During the conference, a number of speakers from key areas of the industry came together to discuss the future of the fashion industry, the opportunities to be had, as well as the challenges arising during this period of change and how it will affect companies suppliers and their supply chain. “We are living within a time of great change,” said Adrian Elliott, President of Apparel and Footwear at Coats, global industrial thread and consumer textile crafts business.
This era of great change is thought to have been brought on by a series of events in the industry, with the most prominent and tragic event being last year's Rana Plaza factory collapse in Bangladesh. “The Rana Plaza disaster has created a seas of change where you don't just focus on the price,” added Ward, which signifies the end of the industry's “pursuit of the cheap needle.”
“Over the last ten years there has been an acceleration of the drive for the ‘smarter’ needle,” within apparel and footwear manufacturing and sourcing explained Elliott to FashionUnited. “Twenty years ago you had the great rush to China. Then over the past ten years it has grown to China plus one, China plus two strategy to re-balance China with South East Asia and South Asia, mixed with a little bit of near sourcing.”
“Brands are becoming much more aware and responsible as to how to create a winning business model"
But now retailers and brands alike are becoming more aware of the effect the “pursuit of the cheap needle” may have on their business and starting to make changes within their supply chain and business model. “Brands are becoming much more aware and responsible as to how to create a winning business model based on a different sort of model. It is almost as if they are professionalizing what has been a historically fragmented industry.”
“Now people are talking about skills, capabilities, retraining people in the West about environment, compliance, ethics. All these things have become so much more important over the past 3 or 4 years and I think a lot of that comes from the growing power from consumers in the Internet age.” Although most experts believe that manufacturing within the UK will never return to its former heyday, finding the right balance between near shoring, off shoring and value and performance are all vital in order ensure retailers have the most effective supply chain.Ward warns British retailers to not solely focus on price when it come to managing their supply costs. She stresses that it is better for retailers to focus on implementing offshore shoring and near shoring tactics with a diverse portfolio of suppliers. “We are under ever building pressure to make decisions as late as possible in the season and then move the products as quickly as possible through the supply chain as fast as you can. We want multiple drops and seasons.”
“Now we see that retailers are starting to realize that they have a gap between in the delivery of their product range and are looking to get their product out as quickly as possible. Some are doing this by first using their initial, or near shore supplier location and then if there is enough time within the season, to follow up with a order from the Far-East, or offshore location.”
Elliott is a firm believer that more and more retailers and brands will follow this model and work towards an integrated supply chain. “I think we will see a much bigger sourcing sector across different regions,” with a mixture of Asia for off shoring sourcing and locations such as Turkey for and Eastern Europe for Western Europe near market sourcing and Mexico and Central America for the US.
“Significant supply integration is certainly a huge trend"
“Significant supply integration is certainly a huge trend. The fast moving and more forward looking players will look to integrate more fully their supply chains...things are changing. You see the major brands all working with strategic suppliers and have cut down on the number of suppliers and work closer with the ones they have to make strategic investments."
Nevertheless, increasing costs continue to affect retailers and their supply chain, in spite of the suppliers' location. “Retailers and brands alike are finding it hard to pass along the cost increase into their supply chain. In the west we have seen a period of twenty long years of price deflation and that is a difficult situation when you have increasing costs in your supply chain, but feel like you can't pass those costs on,” noted Elliott.
One way retailers have been trying to tackle this problem is by moving their supply chains to the next “emerging hotspot.” As labor costs for factory workers continue to increase in China, more and more retailers are in the search of the next big sourcing region. “We know that the Chinese minimum wage for a garment worker is set to increase by 13.5 percent, as it has since 2011 and as it will until at least 2016,” points out Ward. “The latest country to grab the industry sourcing focus is Myanmar and that's getting a lot of attention at the moment.”
But Elliott is certain that the future of manufacturing in China is safe. “I think the rumors about the demise of China as a sourcing location are broadly exaggerated. I know that China, especially coastal China is becoming quite expensive in comparison to some other markets, but China is huge. It is very integrated and full of great skills and capabilities and I do not see China disappearing from the industry's supply chain. In fact, probably the opposite will occur as the Chinese consumer market continues to grow. China is probably about 40 – 45 percent of our production base and its going to stay important.”
“It is about improving, not moving your production,” he adds. “It is very clear, even though we all think Myanmar is going to be a new sourcing base, it is about the same size (in population) terms as Greater Shanghai. Chinese exports are about 170 billion US dollars, which is approximately 8 times the size of Bangladesh...in the end there are not many places left to move your business, therefore you are going to have to improve it. If the standard response is 'Oh dear, things are getting expensive, let's pack up things and move to down the road or to another country' then its not about improving things within the industry.”
Ultimately there are two ways retailers and brands can look at increasing cost inflation. “One way is to see as a big pain, a big problem,” explains Elliott. “The other is to focus on what is actually happening, which means tens of millions of hundreds of people are being brought out of poverty...it is a fact for sure, which will be happening in many Asian countries.” In fact, the growth of the Asian Middle Class is predict to grow so large by 2030, that Asia-Pacific is forecasted to move from the world's largest production base to the world's largest consumer market.
"We will see a huge shift from the West to East"
“We will see a huge shift from the West to East. What we see today as the factories of the world will become the consumers of the world.” Production markets who are currently producing for Europe, Japan and the US will start to begin producing goods for their own markets in order to keep up with the growing demand. “This is not just a banker's vision of the future, this is actually happening today...we will see the growing trend towards production countries becoming consumer markets, especially in fast developing Asian economies.”
“This is the phase in which things are beginning to shift again and the pursuit of the cheap needle is coming to an end,” concluded Elliott. “Now we have compliance, productivity, speed, innovation, differentiation emerging, digital technological and I think we are entering into a new phase for the industry.”