2016 is expected to be another challenging year for the apparel industry

2016 is expected to be another challenging year for the apparel industry

We asked industry executives what keeps them awake at night? And when it comes to other issues the apparel sector should be keeping a close eye on in the year ahead, compliance and factory safety, geo-political risk, trade legislation and more agile supply chains are all cited as likely to have a bearing on whether or not 2016 turns out to be better than 2015.

Colin Browne: VP and managing director of Asia Product Supply at VF Corp:
Do not expect 2016 to be any easier than 2015. The challenges we saw throughout our industry in 2015 will only intensify. Understand and mitigating risk in all its guises will become ever more important. As the bar is continuously raised, more vendors will struggle and we will see factory closures and bankruptcies. Additionally, the rise in terrorism is another new and worrying dimension and will bring its own challenges.

All of this plays out in an ever more transparent world. Today, we recognise that all our decisions about with whom and where we source is open to public scrutiny. The industry should embrace this interest in our actions from outside stakeholders. We can use it as an opportunity to demonstrate our commitment to human rights and respectful sourcing practices that improve the lives of workers and communities around the world. We have a choice, lead or be led. Let's lead.

Marc Compagnon, president of LF Sourcing and executive director of Li & Fung Limited:
Adaptability. The industry is changing at a pace like never before and it's about ensuring we can continue to have the speed and agility to change with it to meet the disruption head on and turn it to our customers' advantage.

On the whole we expect 2016 will continue to be a very challenging retail environment. Interest rate increases need to be considered and this will put additional pressure on brands and retailers.

Mr KL Lee, vice chairman of Esquel Group:
I see a trend of putting less emphasis on the product. People in our industry stress on cost and time and these are important elements to satisfy consumers. They will say they want a quality product as well, but if one is true to oneself, there is often a compromise when one pushes especially cost to the extreme. After all, we are creating/making a product that we hope to bring satisfaction to consumers and, my view is, in a more sustainable manner. So I hope the industry will always place product integrity as the highest priority. Consumers are smart and knowledgeable. They know a good product when they see and feel one.

Dr Achim Berg, partner at McKinsey & Company and co-leader of McKinsey's Apparel, Fashion & Luxury Group:
For next year, things that will be top of mind include store network optimisation and merchandise planning. Inventory management will also certainly be a topic of interest. Looking beyond next year, only those players that are operating in all stages of the apparel value chain need to intensify industry collaboration to achieve a sustainable value chain. They will also have to work harder to take the circular economy in apparel beyond the scattered initiatives that exist currently.

Edwin Keh, CEO of the Hong Kong Research Institute of Textiles and Apparel (HKRITA) and lecturer at the Wharton School at the University of Pennsylvania:
What worries and scares me are brands and retailers that continue to operate in the short term. Deep discounts to deal with inventory inaccuracies, product development calendars that are inflexible, long, and based on educated guesses, and legacy systems that cannot keep up with a dynamic globalised market place. For many there does not seem to be either the will or the means for change or improvement. These companies will fail and bring others in their supply chain down with them in the process.

On the positive side, I would look out for companies that make smart significant investments, that have courageous leadership, and have articulated a compelling brand vision. These will be the big winners.

With the slowdown of China, more tension in the world at large, and an ageing population in the developed economies, I see 2016 to be a flat to slightly negative year.

Rick Helfenbein, president of TellaS Ltd, Luen Thai (USA), and chairman of the American Apparel & Footwear Association (AAFA):
Expect 2016 to be much the same as 2015. Competition will be fierce, and everyone will struggle to take ground. As the mad scramble begins, it's important to flag caution to those companies that source in low cost environments, especially countries that don't measure up to world-class standards. At the end of the day, company and brand reputation remain far more important than chasing the lowest cost of needle.

Robert Antoshak, managing director, Olah Inc:
The demise of cotton is particularly worrisome for me. Retail buyers have figured out that the use of blended products, as well as 100% synthetics, is fine with many consumers – a development that reversed many years of consumer preferences for 100% cotton in their garments. The big question, of course, is why?

There are a lot of reasons why cotton has lost market share. Price has played a significant role; there's no getting around that. When cotton hit $2.00 per pound a few years ago, textile and apparel companies quickly looked for cheaper alternatives. In turn, fashion also affected fibre-sourcing decisions. But there's another reason that has helped to swing the market towards greater use of synthetic fibres: confusion. It's not that sourcing executives don't know the difference between synthetics and cotton, but rather that it's hard for sourcing executives to distinguish amongst all the different cotton messages in the market: organic, conventional, sustainable, and dozens of identity cottons. Which one to choose?

Something else that concerns me is that China somehow stumbles on its way to becoming a consumer-oriented economy. We had a preview of potential problems with the stock market crash earlier this year. So much of the Chinese economy is propped up by borrowed money and subsidies. What happens, in its drive to become a true consumer society, should the underpinnings of the economy come undone? It's worrisome and a bit scary with implications for the global economy, let alone the apparel industry.

The apparel industry is in a transitional period, so I do not think that 2016 will be much better than 2015 in terms of sales and profitability. The balance of consumption in the developed versus the developing world will determine how robust the industry will be over the next few years. Another factor that will weigh on apparel sales will be the ongoing consolidation of the retail industry. Today there are too many retail outlets for the level of consumer demand. Overriding all of retail is the success of internet sales, which is perhaps the single most impactful force in retail today and only continues to force consolidation of traditional brick and mortar retail.

Rick Horwitch, VP Strategy & Solutions Business Development, Bureau Veritas Consumer Products Services:
The two things that keep me awake at night are both related to the next generation of industry leaders.

1: Clear and effective communications skills. In a world that is wired and "connected" 24/7, it's the lack of interpersonal communications that generally is at the root cause of most problems. We all live on email (and texting, WeChat, WhatsApp). While these tools are important, verbal communication is invaluable. My concern is that current, and future, generations of business leaders are not learning the importance, or value, of verbal communication.

2: Technical training in areas like manufacturing, sourcing, product engineering and quality management is becoming a lost art. Students are far more interested in design, merchandising, marketing and social media (all of which are very important) than the technical aspects of the business. As products, demand chains and consumer demands become more complex, the need for some level of technical understanding will becoming increasingly important.

I expect 2016 to be a year of acceleration and collaboration – except on trade: TPP (Trans-Pacific Partnership) approval will be pushed into the new administration. To meet the challenges and opportunities outlined in this 2016 Outlook will require a commitment from everyone in the demand chain to collaborate. The changes and innovations that are needed cannot happen in a vacuum.

  • Innovations in materials, fibres, manufacturing, wearables, smart product, information management technologies will continue to grow exponentially.
  • The continued rapid growth of China's middle class will provide great opportunities and equally great challenges.
  • Because of a need for speed, the Americas will see a resurgence of production led by companies that are willing to be innovative and collaborative with technologies, systems, materials and new ways of looking at old problems.
  • Retail models will rapidly change in areas of product delivery, information delivery and omnichannel experience.
  • NGO activism, especially around water, will increase.

Mike Flanagan, CEO of apparel industry consultancy Clothesource:
Apart from the real risk of a serious terrorist incident? The other big "awake at night" issue is the growing number of reports about famine and escalating food prices in the Horn of Africa. It strikes me we're just one Panorama report away from someone connecting the problem with increases in Ethiopia's cotton acreage.

Less dramatic: the cash value of apparel manufacturing wage increases since 2012 is less than the value of cost savings through falling energy, freight and raw material prices. This isn't the result of lower demand, but of bubbles – blown up by exaggerated demand estimates – bursting after their inflation five years ago. This deflation can't go on forever, and sooner or later real inflation will return. Everywhere.

Less dramatic still, but a real issue for British businesses, is the risk a referendum will vote by the end of 2016 to leave the EU. And if that happens, Britain's trading arrangements with the outside world are all thrown into question.

Even less dramatic: buyers' inbound supply chains. The biggest disruption of 2014 was the US West Coast truckers' work to rule. Almost as close: the summer of disruption along the French Channel ports (even though much of Britain's Asian imports arrive in Europe through Antwerp or Rotterdam, they get to buyers' warehouses via the Channel ports or tunnel). These both caused levels of chaos that have never materialised from the endlessly forecast – and so far still merely threatened – potential war in the waters China claims are hers and her neighbours say aren't.

And we can't ignore straightforward compliance. I like to convince myself that the Tazreen, Ali Enterprises and Rana Plaza catastrophes were the result of multiple simultaneous failures (bad design, stupid or criminal management, rotten procedures after the event, and sloppy civil defence systems), and that they can't now happen again because – however slow some improvements are in implementing – the failures can't all recur simultaneously.

Bangladesh's resilience after the Nepal earthquakes (and Bangladesh's 30 safest months since I started keeping records 20 years ago) seem to demonstrate I'm right. But I'm not infallible – and there's still the risk of something awful happening. Remember this, though: the two worst disasters in the industry since May 2013 have been in Italy and in an arson attack on a Shanghai factory by an employee with a grievance. The death toll in each was lower than an average US school massacre – and we don't blame US schools for those massacres.

Stephen Taylor, senior manager, Kurt Salmon:
Being able to respond to the latest trends will remain a critical capability for apparel supply chains. Fashion brands that cannot respond within just a few weeks to turn around products from concept to customer, will struggle to maintain relevance. Apparel leaders in 2016 will be able to do more than fast-follow though; their success will hinge on their ability to create new and differentiated iconic products, which become statement pieces for the season. In the hyper competitive apparel market of 2016 differentiated product will be a key lever to attract and maintain profitable customers.

The new unpredictable nature of the weather presents a big challenge for brands used to planning merchandise largely based on historical performance. In 2016 apparel brands must review their seasonal calendars, consider the benefits of smaller more regular merchandise collections and upgrade their planning and forecasting capabilities.

Sue Butler, director, Kurt Salmon:
The weather! Yet again we have had a mild winter and all the boots, coats and jumpers are taking a significant markdown and the press will be littered with stories about retailers blaming poor performance on the weather.

How to continually delight the customer by offering new product. However, the time that this product stays on sale is getting shorter, ranges are increasing in size and average volumes per line are reducing – and simultaneously apparel suppliers are dealing with less predictability and the ever-increasing requirement to improve margins. There are just more and more balls to be juggled and plates to be spun so getting to sleep at night is becoming much harder!

Paul Forman, group chief executive, Coats Plc:
Health and safety standards across our industry remain an ongoing concern. Each year there is a greater recognition of the need for responsible and ethical behaviour and companies are starting to look beyond just their immediate suppliers, but as an industry we must all remain focused on health and safety. The risk of another mass accident and the reverberations that could create across our sector is an ongoing concern.

There is also the constant threat of geopolitical and economic disruption. The mantra of any successful company should be don't be surprised by surprises – but there is a limit to how far these macro external pressures can be proactively managed.

Additionally, there has been a huge increase in the incidence of cyber crime with companies across all industries seeing huge upticks in distracting activities like phishing emails, and this is likely to increase in 2016.

Generally the outlook for 2016 looks like much more of the same as 2015. We operate in a stable industry where the global consumer demand for our products grows consistently with GDP. We don't see dramatic shifts in market demands but that is not to say it does not remain highly competitive. Speed and productivity remain king.

Matthijs Crietee, secretary general at the International Apparel Federation (IAF):
I am optimistic about 2016. Investments in the supply chain are coming to fruition showing others the road to take. Global groups of companies are tackling industry-wide problems in Bangladesh, Cambodia and working on harmonisation of audits and measurements of environmental performance.

However, what could keep me awake at night is the fact that the changes are fragile. Another large industrial accident could tip the balance and set legislators across the world into overdrive, creating a jungle of fragmented rules for industry. The global industry initiatives need to keep their momentum and to overcome the inevitable hurdles they will encounter. In Bangladesh, for instance, it is crucial to see continued progress on collaboration between buyers and manufacturers in financing improvements. Barring unexpected big events, the industry in 2016 can do itself a huge favour by keeping up the momentum of numerous positive changes it has itself initiated.

Julia Hughes, president, United States Fashion Industry Association (USFIA):
Here in Washington, DC, we are already spending a lot of time talking about – and lying awake at night thinking about – the 2016 presidential and congressional elections. I'm concerned about how the 2016 election will impact trade policy – and not just because most of the presidential candidates have expressed, at best, trepidation about TPP and expanding global trade, and at worst, outdated protectionist viewpoints.

The campaigns and the primaries that will be held across the country starting early 2016 will make it difficult for the Congress to vote on TPP before the election in November. It's possible the vote could come during the lame-duck session in December 2016. But a growing number of Washington insiders are saying that they think TPP will not be approved before we have a new US President and a new Congress – and that is cause for concern!

Among the many issues apparel companies need to watch, e-commerce is changing the way companies do business. E-commerce is the fastest-growing retail channel for many brands and retailers – but it also presents many challenges, from tax implications as your goods cross borders to countries where you may not have brick-and-mortar operations, to customs issues when your customer wants to make a return. This is an example of an area where it's essential for companies to have a network in place and remain engaged with industry experts to ensure they are following the rules, so trade can expand, not be stopped at the border.

In 2016, it's going to be all about trade facilitation – from working to implement new trade agreements like TPP to create growth opportunities, to partnering with government agencies around the world to ensure companies know how to get their products to their consumer as efficiently as possible, to linking up with the industry experts and developing new educational tools so companies have the best, most current information needed to help their businesses grow. 

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