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Zara Unveils a Strategy to Embrace and Integrate Physical and Online Presence


Many analysts and academics in our supply chain world often point to Inditex SA and its fashion and apparel retail brand Zara as the iconic benchmark in retail supply chain agility. It seems that despite the many iteration of retail apparel industry challenges, this fast fashion focused retailer continues to demonstrate a resiliency to changing economic conditions or online buying trends.  Today, Zara is cited as the world’s largest fashion retailer.  121202_ZR_460 Oxford_Shooting

It should therefore be no surprise that Zara continues to provide the content basis for many business case studies related to demonstrating a and industry-leading systemic integration of fashion retail business strategy with consistently admired agile supply chain response practices.

Thus, retail supply chain industry focused readers should take note to last week’s unveiling of Zara’s newest flagship store in the retailer’s hometown of La Coruna Spain. The store, sized at 54,000-square-feet and spanning over five stories, will replace five other existing smaller footprint stores, and will reportedly serve as the model for Zara flagships around the globe. The apparel retailer is now transitioning to a new strategy to meet the challenge of the Omni-channel focused online fashion consumer.

In a press conference held last week, Inditex Chairman Pablo Isla declared that Inditex seeks “full integration of the brick-and-mortar stores and online businesses, with store openings that are increasingly more relevant.” According to a published report by The Wall Street Journal, the 2017 strategy calls for the opening of between 450-500 new larger retail stores that will merchandise a full range of apparel, while consolidating 150-200 existing smaller sized stores.

The larger stores are being designed to allow consumers the opportunity to browse broader fashion and apparel offerings while also embracing online capabilities, allowing the ability for shoppers to either buy in-store or order online with the assistance of sales clerks. Online order pickup or return of purchases can be exercised at the retail store as-well.

Despite a rather difficult year in retail, this retailer’s latest report of financial performance established a new record of nearly $25 billion in revenues with a 10 increase in profitability.

As noted in our 2017 industry-specific predictions for the retail industry, we observed that the implications of permanent reductions in physical foot traffic have taken a toll on traditional mall-based retailers and department stores. While well-known broad-line retailers such as Macys are undertaking additional store closings, Zara once again has a different strategy emphasizing larger, more integrated stores to appeal to the Omni-channel consumer, supported by one of the retail industry’s most responsive supply chain response capabilities.  As noted in our prediction, the physical retail store is now the virtual online store, and that brick and mortar stores are the one advantage that differentiates retailers in their ability to offer more timely fashion from that of Amazon and Alibaba.

Obviously, consumers will be the ultimate determinant for the success of Zara’s new strategy.  A successful record of accomplishment up to now provides evidence leaning toward success.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

Reality Acknowledged- Amazon is a Transportation and Logistics Provider


If readers have been keeping-up with our prior blog commentaries as well as prior predictions related to Amazon, this week’s announcement should not be of any surprise.  fba_sized

That announcement is that Amazon will soon deploy a set of transportation and logistics services to allow China based manufacturers and sellers to ship their inventories of products to global destinations utilizing ocean container, air freight, or inter-modal mechanisms.  Mainstream media outlets are now running with the story byline that Amazon is now becoming a direct competition with that of FedEx, DHL, and UPS in certain segments.  This blog made that prediction in late 2015, and market realities for this new industry disruptor are now beginning to sink in.

The Amazon Logistics web site indicates that Chinese customers who are B2C sellers on the Fulfilled by Amazon platform, as well as B2B sellers to other businesses can arrange pickups, line-haul transportation, export, and import, as well as warehousing with Amazon Logistics. Primary destinations being supported include the United States, Japan, and Europe.

In a Supply Chain Matters blog commentary in October 2015, this Editor noted: “A final note: Yes, there are realities that nationwide parcel delivery networks require large asset investments, but disruptors such as Amazon, Google, Lyft and Uber strive to challenge any status-quo. From this author’s view: The door is now open for alternatives” In December of that year, we shared other evidence of the online retailer’s unfolding expansion of customer fulfillment capabilities.

Because this is indeed Amazon, there is little doubt that Amazon Logistics services will be accompanied by lots of advanced technology, and that is the other wake-up call, for current third-party logistics providers (3PL’s) who will now have to deal with competition from Amazon in certain segments. Today’s reporting by The Wall Street Journal quotes a logistics services firm executive as indicating: “You can’t just put your head in the sand and pretend that change is not going to come.” Obviously, well stated.

Within our 2017 Predictions for Industry and Global Supply Chains, (Available for complimentary downloading in our Research Center) we called for even more transportation industry global turbulence. Already, are reports indicating that ocean container transport spot rates are spiking once again in certain lane segments, while 3PL’s are raising rates and services fees as-well. Ocean container shipping line leader Maersk Line has announced plans to offer broader logistics services for land transport and offer augmented services for shipping customers, potentially disrupting existing transport broker services models. As opined in a prior guest point-of-view posting from SimpliShip co-founder Cory Margand, new technology entrants are offering SaaS (Software-as-a-Service) technology and marketplace opportunities as a means for both the customer and the broker to create more efficient solutions for transportation and logistics needs that large as well as smaller businesses and shippers can take advantage of. There is the reminder that historically, both carriers and brokers have a more than outdated tech infrastructure especially from the customer’s perspective, with heavy reliance on static databases, EDI, or email/phone calls.

Rest assured, Amazon is not the only disruptor since Alibaba, Flipkart and others are well on their journeys to offer more shipper and customer-centric logistics, financial and B2C/B2B customer fulfillment services enabled by advanced technology and smarter data.

A traditional industry segment is once again undergoing forces of disruption, with more to come.

Pay close attention, be prepared and continue do your homework.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

Updated Research Advisory- The New Phase of Online and Omni-Channel Customer Fulfillment


From time-to-time as developments warrant throughout the year, we have published various succinct but brief research advisories to clients and blog readers focused on specific industry, line-of-business, functional or technology trending that warrant specific attention for both management teams and supply chain management professionals.  hands-typing-4

There have been several phases related to the ongoing explosion of online commerce and its impact on traditional retail and B2C focused industry supply chains. In August of 2016, we published the research advisory: The Beginning of a New Phase of Online and Omni-Channel Fulfillment for B2C and Retail Supply Chains, where we cited the beginning of the newest phase, namely impacting the long-term presence of brick and mortar retail and the accelerated need for more agility from supporting supply chains.

Our August 2016 Advisory outlined the tenets and impacts for the beginning of a new phase of an omni-channel driven retail business model. With the increasing results and implications from traditional retailers throughout 2016, we have now updated our advisory to reflect evidence that indeed, a new phase is underway and comes with many implications for the industry’s supply chains.

Consumer preferences and desires have permanently changed in retail, and online platforms and consumer loyalty programs such as that of Amazon are rapidly garnering consumer loyalty and dependence.

Supply Chain Matters and Ferrari Consulting and Research Group clients can now download our updated March 2017 advisory: The New Phase of Online and Omni-channel Fulfillment for B2C and Retail Supply Chains. This report is now available for complimentary downloading in our Research Center by providing basic user registration information.

We reiterate that all research download information is utilized solely for our internal tracking needs and will not be sold or made available to third parties.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

Report that Alibaba Has Taken Majority Control of India’s Paytm


One of our 2017 Predictions for Industry and Global Supply Chains called for Amazon and Alibaba to continue to position for global online platform dominance, and we further predicted that both would remain cautious to perceptions of outright head-to-head competition. We concurred with Asia based business observers that one of the primary battle grounds this year will be India and Southeast Asia.  Alibaba_sized

Today, Business Standard indicates that Alibaba has taken a reported 60 percent control of India’s E-commerce platform provider Paytm. While this online platform provider has not acknowledged such an investment, Business Standard cites documents submitted to India’s registrar of companies as indicating that Alibaba will invest $177 million in Paytm, while SAIF partners will invest an additional $23 million. According to this report, the investment puts Alibaba closer to a formal entry into India’s expanding online marketplace and could cause additional competition for existing online players, Flipkart, Snapdeal and Amazon India.

This investment comes nearly a year after Alibaba initiated a controlling stake in Lazada, an online marketplace for Southeast Asia.

The report further notes: “With Alibaba committing to India with more funds, it could be a straight war between Amazon and the Chinese company.”

Further reported was that this week, Paytm launched its Paytm Mall which features over 140,000 sellers which is a similar concept to Alibaba’s Tmall in China.

The stakes are indeed high and the investment money is obviously flowing.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Amazon’s Q4 and 2016 Performance- Compelling Operational and Platform Momentum

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Amazon reported financial results for the December-ending quarter this week, exceeding Wall Street expectations in profitability. There were additional nuggets of information that add even more emphasis toward the online provider’s momentum in providing an online fulfillment fba_sizedplatform not only for its own retail businesses, but for a growing number of other sellers as well.

Highlights of the all-important holiday 4th quarter included:

  • Total revenues of $43,7 billion, up from $35.7 billion in the year earlier quarter. This was a 24 percent increase on a constant currency basis.
  • Net income of $749 million, compared with $482 million in the year-earlier holiday fulfillment quarter.
  • Paid unit growth (volume) occurring on the Fulfilled by Amazon platform grew 24 percent in the quarter.

Highlights of the 2016 full year:

  • Total revenues of $136 billion compared with $107 billion in the prior year, a 27 percent increase.
  • Operating income of $4.2 billion compared with $2.2 billion in the prior year, a 91 percent increase.
  • Net income of $2.4 billion compared with $596 million in the prior year, a considerable and noteworthy increase.
  • The Fulfillment by Amazon platform reportedly grew 70 percent year-over-year in 2016.

Culling through the senior management briefing, associated documents, and business media reports, we noted other interesting data.

Industry competitors and observers of Amazon, along with external logistics providers, wonder aloud how the online retailer can afford to invest billions in added logistics and customer fulfillment capabilities. The simple answer is the contribution offset from other businesses the Cloud-hosting Amazon Web Services (AWS) business. According to senior management, AWS is running at an annual run rate of $14 billion. AWS operating income in 2016 was $3.1 billion, nearly double that of the prior year.

While on the topic of added investments in logistics and transportation capability, a combination of 26 warehouses and/or fulfillment centers were operationalized in 2016, 23 of which were in the second-half of the year. Executives noted that there was 20 percent growth in fulfillment center square footage in 2015, followed by 30 percent similar growth last year. That was to prepare for the 40 percent surge in volume that occurred in the final quarter.

One analyst queried management on this buildout, asking whether this was directed as just Amazon’s volume needs or building out direct connections for suppliers as-well. Company CFO Brian Olsavsky acknowledged that constantly supplementing capacity is both for Amazon as well as FBA seller needs. Regarding the recently announced additional plans for Cincinnati (Hebron Kentucky Airport) serving as the U.S. air hub, the CFO indicated that the airport will create thousands of jobs over time. Readers can interpret that latter statement in many ways, but think for a moment how many workers are employed in air hubs of either FedEx or UPS today. Moving forward, the indication was that future investments would be balanced more globally.

Finally, we provide some additional background information relative to our 2017 prediction that Amazon will continue duel with Alibaba for global online platform dominance. Responses to analyst’s questions indicated that in China, the strategy is to provide that country’s online consumers a trusted and authentic product, both domestically and from international brands through the Amazon Global Store.  With India, efforts were described as “still very early” but encouraged from the response being received from both online customers and sellers alike.

From all the data, we reviewed to-date, it’s clear that Amazon’s ongoing fulfillment momentum and capabilities are the more pertinent headline as we begin 2017. As noted in our prior posting relative to 2017 challenges for retail industry supply chains, Amazon is a compelling industry presence requiring a lot of attention by the broader industry.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

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