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Why apparel retailers and brands really need to get to grips with their cost-to-serve

Date: November 08, 2016

Category: Opinion piece


Author: Gary Lynch

Gary Lynch CEO GS1 UKGary Lynch, CEO at GS1 UK, looks at our recent research into the apparel sector, which asks some challenging questions for retailers and brands about decreasing margins

We recently published a new white paper, ‘Where did your profitability go? Managing the apparel omnichannel cost-to-serve’, to great interest from the sector. We joined forces with LCP Consulting and Cranfield School of Management and together we held a compelling launch event – with over 30 leading figures from the apparel sector attending and participating in what turned out to be a lively debate.

The paper digs deep beneath the surface of the omnichannel supply chain, and forces retailers and brands to ask themselves some key questions that will really help them understand where and how profit is made – or lost:

  • What happens if I can’t identify the main drivers of cost across my business?
  • How do I balance my customer proposition versus the need to maintain margin?

Understanding the customer is of course critical to commercial success. But understanding how much it costs to serve these customers, with every product and every channel, is equally important. It’s the companies who do this really well who will truly reap the benefits of the growing online market – and who will achieve sustainable growth. But it’s incredible to learn just how few companies can really identify their cost-to-serve – and if you can’t understand it, well, it’s a bit like flying in the dark.

Simon Ratcliffe, Sourcing & Supply Chain Director at Fat Face Limited and Terry Murphy, Director, National Distribution Centre Operations at John Lewis

Two expert practitioners joined our panel at the launch event; Simon Ratcliffe, Sourcing & Supply Chain Director at Fat Face Limited (above left) and Terry Murphy, Director, National Distribution Centre Operations at John Lewis (above right). Together they added even more valuable insight to the debate.

Customers are fundamentally changing their shopping habits – so we now all need to make conscious decisions about what we do is always right for them and their ever changing behaviours.”

Terry Murphy

Simon Ratcliffe agreed: “You just need to know your customers really well – better than anyone else – and then make your pitch. Don’t be everything to everybody, as it’s differentiation that will determine your success.” 

Indeed, in our research, which is the result of an eight-month programme involving interviews with leading retailers and brands, we found that it’s all about understanding what your customers want and how you can better serve them via all the different channels that are now available. But when you don’t know how much it can actually cost you to give your customers what they want, it can turn very tricky, very quickly. And for this reason, we’ve seen many apparel retailers’ profits falling despite their rising sales.

Value added

All our panellists agreed that very few businesses actually know the cost per unit per fulfilment channel. They’ve spent years developing infrastructures to support the movement of their products from warehouses to stores, but now faced with the reality of omnichannel shopping, the supply chain capabilities needed to fulfil different channels are being bolted on to fulfil customer promises. And as a result it’s increasingly difficult to differentiate their costs by channel.

The good news is that as the UK apparel industry embraces omnichannel retailing – and also increasingly looks to the bigger global market – there’s an increased uptake of GS1 standards. This helps them understand and effectively manage the cost-to-serve in order to boost profitability. Our paper reinforces this by highlighting that the application of GS1 standards can result in 20-30% savings in operational costs.

It’s clear that this is an issue that’s not going to be solved across the industry anytime soon. So we’ll continue to work closely with our apparel members, to help them understand and manage their cost-to-serve, so they can benefit from the quantifiable cost and time savings that can be achieved. Only by doing this, can they truly meet the demands of omnichannel shoppers and maintain sustainable profits for the future.

Read the cost-to-serve findings
Cost to serve

Cost-to-serve

Knowing where costs build in the supply chain is key for ensuring profitability