It’s fashion week in New York. I know this not because I really care about haute couture but because it seems the only things either the Times or the Journal care to write about this week. The latter at least has managed to come up with an interesting story on how British fashion house Burberry is altering its distribution strategy and how it has had to realign its operations to support that shift (Off the Catwalk, Burberry Gets a Makeover, Sept 9). Burberry is moving to sell more directly to customers, part of a general trend in luxury goods.
High-fashion labels have long relied on wholesalers, franchisees or licensing partners to handle much of their sales. But Burberry wants to become a more retail-focused business, selling more merchandise directly to customers via the Internet and its own growing network of stores. To do that it must overcome the inefficiency common in the luxury-fashion industry, where slow manufacturing and late deliveries have long been the norm.
To date the shift has been fairly significant. The article reports that 46% of Burberry’s 2006 revenue came from wholesalers. Last year, only 34% came from wholesalers. The shift away from being primarily a wholesale business promises greater margins since you have eliminated a player as well as greater consumer insight. Presumably, if more and more of Burberry’s customers come through their own stores and web site, they can see what consumers are searching for, what products they are comparing, and who experiences a stock out.
That all sounds good, but what’s the catch? What would Burberry be giving up? One answer is a layer of inventory. If wholesalers carry inventory (particularly for staples like Burberry’s classic trench coat), Burberry has a buffer between its production and swings in the market. Inventory can cover up a lot of flaws. Removing wholesaler inventory means Bruberry needs to be faster and more reliable in filling orders. They have taken a number of steps to make this happen. Many have focused on its logistics and production partners.
[COO Andy] Janowski has since pruned Burberry’s list of manufacturing partners from 300 to 90, reduced a ragtag array of 26 warehouses to three global distribution hubs and whittled 31 different transportation carriers down to three. The company has invested £50 million in new technology systems, and has started connecting its designers and manufacturers on Skype to save time determining the fit of new designs. “There has been a whole element of cleanup,” says Mr. Janowski, an American who speaks Italian and has spent much of his life dealing with apparel factories.
These changes seem fairly straightforward. They should allow Burberry to exploit economies of scale and take inventory (and hence time) out of the supply chain.
It has also changed shop floor operations in the production facilities it owns. It has consolidated its UK production in one factory in Castleford. It is here that it makes its famous trench coat.
Castleford is at the heart of that transition. Burberry consolidated its owned manufacturing operations here in 2009. It reorganized production methods on the factory floor and replaced management, with efficiency being a key goal. There are now six sewing lines, instead of one, and graveyard shifts power the factory through the night. These changes, along with broader consolidation, have lowered the average cost of making a garment at Castleford by 10% to 15% from two years ago, and most deliveries are on time, as opposed to as many as three months late.
From this brief description, it sounds like they have tried to move toward lean operations. I suspect that what a report calls six sewing lines, the plant manager calls six cells. Given that Burberry will always offer trench coats, cells would seem a good solution. The day-to-day shipments of styles and sizes might fluctuate but I suspect that overall demand is fairly stable and moving as much as possible to a flow arrangement would be a powerful way to reduce costs and time.