxury supply chain, Supply chain strategy Paper type Research paper 1. Introduction The luxury goods market, despite a contingent downturn in 2009, grew significantly in the recent years up to 800 B€ in 2013 (Bain & Co. and Fondazione Altagamma, 2013), including 223 B€ of the so called “personal luxury goods” (i.e. apparel, accessories, watches, jewelry; excluding yachts, wine, cars, etc. Bain & Co., 2014). Beyond the discussion about a reliable estimation of the overall luxury market value (Brun and Castelli, 2013), we cannot but acknowledge an exceptional growth in the last decades, even through a period of economic and financial crisis. Actors in this market vary significantly not only from a product nature point of view – producing and selling cars, yachts, wines and spirits, clothing, leather goods, shoes, accessories, watches, jewelry, cosmetics and perfumes – but also in terms of company size, property structure and span of activity in general: although there are dozens of smaller companies, few major brands control most of the business – and many International Journal of Retail & Distribution Management Vol. 43 No. 10/11, 2015 pp. 940-966 © Emerald Group Publishing Limited 0959-0552 DOI 10.1108/IJRDM-07-2014-0106 Received 14 July 2014 Revised 12 December 2014 8 February 2015 Accepted 14 April 2015 The current issue and full text archive of this journal is available on Emerald Insight at: www.emeraldinsight.com/0959-0552.htm 940 IJRDM 43,10/11
of them belong to large groups (such as LVMH, Kering, Richemont) that also extend their business to other market segments, new companies/brands/products frequently enter the market attracted by the dazzling aura surrounding the luxury business. Such continuous growth and the entrance of many successful new players were definitely the result of two parallel evolutionary paths: the increasing relevance of emotional and lifestyle-related experiences in the consumers mind and the efforts that company put in building and enhancing their image through well-structured branding policies. Although a strong commitment in achieving, supporting and sustain an appropriate brand identity is essential in order to achieve success in the luxury market (Keller, 2009), both academics and practitioners recognize that marketing and branding alone cannot guarantee long-term stability anymore (Caniato et al., 2011). The concept of “value” is more and more related to the services that the whole supply chain (SC), from raw materials procurement to the customer experience in the retail store, is able to deliver to the customer. Nueno and Quelch (1998) observe that many factors contribute to success in the luxury industry, from design and communication management to customer service and channel management (Castelli and Brun, 2010). In conclusion, also according to top managers of leading groups, the entire SC appears to be relevant to success in the luxury business, although very few academic contributions are available so far (Brun et al., 2008). Indeed, Caniato et al. (2009) evidenced that there is a gap to fill in the academic literature: on the one side, a quick gaze to luxury companies revealed that the development of SC processes deserves attention from luxury companies’ top management but still no clear paradigms are adopted; one the other side, academic publications dedicated to such context are still limited in number and scope (e.g. Brun and Moretto, 2012, took into account the role of contracts in the jewelry industry; Ponticelli et al., 2013 considered a single industry; D’Amato and Papadimitriou, 2013 dealt with counterfeiting issues) compared to those dedicated to marketing or branding. This paper aims at showing how it is possible to take into account the objectives that luxury companies pursue on the final market (i.e. critical success factors (CSF) – of luxury, listed in Section 2.1.1; see Brun et al., 2008) and propagate them in the upstream steps of the SC in order to understand how the latter can be aligned to the market (i.e. align the choices along the SC towards a results expressed in terms of CSF on the market). 2. Theoretical background 2.1 Preeminence of brand in the luxury market In the past, product’s material features that, together with the excellent (and often “mysterious” at the customers’ eyes) procurement and manufacturing processes to produce them, had traditionally justified the premium price, progressively lost their importance. The wide amount of papers dealing with luxury marketing and branding confirms that these latter topics have been considered as the essence of strategy for successful positioning in the highest market segment. Up to the nineteenth century the term “luxury” was used for indicating products including precious or rare materials or exceptional manufacturing skills. Yet, in the 1860s, Charles Frederick Worth succeeded in linking his name to the style of his clothes (Waddel, 2004), so being considered as the inventor of the brand (Crane, 1997). Along the years, the relevance of brand increased, till in the last decades of the twentieth century it became so relevant that, nowadays, it represents almost the essence for competing in the luxury market, and luxury companies mainly devoted their efforts to promotion of their brands and of their image of exclusivity (Herman, 2008). 941 Supply chain strategy for companies
2.1.1 The age of brands. Throughout the last two decades the luxury industry appeared to emphasize the view that “marketing is everything” (McKenna, 1991) to the point that both academics and market experts refer to “luxury brands” rather than to “luxury products”; Nueno and Quelch (1998) even state that the brand component is not separable by the concept of luxury; Keller (2009) states that “luxury brands are one of the purest examples of branding’s” The brand is actually the milestone on which a certain identity (often translated into a lifestyle concept) can be built and proposed to consumers. Profitability derives not mainly from consumers’ perception of a higher value offered by these goods compared to possible substitutes but on the brand’s image and symbolic values (Reddy and Terblanche, 2005). Currently brands are so relevant that – in the logic of “brand extension” – it happens more frequently that a commodity or a not-so-precious product (e.g. steel jewelry) becomes “luxury” in the consumer’s mind when it carries a luxury brand’s name rather, than a brand achieves a luxury reputation thanks to the preciousness or exclusivity of the material good, e.g. Cartier transferred its brand from jewelry to perfumes and accessories, Louis Vuitton expanded from luggage to clothing. Especially for fashion labels, brand can become the reason for justifying a premium price due to its reputation and to the fact that it provides psychological satisfaction to customers (Aaker, 1991; Davies, 1992), often the preeminent aspects are the emotional and intangible contents conveyed by the brand and expressed through a “complete shopping experience.” Indeed, as explained by Brun and Castelli (2013) the CSF of luxury (hereby listed) include strong experiential components: • consistent delivery of premium quality; • heritage of craftsmanship; • exclusivity pursued through the use of natural or artificial techniques; • marketing approach that combines emotional appeal with product excellence.; • global reputation of the brand, which conveys world-class excellence; • recognizable style and design; • association with a country of origin; • presence of elements of uniqueness; • superior technical performance (continuous innovation can become the way to sustain the product positioning); and • creation of a lifestyle. As success depends on the alignment between substance (material goods) and the image perceived by customers, i.e. brand positioning (Moore and Birtwistle, 2004), a major source of competitive advantage is the degree to which organizations are able to orient their practices towards building the brand and sustaining it over time (Bridson and Evans, 2004); for instance, Gucci’s maximization of internal control with respect to product sourcing, brand communication and distribution was a way to achieve successful re-positioning as a luxury brand (Moore and Fernie, 2004). In the luxury market brands have achieved even further importance as the concept of luxury shifted from possession (ownership or ostentation as a status symbol) 942 IJRDM 43,10/11
to experience (the ultimate aim is improving quality of life), leading to the developing explicit branding strategies as a crucial element of competition (e.g. Ferrari’s leverage waiting list of about 18 months to create a “waiting experience” which fosters the feeling of uniqueness and exclusivity) (Kesner and Walters, 2005). Such strategies aim at creating a solid “brand equity” associated to a “brand image”: typically this requires a set of steps such as choosing a target positioning, defining the brand identity, transform it into visible aspects and in other marketing levers in order to enhance reputation, where brand identity is what a company wants a brand to be, and brand image is what customers and stakeholders perceive. In particular, capturing, maintaining, or increasing market share for luxury products, requires a specific branding/marketing/merchandising strategy. Suggested tactics include correctly targeting narrowly defined segments of potential consumers with the appropriate marketing mix; defining a high brand image coherently with the target pricing level; identifying unmet needs and sales opportunities; using carefully designed packaging; increasing advertising budgets to educate consumers (D’Arpizio et al., 2005; Steinberg, 1998; Summers et al., 2006). 2.1.2 Brand is necessary but not sufficient. Building a strong brand reputation was, in the recent years, the major driver for success in the luxury market (Caniato et al., 2009). Many successful players associated to a worldwide renowned brand are undisputed luxury players since the dawn of the market – mainly coinciding with the so-called Absolute brands (Altagamma, 2008[1]) –, while other companies are relatively newcomers. The latter – starting from their excellent manufacturing abilities or from unique design ideas – worked hard in order to build their brand from nothing and associate a luxury image to their name. In addition, other excellent manufacturers exist which – unfortunately – were not able to keep a luxury positioning in the market because they did not recognize that a building a strong brand reputation was becoming everyday more an inescapable condition. Unless the excellent quality of their products, the use of rare and precious materials, their crafting superiority and the efforts devoted to genuine design improvement, most of these companies struggle to survive or – in the worst cases – are forced to retire. Hence, the first rule for having a chance of success in the luxury market consists in defining a precise and consistent brand image, as well as in devoting continuous attention to keep the luxury positioning (Fionda and Moore, 2009). Indeed, the literature dealing with luxury marketing and luxury branding is extremely profuse. Nonetheless, some negative side-effects of concentrating the efforts on marketing and branding can be traced: as it could be expected, some companies run into the mistake of disregarding almost every other aspect of their business (i.e. many took product related issues for granted). Famous examples of wrong brand extensions are quoted by the academic literature (Reddy and Terblanche, 2005), such as material quality problems, product availability (e.g. the season’s “must” not available in the flagship store), delays in deliveries (e.g. a precious gift delivered after the birthday date), poor service (e.g. bad repairing, customization not available, etc.). 2.1.3 Add more value to the image. Why is it possible to find poor quality products or poor service in the offer of luxury brands? In some cases, it happens because limited span of control is a common feature of the small niche players and, in addition, – despite few companies are willing to admit it – also luxury manufacturers suffer from costs pressure. These are among the possible reasons why they often had to 943 Supply chain strategy for companies
sacrifice “something” on the altar of the brand: in some cases, this “something” was related to quality, material contents or manufacturing and logistics processes. For instance, product assembly was often delegated to outsourcers without providing them the appropriate support for setting up an accurate manufacturing process; in other cases, sourcing was reduced to a standard activity, forgetting that raw materials can represent the milestone for a truly luxury product. But the financial crisis not only added further stress on the costs aspects; it also revealed that – in order to survive market recession – real value has to be delivered to the customer. Despite the overall growth, the luxury business was not immune to the effects of the recent economic downturn. According to Bain, some sectors even entered a recession in 2009 (Bain & Co.[2]), hit by the exchange rate fluctuations and economic turbulence that reduced the confidence of many luxury consumers in mature markets. Despite optimistic general expectations for the coming years (raise in spending by high net worth individuals on luxury goods in emerging markets – including Brazil, Russia, China and India – increasing tourist flows, etc.) and a worldwide spread desire for increasing personal wealth and satisfaction, luxury companies cannot just wait for better times: it is necessary to take some actions in order to survive the crisis and build some elements of success for competing as leaders when a new positive phase will take place. Of course, efforts in building and supporting the desired brand image should not be abandoned. But marketing efforts alone cannot guarantee a long-term stability. Nueno and Quelch (1998) observed that design and communication management is only one of the elements that contribute to the success in the luxury market, together with product line management, customer service management and channel management. Christopher et al. (2007) highlighted that the concept of “value” is more and more related to the services that the SC is able to offer to the customer. Also, market leaders recently suggested to focus on aspects other than marketing and branding and to dedicate renovate attention to the process that lies behind the market-end. Hence, the whole SC appears relevant for success in the luxury market due to its strategic role in the business. However, the academic literature gave scarce attention to this topic. Basically, researchers dealing with the luxury market only took into account marketing and branding issues; similarly, authors dealing with SC strategies rarely took into account the specificity of the luxury market. The present paper, aims at introducing some reflections for exploring what lies beyond the surface of luxury brands, focusing on the fashion component of the luxury market, and describing: • the objectives that can be targeted by SC processes in order to align all the activities towards the CSF of the t market; and • the concrete choices and practices along the SC that can be adopted in order to implement such alignment. 2.1.4 Never break brand promises. No one could deny that achieving the appropriate brand positioning and building its reputation is absolutely a necessary condition for success in the luxury market. Nonetheless, both academics and practitioners now acknowledge the relevance of whatever lies beyond the market surface (e.g. operations and SC), in other words, it is necessary to provide substantive demonstration and delivery of the excellence promises made through the brand (Aaker, 1991). 944 IJRDM 43,10/11
Support to this opinion also came from one the most influential men of the luxury world, Bernanrd Arnault (CEO of the LVMH group), who – at the International Herald Tribune’s Luxury Business Conference in 2007 – declared that “high standards can and must be maintained throughout the SC, from production to distribution in retail stores.” A further eminent opinion comes from François Pinault (CEO of the Kering group) suggesting (International Herald Tribune 2006 Luxury Conference) to re-consider “product” as the fundamental element for competing in the luxury business (i.e. paying more attention to product itself would allow company to focus on the highest end of the luxury market). 2.2 Luxury SCs At this point, it is necessary to deal briefly with two topics that allow completing the framework for further considerations about the SC and the operations processes of fashion-luxury companies: • a short review of the academic contributions dealing with focused SCs (i.e. product and market features influence the correct choices for transforming a set of raw materials into a precise customer experience); and • the specific contributions regarding luxury SCs, in order to provide the base for further steps. 2.2.1 Brief introduction to SCs. A SC can be described as the set of activities that allow the evolution from the initial raw materials to the ultimate consumption of the finished product, passing across suppliers, manufacturers, distributors and companies with other roles (Cox et al., 1995) encompassing “every effort involved in producing and delivering a final product from the supplier’s supplier to the customer’s customer”[3]. Childerhouse et al. (2002) speak of “Demand Chain” in order to highlight the need for customer orientation: “the whole manufacturing and distribution process may be viewed as a sequence of events with one purpose: to serve the ultimate customer.” Some major economic trends, to which luxury companies were not immune, characterized the last decades: globalization of markets; development of potential competitors worldwide; evolution of consumers towards the demand for higher variety, customized products, high quality and high service level. In order not to disperse their efforts, companies often decided to focus on a limited set of core competencies (e.g. Caniato et al., 2011 assessed that in many cases design and collection development are considered as the “core competence” in the luxury industry while manufacturing can be easily delegated): this turned out into a dramatic increase in outsourcing. Therefore, as firms no longer owned the whole set of necessary assets to cover the whole manufacturing and distribution process, the only one to satisfy more demanding and sophisticated customers on the one hand, and, on the other hand, shareholder’s interests consisted in pursuing coordination or collaboration with partners such as suppliers, customers and third party service providers in order to direct efforts towards common objectives. These are some of the reasons why SC management emerged as fundamental in order to remain competitive in a context where most activities are outsourced and the interaction of multiple actors is critical to ensure the delivery of products to the customer (e.g. Stevens, 1989). 2.2.2 One size does not fit all. However, acknowledging that SC management is critical in order to keep the pace of competition on the global markets is not enough. 945 Supply chain strategy for companies
Companies generally have to guarantee profitability and to ensure the delivery of products to customers, satisfying their requirements in terms of functions, quality, variety and service (Stevens, 1989; Li and O’Brien, 2001; Aitken et al., 2003; Holweg, 2005; Demeteret al., 2006); the point is how a precise company, with its peculiar features, could achieve that all. Many authors agree that the right SC strategy corresponds to alignment towards the CSF of the specific product or of the target market. This is among the reasons why the same SC approach is not indifferently suitable in any situation: a strong market orientation is everyday more needed in order to get the alignment to the right CSF. As a consequence, many differences exist among SCs that face different CSF (Fisher, 1997; Frohlich and Dixon, 2001; Schnetzleret al., 2007). The academic literature reports several examples about how industry or product features can influence significantly SC management choices in correspondence to different CSF structures (Caniato et al., 2009; Al-Mudimigh et al., 2004). Several authors have demonstrated such dependence on product/market characteristics: among the most referred authors, Fisher (1997) identified two classes of products, namely functional and innovative, which require different SCs. Functional products match with a physically efficient SC strategy while innovative products match with a market responsive one. Lamming et al. (2000) considered product uniqueness and product complexity as relevant drivers for SC choices; Lee (2002) highlighted the relevance of supply and demand uncertainty. Other authors proposed SC models based on the identification of the dominant CSF (Christopher and Towill, 2002); others addressed as major drivers the following variables: duration of life cycle, lead time, volume, variety and variability (Childerhouse et al., 2002; Vitasek et al., 2003; Cigolini et al., 2004). Lee (2004) defined the so called triple “A” SC (Agility, Alignment, Adaptability): this characteristics are is needed in order to build a competitive and sustainable structure. Despite all the quoted authors highlighted that a one-size-fits-all approach cannot suit and supported this observation through case studies from several industries, none of them took expressly into account the field of luxury goods and its characteristics. Hence, it cannot be taken for granted that the same SC approaches and practices used in the mass market also fit luxury business (Brun et al., 2008). In order to verify the suitability of such models to the luxury world, Caniato et al. (2009) provide a detailed description of these models and how they can be applied to the luxury industry. 3. Research objectives: developing a model for luxury SCs 3.1 State of the art and gaps to be filled Thanks to detailed review of the consolidate models and a comparison of such models to a sample of companies operating in the luxury industry, Caniato et al. (2009, 2011) were able to: • Assess whether the drivers for SC choices proposed by the academic literature are suitable for luxury products. • Assess to what extent they can be used to identify luxury or to distinguish between different luxury types (e.g. uniqueness is a common element for the whole luxury industry; in contrast luxury products can be classified as simple vs complex). • Identify some impacts of such variables on SC choices, both in general and in terms of concrete practices. Table I provides a synthetic view of such results. 946 IJRDM 43,10/11
A major result consists in showing that – instead of insisting on the typical operations objectives such as costs, quality, delivery lead time, flexibility and service level – SC and operations managers of luxury companies explicitly declare that they pursue the typical CSF of luxury[4]. However, the quoted authors actually do not achieve to propose a proper model for managing the SC of luxury companies. Indeed, a luxury product or brand does not necessarily targets the whole list of CSF but only a selected subset of them: hence, each luxury company (with its portfolio of brands and products) will present a very peculiar situation, both in terms of the specific CSF pursued throughout its SC and in terms of the relative importance of each CSF (Brun et al., 2008); often, differences can even lead to the decision of managing separate SCs within the same company (Brun and Castelli, 2008). In addition, especially for fashion-sensitive businesses, luxury brands often act as “trend setters”, so they frequently renovate their offer and their business model in order to prevent commoditization (Castelli et al., 2009). In order to make a step forward, the objective of the research presented in this paper can be described as follows: [y] assessing how it is possible to take into account the specific objectives of luxury companies (expressed in terms of CSF) and propagate them in the upstream steps of the SC, so to align accordingly the configuration and management choices along the SC. Contingent variables Reference model Description Implications for the SC Uniqueness Lamming et al. (2000) Luxury companies pursue product uniqueness among other CSF Luxury companies should protect unique resources along the SC Product complexity Lamming et al. (2000) Luxury products can be complex or simple Luxury companies should differentiate SC choices for complex and simple products Supply profile Lee (2002) Supply profile can be either stable or evolving depending on the product structure Luxury companies should adapt choices along the SC according to supply profile Variety Volumes Waddington et al. (2002) and Childerhouse et al. (2002) Luxury products often are offered in high variety and sold in low volumes Make-to-forecast approach is not suitable for high variety/ low volumes Quality Christopher and Towill (2002) Superior quality is a “must” for competing in the luxury market Luxury companies have to ensure superior quality along the whole SC, both in materials and processes Volume-variability profile Vitasek et al. (2003) Luxury products can present different profiles as regards selling volumes and demand variability Luxury companies should apply different SC choices depending on volumevariability profiles (e.g. differentiate among high luxury and diffusion lines) Market characteristics Lee (2004) Luxury companies explicitly pursue specific CSFs SCs should be aligned towards the appropriate set of luxury CSF Source: Adapted from Caniato et al. (2009) Table I. Relevant SC drivers extracted from consolidated models and their implications 947 Supply chain strategy for companies
3.2 A unique model for a unique business field This peculiar nature of each luxury company leads to formulating the idea that a “unique” approach to SC is required (Castelli et al., 2009): in other words – in line with “uniqueness”, one of the most characterizing features of luxury (Vigneron and Johnson, 2004) – each luxury company represents a “unicum” with its “unique” and characterizing competitive model, consistent in itself, from brand image to SC choices. In order to identify the most correct choices, the path was suggested by Brun et al. (2008) and Caniato et al. (2009): as that luxury companies – either expressly or implicitly – decide for a certain management choice/practice in order to pursue specific luxury CSF, guidelines can be drawn for aligning SC choices towards the CSF of luxury by indicating the most relevant SC objectives to be addressed according to the selected subset of pursued CSF and by providing examples of the corresponding configuration and management choices. In this, a passage is still missing in order to map completely the relationship between a luxury CSF and a configuration/management choice along the SC. Indeed, luxury CSF are defined at a consumers market level, hence the identification of the target set of CSF for a luxury company is not enough for providing operational suggestions for the SC, for the objectives of a SC are typically expressed in terms of performances such as reactivity, efficiency, etc. as detailed in Section 4.1.1. For sure, choices/practices along the SC impact on the performance objectives of the SC. In other words, a certain choice along the SC would impact both in terms on SC objectives and on luxury CSF on the market. The research framework represented in Figure 1 shows explicitly the passages for luxury CSF to SC choices passing through SC objectives. Such framework represents a first – theoretical – contribution of this research. 4. Research steps and methodology In order to pursue the research objective the following research steps were executed: (1) Identification of the theoretical elements included in the framework: • description of the generic SC in terms of processes, according to the academic literature; • identification of typical SC objectives from academic literature; • consolidation of luxury CSF; and • identification of an initial list of SC configuration and management choices, according to the academic literature. (2) In depth case studies within a sample of 34 fashion-luxury brands: • assessment of choices and practices applied along the SC of luxury companies (as semi-structured interviews); • assessment of the link between the mapped choices and the targeted luxury CSF (i.e. the interviewee was explicitly asked to draw/confirm such connection); • assessment of the link between the mapped choices and the targeted SC objectives (i.e. the interviewee was explicitly asked to draw/confirm such connection); and • further exploration of the strategic value of choices along the SC (i.e. each company was asked to look at the list luxury CSF and to name other choices/ practices – in addition to those already mapped – connected to the luxury CSF). 948 IJRDM 43,10/11
4.1 Theoretical elements of the framework The following paragraphs describe in further details the definition of the theoretical elements of the model. 4.1.1 Processes along the SC. A SC can be described in terms of business processes, that represent the way through which products are conceived and flow through manufacturing towards the end consumers. The various actors along the SC take part in these processes; hence they can contribute (positively or negatively) to the alignment of the SC towards the CSF of the market. Several authors proposed their approach for describing the processes within a SC. Among the most referred, Lambert and Cooper (2000) identify eight general business processes, namely, (1) customer relationship management, (2) customer service management, (3), demand management, (4) order fulfillment, (5) manufacturing flow management, (6) procurement, (7) product development and commercialization, (8) returns. Such model was chosen for representing luxury SCs, synthesized and adapted according to the specificities of the luxury business, for which, Nueno and Quelch (1998) suggest preeminent relevance of the following processes: (a) design and communication management, (b) product line management, (c) service management and (d) channel management. Hence, the SC processes analyzed during the case studies are: • customer relationship and service management, integrating items (1), (2) and (8) proposed by Lambert and Cooper (2000) as well as item (a) indicated by Nueno and Quelch (1998); • demand management, including also the “order fulfillment” activities; • manufacturing flow management, including elements of item (b) indicated by Nueno and Quelch (1998); • procurement; and • product development and commercialization including item (d) and elements of item (b) indicated by Nueno and Quelch (1998); Theoretical development Empirical research SC objectives associated to each choice/practice Assessment of choices/practices along the SC of luxury companies Alignment of SC choices/practices towards luxury CSF RESULTS Coherence among SC objectives and luxury CSF Identification of SC objectives Description of SC in terms of processes Identification of luxury CSF Figure 1. Research framework 949 Supply chain strategy for companies
4.1.2 Performance objectives of a SC. A SC pursues a set of objectives in order to be competitive within a certain business context: these objectives are typically revealed by the results on measured. The SCOR[2] model (that claims general suitability in any case, so even to the luxury world, with the appropriate adaptation) represents a good starting point for defining the performance objectives of luxury SC. Other suggestions derive from the literature analyzed by Caniato et al. (2009). The SCOR model presents a very detailed list of performances, grouped into five performance areas (namely: responsiveness, flexibility, costs, asset management, reliability); a brief explanation is provided for each of them, together with further specification that allow better comprehension of the concrete objectives associated: • Responsiveness refers to “the speed at which a SC provides products to the customer.” Speed related aspects are also addressed by Lee (2004) for achieving an “Agile-Adaptive-Aligned” SC. • Flexibility is “the agility of a SC in responding to marketplace changes to gain or maintain competitive advantage.” Lee (2004) refers to the same concept by using the term “adaptability.” • Costs refers to “the overall costs associated with operating a SC.” These represent the costs related to sourcing, manufacturing and distributing the product. • SC Asset Management refers mainly to inventory metrics along the SCOR model. Hence, it is easier to understand it in terms of an “ Inventory Costs” objective for the SC. • Reliability expresses the ability of a SC of “delivering the correct product, to the correct place, at the correct time, in the correct condition and packaging, in the correct quantity, with the correct documentation, to the correct customer.” Given its multifaceted nature, it can be split into three aspects: product quality, traceability and availability[5]. A further SC objective that should be considered specifically by luxury companies is that of “uniqueness,” as suggested by Lamming et al. (2000). Last, all the indications of directing SC efforts towards market satisfaction (i.e. “alignment,” as reported by Lee, 2004) suggest to explicitly state “market orientation” as an objective, so including all the choices that are purposely made in order to be aligned with the luxury market. 4.1.3 CSF for the luxury market and their meaning for SCs. The CSF of the luxury market are listed in section 2.1. According to the Prentice Hall glossary, CSF as those aspects of a strategy that must be achieved in order to successfully meet objectives and, if possible, to secure competitive advantages[6]. Clearly, it is not automatic to derive from luxury CSF the most appropriate choices in terms of SC practices. Indeed, a SC typically addresses objectives such as efficiency or responsiveness (see Table II). For instance, the order winner in the target market can be low price; or it could be the ability of responding quickly to a variable customers demand. This kind of CSF can be easily translated into SC requirements: according to the first example, if the CSF is “low price” the efforts of SC managers should be directed towards cost reduction. Hence, continuing with the example, a coherent choice could be that of delocalizing 950 IJRDM 43,10/11
manufacturing activities in countries with low labor cost. In contrast, it is hard to provide a concrete meaning (in terms of operational practices) when, for instance, the objective for the SC is respecting “brand reputation” as a CSF. The answer does not come so immediately as it happens when the market CSF is “low price.” It is worth noticing that – in the example – “low price” is the CSF on the market, i.e. the requirement expressed (the feature perceived) by the customer; “costs (reduction)” is the explicit objective for the SC; “delocalization” is the consequent choice (one of the possible choices that satisfy the CSF). The relation between CSF on the market and SC choice is not direct: it is mediated by something else, i.e. the SC objective. Hence, in order to understand which choices along the SC (and why) can support alignment towards luxury CSF, it is worth following the same logic, i.e. translating luxury CSF into explicit objectives for the SC. 4.1.4 Configuration and management choices along the SC. The choices made along the SC can contribute to pursuing the selected objectives described in the previous section. Such choices can be roughly classified into two categories: (1) SC configuration choices, that reflect long-term strategic decisions. They include aspects such as: vertical structure of the SC in terms of number of levels (Lambert et al., 1998; Lin and Shaw, 1998); horizontal structure of the SC in terms of number and kind of actors in each level (Lambert et al., 1998; Choi and Hong, 2002); geographical dispersion of the actors – level of globalization; localization of manufacturing plants and other network facilities (Harland et al., 1999; Choi and Hong, 2002; Srai and Gregory, 2008); positioning of the order penetration point (Naylor et al., 1999; Holmstrom et al., 2000; Van Donk, 2001; Olhager, 2003); physical structure of the distribution network (Naylor et al., 1999); ownership level of vertical integration, level of outsourcing (Harland et al., 1999; Srai and Gregory, 2008). For instance, as regards configuration choices, it can be expected that SC length, number and kind of actors, localization, level of integration and decoupling point positioning can influence success in the luxury market with respect to its CSF. (2) SC management choices related to different given configurations (Lamming et al., 2000; Giannakis and Croom, 2004; Bruce et al., 2004; Harland et al., 2004; Christopher et al., 2004). Cigolini et al. (2004), provide an extensive analysis of the literature including a wide variety of management choices. They list the use of the following tools and techniques: JIT[7]; continuous replenishment, VMI[8] SC objective Major references Responsiveness SCOR, Fisher (1997), Waddington et al. (2002) and Lee (2004) Flexibility SCOR, Fisher (1997), Lee (2004) and Cigolini et al. (2004) Product costs SCOR, Fisher (1997) and Christopher and Towill (2002) Inventory costs SCOR, Fisher (1997) and Christopher and Towill (2002) Quality Lamming et al. (2000) and Christopher and Towill (2002) Traceability SCOR, Lamming et al. (2000) and Zokaei and Hines (2007) Availability SCOR, Lee (2004) and Doyle et al. (2006) Uniqueness Lamming et al. (2000) Market orientation Lee (2004) and Zokaei and Hines (2007) Table II. List of suitable objectives for luxury supply chains 951 Supply chain strategy for companies
or CPFR[9]; distribution requirements planning; design for SC management; capacity planning; warehouse network redesign; transportation fleet design; facilities network redesign; level of automation in the stocking points; single, parallel and multiple sourcing; electronic data interchange; vendor rating systems; logistic category management; group purchasing organizations; reserving upstream capacity or stock; reordering policies; business process reengineering; online connections; automated identification systems. 4.2 Case studies in the fashion-luxury market In order to collect all the necessary information for filling in the framework, the methodology of multiple case studies was selected. Indeed case study research results particularly appropriate for empirical analysis which aim at answering “how” and “why” research questions (Yin, 2009). As previous research results (Brun et al., 2008; Caniato et al., 2009) showed that fashion-sensitivity is a relevant source of differentiation when dealing with the SC of luxury companies. Hence, the authors preferred to concentrate on a homogeneous sample from the fashion-impact point of view. The sample included 34 worldwide known fashion-luxury brands, belonging to 18 different groups; the sample included both large and small firms. Table III reports a synthesis of the brands involved in the research, in terms of industry, group turnover and luxury positioning. The companies were selected in order to cover all the three luxury segments (proposed by Altagamma and considered by De Barnier et al., 2012), namely, Absolute, Aspirational and Accessible and were classified in the three segments depending on their price positioning and on the presence of a worldwide renowned brand. The co-existence of extremely high price positioning and world renowned brand allowed positioning as Absolute brands; where price positioning is exclusive but attainable or the brand is not globally renowned, positioning was defined as “Aspirational”; accessible prices or an explicit mission towards accessibility put the companies in the “Accessible” segment: • Absolute luxury brands are characterized by elitism, heritage and uniqueness (e.g. Harry Winston, Hermes). This segment includes the brands historically associated with luxury and manufacturers of precious products that traditionally drove the market. • Aspirational luxury brands achieve their status by being recognizable and distinctive, which are represented by such brands as Gucci and Louis Vuitton. • Accessible luxury brands, are more affordable than their Aspirational “relatives”. A very large number of consumers can purchase brands such as Coach and Hugo Boss, and they typically buy these brands in order to show the ownership of a status symbol or to feel they belong to the “class”. This category of items is largely purchased by middle-class households in Europe and the USA but is also growing in Asia-Pacific (excluding Japan); this suggests that sales growth in the Asia-Pacific region is driven by the high degree of entry-level access to luxury goods. For further details about the Altagamma classification see Brun and Castelli (2013). Information was collected using semi-structured interviews to managers (e.g. general managers, operations managers, SC managers, retail managers) and documentary analysis, focusing on the dominant products and selling channels that – in the opinion of 952 IJRDM 43,10/11
management – were representative of the brand: product features were examined in detail; the main CSF pursued by the company (both luxury CSF, e.g. brand reputation, and traditional ones, e.g. service level) were identified; data about distribution channels and demand were collected (e.g. localization of stores, seasonality of volumes). The main part of the interview focused on the configuration and management choices adopted along the SC: for each of the choices listed by the interviewee, it was possible to explicit both one or more SC objective as well as the CSF that were coherent to that choice. 5. Findings A large amount of data were collected during the case studies, which allowed achieving several results. The following paragraph focus on the first logical part of the framework presented in paragraph 4, i.e. the alignment of SC choices/practices towards luxury CSF (Section 5.2) and the relationship between luxury CSD and SC objectives (Section 5.3). Further results will be presented in forthcoming papers. Group ID Brand ID Luxury type Main products Representative price € Group turnover 2012 (M€) A Brand 01 Accessible Apparel 400 for a woman dress 7,200 A Brand 02 Accessible Apparel 300 for a woman dress 7,200 A Brand 03 Aspirational Apparel 800 for a woman dress 7,200 A Brand 04 Aspirational Apparel 300 for a woman dress 7,200 A Brand 05 Absolute Apparel 2,000 for a woman dress 7,200 B Brand 06 Accessible Jewelry 300 for a steel necklace 750 C Brand 07 Absolute Jewelry 10,000 for a diamond ring 1,100 C Brand 08 Aspirational Leather goods 5,000 for a woman bag 1,100 D Brand 09 Aspirational Leather goods 2,000 for a woman bag 1,500 D Brand 10 Absolute Apparel 2,000 for a woman dress 1,500 E Brand 11 Accessible Apparel 1,500 for a man suite 140 E Brand 12 Aspirational Apparel 3,000 for a man suite 140 E Brand 13 Absolute Apparel on demand 140 E Brand 14 Aspirational Apparel 3,000 for a man suite 140 F Brand 15 Aspirational Jewelry 8,000 for a diamond ring 150 G Brand 16 Accessible Shoes 300 for a pair of shoes 80 G Brand 17 Aspirational Shoes 500 for a pair of shoes 80 H Brand 18 Accessible Leather goods 300 for a woman bag 210 I Brand 19 Absolute Leather goods 5,000 for a woman bag 3,400 J Brand 20 Accessible Apparel 1,500 for a man suite 400 J Brand 21 Aspirational Apparel 3,000 for a man suite 400 K Brand 21 Aspirational Apparel 1,500 for a woman dress 1,800 K Brand 22 Aspirational Apparel 1,000 for a cashmere item 1,800 L Brand 23 Absolute Apparel 3,000 for a woman dress 80 M Brand 24 Accessible Apparel 50 for a swimsuit 25 M Brand 25 Aspirational Apparel 100 for lingerie 25 N Brand 26 Accessible Leather goods 700 for a leather bag 65 O Brand 27 Aspirational Leather goods 2,000 for a woman bag 9,000 O Brand 28 Aspirational Shoes 500 for a pair of shoes 9,000 O Brand 29 Accessible Shoes 300 for a pair of shoes 9,000 P Brand 30 Absolute Jewelry 10,000 for a diamond ring 9,000 P Brand 31 Accessible Jewelry 2,000 for a gold pendant 9,000 Q Brand 32 Aspirational Shoes 500 for a pair of shoes 1,200 J Brand 33 Absolute Apparel 3,000 for a woman dress 400 J Brand 34 Aspirational Apparel 800 for a woman dress 400 Table III. Synthetic view of the brands involved in the case studies 953 Supply chain strategy for companies
5.1 Data systematization and analysis The information collected in the case studies was systematized in order to allow frequency analysis of the data. A database was created that listed all the practices mapped in the case studies and their connection to luxury CSF and SC objective, so obtaining a list of 745 combinations of brand-SC choice-luxury FCS-SC objective. Also, other details – mainly with a classification purpose – were associated to these combinations, such as the luxury type associated to the brand, the company size, the SC process where the SC choice belongs. This allowed classifying the data and extract, from time to time, selected subsets of data characterized by defined features (e.g. “how it is frequent in the sample to register SC choices aimed at increasing exclusivity”). 5.2 CSF supported through the SC The case studies largely confirmed that many choices and practices along the SC are directed towards the creation of a particular CSF on the market: indeed, the interviewees were able to identify both purposely made choices (i.e. choices explicitly driven by the objective of achieving better results compared to a certain luxury CSF) and choices for which the impact on luxury CSF was actually a “by-product” (i.e. decisions derived from other drivers that result connected to luxury CSF). Indeed, as already revealed by Caniato et al. (2011), most of the practices applied in these companies are not luxury-specific nor exclusively meant to pursue the luxury CSF. However, they are explicitly recognized as instrumental for achieving such luxury CSF: the difference between luxury companies and non-luxury companies often does not lie in the kind of choice but in the meaning that a certain choice has compared to the business strategy. Table IV presents the list of luxury CSF that (according to the companies in the sample) resulted more frequently addressed through choices and practices along the SC. In order to ensure correct understanding of the numbers reported in Table IV, a detailed explanation is provided in the following: • Per each case study – as explained in the methodology section – all the SC practices in use were mapped, and per each SC practice the connection with one Pareto class CSF No. of occurrences in the sample % in the sample Cumulate % in the sample A Exclusivity 128 17.2 17.2 Superior quality 123 16.5 33.7 Brand reputation 114 15.3 49.0 Customer satisfaction/ Service levela 89 11.9 60.9 Heritage of craftsmanship 52 7.0 67.9 Country of origin 49 6.6 74.5 Emotional appeal 46 6.2 80.7 B Accessibilitya 39 5.2 85.9 Recognizable design 38 5.1 91.0 Uniqueness 29 3.9 94.9 C Lifestyle 24 3.2 98.1 Technical performances 14 1.9 100.0 Note: a Indicates the CSF emerged from the interviews Table IV. CSF pursued through specific practices/choices along the SC 954 IJRDM 43,10/11
or more luxury CSF was registered (notice that – as can be expected – a same SC practice was often applied by many brands). This way, a long list of 745 couples “SC practice-CSF.” • Per each CSF, the number of lines (i.e occurrences) was counted (i.e. the sum was calculated of the number of SC choices implemented by the different brands and connected to that CSF; for instance, if brand 1 declared that they aim at CSF1 through SC choices A, B and C and brand 2 declared that they aim at CSF1 through SC choices B, D and E, the total number of SC choices connected to that factor, mapped within the sample, is six). The values obtained were then normalized in percentage terms and a Pareto classification was applied, i.e. class A includes the CSF that cumulate 80 percent of the practices mapped in the sample: these can be considered the major drivers for SC choices in fashionluxury companies. Notice that two further CSFs emerged from the interviews in addition to the initial list, namely, “accessibility” and “customer satisfaction/service level”; these additional CSF do not belong to the original list derived by the literature but were added because they emerged as relevant for many companies in the sample. Indeed: • Most of the Accessible luxury brands involved in the case studies declared a set of practices (e.g. delocalization of manufacturing in low cost countries) that could appear in contrast with a luxury positioning; actually, such practices can be coherent with the objective of enlarging the consumers base – typical of the extension towards the Accessible segment. For sure, any luxury brand should be very careful when pursuing this kind of objectives, in order not to risk excessive brand dilution (Reddy et al., 2009). • As regards “customer satisfaction/service level”, the case studies revealed that – compared to previous research works such as Brun et al., 2008 and Caniato et al., 2009 – fashion-luxury companies began to consider “logistic” performances (such as service level) as a relevant element in their relationship with the customers. It is interesting to notice that the Pareto distribution of luxury CSF connected to SC practices/choices changes when stratifying the sample in terms of different “types” of luxury (i.e. Absolute, Aspirational, Accessible), as reported in Figure 2. This figure allows a comparison of the relative relevance of different CSF on the three different luxury segments (e.g. SC practices by Accessible luxury brands are more directed towards creating the CSF “Accessibility” – about 14 percent of the occurences in the sample – than those by Absolute and Aspirational brands – 1 and 3 percent, respectively). The CSF exclusivity has great relevance mainly for Absolute and Aspirational brands, which reveals a concrete effort in providing the factors that characterize luxury (either creating material of informational scarcity (Catry, 2003), not just the scent of it; in contrast, Accessible brands result more committed in pursuing accessibility so to reach that wide segment of consumers that desire to feel involved in a luxury atmosphere but cannot actually afford the expenditure levels required by Aspirational or Absolute brands (Truong et al., 2009). Furthermore, Absolute brands declare that their choices along the SC aim at pursuing the CSF uniqueness much more frequently compared to Aspirational and Accessible ones. The CSF emotional appeal appears to be quite relevant for the overall luxury market. These results look coherent with the positioning on the luxury pyramid. 955 Supply chain strategy for companies
Hence, a clear distinction emerges between Absolute and Accessible brands: • The former are most concerned on “hard” or “objective” luxury elements directing their efforts along the SC towards the creations of superior quality of materials and processes, uniqueness obtained through unique resources along the SC, exclusivity in terms of product and experience. It could be said that Absolute luxury brands are still connected with an historical concept of luxury, despite they were able to renovate their image and offerings across the decades. • The latter are more focused on “soft aspects” such as brand reputation and customer service, and aim at enlarging the customer base by claiming a luxury positioning of their image and by providing higher physical accessibility to their products. Indeed, most of these Accessible brands are new entrants in the luxury market, hence this can also be interpreted as a choice of entering the market with a relatively small investment with the intention of entering more concretely in luxury SC practices in the future. Aspirational brands confirm their role as a mix of Absolute and Accessible characteristics, so confirming that choices along the SC reflect the middle positioning on the marketing side. This observation is also supporting the possibility of evolving in terms of positioning (e.g. from Accessible to Aspirational) by introducing practices in use in the closest segment. 5.3 Relationship between luxury CSF and SC objectives Table V provides an overview of the correspondences – as observed in the sample – between luxury CSF and SC objectives according to the case studies; it also highlights the most frequent relationships. Overall, 722 occurrences were mapped[10] in which the interviewee was able to indicate – beside the luxury CSF targeted by means of the considered practice/choice along the SC – the explicit SC objective pursued through that particular practice/choice. 0.0% Exclusivity Superior Quality Brand reputation Customer satisfaction/Service level Heritage of Craftsmanship Country of Origin Emotional appeal Accessibility Recognizable design Uniqueness Lifestyle Technical performances 5.0% 10.0% 15.0% 20.0% 25.0% Impact of SC choices on luxury CSF (as a % of the occurrences per luxury type) Absolute Accessible Aspirational Figure 2. Impact of SC choices on luxury CSF 956 IJRDM 43,10/11
Quality Market Orientation Uniqueness Availability Traceability Responsiveness Inventory costs Flexibility Product costs Exclusivity 5 18 44 2 24 9 26 128 Superior quality 98 7 1 2 13 1 122 Brand reputation 20 43 10 6 26 6 111 Customer satisfaction/ Service level 1 49 31 8 89 Heritage of craftsmanship 14 7 24 7 52 Country of origin 20 20 2 7 49 Emotional appeal 1 29 6 7 43 Accessibility 18 1 20 39 Recognizable design 15 16 31 Uniqueness 29 29 Lifestyle 9 8 17 Technical performances 9 3 12 176 148 135 84 63 46 26 24 20 722 Table V. Correspondences between luxury CSF and SC objectives 957 Supply chain strategy for companies
Applying a Pareto classification, the A class of SC objectives for luxury companies would include quality, market orientation, uniqueness, availability and traceability. For sure quality, (176 choices across the case studies aim at this SC objective, the most pursued SC objective across the sample) as a synonymous of “excellence,” is a market qualifier for competing in this market: the first requirement for the SC is ensuring the desired level of quality in every step of the processes, either in terms of compliance with defined standards and absence of defects (the same meaning as in “commodity” sectors) and in terms – for instance – of innovative design, selection of procured materials, exceptional manufacturing abilities, on demand logistics or after sales services. All the steps of the SC that potentially impacts of the quality perceived by the customer should be carefully designed and executed in order not to fail in exceeding customer’s expectations. As for the relationship with luxury CSF, quality is mainly related to superior quality and country of origin (indeed, the reputation of a certain country or area is normally connected with the conviction that in that the geographical characteristics of the area or the specific competences of the people allow a superior quality of the products realized). Market orientation reports all those choices – such as localizing the production facilities in Italy, defining a long waiting time for having customized products (e.g. 12 months for a rare leather bag) or collaborating with famous designers in both product development and store design – that in a “commodity” market would be easily considered as unnecessary expenses while, in contrast, represent a fundamental element for making the product/brand so highly desirable (Caniato et al., 2011 would call them “value-added inefficiencies”). Such choices are mostly connected to the “Brand reputation,” “Emotional appeal” and “Country of Origin” CSF, which are probably the hardest to be translated in terms of traditional performance objectives of a SC. Table VI provides the list of the choices/practices that the interviewees indicated as instrumental for market orientation. In particular some SC configuration choices (e.g. made in Italy/France) often do not have a specific measurable result on the brand’s products except legitimating their positioning in the luxury market. It is also worth remarking the importance of Packaging design/selection in providing alignment to the market: in these companies it is not rare that the development and production of packaging has almost the same importance as developing and manufacturing the product. Indeed, packaging is typically branded, is made of particular materials which provide the customers with new sensations and emotions, has a characterizing design which facilitates the involvement in the luxury aura. Uniqueness is actually the principal SC objective characterizing the luxury market and differentiating it from “commodity” sectors: indeed, as already intuited by Lamming et al. (2000), when the product/brand offered claims to be “unique” the SC should necessarily include elements of uniqueness that must be preserved and protected. This objective, as stated in the previous paragraph, is mostly pursued by Absolute brands, mainly through vertical integration choices (e.g. internal design, internal manufacturing – often even for brand extension lines such as cosmetics! – investments in development of manufacturing skills) or strict collaboration practices with suppliers and partners. Availability is also a relevant objective, strongly related to the CSF Customer satisfaction (mainly for Absolute and Aspirational brands) and Accessibility (for Accessible brands): while for the latter its meaning is very similar as in the mass market (i.e. distributing large volumes so to make the product immediately available to the widest possible number of consumers), in contrast, for Absolute and 958 IJRDM 43,10/11
Aspirational brands product availability should mainly reflect a strict alignment with the advertising campaign. In other words, the principle of product scarcity remains valid for creating exclusivity but not for the whole product range: in store stock out must be avoided for the season’s must-have, in order not to disappoint customers seeking for them. In terms of SC management, this implies defining very accurate and selective policies for managing stock in all the points of the logistic network. Finally, traceability reveals relevant especially in order to keep the brand reputation high: indeed, providing complete traceability of the product means making sure some elements on which the purchase is based. On the one side the customer can achieve knowledge about the locations of procurement and manufacturing, about the properties of the materials used or even about the persons that were in charge of that specific order (this happens especially for customized items), so reinforcing the aspects related to superior quality, heritage of craftsmanship, country of origin and exclusivity; on the other side, the originality of the product can be ensured, so allowing the consumer to distinguish original products against counterfeited ones; in addition, implementing traceability along the SC can contribute to highlighting the brand’s efforts in terms of sustainability and corporate social responsibility, topics that are achieving more and more relevance in the recent period (Towers et al., 2013). When stratifying the sample into Accessible, Aspirational and Absolute brands, it emerges that Aspirational brands reflect the configuration of the overall sample, so confirming their average positioning. In contrast significant differences as regards the relevance of SC objectives are observed for Absolute and Accessible brands. Table VII reports the SC Objectives in the A class of Pareto for the three luxury types, also indicating the corresponding luxury CSF. Practices/choices along the SC Occurrences in the sample as an facilitating factor for market orientation Characterization of monobrand stores 31 Made in Italy/France 15 Localization of stores 14 Special packaging 11 Outsourcing in specialized regions/districts 10 Controlled distribution 9 Specialist multibrand retailers 8 Complementary/entry product lines 8 Ensure in store product variety 8 Sourcing from specific countries/districts 6 Central assortment planning 6 Plant as a showcase 5 Corporate social responsibility 3 Secrecy about manufacturing locations 3 Handmaking 2 Outsourcing to specialist companies 1 Design driven SC 1 Controlled distribution – DOS only 1 Use of e-retail 1 Protection of unique resources 1 Co-design 1 Use of ICT coordination tools 1 No intermediaries 1 Table VI. Practices/choices meant to increase market orientation 959 Supply chain strategy for companies
6. Conclusions The present paper belongs to a research stream that deals with the link of SC management with the CSF in the luxury market, which still is an under-explored area because the majority of luxury-related literature focuses on the “brand” and the intangible values conveyed by the brand to the owner (e.g. Fionda and Moore, 2009). In this context, the research presented hereby represents an additional step forward because it provides: • a theoretical model for linking explicitly the typical descriptors of the luxury market (i.e. luxury CSF) with the typical elements considered when dealing with SC management (i.e. performance objective of a SC and SC processes); and • an initial assessment of the concrete meaning that the link between luxury CSF and SC objectives can assume, explaining it by means of a map of SC choices and practices in a sample of fashion-luxury companies. 6.1 Managerial implications: build your own unique SC The scope and results of the overall research to which this paper belongs are much wider than those presented in the previous sections. However, the portion of findings presented in this paper is a sufficient documentation for the direction suggested by Arnault: success in the luxury market does not only depend of efforts in branding and marketing but also on making the most appropriate choices made along the SC, to the point that it is possible to identify which SC choices and practices are aligned with the achievement of specific luxury CSF. In terms of managerial implications, one of the most interesting contributions consists in the method for assessing the alignment between luxury CSF and the SC: observation of reality often can reveal the path, i.e. by observing the practices of successful luxury-fashion companies and interpreting the reasons behind them, it is possible to get suggestions for pursuing the desired CSF on the market. The case studies and the variety of their content confirmed the intuition of Castelli et al. (2009): each luxury company represents a “unicum” with its “unique” and Absolute Aspirational Accessible SC Objective Main CSF SC Objective Main CSF SC Objective Main CSF Uniqueness Exclusivity, uniqueness, heritage of craftsmanship Quality Superior quality Quality Superior quality, brand reputation Quality Superior quality Market orientation Brand reputation, exclusivity, emotional appeal Availability Customer satisfaction Market orientation Brand reputation, emotional appeal Uniqueness Exclusivity, heritage of craftsmanship Market orientation Brand reputation, emotional appeal Traceability Exclusivity, superior quality Availability Customer satisfaction Product costs Accessibility Traceability Exclusivity Responsiveness Customer satisfaction Table VII. Stratification per luxury type of luxury CSF vs SC objectives 960 IJRDM 43,10/11
characterizing competitive model, consistent in itself, from brand image to SC choices. Hence, also due to the continuous evolution of the sector, a general SC model for luxury companies is probably not worth researching, but it is more interesting to find a way for identifying the elements that managers can use and combine in order to build the most suitable SC for the specific targets of the considered brand. Indeed, in order to make the correct decisions, it is important to know the rationale behind the specific linkage between SC choices and luxury CSF; hence, it is necessary – first of all – to well understand the set of CSF that the brand wish to pursue on the market; as a consequence, it is possible: (1) to evaluate the current configuration of the SC, in terms of choices and practices within the different process, so to understand in which aspects it is aligned towards the CSF defined for the market and, in contrast, which aspects are not coherent/need to be revised; and (2) to define explicitly the performance objectives to be pursued by SC processes, and their relative importance, in order to align them towards success on the market. In addition to the method, which is generally valid, some concrete insights were extracted from the operating reality of the fashion-luxury companies involved in the case studies, in terms of which can be the relative relevance of the different CSF for the SC and in terms of possible instances of linkages between luxury CSF and SC objectives: these can be taken as starting point for concretely approaching the management of the SC of a luxury brand. 6.2 Research limitations and future developments The results presented represent a useful guideline and offer some methodological suggestions. However, given the large amount of data collected during the case studies, further results should be organized and presented in following publications; in particular, some highlights regarding the linkage between luxury CSF and SC processes were investigated and would be worth analyzing and discussing. As well, it could be interesting to explore more deeply the differences between the different type of luxury (Absolute, Aspirational and Accessible) and the impact of company size/ presence of a bigger group. The main limitation of the study consists in the missing possibility of claiming generalizability of the detailed findings (e.g. which luxury CSF is linked with which SC objective), because the sample size and its composition do not allow statistical significance. Anyway, they can be kept as reasonable reference points for academics aiming at building further knowledge and for practitioners that wish to evaluate possible choices along the SC of their companies. Clearly, while the research framework and the methodology applied for assessing the links can be applied in general, the detailed findings presented (in Section 5) can be considered reasonable only for the fashion part of the luxury industry: in order to provide insights on the other components of the luxury market (e.g. cars, yachts, etc.) the research should be extended to other sectors. As well, more stratification per product typology within the fashion-luxury market could be advisable, in order to catch the specificities connected to product features. For sure, the topic of SC management in the luxury industry still deserves attention from both practitioner and academics. 961 Supply chain strategy for companies
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Yin, R.K. (2009), Case Study Research: Design and Methods, Sage Publications, Thousand Oaks, CA. Zokaei, K. and Hines, P. (2007), “Achieving consumer focus in supply chains”, International Journal of Logistics and Distribution Management, Vol. 37 No. 3, pp. 223-247. Further reading Antoni, F., Burgelman, R.A. and Meza, P. (2004), “LVMH in 2004: the challenges of strategic integration”, Harvard Business School case. Girod, S.J.G. (2005), “The human resource management practice of retail branding. An ethnography within oxfam trading division”, International Journal of Distribution and Retail Management, Vol. 33 No. 7, pp. 514-530. Kotler, P. (2003), Marketing Management, Prentice Hall, Upper Saddle River, NJ. Corresponding author Dr Cecilia Maria Castelli can be contacted at: [email protected] or cecilia. [email protected] For instructions on how to order reprints of this article, please visit our website: www.emeraldgrouppublishing.com/licensing/reprints.htm Or contact us for further details: [email protected] 966 IJRDM 43,10/11
Parenting advantages of emerging market multinationals (EMNCs) in luxury fashion retailing Huifeng Bai Liverpool Business School, Liverpool John Moores University, Liverpool, UK Weijing He University of Jinan, Jinan, China Jin Shi Saitama University, Saitama, Japan Julie McColl Glasgow Caledonian University, Glasgow, UK, and Christopher Moore New College Lanarkshire, Motherwell, UK Abstract Purpose – This empirical research, adopting an international retailing perspective, aims to examine the parenting advantages offered by emerging market multinationals (EMNCs) in luxury fashion retail sector. Design/methodology/approach – The researchers adopted a qualitative case study, and the qualitative data were collected through ten semi-structured interviews with senior managers. Findings – It is a win–win situation for the EMNCs as parent groups of Western luxury fashion brands, as the EMNCs can access critical assets including advanced brand management expertise, retailing know-how, and the services skills needed for higher income consumers. Meanwhile, the subsidiary brands benefit from a high degree of autonomy, intra-group resource utilisation, a competitive brand portfolio and most importantly economies of scales in the value chain, particularly in production. The perceived risks of EMNCs ownership include potentially restricted autonomy and the uncertainty over corporate development activities in the future, as well as the risks of diluting brand image caused by the inconsistency between country of origin and country of ownership. Research limitations/implications – Very few EMNCs have moved into luxury fashion retailing to date, which means that the sampling frame was small. The findings were generated from China, which is perceived to be of considerable psychic distance in terms of culture and policies compared to other emerging markets that have been heavily influenced by colonialism. Practical implications – This paper suggests that practitioners, particularly EMNCs, support their subsidiary luxury fashion brands through parenting advantages and develop their own high-end fashion brands through internationalisation. Originality/value – This empirical study contributes to the current international retailing literature by offering in depth insights of parenting advantages offered by EMNCs in luxury fashion retailing. It also enriches the EMNC literature, which has mainly adopted an international business scope, by extending this understanding into luxury fashion retailing. Keywords International retailing, Parenting advantages, Emerging market multinationals, Luxury fashion brands, Competitive advantages, Value chain Paper type Research paper 1. Introduction The birth and rapid growth of luxury fashion groups since the 1980s have changed the landscape and structure of the international luxury fashion market (Bai et al., 2018). Indeed, during the past decades, increasing numbers of private luxury fashion brands have been merged and acquired by these conglomerates, including LVMH, Kering, Richemont, as well as numerous medium-sized groups such as Prada, PVH and Tod’s (Donze, 2018). All of these Emerging market multinationals 1 The current issue and full text archive of this journal is available on Emerald Insight at: https://www.emerald.com/insight/0959-0552.htm Received 16 July 2020 Revised 23 July 2020 27 July 2020 14 January 2021 2 March 2021 3 March 2021 Accepted 24 June 2021 International Journal of Retail & Distribution Management Vol. 50 No. 1, 2022 pp. 1-17 © Emerald Publishing Limited 0959-0552 DOI 10.1108/IJRDM-07-2020-0261