A number of issues will have a bearing on whether or not 2017 turns out to be better than 2016 for the apparel industry

A number of issues will have a bearing on whether or not 2017 turns out to be better than 2016 for the apparel industry

In the final part of our Outlook 2017 report we asked industry executives what keeps them awake at night – and other issues the apparel sector should be keeping a close eye on in the year ahead. Not surprisingly, the future of trade policy and free trade agreements – and the risk of trade war breaking out – were top of the list, along with finding opportunities to achieve growth, health and safety, and preparing for the unexpected.

Marc Compagnon, executive director, Li & Fung:
With the current macro conditions, 2017 is likely to be another challenging year for the apparel industry. They key thing keeping us awake at night as a company is the pace of change. We want to recognise the opportunities when they arise, such as the digitalisation of the supply chain. It's a fundamental requirement for today's business, and we want to be at the forefront of that and to help our customers navigate the pace of change.

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:
Interest rates will go up in 2017; unemployment, while down, may result in more but lower paying jobs. Meanwhile China is slowing down and getting older. We should be cautious, agile, and on the lookout for opportunities. It won't be business as usual for a while.

The world is more polarised than ever. Many more extreme personalities are leading nations. We run the risk of returning to a Cold War era stance. This would dampen global trade, adversely impact consumer sentiments, and reduce consumption. None of these are healthy for trade or industry.

There are also the possibilities of new and unexpected disruptions. What if Apple decides to introduce smart clothes that functions as phone, watch, and apparel? And what if Foxconn decides to manufacture this for Apple? From the brand to the retailer to the manufacturer, all current stakeholders in the apparel supply chain have just been disrupted. Remember Kodak, Blockbuster Video, buggy whip manufacturers?

Dr Sheng Lu, assistant professor at the Department of Fashion and Apparel Studies at the University of Delaware:
Trade policy is one area that keeps me awake at night. Trade policy matters for the apparel industry because it affects the quantity, price and availability of products in the market. Specifically, in 2017 I will be closely watching the following trade agendas:

  • The WTO Trade Facilitation Agreement (TFA), which is close to coming into force. TFA aims to make customs and border procedures easier, speed up the passage of goods between countries and lower cost of trade.
  • Negotiation of the Regional Comprehensive Economic Partnership (RCEP), a proposed free trade agreement between the ten countries that are in the Association of Southeast Asian Nations (ASEAN), plus the six countries that ASEAN has free trade deals with (Australia, China, India, Japan, New Zealand and South Korea). In 2015, these 16 countries together exported $369bn worth of textile and apparel (50% of world share) and imported $124bn (34% of world share). Since the Trans-Pacific Partnership (TPP) won't be implemented anytime soon, RCEP has the potential to influence and reshape the textile and apparel supply chain in the Asia-Pacific region.
  • A possible revision of the North American Free Trade Agreement (NAFTA). NAFTA is a critical factor facilitating and maintaining the western hemisphere textile and apparel supply chain. A recent study of mine shows that ending the NAFTA would significantly hurt apparel manufacturing in Mexico and textile manufacturing in the US, largely because apparel 'Made in Mexico' today often contains yarns and fabrics 'Made in USA.'
  • Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Partnership (T-TIP). Although many people think these two agreements are dead, I disagree. TPP and T-TIP are NOT conventional free trade agreements (FTAs) that deal with tariffs and non-tariff barriers only. In the same way that we need traffic rules, TPP and T-TIP address our needs to update international trade regulations on 21st century trade agendas such as digital trade, state-owned enterprises, labour and environmental standards, small and medium sized enterprises, and trade related investment. On the other hand, both TPP and T-TIP still have a solid and broad support base, which includes the fashion apparel industry. If trade politics is why TPP and T-TIP are in trouble, for the same reason we should expect a reversal of the fate of these two agreements when the time comes. Plus, we should never underestimate the creativity and wisdom of trade policymakers.

Another thing that keeps me awake at night as a professor is what needs to be changed or updated in our curriculum to better prepare our students for the needs of the apparel industry. Fashion programs like ours directly prepare future professionals for the fashion apparel industry. This also means we are not immune to big shifts in the industry either.

For example, our course offerings currently include textile science, product development, merchandising, branding and sourcing and trade. But in addition to these conventional topics, what else should be added to the curriculum? What new skill sets or knowledge points will the apparel industry expect of our students in the future? Personally I think talent training is a critical area that the apparel industry, and our fashion educational programs can and should form closer partnerships. And the outcomes will be mutual beneficial too.

Julia Hughes, president of the United States Fashion Industry Association (USFIA):
Last year I said that I was lying awake at night thinking about the 2016 elections and the impact on trade policy and especially the TPP and the TTIP. Wow, did that turn out to be an understatement! Now, the uncertainty following the election remains the top concern – about the future of trade policy and free trade agreements, about potential gridlock in DC, and potential problems with China and other nations, and of course, about consumers' confidence in the economy and the impact on the industry.

We'll all be getting a little less sleep until we know more about the new Administration. Nonetheless, USFIA is prepared to work with the new Administration and Congress to find opportunities to eliminate tariffs and open markets, to expand activities with US Customs and Trusted Trader Programs, and to provide resources to help companies source in cost-effective, efficient, and ethical ways.

Robert Antoshak, managing director at Olah Inc:
Trump's trade policies are most worrying for me. Although he ran on an anti-trade platform, it is unclear how he would specifically deliver on the populist message once in office. With his attitudes toward trade and globalisation, there's a great chance of a trade war breaking out. For instance, he could impose unilateral tariffs on apparel imports from China and elsewhere, which would only invite retaliation. It's hard to know how far Trump is prepared to go under those circumstances. What begins as higher tariffs could end up as fixed import quotas.

Besides my hand-wringing about trade policy, I remain concerned by the decline in cotton consumption. Somewhere along the line, cotton fell out of favour with designers, manufacturers and, most importantly, consumers. The industry has bravely rallied its troops to champion the benefits of cotton, yet cotton continues to be saddled with weak demand. Of course fashion has played a role and consumer preference for synthetics continues to be strong. Athleisure is the most significant threat to the denim and jeans industries. And if the jeans business remains weak, so will cotton consumption.

Mike Flanagan, CEO of apparel industry consultancy Clothesource:
What keeps me awake at night? The risk of real war; and the risk of the Eurozone's obsession with no borders and a volatile currency causing events that crystallise instability in Europe.

In the year ahead we all need to watch economies, the mass movements of populations, and the extraordinarily complex legal reactions of the world's major trading nations.

Matthijs Crietee, secretary general at the International Apparel Federation (IAF):
Just as we don't want terrorists to win by making us stop visiting Christmas markets, soccer games and rock concerts, I would not want the apparel industry in vulnerable countries to suffer unjustly when terrorist attacks seem to make them unsafe. It is understandable and unavoidable that companies must sometimes take tough decisions to protect their personnel, but I hope the industry remains its cool-headed self when dealing with this issue.

I also hope that new governments, through trade policy, will not force a romantic notion of self-sufficient production blocs upon an industry that has developed totally globalised supply chains. Supporting reshoring is good, forcing it through over regulation is not.

I hope that 2017 will also be the year when the industry's initiative to avoid the huge duplication in social audits along with other harmonisation projects will come to fruition.

Dr Achim Berg, partner at McKinsey & Company and co-leader of McKinsey's Apparel, Fashion & Luxury Group:
The apparel industry is increasingly complex and, more often than not, we talk about changes within it as isolated events. What keeps me awake at night is how all the moving parts are interconnected and how different the implications are for the various market segments – luxury players versus mid-market players versus discount players – and for the various product categories from clothing to sports to bags and luggage.

The McKinsey Global Fashion Index suggests that the fashion industry will grow by 2.5% to 3.5% in 2017, up from 2.0% to 2.5% in 2016. While this represents a slight recovery, it is not yet at the historical 5.5% annual growth it enjoyed for many years. Therefore, the apparel industry needs to keep a close eye on how each of the key shifts in 2017 impacts their particular segment of the industry and their consumers, ensuring that there is a clear value proposition in their offer.

Guido Schlossmann, president and CEO of Synergies Worldwide Sourcing:
According to the recent fashion report published by McKinsey, 2017 is supposed to be better due to an increase in global GDP and purchasing power in major economies. With a strong US currency and new US politics, higher oil prices and increasing mid-income groups, it is very likely that the US, Russia, China and India could spur the demand for apparel. In addition to omnichannel and a multi-channel sourcing strategy there is a need for a multi-region sales strategy to utilise the potential of China and India as well as worldwide emerging mega cities.

Stephen Taylor, senior manager at Kurt Salmon, part of Accenture Strategy:
The biggest concern for brands remains: how are we going to achieve growth? With margins and volumes remaining flat, growth will have to come by capturing market share from other players, being more agile and operating more efficiently.

2017 is also going to be marked by lots of restructuring as brands look to get leaner, leaving behind segments and business units that are not profitable or growing.

Building sales internationally is realistically not a silver bullet. For many years, venturing into new markets has been a strategy to help luxury brands, in particular, to fuel their growth; however, this is becoming increasingly expensive.

Rajiv Sharma, group chief executive at Coats:
The thing that keeps me awake, and should keep everybody in our industry awake, is health and safety. Until we as an industry reach zero accidents we must not rest on our laurels. We must all do all that we can to mitigate against the constant risk of a mass accident and the impact it would have on our industry.

Aside from that, the apparel industry should look more widely at what other sectors are doing, particularly around the shift from the industrial to the digital age. What digital applications can we 'steal with pride' and apply to our own industry? How and where can we better harness digital?

In comparison to other more cyclical sectors with erratic shifts in demand, the apparel industry is a stable industry with global consumer demand for products generally growing consistently with GDP.

That said, 2016 was a tough year. There are glimmers of hope for 2017 but we live in particularly interesting and roller coaster ride times. The apparel industry cannot fully prepare for every VUCA (volatility, uncertainty, complexity and ambiguity) related factor, and to an extent nor should it. But all companies must keep a constant eye on the road ahead to stay alert to small potholes that have the potential to become huge sink holes.

Rick Horwitch, vice president and global retail lead for supply chain strategy at Bureau Veritas Consumer Products Services:
A main concern related to the next generation of industry leaders, is increasingly poor communication skills and a lack of analytical skills and process knowledge.

  • Clear and effective communications skills are of utmost importance. In a world that is wired and connected 24/7, the lack of interpersonal communications is often the root cause of most problems. While social media tools are important, verbal communication is invaluable. My concern is that current, and future, generations of business leaders are not learning the importance – and value – of verbal communication and personal connection.
  • Technical training in areas like manufacturing, sourcing, product engineering and quality management has become a lost art. As products, demand chains and consumer demands become more complex, the need for a high level of technical understanding becomes increasingly important.

The real winners will be those industry leaders (and companies) who are willing to evolve and adapt to rapidly changing consumer needs, and emerging opportunities, in 2017 and beyond.

Rick Helfenbein, president & CEO of the American Apparel & Footwear Association (AAFA):
I do think 2017 will be better than 2016. We are entering an improved economy and, because of the many store closures in 2016, brick and mortar retail space is starting to fall more in line with demand. Retailers and mall operators are working very hard to re-think the how space is utilised, and shopping is becoming a significantly more enjoyable experience. There will be more going forward on quality design and less on commodity production.

What keeps me awake at night is all the pending (potential) changes for trade and for the supply chain. However, that being said, sometimes change is good!

Click on the following links to read more comments about what to expect in the year ahead:

Outlook 2017 – Apparel industry challenges and opportunities

Outlook 2017 – What next for apparel sourcing?

Outlook 2017 – Strategies for sourcing success