just-style management briefing: Other issues to watch in the year ahead
By Leonie Barrie | 2 February 2012
Generally, 2012 is seen as being another challenging business year for the apparel industry. Uncertainties include the performance of the global economy, the European debt crisis, US consumer sentiment, and producer price inflation. Being able to react quickly to sourcing challenges, get more efficient in production, and reduce cycle times will help firms react to these volatile markets.
Thomas Nelson, managing director, VP global product procurement, VF Asia
We are planning for continued success at VF. We have seen tremendous growth in the past years and expect 2012 to continue in the same direction. The supply network will still be challenged with many different uncertainties, so I don't envision our lives becoming easier any time in the near future. We must learn to adapt to the new environment we are working. It will only become more complex. We must figure out ways to reduce some of the new complexities we have faced over the past few years because there will be more coming at us in the future.
Anthony Corsano, president and CEO, Anvil Knitwear
I sincerely believe 2012 will provide our industry with a stronger economy and new opportunities. Like most, I am concerned with the economic stability of Europe, but see improvement worldwide, albeit very small.
I'm also interested in watching how 'Made in America' continues to develop popularity in the US. In my mind, increasing domestic production can be a really important piece to the puzzle very long term.
Nikhil Hirdaramani, director, Hirdaramani Group of Companies
Obviously one needs to look at the situation in Europe as it is a major market for us. I do see however that this year it should get better. The US has been good over the holiday season and some customers have actually said they wished they had more inventory. Europe will have to get better in my opinion. I feel many European retailers will look at expanding overseas into the Middle East or Asia and will keep a close eye on that. There is also talk of various free trade agreements with competitor countries.
Kanishka Wijayasiri, COO, Brandot International Limited
We are expecting 2012 to be a better year than 2011 because there has been a marked improvement in US consumer sentiment. However, the overall the broad US retail sector is still a "mixed bag"; the concern is whether this momentum can be sustained in 2012.
We are also finding it increasingly difficult to find world-class talent that can work in cross-cultural environments, especially in the technical field. Good talent is reluctant to leave their current employments (which all tend to be with established companies) and shift jobs, especially to start-up companies. We are planning to spend a fair amount of time in 2012 searching for suitable talent that can assist our joint venture manufacturing operations.
Another issue to watch is the EU-India FTA talks. Apparently the FTA may be signed in end of February. The FTA would be a game changer and create a level playing field for Indian manufacturers against their chief competitor Bangladesh.
Josh Green, founder and CEO of Panjiva
The die is cast on the supply side of the business - costs are going up. The one wildcard is American presidential politics. Will the election year prompt protectionist rhetoric that triggers protectionist responses from the rest of the world? This could make the supply side of the business even more difficult to manage. However, the best bet is that there will be some, but not too much, heated rhetoric, and the rest of the world will appreciate it as nothing more than election year posturing, not worthy of a substantive response.
The big questions are on the demand side of the business. Will the jobs picture in the US continue to improve? Will Europe find a graceful way out of its debt dilemma? Will China have to hit the brakes to keep inflation under control, or will it continue to find the recipe for sustained growth? The answers to these questions will determine just how well the global economy - and the apparel industry in particular - will do in 2012.
Kurt Cavano, CEO, Tradecard
We’ll be keeping a close eye on trade flows from emerging regions and expanding our presence on the ground in places like Sri Lanka. We’ll also be looking closely at new and innovative ways to manage raw materials and eliminate some of the costs and challenges associated with it. And naturally, we’ll continue to seek new services and solutions for our cloud-based network. I am cautiously optimistic about 2012. But so many uncertain economic, political and social factors exist today that could easily tilt the year one way or another.
Mike Todaro, managing director of AAPN (the American Apparel Producers' Network)
Uncertainty: no-one knows what's coming. We're in a FUD world - fear, uncertainty and doubt about everything - government, trade, raw materials, economies, Europe, sustainability and our individual job prospects - we're all running scared.
US consumer: The loss of the "American Dream" is the biggest threat to our future. We all need to believe for it to work. The chain depends on the US customer and they depend on the overall health of the US economy.
Ashroff Omar, CEO, Brandix Lanka Limited
Chances are that 2012 will perform relatively better than last year despite the many 'doom and gloom' theories, but a lot will depend on how the European debt crisis will be handled. Any slack from the traditional markets will probably be picked up by the emerging ones. A better year or worse, it makes sense to constantly scan the environment, not only to mitigate any threats but mostly for potential opportunities.
Roger Lee, COO, TAL Apparel
Economic cycles are getting shorter, with more fluctuations, and we are focusing on being able to react quickly to any upturns and downturns. To achieve this requires a lot of work internally in the production side to be able to shorten our lead times, to react to these peaks.
As a supplier, we continue to look at our manufacturing strategy. To cope with rising raw material costs we were unable to pass everything on to the customer [retailer] so our margin has eroded. It's a race, basically, to continue to get more efficient in our production. We have to continue to come up with innovative products; we're known for our 100% cotton wrinkle-free shirts, and we're still strong in our dress shirts business, making one out of every six dress shirts sold in the US. But we're continuously looking at supply chain initiatives, how we help our customers become much more efficient in terms of inventory management, being able to react a lot quicker with much shorter cycle times, because the market is so volatile in sales from one week to the next. In our industry lead times are normally quite long, from 3-6 months, so we have supply chain strategies that will maybe pre-position some raw materials so that if needed we quickly respond to any sudden spikes in demand from a customer.
Mike Flanagan, CEO, Clothesource
Our speciality is keeping our eyes on everything. Emerging market currency policies in particular though.
As for what to expect in 2012, we believe that overall, it'll be worse than 2011. Some producer price inflation will slow down eventually, but it'll be patchy. With almost everywhere seeing retail apparel demand fall, the possibly surviving Chinese growth probably won't prevent an overall decline in the global total number of clothes sold - something we've no record of ever happening before in Flanagan's commercial lifetime. Customers won't pay higher prices, so margins will stay depressed for some time. Probably 2013 before growth in the total cash gross profit from apparel starts rising again.
Hans Bühr, head of raw material purchasing Asia, Triumph International (Hong Kong)
We encounter an increasing desire from consumers for more transparency in the supply chain with the aim of improving labour practices and working conditions, but also embracing the environment.
Furthermore, shifting from the "product only" view, meaning how can the product quality be perfected and prevent any potential harm for the consumer, to now including how the products and the components therein are manufactured, the impact of the manufacturing on the environment, as well as the source and country of origin, both the product as well as the components.
Traditionally, Triumph International relies heavily on their own production facilities - currently, the majority of our merchandise are produced there. This way we have excellent means to control that all our high ethical standards are adhered to, and that the product quality is flawless. We also have the unique opportunity to react quickly to sourcing challenges.
Generally I believe 2012 will continue to be a challenging business year. There is a lot of uncertainty in many developed countries, especially in southern and eastern Europe, and consumers will most likely not go out on a shopping spree there.
Last but not least, the ongoing wave of retail companies closing down, being restructured or sold will make it very challenging for brands to market their products. The solution to this will be finding alternative ways and means to pair the apparel products with consumers, such as e-commerce, own shops, mergers and acquisitions etc.
Accordingly, Triumph International's distribution strategy follows a flexible multi-channel approach, combining wholesale, retail, and e-commerce. Our continuously growing retail sector includes mono- and multi-label formats, both owned or operated in partner/franchise systems. Regionally, Triumph focuses on markets with high fashion awareness, such as Italy and Japan, and fast developing markets such as China, India, or Russia. Altogether, Triumph International is fortunate to be able to rely on the very strong position of our unique international brands and a dynamic global retail performance which is well able to balance any shortcomings in the retail sector.
Magdalena Kondej, head of apparel research at Euromonitor International
Adopting a more strategic outlook to cope with stagnating sales in Western Europe; consider the ageing population and long-term implications for further brand development (see success story of Not Your Daughter's Jeans).
Social media/m-commerce: many companies were initially sceptical about the values of social networks and social media, whereas these days social media is considered an important channel. That said, hanging out with the 'cool kids' is a potentially risky strategy. The people who are devotees of social media often have clear etiquettes and trying to sell to these people risks destroying brand relationships. Brands need to think about the nature of their relationship. You wouldn't turn up at a friend's birthday party and start trying to sell baked beans, so don't do the equivalent online. Social media also have the potential to give new, artisanal, small brands the ability to sell to global audiences.
Lynn Evison, senior manager, Kurt Salmon
Retailers who will perform better in 2012 will be those that are dynamic, flexible and entrepreneurial at managing KPIs to achieve financial objectives: for example strong inventory management skills, product flow optimisation, effective allocation and replenishment, clear clearance activities etc. Successful retailers will have a clear understanding of the customer and have a manageable, well executed direct relationship through the appropriate media. Retailers who will struggle will be those who continue in the vicious cycle of continual discounting, no strategic outlook and no effective co-ordination between buying and planning.
Laura Biggs, manager, Kurt Salmon
The outlook for apparel manufacturers and brands in 2012 could be better than last year provided that collections are tailored to meet the demands of the different markets in which they operate.
Brands could benefit from being perceived as 'glocal' by consumers - drawing on the benefits of global technology and product development while understanding the local market enough to tailor the offering accordingly.
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