Getting A Foothold In Europe
HOW SKECHERS AND OTHER GLOBAL SHIPPERS ARE ESTABLISHING EUROPEAN DISTRIBUTION HUBS
With $2 billion and counting in annual sales, Skechers USA Inc. is making fast tracks around the globe, including Europe. Like many companies expanding in Europe and beyond, the key to escalating this high-performance footwear maker’s business there is its European distribution center (EDC).
Back in 2002, Skechers’ presence in Europe was miniscule, with distribution performed from a 2,500-square-foot distribution center (DC) in Liège, located in Belgium’s region of Wallonia. Today its EDC is nearly 420,000 square feet and expanding. One of five in the world, the EDC is also the company’s biggest outside the United States.
Studies by Ernst & Young have found that location decisions have a large impact on the total supply-chain costs of a company. Therefore, operating costs, which may vary significantly per location, and other factors such as labor costs, quality issues and costs for inbound and outbound transportation should also be taken into account when deciding where a new distribution center should be located, the consulting firm recommends.
Sophie Houtmeyers, Skechers EDC’s vice president of Distribution Operations, explains that the California-based company chose to locate the large facility in Liège because it anticipated increased European market share. Company executives saw the location superior to hot spot locations such as Amsterdam, Venlo, Antwerp and southwest Germany. The reason: Wallonia’s less-congested roadways and a strong, ample workforce—despite the competitions’ closer proximity to major seaports and airports.
A big factor in favor of Liège, adds Houtmeyers, was availability of land, plus favorable electricity and labor rates. “Wallonia’s high unemployment rate benefits the company by making it easy to hire good workers who are flexible and loyal,” she says.
Initially, Skechers brought everything through the Port of Rotterdam. “But a few years ago we switched to the Port of Antwerp because it is closer to Liège and traffic between the two cities is much less congested than that surrounding Rotterdam,” Houtmeyers reveals.
The Skechers EDC receives goods coming from China via Antwerp and stores them until they are redistributed to European markets.
Another plus: Liège offers proximity to customers. “We needed to have a place close to our customers,” Houtmeyers says.
From Wallonia, the company ships products throughout Europe and even Russia, with some five to 35 trucks leaving the DC daily. Those destined to the U.K. go by ferry via the Flemish Port of Zeebrugge, which is less than two hours away.
Another plus: Skechers is designated as an Authorized Economic Operator (AEO). AEO is a regional trade facilitation program similar to the C-TPAT program that is recommended by the World Customs Organization to ease trade and customs clearance for tax compliant and prominent importers and exporters. For Skechers, this means that once its containers are unloaded off the ship, they can be taken immediately by truck to its DC.
Today the EDC is so successful for Skechers that in November the company announced a major investment and technology upgrade to its Liège EDC. The centerpiece is an automated order-picking system that will more efficiently manage the company’s business.
“We have hit a ceiling in terms of productivity,” explains Houtmeyers. “We will reorganize the two existing buildings with an automated sorting system.” The system is similar to that developed for the company’s new North American distribution center in Rancho Belago, California.
The investment increases the productivity of the EDC, which is necessary for the company’s continued European growth. It will also help Skechers establish its e-commerce business in certain European markets. Houtmeyers points out that flexibility and reliability are key in meeting customer demand. “This investment will allow us to expand our operations and utilize a skilled workforce in the execution of our European logistics operations,” she says.
Many companies find investing advantages by having manufacturing and distribution sites under one roof. Since 1992, Häagen-Dazs, a General Mills subsidiary, has been operating its global production plant in Arras, France, part of the Nord-Pas-de-Calais region. The site manufacturers and distributes 80 percent of its premium ice cream from the plant to consumers in 77 countries. That produced in the United States by the Oakland, California-headquartered company is for consumption only in the U.S., Canada and Japan.
A benefit for Europeans who enjoy Häagen-Dazs ice cream, the Northern France location is in reach of 78 million consumers within a radius of 180 miles.
François-Xavier Brehon, plant manager of the Arras site, explains that the company located in Northern France rather than Belgium, Germany, the Netherlands or the U.K.— big markets for Häagen-Dazs—because of Nord-Pas-de-Calais’ quality of infrastructure.
“This site is close to major motorways, and, when we came here, the Channel Tunnel between France and Britain had already opened,” he says. “We are also close to ports where we receive ingredients.”
Logistically, the site is quite well suited for sourcing key ingredients. High-quality milk comes from local dairy farms and chocolate is sourced across the border from Belgium. The ice cream is warehoused down the road then shipped for distribution.
Proximity to major seaports is a critical factor. “Almost 40 percent of our product is for export outside of the European continent, with our biggest export markets being Hong Kong, China, Taiwan and Korea,” Brehon says.
Häagen-Dazs also finds Northern France appealing for the region’s workforce. “It’s very easy to find employees with technical skills here,” Brehon says. Plus, France provides low-cost electricity thanks to its investment in nuclear energy.
Desiring to increase its market share worldwide, particularly in Asia, the company recently was confronted with the dilemma of either expanding its Arras facility or building an entirely new plant in China. But incentives from the French State, the Regional Council, the European Union and the Arras urban community sold company executives on Arras, where it added a new production line of approximately 11,500 square feet. The expansion doubled the plant’s capacity for mix preparation, including blending, pasteurization and homogenization. “Those subsidies covered 8 percent of our total investment, which was around 18 million,” Brehon reveals.
The Netherlands has long billed itself as a distribution mecca for companies not only distributing goods in Europe but also selling globally. Avure Technologies HPP Equipment and Services Division is one such example. In February of this year, this maker of ultra-high-pressure systems for the food industry opened a new Parts Distribution Center in Amsterdam that enables 24-hour delivery of stocked spare parts to customers throughout the E.U. and Asia.
Managed by a professional global logistics firm near Amsterdam’s Schiphol Airport, the DC replaced an existing facility in Västerås, Sweden, with the intention of shortening the delivery time on spare parts.
Similarly, Tesla Motors chose to locate its EDC in Tilburg, Netherlands. The U.S-based manufacturer of high-end, all-electric cars is expanding rapidly in Europe with the opening of about 15 new stores and service centers and will use its new facility as its final Model S assembly point, vehicle distribution hub and regional service center.
The 62,000-square-foot facility is centrally located to enable efficient, timely and cost-effective operations throughout Europe. From Tilberg the company can make deliveries to anywhere in Europe within 12 hours. The city is also well linked to an excellent rail and motorway network and is only 50 miles from the Port of Rotterdam.
INNOVATION GAME CHANGERS