The Sourcing Elite Board (SEB) is an exclusive, invitation-only club for top industry professionals, created by Global Sources. It currently has over 30 members in Shanghai, mostly senior executives and academically trained professionals in the sourcing sector. SEB periodically hosts internal events where members can discuss sourcing strategies, ecommerce innovations, and the global economic landscape. These activities aim to drive innovation, extend the leading edge of the industry, and provide a dynamic platform for sourcing experts to connect and share ideas.
Pablo Irlan Ferrer, a recent invitee to the SEB forum, shared his insights on consumer goods sourcing, supply chain challenges, and the manufacturing shift to Southeast Asia in an interview with Chief Executive China (CEC).
Pablo Irlan Ferrer has extensive experience in sales, marketing, and sourcing across Europe, the Middle East, Africa, Australia, Southeast Asia, and Asia. In 2013, he joined the global department store chain El Corte Inglés and was assigned to Shanghai, where he led teams in category management, bulk sourcing, and QA, overseeing global sourcing in China and Southeast Asia. He is currently the General Manager of El Corte Inglés, handling affairs in Mainland China and Hong Kong.
This interview was first published in Chinese in Chief Executive China in August 2024.
Chief Executive China (CEC): Would you be able to give us an overview of your company's sourcing approach in mainland China and the key product categories you focus on?
Pablo Irlan Ferrer: El Corte Inglés, as a prominent retailer, is dedicated to providing a comprehensive selection of consumer goods. In Shanghai, our sourcing is largely concentrated in fashion, sports gear, lingerie, accessories, home products, and textiles, which make up 70% of our total purchases. The other 30% consists of durable items like furniture, camping equipment, kitchen utensils, holiday decorations, electronics, DIY tools, baby products, and pet supplies.
Our Hong Kong office, which opened in 2000, has specialized in toys and electronics. However, since 2004, the responsibilities of the Hong Kong team have progressively transitioned to Shanghai, where the office now covers a wider array of product categories.
We not only operate our own brands but also partner with many external brands. In China, we manage the procurement for about 25 of our own brands, sourcing around 15,000 different styles of products each year. Additionally, we engage in specialized collaborations, such as creating custom uniforms for the military, airlines, hospitals, and post offices.
It's important to highlight that our offices in China are primarily involved in product development and production oversight related to sourcing, rather than direct purchasing. Our responsibilities include handling samples, engaging in negotiations, ensuring quality control, verifying compliance, and managing logistics. In addition to China, we maintain offices in Vietnam, India, Bangladesh, Turkey, Morocco, and New York.
CEC: What is your approach to understanding shifts in market demand and emerging business models?
Pablo Irlan Ferrer: We maintain a strong connection with our customers through a variety of channels, which enables us to quickly detect changes in the market. With over 1,000 retail outlets and a shopping card system that serves 11.3 million customers—similar to a credit card—we gather extensive data on consumer preferences.
Additionally, our ecommerce platform is the third largest in Spain, generating US$1.3 billion in annual transactions, which represents 12% of our total retail sales. The site receives over 900 million visits annually, providing us with valuable insights into customer behavior and preferences. Our buyers and designers are constantly on the move, visiting global retail markets to stay ahead of current trends and emerging developments.
Our sourcing team is actively involved in international trade shows and events across the US, Europe, Asia, and beyond. By keeping up with the latest news, product launches, and trend evolutions, they ensure we maintain a cutting-edge perspective. We also have a team of well-trained researchers who support our buyers and brand managers in curating product ranges and continuously monitor competitors and the global retail landscape.
In essence, we focus on staying close to our customers, understanding their needs, and vigilantly tracking market trends and new developments. This approach is fundamental to how we gain market insights and drive innovation in our business.
CEC: How do you perceive the changing demands on Chinese suppliers and the evolving demand for Chinese exports in recent years? Which emerging Chinese products do you think hold the most promise?
Pablo Irlan Ferrer: Since our retail focus is on consumer goods, our engagement in the Chinese market is quite specific. As a result, I don't have much knowledge about products such as new energy vehicles and batteries.
We've noticed that as the market evolves, the expectations for Chinese suppliers have become more demanding, requiring more detailed assessments. The costs and time needed to bring on new suppliers have gone up significantly. This makes us more cautious when selecting partners. Companies generally want to optimize their supplier base by reducing the number of suppliers while increasing their quality. So, we pay close attention to a supplier's business potential, compliance, transparency, and certifications.
In terms of supplier management, we use a scorecard system to monitor suppliers' performance and quickly start improvement plans when we spot any issues.
While buyers mainly look at design capabilities and cost control when considering new suppliers, I believe there's a much wider range of professional requirements that can show a supplier's strength and qualifications. These include:
1. Design capability: The supplier has the resources to keep innovating and come up with new ideas and products.
2. Showroom space: A well-organized showroom helps present new products more effectively.
3. Rapid prototyping: The ability to use 3D design and resources to speed up product development.
4. Cost control: A stable pricing system helps with long-term cooperation.
5. Quick response: The ability to quickly deploy a professional team to solve problems and provide fast solutions. Long waiting times mean risks for buyers and purchasers.
6. Vertical integration: Controlling different stages of the production process to ensure product quality.
7. Local presence: Having staff or offices in regions like Europe to be closer to the market.
8. Sustainability: Compliance with international regulations, using a certain amount of recyclable materials, offering different material options, and fitting with our brand's sustainable development strategy.
Meeting these requirements is very important for suppliers. At least four or five of them should be met to build a solid partnership. For example, when our buyer teams visit suppliers in China and keep complaining about the lack of new ideas in the product lists, those suppliers are less likely to be recommended for future visits.
As for emerging Chinese products, I'm particularly optimistic about the following categories:
Apparel, fashion items, textiles: Products that include value-added design, complex craftsmanship, high-tech weaving, and special performance fabrics.
Hard goods: China has strong manufacturing capabilities and technological know-how in home appliances, electronics, toys, tableware, and other similar products. It's unlikely that these categories will be replaced by products from other regions in the short term.
Overall, Chinese suppliers are facing higher professional demands while constantly improving their competitiveness. We're looking forward to deepening our cooperation with Chinese suppliers and exploring new market opportunities together.
CEC: What's your take on the trend of manufacturing moving to Southeast Asia? Where do you think is the optimal location to establish a Southeast Asia sourcing office and why?
Pablo Irlan Ferrer: Based on our company's experience, the shift of manufacturing to Southeast Asia is a significant trend. We used to have an office in Thailand but relocated to Vietnam in 2016 for two key reasons. First, there was the tariff agreement between Europe and Vietnam. Second, Vietnam has emerged as a major manufacturing hub, especially with the "China+1" strategy. Vietnam boasts good communication and logistics infrastructure, maintains positive relations with China, and has a young, skilled workforce. All these factors make it an ideal choice for the supply chain. This relocation has significantly boosted our market share in footwear, furniture, apparel, and natural fiber products.
At present, we manage all our Southeast Asia sourcing operations from Vietnam, covering countries such as Malaysia, Indonesia, Thailand, the Philippines, Cambodia, and Laos. I believe the trend of manufacturing relocation will continue to grow and persist for quite some time. The main driver is cost control. Companies are extremely sensitive to price factors. Inflation is putting pressure on profits. There are also concerns about the potential for violent conflicts, political risks, and supply chain disruptions.
However, I'd like to stress that the relocation of manufacturing is a dynamic process. For example, some projects might move from China to Bangladesh one season, only to return to China the next due to cost and quality issues. For basic brands, some products may shift to lower-cost origins. But high-end brands, with their higher demands for detail and quality, may stay in China or even increase their sourcing share.
Overall, the key is to partner with suppliers that have multi-origin production capabilities to meet the varying demands for price, quality, and finished products over different periods. As more suppliers with such capabilities emerge, they will offer a range of options and prices. The manufacturing locations could be China, Cambodia, or India, allowing us to choose the most suitable products without having to switch suppliers.
CEC: What do you see as the greatest challenge in supply chain management amid the growing instability in the international landscape?
Pablo Irlan Ferrer: Amid the increasing instability in the international landscape, the greatest challenge in supply chain management is managing and reducing the risks that come with uncertainty and complex situations. We've witnessed supply chain disruptions happening periodically, and it's essential to foresee and eliminate the risks associated with these instabilities. In the future, these risks will be a reality that we must face directly.
From our company's perspective, the key is to work with strong and reliable partners to overcome these challenges. For example, the shipping companies we partner with not only have strong capacity but also provide the best solutions when we encounter problems. These partners are usually quick to respond and can help us minimize the impact of container shortages, space limitations, or port congestion, and quickly find alternative options.
We regularly have in-depth discussions with these partners. Every three months, we negotiate with shipping companies regarding transportation volumes, arranging the number of containers at different ports based on forecasts, and ensuring that we have enough space reserved at each port to meet demand. Through this collaborative approach, we are able to more effectively address the various issues we face.
CEC: What does the rise of ecommerce platforms mean for a company like El Corte Inglés, which is renowned for its high-quality offline experience?
Pablo Irlan Ferrer:
It's common knowledge that in recent years, ecommerce platforms such as Shein and Temu have quickly gained popularity in Europe and America. However, online channels aren't a recent development; they've been around for quite some time.
El Corte Inglés also has an online presence. Our official website is the third most visited retail site in Spain and has excellent user reviews. The company offers a wide range of online services, such as 2/24/48-hour home delivery. For example, within Spain alone, we can dispatch 300,000 small items from our warehouse within 24 hours, covering 59 cities across the country. In addition, we provide convenient services such as online ordering with in-store pickup and online shopping with drive-through pickup.
Despite our website receiving over 900 million visits annually and our online sales continuing to grow, we firmly believe that the unique charm of the offline shopping experience can't be replicated. In our physical stores, customers can enjoy one-on-one service from professionals and participate in unique, special events that online shopping can't offer. El Corte Inglés has earned widespread trust with its high-quality products and considerate retail policies, making it the top choice for customers.
Our physical stores are a major strength of El Corte Inglés. For example, our flagship store in Madrid, located on Castellana, covers an area of 70,000 square meters, where customers can spend an entire day shopping. We have over 50,000 dedicated staff members who are professional, experienced, and understand customer needs. We continuously innovate by hosting various events and promotions to attract customers, such as the shoe bar area that offers the experience of trying on shoes while enjoying a cup of coffee, which greatly enhances the appeal of our physical stores.
Faced with competition from ecommerce, El Corte Inglés doesn't see it as a threat. Our own brands are strong, with excellent design and unique products that attract customers both in stores and online. We believe that through a clear strategy and attractive own-brand products, we can maintain a unique competitive advantage.
El Corte Inglés' latest performance has reached a new high over the past 15 years, with a turnover of over €16.3 billion and an EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) of €1 billion, a year-on-year increase of 13%. These achievements demonstrate the success of our online and offline integration strategy and our flexibility in adapting to market changes.
Established in 2022 by Global Sources, the Sourcing Elite Board (SEB) is a collaborative initiative dedicated to advancing the sourcing industry through shared expertise and innovative strategies. Senior executives, from buying offices to retailers and brands, are welcome to join this distinguished community.
