The apparel supply chain will look very different in 12 months’ time. Operational and strategic responses to the coronavirus will have implications on product design, development, sourcing and manufacturing resiliency for months and years to come.
Here are some likely scenarios that the apparel industry can begin to prepare for now:
1. Post-Pandemic Supply Chain Consolidation
The pandemic has put the lights out for many SME manufacturers and suppliers in markets like India, China and Bangladesh, with government small-business support obsolete. Tier 2 and Tier 3 suppliers will be absorbed by larger entities to localize manufacturing and take advantage of the benefits of vertical integration for supply chain control, resiliency and risk management. Brands and retailers will find that the diversity of their supply chain partners may be changing in the months and years to come.
Post-pandemic, upstream consolidation will offer manufacturers the potential to provide integrated solutions and become a strategic partner to its international retailer and brand customers, achieving faster product innovation and lead-times. Welspun in India started with a solitary textile mill and has invested Capex in purchasing yarn spinning capacity locally to support it’s textile production, making it vertically integrated from fiber to finished product.
Brands and retailers will be seeking to de-risk product development with every step of the supply chain under scrutiny — from yarn spinning, weaving to dying to cut and sew. Those retailers that have liquidity may now even invest capital into their core vendors and manufacturers for equity or do joint-ventures. Integration, consolidation and investment could ensure a more reliable supply chain system for the future.
2. Inventory Management: From “Just-In-Time” to “Just-in-Case”
Inventory management from raw materials to semi-finished to finished goods will move from “just-in-time” to “just-in-case.” Every retailer and manufacturer is impacted by this crisis in some way; in January, it was the lack of fabric availability from China; in April, an update from Italian yarn suppliers indicates that the industrial lockdown and expected production constraints will continue until at least early June. Supply chain roadblocks are coming from all over the world.
From yarn production to cut-and-sew, some manufacturers have ceased production completely, some have seen greatly reduced demand and others have seen a huge increase in demand. Companies with limited product offerings can have greater control of the supply chain output in crisis times. Levi’s is an example of how its main attraction of denim jeans provides upstream visibility for materials sourcing core replenishment and downstream assortment stability, where stock can be carried to future seasons mitigating discounting and margin erosion.
Real-time visibility into the availability of raw materials, finished goods, work in progress, etc. would be the ideal toolkit, exposing capacity constraints into first-, second- and third-tier suppliers. The next pandemic “playbook” may involve increasing safety stock, alongside blended inventory management strategies that maintain fast access to core materials on a regional and product basis.
3. Faster Diversification of Raw Materials Sourcing and Production Ex-China
Trade tensions between the U.S. and China began a diversification process more than two years ago. The pandemic is accelerating this trend, as company leaders experience the supply chain risk of a country whose factories are closed.
To what extent governments will subsidize domestic production remains to be seen. At the onset of the coronavirus, the Japanese government pushed its industries to move manufacturing, announcing more than $2 billion in aid to shift production out of China and into local and regional suppliers.
Even without government intervention, the expectation is that contingency planning for sourcing and production will become a consideration alongside the cost benefits of developing manufacturing economies of scale. Regions like Turkey, Jordan and India might now see their efforts to win bigger orders and larger market share pay off.
These markets will need to show a careful transition post-pandemic into productivity. At the factory-level, investments into stringent employee health monitoring will be imperative, ensuring there is enough capacity to screen thousands of workers at scale whilst maximizing output given the likelihood of government-stipulated caps on working hours.
Near-shoring will be accelerated in response to a heightened desire for products made closer to home, according to McKinsey. New manufacturing hubs may emerge encouraging brands to think laterally about production, with capabilities and performance tested through smaller capsule collections. The ability to faster deliver on trends that near-shoring affords may enable a higher sell-through and offset concerns about margin loss from low-cost manufacturing from Asia.
4. Coronavirus and Sustainability; Demand-pull and Supply Pushback
In an industry undergoing real-time demand collapse and seismic supply shocks, where does sustainability sit? Post-pandemic, there will be a conundrum; consumers are thinking hard about their choices and the need for a more sustainable way of life after the coronavirus, making choices based upon values. On the other hand, many in the apparel industry will not have the resources to invest in transparent supply chains and responsible sourcing programs in a meaningful way.
Online sales for apparel and footwear retailers fell 37 percent in March, according to Rakuten, and foot traffic to U.S. stores fell 58.4 percent in late March, according to ShopperTrak. Online retailers from high-end to ath-leisure showed deep discounts of more than 30 percent in the past weeks, crushing revenues and profitability, and leading to many company liquidations and insolvencies.
And if there are any category winners — perhaps value players and discount retailers — sustainability is not always an agenda item. As priorities for retailers and manufacturers focus on survival, sustainability will need to reinvent itself in the supply chain as a cheaper, faster, better model driven by innovation and easy to adopt tech and transparency tools.
5. Coronavirus Will Change Not Just How Consumers Buy, but What They Buy
As working from home becomes the new normal and video conferencing replaces in-person meetings and business travel, consumer needs are set to shift from conspicuous consumption to cautious conservatism.
According to retail analytics company Edited, as lockdown measures scaled back in China, higher retail sell-through numbers were tracked in denim outerwear and blazers alongside hats, and scarves that offer physical coverage and protection from infection.
Apparel and accessories that are functional as well as fashionable will take center stage. Protection from disease, from cold and even from food stains will be valued. Even comfort can be considered functional, especially in bottoms that are not seen on video.
We see the “less is more” mantra to accelerate, with apparel collections offering fewer items per season. Consumer value may be measured in terms of durability and transcendence of trend. With unemployment at an all-time high, nonessential apparel might well be an investment piece that can help the wearer land a job.
Jag Gill is the chief executive officer of Sundar, an emerging technology company based in New York and built at MIT, providing digital apparel sourcing platforms and sustainability tracking tools.