The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
More than any other topic, supply chain dominated the fashion industry’s conversations last year, resulting in a record $65.6 billion invested in the space, according to Pitchbook data. That’s up from $38.4 billion in 2020.
The issues plaguing supply chains first arose when online shopping dramatically grew during the pandemic’s first year, catalysing persistent labour shortages, shipping delays and rising costs. More e-commerce sales meant swelling demand for shipping and warehousing, congesting ports and stretching the existing global logistics infrastructure thin. Regional Covid-19 outbreaks led to manufacturing disruptions around the world, and even now as the surge in e-commerce has eased, the Russian invasion of Ukraine is further exacerbating the cost of transportation.
These relentless challenges have kept fashion executives and investors on their feet, resulting in a flux of capital going toward myriad new innovations in the space.
“Disruptions due to Covid just exposed a lot of risks in everyone’s supply chain,” said Andrew Hogenson, logistics specialist and managing director at Infosys Consulting. “A lot of companies were forced to take a step back and say, ‘Wow, we’ve never understood just how many weak spots we had.’”
But solving fashion’s logistics problem isn’t as simple as getting clothes from point A to point B more efficiently. In a mixed online-offline retail landscape, there could be a handful of additional stops between the product manufacturer and the customer’s doorstep. It’s a journey that involves working with dozens of third-party service providers, all with their own systems of communication.
Many logistics start-ups pitch themselves as the answer to making this journey more efficient and satisfactory to the end consumer, whether that’s a warehouse manager, a store employee or a customer. For instance, Flexport, a freight forwarder that helps companies arrange shipping, buying cargo space on behalf of clients and offering them software to connect every component of moving their freight, raised $935 million last month at an $8 billion valuation.
It seems like a simple concept considering that Flexport doesn’t actually own any vessels or trains, but supply chains entail countless touchpoints, many of which remain analogue. Being able to link any of them in one digital interface is worth a 10-digit valuation.
“The industry needs a bit of a facelift,” said Shekar Natarajan, EVP, chief supply chain officer at American Eagle Outfitters. “Commerce started as an interaction, relationships between end consumers and vendors. Now, it’s more digital but the technologies that power commerce are still pretty analogue.”
BoF identified five of the most promising technologies in the sector, from robots that operate in much smaller spaces to a whole new approach to the economy of shipping.
Amazon has long been the frontrunner in automation in retail and fulfilment robotics after their 2012 acquisition of Kiva Systems, but others are catching up.
Smaller robots can now be deployed in micro-fulfilment centres and even the back of big box stores. Autonomous vehicles are also making headway; Starship, a self-driving delivery robot maker, raised $42 million last month.
Automation is one way to decrease the cost of fulfilment, which can account for 18 percent of a retailer’s sales, said Eurie Kim, partner at venture capital firm Forerunner. For instance, Forerunner invested in a startup called Attabotics, which patented a storage system that reduces the necessary floor space in a traditional warehouse by building multiple levels of storage and employing robots that shuffle both horizontally and vertically.
The biggest automation advances have been large, expensive systems designed to run in warehouses the size of multiple football stadiums. Amazon’s robots, for instance, can bring whole shelves to pickers. The next automation wave targets micro-fulfilment centres, typically warehouses under 10,000 square feet in urban areas, and “dark stores,” closed-to-the-public retail spaces that distribute online orders.
Less than 10 percent of micro-fulfilment centres use automation, according to Jordan Berke, founder of Tomorrow Retail Consulting. Outside of venture capital, established companies like Dematic, Swisslog and Alert are all piloting smaller-scale, micro-fulfilment automation, he added.
“The trend we’re seeing is modular technology instead of those large conveyor systems that you typically would see in automated warehousing,” said Neil Shelton, chief strategy officer of GXO Logistics, which operates warehouses of varying sizes. “What we’re seeing is smaller pieces of robots.”
A Bird’s-Eye View and Beyond
One of the biggest supply chain challenges is knowing the what, when and where of each shipment along its journey. In industry-speak, this is known as supply chain visibility, and it’s more complicated than it sounds. A single retailer could be working with dozens of third-party service providers, directly and indirectly, all with their own ways of operating.
The pandemic gave even more relevance to visibility because knowing exactly where your cargo is at any given moment is vital information when disruptions occur, such as congestion at a certain port or a regional outbreak.
Artificial intelligence and machine learning are starting to provide a predictive element that aids decision making. The goal is for retailers and vendors to be able to create a digital model of their supply chain. They can then game out various scenarios by changing variables — testing what would happen if a shipment was rerouted from Long Beach to the East Coast, for example.
This end-to-end “digital twin” model isn’t on the market yet, but companies can tap into this concept. Project44, which raised $420 million in January at a $2.2 billion valuation, offers a “crisis tracker” that monitors international situations, such as the Russian invasion of Ukraine, for their impact on transportation. Google Cloud’s recently launched Supply Chain Twin service allows retail users to pool supply chain data from various sources, including their own suppliers and weather services, in order to make informed decisions across the system.
So far, a complete end-to-end supply chain visibility product with predictive analytics does not exist, according to Hogenson. “This single digital twin product is being built, but no one has done it yet,” he said.
As UPS, FedEx and other major carriers raise prices amid surging demand, new services are pitching themselves as potential alternatives to get packages the “last mile” to customers’ doors. Delivery start-up Veho uses an Uber-like model for e-commerce packages, working with retailers to provide next-day delivery with its own fleet of drivers and vehicles. Veho raised $170 million in February at a $1.5 billion valuation, attracting investors including SoftBank and Tiger Global.
While Veho has its own cars, Swyft aggregates existing delivery options, from DoorDash to UPS to independent courier services. By getting multiple retail clients together on the same route, Swyft can dramatically lower the cost of delivery, according to Kim. Bringg, another parcel delivery company, combines third-party courier options with its own fleet of vehicles.
Being able to offer two-day or even same-day delivery is a huge advantage for retailers and brands competing against Amazon, said Kim, who led Forerunner’s investment in Swyft’s $17.5 million funding round last April.
“There’s so much more diversification in the delivery industry today,” said Berke. By working with companies like Swyft and Bringg, retailers are able to select the “lowest cost, highest service level” delivery for each individual online transaction, he added. As a result, customers are satisfied and profits climb too.
As many as 30 percent of all apparel purchases are returned, logistics experts say, adding another headache for retailers already struggling with transportation costs. The stakes are particularly high: one bad return experience could lose a shopper forever.
“Most retail supply chains are a one-way street,” said Rod Sides, leader of Deloitte’s retail and distribution practice. “They’re not designed to take back returns … [but] we are seeing a ton of innovation right now in companies trying to own that first mile back.”
Happy Returns, which was acquired by PayPal last year, provides e-commerce retailers physical drop-off points for returns. Optoro and ReverseLogix streamline the returns process for customers by automating shipping labels and QR codes, as well as shipment tracking.
Traditional logistics firms are also developing their returns capabilities. GXO Logistics, which spun off from trucking giant XPO Logistics last year, uses automated sorting lines and specialised product barcode readers that categorise whether a product is ready for inspection back at the warehouse, is damaged or ready to return to retail.
The most promising innovation in supply chain is the most difficult one to pull off: a complete overhaul of how the vast majority of retailers approach logistics. Today, each brand or vendor’s own supply chain exists in a silo; even when they work with 3PLs that leverage scale, most shipments aren’t optimised for efficiency.
This is because all retailers are competing with the same set of limited resources — labour, containers, warehouse space, etc. — without any kind of collaboration or communication. American Eagle’s Natarajan calls this a “strategic dead end.”
“The costs of labour and the costs of real estate are rising,” he said. “If the two levers of your experiences continue to rise, the only way to optimise is to … partner with others.”
Natarajan imagines an open network supply chain system, where thousands of retailers and 3PLs band together to pool their data and capacity.
American Eagle Outfitters acquired 3PL company Quiet Logistics and and Airterra, a parcel shipping company, Airterra within a four-month span last year, signalling a shift in how traditional retailers prioritise their supply chains, favouring ownership and control over outsourcing the services.
Already, AEO’s Quiet Logistics and Airterra have combined their respective third-party retail clients with the retail giant’s own supply chain. As a result, every party can share and optimise components like distribution centre floor space, the number of shipments, delivery routes and more. For instance, American Eagle and the 70 other retailers that work with its logistics subsidiaries can pool packages headed to the same market or even the same customer with fewer shipments than if they operated independently — it’s the same principle that powers the Swyfts of the world, except it covers the entire supply chain journey.
“The best way to compete in the world is not to make scarcity even scarcer,” Natarajan said. “In an open sharing model, every participant add values through physical assets or relationships.”