The internet is the defining element of the future – but what role do the supplier factories have to play?

The internet is the defining element of the future – but what role do the supplier factories have to play?

As he refocuses his business on the next generation, consultant David Birnbaum explains why he believes the global garment industry is breaking apart – and how competing in the internet age requires retailers and brands, the big internet players, the 'itsy-bitsy' internet industry, and the supplier factories to take an honest look at the problem and try to create realistic solutions.

"2015 marks my 50th year working in the global garment industry.

"I started as a patternmaker, later rose to be a factory manager, and still later I built factories in Asia and more recently in Latin America.

"30 years ago I started Third Horizon Ltd (THL), a garment industry consultancy. For the first few years we did small jobs, helping factories to meet the needs of the early industry; redesigning sample departments; reorganising merchandising departments etc. We gradually moved up the ladder to the point where we re-organised factory groups, while at the same time helping the customers to get the best from their factory suppliers. About 10 years ago, as institutions and governments finally recognised the importance of the garment export industry in economic development, we started work developing national and supranational industries. We have worked for Asian and Latin American governments, groups such as ASEAN, institutions such as the World Bank and the Inter-American Development Bank, and the International Trade Centre.

"I have always been on the cutting edge. (There are those who would suggest that I am so far out on the cutting edge that I have fallen off the track.)

"Whatever the case, at age 75 it is time to look to the next generation. This is a good time to make that change. The industry in 2016 is moving away from the traditional garmentos to a new generation — the millennials.

"It is time I also changed. I certainly do not plan to retire, but I am also looking towards a new generation. To this end, I am phasing out Third Horizon Ltd and opening our new Birnbaum & Father Limited. We have not yet created a logo, printed cards, or developed our website. But we do have at least one client — who can ask for anything more.

"2016 marks the change for all of us. This article is our first effort."

The rise of the Millennial Industry

The global garment industry is breaking apart. Once, not so long ago the industry consisted of three interrelated groups:

Today that cozy relationship is coming to a chaotic end. Most of us are trapped in the old industry and dare not even try to understand just what is happening and what we can do to survive, let alone be on the cutting edge. We take refuge in the belief that incremental change will prove sufficient; while in our more lucid moments we may hope for the best but are actually willing to settle for anything short of the very worst. It is past time that we take an honest look at the problem and then try to create realistic solutions.

Recognising the problem

To understand the future, we should take a clear look at the present.

On the customer side, everybody sees the internet as the defining element of the future.

The retailers and brands

The retailers and brands certainly understand that the internet is the future. However, they are still struggling to understand just how they will survive in that future. Their current efforts are concentrated on recreating virtual versions of the Sear-Roebuck catalogue – an 1886-innovation that will not work 130 years later. They spend their time and energy competing against one another, rather than realising that they and their competitors are all in the same boat. This is the garment industry version of the late Triassic, when the great dinosaurs fought one another to the death for supremacy; never realising that in the changing environment, size was no longer a survival factor and that in the new environment, the little furry mammals running around far below at their feet would dominate.

We are at the beginning of an irreversible trend when almost all consumer goods – from groceries to automobiles – are available online. And when, 20 years from now, people look back on today's retail industry with its 2000-6000 branch store behemoth operations they will stand in awe, much as we do today when we see the Great Wall of China: enormous failed attempts to stop change.

The big internet players

The big internet players – Amazon, eBay, etc – certainly understand their role in the internet culture and they have an enormous consumer base, which makes them the current winners. The problem is that they do not understand the garment industry and therefore do not know how to take advantage of their assets. If the big retailers have fallen into the trap of trying to recreate the catalogue, Amazon and eBay have fallen into the trap of recreating the department store, where their role is limited to offering virtual space to new labels for which they charge a commission. The difficulty is that the new exciting designer companies with their in-built scepticism of big business, tend to shun the big internet players for more appealing players such as Etsy. Most importantly, big internet players have forgotten that by playing a passive role, they have become middlemen themselves. They have forgotten that the greatest change wrought by the internet is to cut out the middleman.

The itsy-bitsy internet industry

The itsy-bitsy internet industry is by far the most interesting. Individually, these small internet retailers account for about a 0% market share of the global garment industry. However, as this group grows to include 10,000 or more companies, they will eat the big retail stores' lunch. The itsy-bitsy players know their customers and how to meet their customers' demands.

They know what their customer wants, particularly the all-important 30 and under group:

  • Interesting styling;
  • Total transparency – materials, factories, both compliance and sustainability;
  • Most importantly they know that to survive they must maintain the confidence and respect of their customers.

They also understand the value of the internet, particularly with regard to interactivity:

  • Made-to-measure shoes and bespoke suits: The consumer is given the tools to take their own measurements, which the supplier follows to produce the product;
  • Interactive design: The consumer is encouraged to provide their own designs, which the supplier will produce and, if successful, will also pay the customer a royalty;
  • Celebrity wardrobe: Movie stars and other celebrities are now offering their clothes for sale on the internet, with the proceeds going to charity.

The problem is that they do not understand how the supplier-side of the industry operates and are constantly re-inventing the wheel – trying to solve problems that were solved years ago. They must learn how they can benefit from supplier knowledge; and how they can achieve these benefits by working with the best factories. To move forward they must overcome their antipathy towards all established garment factories and acquire the skillsets necessary to outsource to the factories.

The supplying factories

The supplying factories are in the most difficult position. Almost entirely they are locked into the traditional retailers and brand labels. They have created skillsets and systems to meet the needs of their traditional retail and brand customer, but at the same time they recognise that they are 100% committed to a sector that is in a state of secular decline. They are caught in a trap from which they see no escape.

They are aware that the big internet players are the current big winners, but have no access to Amazon, eBay or the like because that group of potential customers at the present time does not want to play any role in the supply side.

They are aware of the growing importance of the itsy-bitsy internet companies but cannot see how they, the supplying factories, can play a role in that sector. Today's factories were built to deal with 50 customers each ordering 3000 pieces per style, not 3000 customers each ordering 50 pieces per style.

The solution process

Understanding the problem is the first step towards creating a solution.

The customer side

The first step is to recognise that competing in the internet age requires more than a series of gimmicks and quick fixes; and more than updating current structures and systems. More of the same will not suffice. Competing in the internet world requires existential change:

The retailers and brands cannot survive by updating what currently exists. They must create something new and different, which meets the new consumers' requirements and, at the same time, takes full advantage offered by the new technology. This new something should not be built to replace the traditional business model but rather to run in tandem with that model.

Traditional retailers and brands have seen many similar challenges in the past; and some have met those challenges by true innovation – with the result that they have come out stronger and more profitable for their efforts. Here are but a few examples:

  • Couture → Prêt à porter + Licensing
  • Department store (Dayton-Hudson) → Target
  • Brand label → Warehouse

In this regard, the advent of the internet era should be seen as an opportunity to get in at the ground floor of the new industry.

The big internet players: Internet is the greatest interactive discussion forum that has ever existed and the great internet players own that forum. They must first entice the new generation consumer to join that forum. It would be a terrible mistake to stand aside and not play an active role in the fashion discussion. We live in a world where more people are familiar with the name Giorgio Armani than Ban Ki Moon; and where low-rise jeans are the source of more serious debate than global warming. Clothing is one of the most seriously debated issues – only slightly less important than the super-big three: Sex, G-d and football. The average person knows a great deal more about H&M and Zara than Sweden or Spain. Of course people worry about ISIS, but they are more knowledgeable and far better educated on the finer point of selecting T-shirts. Companies like Amazon and eBay have yet to understand that the average person cares more about clothing than the total of books, appliances and home-furnishing.

They must also understand that this new consumer has a growing commitment to corporate social responsibility (CSR) and that more than any other product, people relate garments to these areas of greatest concern. Whatever the topic – child labour, workers' rights, animal rights or sustainability – the argument always seems to be all about garments and garment making.

If the big internet players want to be garment industry players, they have to become leaders in the great never-ending fashion and garment debate. The first step is to bring in the serious people to direct that debate – not the fashionistas or fashion-victims but rather serious professionals such as Jane Shepherdson, Giovanni Schiuma, or Kate Fletcher.

The itsy-bitsy internet industry: To compete these companies must first define where to put their time and money. This is all about understanding core competency. Theirs is the ultimate niche industry. While the traditional retailers and brands have built their model on supplying something for everybody, the itsy-bitsy players have built their model on supplying something for somebody. The more closely they follow that model, the smaller becomes their target somebody. To move ahead they cannot widen their target consumer group. However they can move from a single product group to multiple product group somethings for somebody.

To evolve, the itsy-bitsy players must move away from direct control of production and bring in the successful factories to take over production. Provided they are brought together with the right factories, they need not worry about CSR. There are many serious factories that are not only committed to good working conditions and sustainability, but also know a great deal more about the subject than their customers.

The supplier side 

The factories are in a most anomalous situation. They are unable to work with the two most important potential growth sectors – big internet and the itsy-bitsy internet – while at the same time their role is indispensible to the success of these customer sectors.

Increasingly, factories have been forced to develop special skillsets to meet the needs of the traditional customers. Among these are:

  • Product development: Where once the factory took the fashion out of fashion, today's factories understand how to work effectively with designers not only passively, to give the designer what he or she wants, but also proactively — to show new possibilities to the designer. In many cases, factories have design-assist offices in the customers' home country, facilitating serious discussion. We now live in a world where if the designer wishes to talk to the factory they need not use internet or Skype, but rather pick up the phone and the factory will travel to the designer's office by taxi.
  • Trial orders: Today factories are able to produce small quantities of numerous styles to allow their big customers to test and thereby determine which will be the best-selling styles. These same facilities can be used more profitably to produce small quantities for very small customers who, through the factory's efforts, might grow into large customers.
  • Fast turn: There are factories that still require 90-day lead times, and others that have reduced lead times to 30 days. However, there are factories that are capable of shipping 3-7 days after receipt of fabric. These facilities are vital to the new industry.
  • Post-production services: Airfreight, pick-&-pack, and export credit are all tools facilitating the development of the industry.

The factory suppliers can not only produce the better garment in smaller quantities, more quickly, they can ensure the order arrives at the consumer's door, and even provide some degree of credit, particularly to responsible customers. This leaves their customers to concentrate their efforts on their core competency — design and marketing.

Going it alone

The problems and solutions are both accurate and realistic. To some degree both are well known to everyone. All of which leads to the most important question:

"If everyone sees the problem and everyone accepts the existential need to solve the problem, why is so little being done to move forward?"

The question has a two-fold answer:

The problem cannot be solved from the inside. In a time of change, people will fight to save their jobs rather than to save their company. To put it another way, the companies involved cannot solve these problems because the people involved are all part of the problem and, for the most part, will fight against any solution.

Bringing in an outsider presents equally difficult problems. The sad truth is that for the most part, consultants in our industry have well-earned reputations for incompetence, more interested in offering off-the-shelf one-size-fits-all solutions.

The only workable solution is to bring in a new type company organised to facilitate change. One with the following characteristics:

  • First class engineering talent;
  • Respected by both customers and suppliers alike;
  • A reputation for developing and implementing innovative solutions tailored to each company's needs.

The problems are serious and require serious people to effect workable solutions. Those who solve the problems first will be the leaders of the new industry.

David Birnbaum and Emma Birnbaum
Birnbaum & Father Ltd

Last week on just-style, Emma Birnbaum looked in more detail at the impact of the internet and the individual – as opposed to the mass-market – consumer, with new needs, ethics and expectations. In this 'New Global Garment Industry 2.0', companies are being defined by their innovations, she explains. Click on the following link to read more:

Are you ready for the new Garment Industry 2.0?