just-style management briefing: Apparel industry challenges in 2012
Uncertainty is perhaps the biggest challenge facing the apparel industry in 2012. The economic situation in Europe and the US, swings in commodity prices, labour shortages and rising costs, especially in China, all add up to a worrying year.
Thomas Nelson, managing director, VP global product procurement, VF Asia
People: the entire system works on people and their skills, or lack thereof. We must have the right people designing the products. We must have the right people sourcing the products. We must be working with the right factories (people) and the factories must have enough of the right people sewing our products. We focus 70% - 90% of our time on this one key area.
Uncertainty: there still seems to be a lot of uncertainty in the apparel business today. Will there be any further uprisings around the world? Will there be another recession? Will we face the huge swings in commodity prices? Will we have enough people to make our products? Will the European economy fall apart? We must work out detailed options or "what if" scenarios to ensure we have contingency plans to cover potential disruptions in our value chain.
Hans Bühr, head of raw material purchasing Asia, Triumph International (Hong Kong)
In a nutshell, I believe the most relevant challenges can be summarised by economies and supply base. Potential currency weaknesses may also have a certain impact. The economic situation in Europe/the US on the one hand as well as emerging countries, most notably China on the other hand, will have a big influence on the consumer shopping mood.
And, with the comparatively bleak potential outlook for garment exports from China to Europe and the US, many domestic producers are shifting towards supply to the domestic market in China, which might lead to stress/shortages in supply.
There may be opportunities with regard to sourcing from alternative Asian countries rather than China, but generally the infrastructure in other countries is not as sophisticated and efficient, making short term moves very difficult. And historically, when wages in China increased, other countries followed suit with some months' delay, trying to stay relatively competitive to China.
Anthony Corsano, president and CEO, Anvil Knitwear
The pricing volatility of raw materials and energy resources combined with rising labour costs makes long-term pricing nearly impossible to project. What the apparel industry can use right now is stable pricing.
The uncertainty of the economy has made most suppliers and buyers very cautious, making business conditions difficult. The result is shortages in some product categories and the need for very quick turn of product. Speed to market will be very important in 2012 and beyond.
Supply chain transparency is becoming an important issue as protecting one's brand has never been more important. Brands that are just beginning to understand the importance of knowing all of the players in the supply chain and monitoring of the data will find the process difficult - one that requires a genuine cultural change within a company.
Ashroff Omar, CEO, Brandix Lanka Limited
2012 will continue to have the same pressures for our customers, the perennial issue of putting the right product at the right time in store, finding ways to get an increased share of the wallets of the tech-savvy, well-informed consumer who can essentially shop 24/7/365, and how to capture the growing emerging markets.
Although the US retail market has been having modest but consistent growth for some months now, the ambiguity in the status of the European Community has created real and perceived concerns globally. This is having a compounded effect on the already uneasy consumer confidence.
Suppliers in turn will continue to feel the pressure for faster delivery and streamlining the supply chain for controlled rapid response. This will need to be balanced with the demand for lower and lower prices and more and more responsibility in managing the resources.
Kurt Cavano, CEO, Tradecard
Apparel sourcing executives have always thought they had a difficult job. Well, it’s about to get even harder. After two decades of deflation, a series of challenges are forcing people to think strategically about sourcing: A struggling global economy. Uncertainty from consumers in the West. A fast-growing middle class in the East. Rising production costs in China. Demand for fast fashion at low costs. A growing emphasis on products that are produced ethically without harming the environment or people. Faced with all of these pressures, a primary challenge is simply being agile or nimble enough to mitigate risk. The world has become an extremely fast moving place. We all have had to learn to change directions in a flash – whether it’s natural disasters impacting our business and trading partners, social unrest overturning regimes or laws, or economic uncertainty stemming from concerns about containing a major debt crisis.
Roger Lee, COO, TAL Apparel
Our major focus is in the North American market, where the unemployment rate is still high [8.5% in December, but significantly higher than this if you include people who have stopped looking for work]. This does not bode well in terms of consumer buying habits. We have now recovered from the 09 crisis, but I still think it's going to be a few more years before we get back to a normal growth pattern.
Also, there are two big events this year that may mean people buy less: one is the US election [in November] and the other is the Olympics. Traditionally during election and Olympic years, people tend to be glued to the TV rather than going online shopping or going out to buy things. So that's another challenge.
Kanishka Wijayasiri, COO, Brandot International Limited
Uncertainty in the marketplace. This year the main focus will be on the slowdown in Europe. Will Europe fall into a recession again? Many European retailers and brands have already started to pull back on order commitments. Our joint venture factories that mainly supply to Europe are extremely cautious and planning conservatively.
Rising manufacturing costs in China. Despite murmurs in the media about the Chinese economy slowing down, costs in China will continue to increase as the country moves up the economic ladder. It is becoming challenging to operate apparel manufacturing factories profitably in China, especially in the Pearl River Delta region. The major beneficiaries of this change in China are countries such as Bangladesh, Vietnam and Cambodia followed by India, Sri Lanka and Indonesia.
2012 may become the year where the cost advantage of manufacturing apparel and textile products in China becomes irrelevant and there will be a level playing field. The concern is how much other locations can absorb business moving out of China. Will this result in capacity shortages? Will it create inflation and cost increases in these destinations? Already locations such Bangladesh appear to be struggling to cope with surge in business.
And will China "export" inflation to the world economy still struggling to come out of a prolonged slowdown? Can brands and retailers afford to pass on the cost increases to their customers in a recessionary environment?
We are also observing a spike in cost of utilities (mainly electricity) across the world. This increase can erode the margins of firms that rely heavily on electricity: from spinning to textiles to accessory companies.
Nikhil Hirdaramani, director, Hirdaramani Group of Companies
The global recession - in particular the situation in Europe, which has and will continue to reduce sales.
This, together with inflation in key apparel producing countries such as China, will put pressure on the supply chain. The issue here is where else is there to go to produce garments? Can central and western Africa be efficient?
The apparel industry is seen as a low end industry and employees today have lots of choices in what they want to do, especially [the lure of] hi-tech industry. This also could be a threat this year.
Josh Green, founder and CEO of Panjiva
The biggest challenge is on the supply side of the business. After years of being able to deliver consistently low manufacturing costs, sourcing organisations are continuing to face rising costs, thanks in large part to rising wages in China.
The second biggest challenge is on the demand side of the business. Where is demand going to come from? America is still struggling. Debt challenges make Europe entirely unpredictable. And even China just announced slowing growth.
Finally, there's a challenge that I think of as "The 1% Trap." In the short run, the luxury customer - the top 1% - is probably the most reliable spender. But the big opportunities in the long run will come from serving the other 99% of the world. Where should companies put their effort? How should they split their energies between short term and long term opportunities?
Mike Todaro, managing director of AAPN (the American Apparel Producers' Network)
Supply chain: shrinking supplier base. Concerns about on-time or improved speed of delivery of raw materials, consistent quality and support of assortment of parts and materials. Volatility and availability of raw materials, skilled employees, energy costs.
Retail: the consumer is changing and retailers are not sure how to respond. They know "stack it high and hope they buy" isn't working. But they have outsourced so far for so long that they no longer know how to control operations, how to source.
China: The middle class of the US and Europe moved to China, and they are making more for their own market than exports. Finding new factories is as hard as it has ever been, and lack of manufacturing skills in retailers compounds the confusion.
Mike Flanagan, CEO, Clothesource
They all come down to "slumpflation", 2012 style.
- Static demand, combined with
- Ex-factory cost inflation, which is
- Higher than customer preparedness to pay more.
Magdalena Kondej, head of apparel research at Euromonitor International
There is strong pressure to recover margins throughout the rest of 2012 following strong discounting in 2011. This will be challenging to achieve as the macroeconomic outlook remains bleak and consumers have become cannier and shop around waiting for discounts. In 2011, it got to the point where you either got retailers who were almost permanently on sale, like Debenhams or BHS, or who were dragged into it later on when consumers did not purchase when or as much as they were expected to. Overall in 2012 we are expecting unit prices to be up on 2011 - and again the focus will be more on margins as well as sales growth.
Lynn Evison, senior manager, Kurt Salmon
Retailers need to consider whether they have the right organisational model, business processes and an end-to-end supply chain solution that will support the change in the structure of retailing, with decline of the UK traditional high street and strong growth in the international/ecommerce businesses.
There also needs to be a greater emphasis on pre-season planning and in-season management to ensure effective management of KPIs eg, sell-through, profit, markdown and cost control. Many organisations have grown internationally through leveraging their UK processes and supply chains, but this is not the most cost-effective strategy and certainly impacts speed to market and performance when measuring KPIs.
From an operational perspective, retailers need to consider the impact the increase in on-line fashion shopping will have on the supply chain - service levels for delivery and returns and how this change affects the overall operating model of the organisation.
Retailers also need to re-look at their pricing models to enable them to effectively manage their bottom line margin due to uncertainty in global markets and the impact on exchange rates. Price management, whether this is initial pricing, promotional pricing or clearance prices, all need to be re-addressed.
Price positioning by category/product attribute, Variable pricing, differential pricing by channel/ region/country are all components that need to be considered to help deliver the profit objectives.
Instability in global markets and currencies can have a significant on FOB cost prices, transport costs and other direct/indirect costs which could have a serious impact on achieved margins for some retailers. This may ultimately change the shape of global sourcing trends and drive the return of clothing manufacturing in the UK.
In addition, currency management will also be a challenge - maybe retailers now require the skills of city analysts for currency hedging!
An interactive databank with intelligence on the major apparel sourcing countries
Faced with a significantly more challenging and competitive market, what else is likely to be topping brand and retail supply networks this year? Firms would be wise to watch ways of maximising invest...
Where should apparel firms be focusing their software investments now if they want to remain competitive into the future? According to industry experts consulted by just-style, technology agendas shou...
Faced with a raft of challenges across the apparel supply chain, how can software help tackle the key issues? Tools that connect all trading partners, streamline the end-to-end process, and give indus...
After the turmoil of 2011, the biggest challenges facing the global apparel supply chain in 2012 continue to include rising costs, political and economic uncertainty in both consumer and sourcing mark...
Golf apparel firm Cutter & Buck has extended its subscription to the TradeCard cloud-based supply chain collaboration and global trade platform to continue to connect with trading partners electronica...
Top executives from Escada, TAL and Yesim Tekstil are among speakers lined up for the supply chain session at the International Apparel Federation's (IAF) World Apparel Convention later this year....
- Yuan devaluation impact mixed for garment firms
- Chaos in the world’s trade agreements
- Supply chain improvements to save Billabong $30m
- Will Vietnam struggle with impending trade deals?
- The new age of disruption on apparel production
- H&M scaling up living wage effort to key suppliers
- Myanmar approves first minimum wage
- US Q2 in brief: Genesco, Oxford, Sears Canada
- EU clothing buyers should brace for higher prices
- Vietnam apparel industry calls for lower wage
- Global Database of the Top 1000 Apparel Producers - Company Names, Financial Performance, and Contact Details
- Ethiopia – the emerging textile and clothing industry
- Myanmar's Garment Sector in 2015 - now with updated members' directory
- Global market review of lingerie - forecasts to 2020
- Global Sports Footwear Market 2015-2019