The strain of COVID on retailers – how vertical integration gives companies resilience

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The strain of covid on retailers

While the 2020-21 COVID 19 pandemic hasn’t been much fun, it has given us all the chance to re-evaluate our working methods and find new ways to succeed in challenging times. Despite considerable challenges in the past year, the light at the end of the tunnel is fast approaching. As the wheels of our economy start turning again, we have a unique opportunity to ensure better growth and future resilience.

The crisis played out like a horror movie: sudden store closures, nationwide lockdowns, disruptions to suppliers and shipping companies, border closures, and the instantaneous grounding of flights.

A temporary disruption like this would have been bad enough, but the long duration and repeated nature of the disruption to normal trading has brought unprecedented challenges to businesses of all kinds – especially for the Fashion and Apparel industry. However, some business models have been much better able to weather this storm, across all sectors. There are even several examples of businesses that have thrived during these challenging times.

One sector to noticeably benefit from the pandemic was the Food and Grocery sector. Growth was actually seen in this area, and most especially in the online segment – for those supermarkets that provided home delivery.

This is probably no surprise (people always need food, right?), but almost all businesses with some degree of vertical integration did much better than those without. Coincidence? Probably not. Vertically-integrated companies are structurally better-adapted to handle adverse conditions. They also have major advantages in ‘regular’ trading periods too. Yet, many Fashion, Apparel, and Sportswear brands and retailers are still behind the curve in adopting more vertical business models.

vertical integration

A dismal failure of forecasting

Fashion retail has been one of the worst-affected due to highly seasonal and trend-driven stock, and the inability to keep stock moving or recoup invested capital when entire seasons were wiped out. Without clarity about when business would ‘return to normal’, it has not been possible to adequately plan for future seasonal lines either.

Businesses relying on demand forecasting have been simply unable to manoeuvre around this obstacle. In contrast, vertically integrated businesses have a greater capacity for agility and are more able to adjust the entire supply process to accommodate a sudden change in demand. These businesses have had the added advantage of limiting losses via a diminished stock risk.

The best outcomes can be expected from physical stores that can also do distribution. In this case they have greater ownership of the ‘last mile’ of the supply process, and are not as reliant on third parties for ensuring continuity. This is the one simple reason supermarkets and other stores that deliver have been a big winner during the pandemic period.

Succeeding in the face of adversity

Whatever the ‘disaster’, some businesses will always do much better than others due to differences in vulnerabilities. Some will perform much worse. The worst-hit this time have certainly been brick and mortar-only retailers, who had no other way of distributing goods when they had to close their doors.

Online retailers and physical stores with an online shop were able to continue trading, but only within the limits of their capacity. The best outcomes have been consistently seen in vertically integrated companies, which are more resilient and cope better in difficult trading periods. These models are able to maintain some degree of distribution, and also modulate their supply to limit losses.

Vertically integrated companies are intrinsically more able to adapt and capitalise on new opportunities. Close control of the design and manufacturing process can enable more agile processes that cater for quick turnarounds or changes in demand. These companies have a greater level of control over the whole supply and distribution process, and this means they can cope better when the business environment changes.

A vertically integrated supply chain can therefore respond quickly to changes and limit losses, while giving potential to expand rapidly in areas where demand is still strong.

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How Retailisation enables collaborative action in vertical businesses

The biggest factor in achieving success as a vertical business is ensuring the smooth flow of information from all parts and the translation of this data into coordinated and meaningful actions. While many companies create custom IT solutions to achieve this, the Retailisation software can work with any business model. It can realise a high level of business intelligence and coordination, with some very attractive benefits for companies that are expanding vertically.

The software is designed to bring together and process information from multiple sources, giving an overview of the entire company. It is perfect for companies that operate Omni-channel or online sales, but also Brick-and-Mortar only companies or those looking to expand, because it can bring together different data sources into one seamless overview. Inventory levels are available with multiple filters, and the smart algorithm works together with pre-defined thresholds to generate the right order – every time. Replenishment and reallocation options are also just a few clicks away. 

The software’s perspective encompasses the entire operation, and not just each department – this helps to ensure collaborative working across the entire chain with clearly-aligned objectives.  Detailed metrics and reports clearly identify areas for improvement, and the system feeds back real-time sales data which can inform supply decisions further back along the chain.

Information is the lifeblood of a vertically integrated company – and the Retailisation software is a big part of keeping both information – and inventory – flowing in the right direction.

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