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Valuable on the Ground Insights from Edward Hertzman

posted by Professor Marie Driscoll, CFA

Speaking at the Retail Marketing Society meeting on March 8 was Edward Hertzman, founder of Hertzman Media Group/Sourcing Journal, who provided insight from his unique blended vantage point of part media, part global sourcing consultant on "Sourcing in the New World Order."

Hertzmen.jpgStarting with a stock market valuation perspective, Hertzman suggested holding shares of Nike, UnderArmour, and Adidas as well as off-price retailers and shorting the rest of traditional brick and mortar retail. Looking at a sample of 39 retailers, 37 have declined in value in the last three years.

In 2017, retail headlines have been a litany of bankruptcies, store closures, and layoffs. This is the tip of the iceberg according to Hertzman, and its only going to get worse. New companies are popping up daily funded with venture capital and capturing share from traditional brick and mortar retailers. In the aggregate, these small startups are significant and are "killing the big guys and what will emerge is the few and the new," Hertzman quipped.

But people will still be wearing clothes, and in the four retail channels/segments: off-price is on fire, online is growing double digits, fast fashion is growing, and warehouse clubs are huge.

Difficult to uncover poor sourcing,  but  sourcing practices with price paramount has created an anti-speed to the market paradigm where everything can go wrong. There are problems with supply chain in ove- processed organizations--too many people involved in the decisions, which slows down the supply chain at a time when fast supply chains are a competitive advantage and mitigate markdowns and inventory obsolescence. In the U.S., there's also a lack of healthy competition with retailers that have inhouse sourcing organizations. This is a built-in bias Hertzman doesn't see with European retailers.

Hertzman's advice:

1) Stop shopping for cheaper sourcing, it is a race to the bottom.

2) Stop trying to be like Zara; fast fashion and speed to market are two different things, focus on speed to market. We are over-processed and need to change how we do our business.

3) Source closer to home in smaller units,  more SKUs allowing a faster turnaround with lower inventory commitments.

4) Utilize big data to know what your customers want. Get the information to the factory in real time.