Outlook 2013: Apparel industry opportunities
Opportunities the apparel industry should focus on this year include developing strategic relationships to improve flexibility across the supply chain; a focus on adding value through design, innovation and branding to protect margins; and the use of technology to integrate the multichannel experience.
Andrew Lo, CEO of Crystal Group, one of Asia's largest apparel manufacturers, producing more than 230m garments a year for customers including Victoria's Secret, Levi's, A&F, H&M, M&S, Uniqlo, JC Penney and Gap:
For Crystal Group:
1: We are going to continue to grow quite fast because of supply consolidation. Customers are trying to find good partners and develop a strategic relationship with them, and I think 2013 will be a key growth year for us because of this. Overall, the market is not growing much, but our penetration will continue to grow in the next 5-10 years.
2: We are using our sustainability to differentiate us. Tangible gains include a reduction in CO2 emissions, energy usage, effluent discharge, material waste and reduced costs - while the intangible benefits come from customers seeing us as a responsible vendor. We are making good returns from what we are improving, and it is important to customers that we are more financially healthy as we are get greener.
3: Being the best value - rather than the cheapest - is another differentiator like speed, quality and design. The lowest price does not mean the best-selling item, so we try to work with our customers to create the best product that can make the best margin, reduce their inventory levels or improve their stock turns.
For the industry:
There will be more stable buys in 2013 due to less market uncertainty. At this time last year, the yarn price was still high, so a lot of customers delayed their buys, and order placement in the first half of last year was very low. But this year, things are more stable at this point, so the whole year should also be more stable.
Roger Lee, chief executive, TAL Group, a leading garment manufacturer that produces 55m pieces of apparel a year and makes one out of every six dress shirts sold in the US:
Many customers (the brands) pressure manufacturers to lower our costs. We haggle over 5 or 10 cents. However, there are many inefficiencies within each brand that can be reduced. If you look at the soft dollar below, you will see a lot of the costs are in inventory management, brand operations, SG&A (selling, general and administrative expenses) and markdowns. When compared to material and production costs, these costs are much larger.
One of our strengths is helping our customers in inventory management. We currently manage around 17m pieces annually with our customers. There is opportunity to manage a lot more and, in return, cut down our customer's inventory and operational costs and directly reduce the number of garments that need markdowns. One of the biggest challenges facing any brand is having the correct inventory in the correct store so customers can buy what they want. This is where our experience in supply chain management can significantly help our customers but is often overlooked.
Tom Nelson, managing director, VP global product procurement, VF Asia - part of the $9bn VF Corporation whose apparel and footwear brands Wrangler, Lee, The North Face and Timberland:
VF has a great advantage with its size, the various brands we have in our portfolio, as well as being a global company. We are able to "go outside" and learn more about what are new trends in procurement inside and outside of our industry, and on a global basis, not just in our home country. The ability to have a broader understanding of global supply chains will provide huge opportunities for VF in the future. We aren't just limited to our home country, or a narrow view on limited product categories. The globe is our playground to explore for new ideas.
Ashad Sattar, managing director at Sri Lanka clothing manufacturer Timex:
The greatest opportunity for manufacturers to get an edge over other suppliers is to design and sell [their own] products to retailers. [This is because] all retailers are looking for new designs, plus they want to cut the cost of their design rooms.
Jan Hilger, High End Fashion Consulting, and member of the board of DTB Dialog:
Rising costs in China, the infrastructure and security challenges in Bangladesh, Pakistan and South East Asia, the shrinking capacities in Eastern Europe and the Arab Spring have shaken the "routine sourcing geography" - offering new opportunities in Latin and South America, Madagascar, Mauritius and the Middle East. As time-to-market and demand driven production become more sensitive drivers in purchasing decisions, closer regions to Europe, even though they are more costly from the pure cost-of-goods calculation, can become the cheaper alternative from a total cost perspective in the long term.
Dan Dunham, global sourcing manager at Cabela's, the US-based specialty retailer of hunting, fishing, camping and related outdoor merchandise:
Research more into Central/South America to take advantage of DR-CAFTA and shorten lead times.
Ranjan Mahtani, CEO of Epic Group, which operates manufacturing facilities in Bangladesh and Vietnam and supplies 36m garments a year for customers such as Wal-Mart, JC Penney, Kohl's, Gap, Abercrombie & Fitch, Marks & Spencer and H&M:
1: Consolidation through a smaller market place with lesser players and fewer big players.
2: New consumer markets in China, India etc.
Kurt Cavano, founder, chairman & chief strategy officer at TradeCard Inc, the supply chain collaboration and global trade platform:
China continues to be the production powerhouse, but there are more opportunities to go beyond China than ever before. In 2013 the quality of goods, infrastructure and transparency will continue to improve in places like Southeast Asia and Central and South America.
This plays well to the need for retailers and brands to be agile and flexible to meet volatile consumer demands. Apparel companies can source goods closer to home to shorten production lifecycles. They can do more at the factory level - things like mark-for-store goods, customisation of goods, and RFID tagging at the factory to improve performance. There are significant opportunities to empower factories and trading partners do more - and this will only increase in 2013. Cloud and RFID technologies in-factory will be big opportunities for growth and efficiency in 2013.
Rick Horwitch, vice president, strategy & solutions business development, at testing, inspection and certification provider Bureau Veritas, Consumer Products Services:
1: Embracing new technologies and systems to improve/streamline processes and enable quicker and smarter decisions. Adjusting to the 'new normal' is a major challenge; however, this also provides equally great opportunities. Cheaper, faster, better has been the mantra of the industry for at least 20 years, if not longer. In the "old days" cheaper literally meant lowest price. Today, cheaper is not about lowest price, but rather it is about value. Utilise technologies to cut waste, improve cost and margins (which is far more sustainable then cheap prices) and improve speed. The new mantra becomes 'Cheaper, Faster, Better, Smarter.'
2: International expansion. US brands and retailers have "discovered" the rest of the world, not just Europe. Conversely, international retailers and brands like Zara, H&M, Fast Retailing/Uniqlo, Mango and others are aggressively expanding in the US.
Jonny Mitchell, managing director of the legwear division at Courtaulds Brands Ltd, owner of the Pretty Polly and Aristoc hosiery brands and a major supplier to UK retailers including M&S:
Our opportunity lies in exploiting and growing the export opportunities that exist for Pretty Polly. In the last two years we've worked hard to build a solid foundation in the US and a network of agents and distributors in key markets. Leveraging this base in the US and our contacts will be key to our success.
The greatest opportunity for the industry in general is to give customers what they want and in a way that they want to buy it! These are the day-to-day challenges of running any business. If the answer was simple, then every business would be profitable and none would be going bust!
John Miln, CEO of industry body the UK Fashion and Textile Association (UKFT):
Creativity, design, innovation and branding are all keywords in our industry. We are good at these. We should accentuate these positives. We should herald our UK manufacturing base and seek to leverage our skills, heritage and craftsmanship, which are much sought after both here and especially in overseas markets where the 'Made in Britain' label has considerable currency.
'Onshoring' and the debate that surrounds it will be a key opportunity in 2013. Sadly we remain critically short of capacity and skills in manufacturing in volume terms; such mainstream high street production may well be lost to the UK but there is a growing challenge - and thus opportunity - to grow our home produced apparel.
To do so requires a significantly enlightened conversation with all stakeholders in the retail supply chain to make this happen. Encouragingly there are great signs that via the Employer Ownership Pilot Schemes in which the UKFT and several of its federated association members are involved, training has returned to companies in a much more meaningful way. Spreading this across the existing apparel and textile network of companies is both a challenge and an opportunity.
Technical textiles, often unsung when faced with the plethora of apparel brands, is something we are good at in the UK and thus continues to be an opportunity.
Finally building the industry leaders of tomorrow: the UKFT has created UKFT Rise to allow young people starting out in careers in the industry to meet and network and thus build the relationships needed to secure the industry's future.
Josh Green, founder and CEO of Panjiva, a New York based firm that provides information for retailers and importers seeking new sources of production:
Yes, there are still opportunities in the apparel industry. Lots of them, in fact. Here are three:
Opportunity #1: Online. The key learning of the 2012 holiday season is that online shopping is growing rapidly, even if overall spending isn't. Companies that are focused on the online (and mobile!) experience will do well. This includes companies that provide enabling technologies, as well as the companies that know how to use them.
Opportunity #1: Emerging global middle class. Despite the fact that the global macroeconomic outlook is mediocre, there are markets that are growing. And regardless of what happens in the short run, over the long run we can be sure that the 21st century will witness the emergence of a global middle class with enormous spending power. Companies that can tap into this spending power, either through their knowledge of key customer segments - or through their relationships with companies that have this knowledge - will do well. Opportunities along these lines may take time to materialise, but companies with patience will reap huge rewards, sooner or later.
Opportunity #3: Data. Sick of hearing about 'Big Data?' Me, too. But even if the annoying phrase disappears, we will be left with the reality that there is an enormous amount of data being created. Some will make use of it; some won't. Those who make use of it - and those who provide enabling technologies - will do well.
Neil Saunders, managing director at UK-based retail analyst Conlumino:
Three opportunities are:
1: Although there is a lot of work to do around integrating multichannel, this remains an area of massive opportunity for the sector. Over the next five years we forecast that the fashion market will grow by a total of GBP7.9bn. Within this, physical stores will account for 45.9% of the growth or GBP3.6bn in monetary terms; however, for the first time ever, online will account for the lion's share of the growth - 55.2% or GBP4.3bn in monetary terms.
2: Although consumers remain under pressure, there is still desire to buy good quality clothing; and here, many are prepared to pay a premium for the right product. The opportunity for retailers is to tap into this latent demand through adding value. This could take the form of design, detailing, designed collaborations and so forth. All of these things will justify higher prices points thereby stimulating trading up and protecting margins.
3: After significant growth in the young fashion sector over the last five years, rising costs for this age group, along with higher youth unemployment, will inhibit sales growth. While the bottom won't drop out of the young fashion market, it is likely that players in this segment will find the going a bit tougher. When you put this dynamic alongside that of the ageing population profile, it is clear that there is a major opportunity for retailers to target slightly older demographics.
Mike Flanagan, CEO of apparel industry consultancy Clothesource:
The growing (at least relatively) size of the grownup market, and the special relevance of the web to the grownup market. M&S even admitted this in November - but no grownup of my acquaintance has found any evidence of it on their web pages.
Helen Mountney, managing partner at consumer goods consultancy Kurt Salmon UK and Ireland:
2013 may indeed be better as apparel businesses have got used to the difficult trading conditions and the way of the world now is the "new norm". As the outlook is not likely to be much different this year, there is therefore an element of stability and that can be taken as a positive and therefore provide an opportunity.
It's now time for businesses to be less risk adverse to making changes and moving forward. Why not set up a small team focused on identifying potential opportunities and act diligently, but fast, to capitalise on them? Gone are the days when businesses could afford to take months to trial, pilot and then roll out an idea; with technology moving at the speed of light, it is worth taking a gamble - and if it does not work, "ditch it" and move onto something else.
The advances in technology are exciting. For years online retailers have been able to analyse how individual customers moved throughout their websites and apply that knowledge to help boost sales. Bricks and mortar retailers need to start using technology to help them personalise the shopping experience and get to know their customers on an individual basis and start performing like websites. Some of the larger American retailers are already using RFID data about which products customers are handling or trying on and linking it to a geofenced loyalty app or smart card so they can make individual shopping recommendations and offers.
Magdalena Kondej, head of apparel research at Euromonitor International:
India: Regulatory improvements prove to be slow and complicated, but 2013 may be the year when a number of apparel retailers will get down to action. Massimo Dutti is likely to present a restructured application and H&M's market entry is also in the cards.
Mexico: Previously outshone by Brazil, Mexico has been generating lower levels of attention. However, this is likely to change. Personal appearance is highly important and valued here, demand for Western brands is strong, and import duties have come down - all of which make it one of the most attractive markets for global apparel brands. Annual apparel sales growth of 9% in current terms is not to be sniffed at either.
Click on the following links to read other articles in this management briefing:
Outlook 2013: Apparel industry challenges
Outlook 2013: Lessons that should have been learnt
Outlook 2013: Other issues to watch
Companies: H&M Hennes & Mauritz AB, Marks & Spencer Group Plc, JC Penney Company Inc, Uniqlo, Victoria’s Secret, Levi Strauss & Co, TAL Group, VF Corporation, Timberland Company, Wal-Mart Stores Inc, Kohl’s Corporation, TradeCard, Zara, Fast Retailing Co Ltd, Mango, Inditex SA
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