The global apparel and textile industry supply chain is in need of a complete reset if it is to survive beyond the Covid-19 pandemic, and this could mean changing to a demand driven calendar, embracing ‘smartification’, and distributing margin differently, industry experts have said.
The Covid-19 pandemic has had a far-reaching impact on the global apparel and textile industry, with many businesses now having to reassess the viability of their current operations and growth strategies for the future.
“What we see in terms of the product that has been produced now, the inventories, the building and regaining of trust in the supply chain – you see so many one-liners now about this crisis and how we see [ourselves] moving forward and coming out of this. It’s the perfect storm for fashion market places,” said Ton Wiedenhoff of Alvanon, moderator on a recent International Apparel Federation (IAF) webinar.
Moving from tactics to strategy
According to panellist Frank Quix, managing director of Dutch retail consultancy Q&A, one solution is a reset of the retail supply chain.
“Covid-19 will accelerate the need to change in the supply chain”- Frank Quix, Q&A
“The challenge today in the value chain is not about environmental issues, but how can we make this a sustainable supply chain in itself? If we are looking at fashion, it is really a push driven supply chain. In the end came a fair amount of oversupply, and this oversupply, it always starts with the customer. If you are looking at demand currently, not only Covid-19 demand but demand in the last five to ten years, the demand was far less than what we have in the market. I believe Covid-19 will accelerate the need to change in the supply chain.”
Quix said retail traffic in Europe has been down for several years, and since the Covid-19 pandemic this has only accelerated – particularly in cities, once a safe harbour for retail.
“We see sales are down by two measures – one, traffic is down, so that will decrease our sales, but also what I see is less need for our products. If I look at what the variation is in retail sales, then we have markets that are up by 20-25% in non-food, whereas fashion is down by 60-80%.”
Quix sais sales and productivity in retail are going down in three measures: sales per square metre, the sale rate (the stock is there, but it’s not turning), and sales per FTE (full time equivalent).
Eurostat figures released earlier this month show the volume of retail trade for textiles, clothing and footwear was down 57% in March year-over-year, and in April was down 80%. This improved in May but volumes were still down 50% showing a deep decline.
“If you keep in mind a retailer can only bear -3 to -5%, and if it is an extremely healthy company that has good revenues maybe you can bear -8%, but you can’t bear -50%. So if the future is unknown, we have to move from tactics to strategy,” Quix said, adding: “Now we have to start rethinking our supply chain.
“Everyone is searching for an insurance from Covid-19, [but] there is only one insurance that can save us and it is thinking logically again. We have to move from push to pull [supply chain]. Our seasons are changing but the seasonal way we are doing our business is not changing at all. We have to start thinking about moving from margin…and think about contribution in money but also value in what we are delivering to our customer.”
From a selling point of view, Quix suggested a change of mindset is needed, from who can sell the most to one of collaboration.
“In the end it’s moving from the product to the customer. Have your stock as high up as possible in the supply chain because that is making us flexible. We have to distribute our margin in a different way because if the person that’s highest in the supply chain takes more risk he needs a better margin. So we have to think about different drops and a different margin distribution.”
“Smartification” of the supply chain
Marcella Wartenbergh, CEO of Pepe Jeans Group, believes the key to minimising risk is being smarter about collections and spreading demand by reducing the calendar. Like Quix, she said there is now a need to accelerate change in the supply chain.
“When I talk about changing the supply chain, we need to reduce the calendars” – Marcella Wartenbergh, Pepe Jeans
“When I talk about changing the supply chain, we need to reduce the calendars, but reducing the calendars is not always at the factory level. We need to reduce the calendar by being efficient. What is the right product, the right size of the collection? Making bigger collections is already breaking the factories, is already breaking the supply chains, is already breaking the teams.”
Wartenbergh suggests a discussion around the use of digitalisation to shorten the calendar from 52 weeks to 40 weeks, for example.
“We need to minimise risk, so it’s about digitalisation of tools from the way we do the data to the collections, the whole process, even the selling tools. Consistency and structure is the second biggest thing in the supply chain we need to implement. Being consistent and having a structure on how we build collections will help a lot in minimising risk.”
Wartenbergh also points to the importance of moving to a consumer, and even human-centric mindset.
“Calendars can be reduced in the supply chain without putting all the weight either on the design team or on the factories because we need to reduce calendars yes, but it’s not one area. We need to make sure that this is reducing everywhere because the factories do not want to take risk, the brands do not want to take risks, and our wholesalers do not want to take risks.”
Wartenbergh said retail is the biggest challenge, but digitalisation could make e-commerce more profitable.
“We need to reset the business. Covid is telling us shake up and change. I’m a big believe that in every crisis there is an opportunity. We need to look at changing our business, the supply chain, changing our way of thinking and of doing collections, changing our partnerships with our suppliers; our suppliers are going to become our partners – the biggest partners we need in the business. We are in this together and we cannot solve it from one side of the table, we can only solve it with all the partners involved.”
An over-retailed world
“The whole world is over-retailed [but] most of the bankruptcies are coming from the bricks and mortars” – Stanley Szeto, Lever Style
Costs for e-commerce and online pureplay businesses, however, are more variable. They also suffered during the Covid-19 pandemic, but less so than the brick and mortars.
Stanley Szeto, executive director of fashion supply chain manager Lever Style, said the success of one of its largest clients, Stitch Fix, is that it knows exactly where the trends are going and it applies a four to six week calendar.
“By doing that they’re able to stay much closer to the market and when the Covid-19 hit they aren’t going to be hit by as much inventory as the bricks and mortar guys. Those guys have been gaining market share during the pandemic. I’m optimistic on the e-commerce guys.
“When you don’t have rent to pay or capital expenditure to depreciate, costs are more flexible and [a company] can react to the market. When the market goes down they buy less, logistics are less so it’s a more versatile model.”
This could be the reason there have been few e-commerce bankruptcies, particularly as a result of the pandemic.
Over the last three months alone, JCPenney, J.Crew Group and US luxury department store retailer Neiman Marcus have all filed for Chapter 11. Other recent victims include Brooks Brothers, Lucky Brand and the US operations of G-Star Raw.
“The whole world is over-retailed,” Szeto said. “Most of the bankruptcies are coming from the bricks and mortars. J.Crew was once one of our largest customers, now we don’t do any business with them. We haven’t heard any e-commerce customers going into Chapter 11 yet. I think that’s because they don’t have that huge fixed cost to bear.
“When a lot of this capacity is reduced at the retail and brand side, those that survive will take market share. And it is a matter of when, not if, there will be a revamp, and we don’t know when that will come. It could be three weeks, three months or three years from now, but when that revamp comes, the e-commerce guys, the ones who are surviving will be there to capture additional sales.”