Disruption and uncertainty remain the biggest challenges facing apparel brands and retailers and their global supply chains heading into the new decade. Unpredictable and fast-moving changes to tariffs and trade, pressure to make smarter and faster decisions, and demands for new levels of sustainability will all weigh on fashion businesses in 2020, according to feedback from a panel of executives consulted by just-style.
Wilson Zhu, chief operating officer, Li & Fung:
Looking into 2020, the overall global trading environment continues to be very volatile, as we see the world quickly moving away from the multilateral WTO framework to a proliferation of bilateral deals, brought on in part by the US-China trade dispute. Trends are emerging to challenge the trading ecosystem, bringing both challenges and opportunity. We are now entering a ‘new normal’ in global trade that will continue for at least the next decade.
Globalisation is now given new dimensions – from international trade to a post-global and regionalisation era. Our ‘flat world’ is increasingly bumpy. In this new post-global world, the existing rule book for international trade is becoming obsolete and companies have to weather uncertainties by adapting to the new, uncertain, law and order.
The US-China trade dispute is no doubt a game-changer and the emergence of bilateral free trade agreements has caused the complexity of global supply chains to expand exponentially. Not standing still, Chinese companies are moving production out of China at an accelerated speed, as ‘Made-in-China’ becomes ‘Managed-by-China.’ China of course remains a vital force for upstream services and technical know-how.
The shift of purchasing power from baby boomers to millennials and Gen Z is also reshaping the retail landscape dramatically. This is how technology comes into play and rapidly transforms the entire retail industry.
Despite challenges, these complex trends also present an opportunity for retailers to re-think their sourcing strategies to seek a competitive advantage and reduce risk. As retailers shift from chasing lower FOB to chasing lower landed cost, risk mitigation in the form of a diversified sourcing strategy is key in providing the best defence against fluctuations in trade policy.
Dr Achim Berg, senior partner at McKinsey & Company and co-leader of McKinsey’s Apparel, Fashion & Luxury Group:
The uncertain macro-economic situation remains a key concern for the international fashion industry, as the majority of fashion executives foresee a slowdown in 2020. As the survey in our State of Fashion 2020 report shows, trade conflicts and changing tariffs continue to contribute to this negative sentiment. Unlike prior years, this sentiment is now shared across regions and value segments alike, as optimism in the luxury sector and in Asia is dampened. We anticipate that the challenging macro-economic environment will force fashion companies to stay on high alert.
This macro-economic backdrop, together with intensifying competition in the fashion industry, digital consumer expectations and the changing face of consumers, requires fashion companies to take steps to build up resiliency. To do so a stronger focus towards earnings over revenue growth is needed.
Digitisation continues to be a key opportunity going forward. But though digitisation has been talked about for a while, it will not be more of the same approach in 2020. To fully leverage this opportunity we now expect more and more apparel companies to develop and implement holistic digitisation and analytics strategies and to drive transformation across all their business functions. However, the single biggest challenge and single biggest opportunity top of mind of fashion executives is sustainability. In 2020 we will see an increasing number of companies moving from broad-stroke visions for a far-away future to concrete targets and actions to tackle environmental and social issues in the industry. Traditional business models, materials, and ways of working are being challenged, as the fashion industry is embracing innovation as one of the top three opportunities for this year.
Steve Lamar, president & CEO, American Apparel & Footwear Association (AAFA):
Probably one of the biggest concerns facing the apparel and footwear industries is the uncertain trading environment. Whether it’s the US-China trade war, the questions about NAFTA while USMCA is debated, or new tariffs that seem to be levied on a daily basis – the main thing we hear from members is how the constant and fast-moving changes in US trade policy has made it incredibly difficult to confidently invest, make plans for the future, and create jobs. It is essential that we reduce these tariff burdens and move back to a system that can provide predictability. Luckily developments with USMCA (United States-Mexico-Canada Free Trade Agreement) may provide us with an oasis in the uncertain seas of trade.
Beyond trade, international labour standards and sustainability efforts are top of mind throughout the industry.
The industry is constantly striving to guarantee proper labour standards throughout their supply chains, whether it’s safeguarding worker safety or ensuring that a proper wage is being paid. Our membership is taking a holistic and collaborative approach to many of these issues. One area that will continue to draw special scrutiny centres around efforts to prevent forced labour from making its way into our supply chains. AAFA’s collaboration with the Fair Labor Association through the Apparel and Footwear Industry Commitment to Responsible Recruitment – which just celebrated its one-year anniversary – provides one practical example of how the industry has come together on this crucial issue.
Meanwhile, a deep focus on sustainability will be an important next step to protect the environment – not only to provide clear and understandable goals to consumers, but also to have a lasting benefit for the planet. AAFA members are already working on a lot of great programmes and have undertaken incredible commitments. As this work intensifies, we will continue to educate members on the scope of these activities, and look for opportunities to magnify their impact.
Edwin Keh, CEO, Hong Kong Research Institute of Textiles and Apparel (HKRITA):
The biggest challenges and opportunities are around new ideas, new partnerships, and how fast we can take these on within our organisations.
As the retail market continues to consolidate, old retailers and traditional businesses are being disrupted by nimble new players who are unafraid to try new business models, different service ideas, to provide solutions to changing lifestyle challenges.
Traditional apparel companies have to learn to do business in the new economy while at the same time keep the lights on with their legacy business using existing tools and teams. Much like changing tyres on a moving vehicle, it is a challenge of balance, speed and courage. New teams, new skills, and new systems are necessary, yet the process of bringing about these changes are not clear or tested. Move too slow and we will miss the window of opportunity. Move too quick and there are risks to the strain on core business. New thought leadership will be key.
Dr Sheng Lu, associate professor at the Department of Fashion and Apparel Studies at the University of Delaware:
Uncertainty will continue to be the single biggest challenge facing the apparel industry in 2020. Rising trade barriers and geopolitical tensions, from the evolving US-China trade war and social instability in Hong Kong, to Brexit and US election-year trade politics, could make it particularly difficult for companies to plan their businesses in both the short-run and long-term. As an alarming sign, the World Trade Organization (WTO) recently reported a 37% increase in restrictive trade measures taken by G20 members in 2019 compared with a year earlier.
Amid rising protectionism, the economic outlook in 2020 is also a mixed picture, at best. The latest forecasts by the World Bank and International Monetary Fund (IMF) show that while developing economies as a whole are likely to drive much of the growth, leading apparel consumption markets, including the United States, China, Japan and members of the European Union, could ALL experience slower GDP growth in 2020 than in 2019. This casts a shadow on companies’ plans for new investment and their pace of global expansion.
Meanwhile, at the micro-firm level, several issues will present as both challenges and opportunities for apparel companies in 2020. For example, moving sustainability to the next level, from product design, selection of raw material, sourcing practices to collecting and recycling used clothing, will require substantial financial investments and other resources from companies. However, as one of my recent studies indicates, the sustainable apparel market has experienced particularly rapid global growth in the past few years, meaning it could be a promising growth area for apparel companies too.
Likewise, more and more apparel companies are using big data and business analytics tools to gain new insights into consumers’ purchasing behaviours, competitors’ pricing practices, and even forecasting next season’s fashion trends. That said, companies that cannot afford an in-house team of data scientists or access these powerful big-data tools will be at a significant competitive disadvantage. To a degree, the apparel business is becoming more resource-intensive in the 21st Century with an ever-higher barrier to market entry.
Robert Antoshak, managing director, Olah Inc:
Hypocrisy. That’s the biggest challenge facing the global apparel industry in 2020. Cheap has finally caught up with reality. Global supply chains are cheap, but the cost to the environment is expensive. Companies don’t deny these environmental costs, but in many cases, look the other way and rely on marketing to greenwash their message. They also hope that their customers overlook these shortcomings if the price is right; a reality that leaves me sceptical about many industry-inspired sustainability messages.
Moreover, slowing global economic growth will prove challenging for many brands and retailers in our industry. Without sustained global growth, it will only become more difficult for clothing companies and retailers to expand their footprint in the market. Further compounding the situation is consumer infatuation with tech gadgets and other products that only take market share away from apparel. Indeed, recent history suggests that slowing global growth only accelerates the trend away from clothing in favour of other consumer products.
In terms of opportunities, the industry will prosper if it right-sizes itself. The current business operates like it’s still 1985 – there are too many stores, too much production capacity, and no clear path forward unless the major obstacles posed by overcapacity and resistance to innovation are swept away. Much of the apparel business produces commodities. Everything is cheap, often poorly made. Folks chase pennies when it should be more focused on the demands of an evolving consumer. How will our industry ever break out of its commodity mindset? It’s time for innovation and some disruption of previously assumed norms.
Matthijs Crietee, secretary general, International Apparel Federation (IAF):
The whole supply chain needs to accelerate the transformation to a more demand driven model. That’s a prerequisite for improving the triple bottom line: people, planet and profit. It’s not new, but it’s still relevant and urgent. The challenge is for buyers and manufacturers and their suppliers to build responsive, flexible and sustainable value chains that are able to deliver the right product in the right amount at the right time. This requires collaboration, which in turn requires buyers to look beyond first cost, to be prepared to share part of the investment burden by forfeiting short-term lower prices for long-term gains, and to engage suppliers as strategic partners. It also requires an acceleration of implementation of the ample technology available to move the industry into the digital age.
Another important challenge (and therefore opportunity) is making good on the pledges made by the industry to reduce the environmental impact of clothing. First, this means that the improvements pledged must actually be made, and moving beyond the low hanging fruit will require much more intensive industry collaboration than we currently see. Once the improvements are made then they must be communicated in the right way to consumers, where a unified system to do so is currently still lacking.
Much of the challenge facing the apparel industry can be summarised by ‘the need to restore the perceived value of apparel by consumers.’ The emergence of new business will partially meet this challenge. For existing industry it will require a lot of collaboration, both vertically and horizontally.
Rajiv Sharma, group chief executive, Coats:
We may be entering a fresh decade but the biggest challenges are not new. Speed, along with intensity of change, impacts the demands of our suppliers, customers and consumers – which shapes everything we do as an industry. The pressure to increase the pace is constant and once a business falls behind the leading group it is doubly hard from a financial, resource and technology perspective, to regain that lost commercial ground.
The need for speed is played out against the additional challenge of geopolitical ambiguity. The economic outlook for many markets is already uncertain but is further exacerbated with unpredictable politics making the outcome of free trade agreements unclear.
Sustainability is front of mind for every industry and there has undoubtedly been a seismic shift within our industry to focus on generating value for key stakeholders and shareholders. This is reflected by the importance placed on environmental, social and governance considerations – ensuring an ethical and robust approach to honest and transparent decision-making and actions. Players who lead and deliver on sustainability are more likely to stay ahead of the game and we will see more of those that do not, quickly falling away.
Of course, digitisation and innovation remain opportunities. This can be driven through individual strategies focusing on each area. However, as an industry we still have many opportunities to drive transparency and efficiency by more automation and application of digital. The company that can accomplish digitisation in its end-to-end supply chain will reap benefits of more business from customers. Automation followed by digital is the next frontier in the apparel and footwear supply chain.
2020 comes with its challenges; the opportunity is to differentiate through speed, service, innovation and sustainability credentials.
Jan Hilger, Hilger Consulting:
The need for speed will continue to determine the apparel industry’s agenda, especially looking into new ways and innovations to take time out of our calendars and critical paths. With the slowdown in fashion spending and continuing challenges in achieving full-price sell-through, the willingness to tie up cash in long lead times will continue to drop. This will also have an impact on requirements for operational excellence, fulfilment and availability. Process transparency and visibility will become more and more important as public awareness rises thanks to social media and the growing speed of global information distribution.
The readiness to use and apply existing digital technology in design, development and showrooms is still slowed down by our traditional paradigms and the lack of a mental ‘switch’ to embrace and use the tools. The coming decade will witness a shift from isolated software packages to integrated end-to-end solutions from sketch to shelf. AI will enable and support range planning, timing accuracy and product development driven by end-consumer data and information.
Planning and forecasting accuracy, and the related impact of inefficient processes on waste generation, will also be main challenges in 2020. With the global fashion industry widely criticised as one of the most polluting industries on the planet, the need for eco-friendly, sustainable products, materials and processes will drive many organisational and product related developments in 2020 and the years to come.
Julia Hughes, president, United States Fashion Industry Association (USFIA):
Looking back at 2019 I think the best way to describe the year from a trade policy perspective is to think about a roller coaster ride. Scary and sometimes you feel a bit nauseous.
So what does that portend for 2020? Two key words: Disruption and Uncertainty.
Sourcing strategies are under constant review, production and sourcing costs are increasing, and sourcing executives continue to feel the impact of trade disputes. Top of the agenda is the US-China trade war. The announcement of a Phase One US-China trade deal marks a step in the right direction as we start 2020. However the Section 301 tariffs on products imported from China are having a direct impact on American fashion brands and retailers, and also on our customers. And since we still have not seen the text of the Phase One deal, much less know what is on the agenda for Phase Two, fashion brands and retailers have reason to be nervous that there will be more uncertainty in 2020.
A few reasons why. Every time there is a presidential election on the calendar, we know there will be an increase in trade disputes and an increase in the number of threats of trade disputes. We anticipate that uncertainty will be magnified with the re-election campaign of President Trump, who proudly calls himself “Tariff Man.”
In addition if you only think about the US-China trade war, then you are missing a number of other major trade skirmishes that in any other time would be front page news. There are penalty tariffs on US fashion imports from the EU (thanks to the Airbus/Boeing WTO cases) and there are tariffs threatened on imports from France (thanks to the dispute over the French digital services tax). Plus there is the impact on the US economy of the millions of dollars collected in additional tariffs on key inputs such as steel and aluminium; actions taken in response to trade policies in India; and of course the impact of the deadlock at the World Trade Organization.
While American brands and retailers are thinking first about the issues at home, we know that the fashion industry is international. Our motto at USFIA is “Fashion Made Possible by Global Trade.” So we need to also reflect on the tremendous uncertainty and challenges around the world. From Brexit to fears of a global recession on the horizon, we are in uncertain times.
But while fashion brands and retailers are navigating these challenges, there is optimism after the holidays. In the US, we continue to see a strong economy. The stock market is at record levels. Consumers are in the stores and online. Holiday sales rose overall, and by more than 18% for online sales. That is good news – and while companies need to be nimble to deal with today’s trade disputes, we are optimistic that 2020 will be another strong year.
One last positive for 2020 is that the fashion industry continues to move toward more sustainability, more traceability and more global action. That’s another area where brands and retailers are leaders and we could spend hours talking about exciting initiatives on the horizon. So watch this space for more insights in 2020.
Rick Horwitch, vice president – Global Retail Lead & Supply Chain Strategy, Bureau Veritas Consumer Products Services:
The biggest challenges and opportunities will be – speed, digitisation and sustainability – to create a positive ‘Customer Experience.’ The traditional Economics 101 model of supply and demand, has been replaced with Economics 101.v2 – Demand and Supply. Consumers have more choices than ever before. There are more opportunities than any time in history for retailers, brands and manufacturers to engage with each other and directly with the consumer. The key is to create a collaborative value equation that addresses the entire product cycle (concept to consumer to post-consumer). We are living through an amazing retail renaissance that is driven by choice, innovation, positive impact and high quality products and processes.
To meet this opportunity, long-standing business models, processes and thinking are changing. What is not changing is the fact that we, as consumers, have certain basic expectations when making a purchase. One is the assumption of quality. We expect that the products we buy, regardless of the outlet and price point, work and won’t harm us. The push for speed, reduced inventories and margin pressure can have a negative impact on the entire process, especially quality. This doesn’t need to be the case. Harnessing the power of data (for all aspects of the value chain), especially around quality, will drive improvements in speed, cost and customer satisfaction.
Sustainability is finally taking centre stage. The challenge is how to effectively define sustainability so that the actions and efforts are impactful – to your company, to your customer and to society – without being viewed as “greenwashing.” In a highly connected world, where information is instantaneous, NOT meeting the customer’s expectations (especially in this area) could have an immediate, and disastrous, effect. Trust and transparency are no longer buzzwords. Consumers are demanding actions they understand can relate to. The good news is many retailers, brands and suppliers are taking action. This will accelerate in 2020.
The winners have found a way to develop and integrate innovative, collaborative, processes and analytics (a value chain approach) that are improving speed and margin and having a positive impact on society without sacrificing quality, to better engage and interact with their consumers.
Mike Flanagan, CEO of apparel industry consultancy Clothesource:
Consumer spending – especially on clothes, and among under-35s – has been under pressure for over a decade as real wages fall. Apparel retailers still squander the productivity gains from moving production offshore on vanity projects, including:
- Unprofitable network expansion;
- Focusing on the demographic under most pressure;
- Deluding themselves shops can be replaced by online selling.
After 25 years of online retail, the West’s most internet-oriented clothes shoppers (the British) buy just 7% of their clothes from web-only sites. 93% come entirely from physical stores, or are selected, collected or returned there when ordered online.
And sales at web-only retailers are now falling. Over Christmas 2019, Britain’s three main domestic online clothes retailers were reportedly discounting their entire range to well below their buying costs. No wonder that in 2019, UK accountants saw a 65% annual growth in online non-food retailers risking bankruptcy – while retail bankruptcies overall were down 30%.
The biggest profit from selling clothes in Britain and the US is at stores that don’t sell online. Financially sustainable clothes retailing needs the 70%+ of clothing sold entirely through physical stores for the buying muscle that allows sustainably competitive prices.
Failing online-only chains’ irresponsible pricing damages the whole clothes supply chain. Successful clothes retailers:
- Are frugal;
- Get important innovations from designers and merchants, not just the IT department’s suppliers;
- Target the whole population, not just financially-stressed under 35s;
- Get their ideas from watching their customers, not fad-obsessed City spivs;
- Recognise fashion should influence their garment choice – not their commercial strategies.
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