For a trendy shoe company, Dr. Martens tries to keep it simple. The British boot maker offers plenty of styles, but four out of every five pairs of Doc Martens sold are black. Dr. Martens’ focused approach brings to mind Henry Ford’s creation of the hyper-efficient moving assembly line: Customers could buy a Model T in any color they wanted, as long as it was black.
So how did Dr. Martens screw up its supply chain? Don’t blame the groovy boots. Dr. Martens CEO Kenny Wilson doesn’t even think of his company as a fashion brand. He sees Doc Martens as a wardrobe staple. It’s not as if the company guessed wrong that consumers wanted pink boots, and ended up buried under a mountain of unsold inventory.
Instead, Dr. Martens lost control of operations at a major distribution center.
“This is something that I’m extremely disappointed about,” Wilson said Jan. 19 on a hastily arranged investor call to explain the company’s mistake, which will reduce fiscal year earnings by $20 million to $31 million. “The disappointment is even greater because a large part of our (earnings) miss should have been within our control. … It is a people and process failure due (mostly) to a large operational challenge in our new Los Angeles distribution center.”
Wilson said three poor decisions combined to hurt the company’s footing. As part of its growth strategy, Dr. Martens planned to replace a distribution center in Portland, Oregon, with a larger facility in Los Angeles. This required shifting all merchandise. The plan was to leave Portland by the end of last September, but managers decided to move ahead more quickly, putting pressure on the capacity of the new LA warehouse, Wilson explained. Then some key wholesale customers who had their own distribution challenges asked to reroute some product to LA. The U.S. management team agreed, adding to the inventory burden.
Meanwhile, the global manufacturing logjam that had disrupted so many industries abated. That resulted in new boots and other goods arriving in Los Angeles faster than anticipated. Rather than a mountain of unwanted pink footwear, picture a mountain of black boots that customers wanted to buy but couldn’t because of the bottleneck in the LA facility.
“Individually, we could have coped with any of these factors, but not all three together,” Wilson said. He said the full extent of the company screw-up had only just emerged, but he laid out a detailed, expensive plan to fix it. He said the company rented three temporary warehouses to store shoes, which is at least cheaper than storing shoes in cargo containers.
The company also planned to add a third shift to the LA distribution center, another costly investment. “You may ask yourself, why are they not dealing with this faster?” Wilson said. “That’s because we have to purchase forklifts, we have to find supervisors and the people to run this additional shift, but this will increase our footprint.” Wilson said the company would assign a task force of company distribution experts to help and expand an East Coast distribution center.
“I want to be clear this is about having too much of the right product at the L.A.D.C, and is not a seasonal markdown problem,” Wilson concluded.
Dr. Martens said it would take months to, um, unclog the LA distribution center.
Read the complete Issue 27 of ChainMail here.
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