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The evolving apparel industry
While the shift towards lower production and social costs will eventually lead to a drop in social compliance, Sri Lanka Apparel Exporters Association Chairperson/SLAAF Co-Chair Kumar Mirchandani stressed during his welcome address that buyers should be well aware of this fact.
Although the topic of moving towards cheaper production is a never-ending debate the industry has faced for several years, the lack of effective measures in that regard resulted in the biggest industrial accident in modern times, the collapse of the Rana Plaza in Bangladesh which occurred earlier this year.
Following the tragic incident that claimed over 10,000 lives, Mirchandani pointed out that audits in Asia increased by 57% and 107% in Bangladesh.
Having conducted a survey amongst industry leaders as to what in their view is the most important development that took place in apparel industry over the last year, Mirchandani shared the findings of his informal research with the audience.
Presenting first the global perspective, recession in major markets, price deflation and buyers on the lookout for cheaper production were observed to be the negative developments. The positive factors were noted to be opportunities arising from emerging economies, new markets, increasing demand for social accountabilities, and online retailing that is breaking geographical borders.
From a local perspective, labour shortages in urban and semirural areas, other sectors competing for labour, high cost of power in weaving and textile plants and the loss of middle management level employees due to brain drain were the negative aspects highlighted.
Moving on to the positive developments in the country, Sri Lanka’s technical growth, its ability in designing, lean manufacturing knowhow and increasing exports despite having smaller factory bases were a few plus points observed.
The new amendments to the Finance Act, allowing Sri Lanka to leverage global sourcing, the country showing leadership in social accountability and gearing to be a regional hub for apparel were the positive developments appraised by industry leaders, said Mirchandani.
“Sri Lanka has been bold and has taken many risks. The legislation of the country has changed, opening up many different avenues for our trade. With the recent developments that will help uplift the local apparel industry, we as an industry hope Sri Lanka will constantly evolve and stay relevant in the market place,” expressed Mirchandani.
Acknowledging that in terms of apparel the nation is on the right track, the industry expert observed there are challenges the industry has yet to overcome.“Having an efficient and fast supply chain should be a must for retailers and brands and market disruption caused by the internet and globalisation has made this more vital than ever before. By disruption it means that we are facing unpredictable buying patterns. Nobody knows what the consumer will buy next. Different segments of the population have the access to money as opposed to before and we have to be able to identify those segments,” he said.
Rise of retail mega-systems
With technology holding a new doorway in retail, The Future Laboratory CEO Chris Sanderson, via a pre recorded video, opined it is beginning to change the way one would think about retail structures and systems.
Taking into account online services such as Amazon, Ali Baba, and Facebook to name a few, such are no longer just social network sites. The websites have become complex and are now mega online systems where millions of consumers are transacting, socialising, engaging and trading on a daily basis.
While online giants such as Amazon and Google ended its last financial year with a revenue of US$ 61 billion and US$ 50 billion, comparing this with a few apparel giants, the 2012 revenue of GAP was US$ 15.7 billion whereas Zara ended its financial year with a record revenue of US$ 13.8 billion.
According to Sanderson, the statistics tell us that with the size of the mega systems, industries must start to think that platforms such as Google and Amazon are beginning to consider what might happen to them if they move towards 'Brick And Mortar' (BAM) retailing.
“I think of the big shifts we are beginning to see is the number of retailers who are ‘showrooming’. It works in two ways where consumers are coming into the store and using mobile phones to check, compare and test the prices in that store, and to find out if they have a better deal elsewhere. So what retailers are looking at is using this process to help them refine the kind of deals they are offering to the consumer,” said Sanderson.
Rather than having over 30 product offerings, retailers are now extending only a few of their best products and allowing consumers to reach variations online. “This means that a department store will not only give more services and focused displays but will also give more in line with how the consumer themselves are beginning to shop. However, the big change we are witnessing is that majority of retailers are staying within selected social networks and using it as a platform to do retail in a different way,” noted Sanderson.
Elaborating further about the systems, he said such retail is known as ‘walled gardens,’ where it is about new areas one would find within the art of the system. On the internet, a Facebook page is a walled garden because a retailer allows only its members to access that space.
Sanderson stated that retailers can increasingly have a presence on Facebook to offer members only benefits. The best example of this he said is Yves Saint Laurent (YSL), a beauty company which created special limited edition products for fans called ‘Devoted’ that are available to customers only through Facebook.
So what happens when physical and digital are merged together? ‘Phygital’ is the outcome, said Sanderson.
“Quite a lot of retailers are becoming phygital to combat the desirability of online shopping. Burberry has embraced this successfully as their store mimics their website. So as a customer walk around the store, screens displaying details about products, live catwalks, history about the brand and much more gets activated. The environment is similar to what one would experience when in front of his computer. Therefore what we are seeing is the merge of physical attributes of the store mixed with digital elements,” shared Sanderson.
Another trend he pointed out is the merging of technology to deliver better buying experience. The App ‘Snap Fashion,’ Sanderson said, is an ideal example of this since by using shape sensitive technology, on a photo capture it recognises the style and shape of a product and puts the customer in touch with over 150 retailers in the UK having similar items.
“With the emerging trends in retail we are seeing BAM fighting back. As high street malls and retailers are beginning to worry about their store, we see increasing investments online,” he observed.
With consumers moving away from a celebrity society and towards a new found interest in science, culture and education, in the coming decades the world will witness ‘brightening up,’ which is about people reaching out, looking up and engaging in more complex activities.
“We are seeing the return of the scientists as heroes and technologists and engineers as people who we want to celebrate. Everything is about making people seem more intelligent. The trend that we are really looking at is that the consumer wants things to be more complex and imaginative. Overall, they want more exciting relationships with brands and want to control this,” said Sanderson.
He added that another aspect that is changing is the way experience is delivered. In the old days, Sanderson said business and retail were about transaction. In the ’90s it was about relationships and now it is about conversations. “The key element is how people are engaged in the brand value. It’s now the time of anyhow, anyplace, anywhere, and that is how the customer is thinking about products. If they are thinking about it at all, they want to go out there, and engage with the brand. A customer isn’t thinking about the store anymore, they are thinking about shopping.”
“Always use imagination when creating a new product. Be playful in understanding that the 21st century wants to have fun. They want to play with brands. One of the finest things to do is to be experiential. Allow the customer to become the centre stage of the brand and allow them to be a star,” said Sanderson.
Key to performance
in traditional and
emerging markets
Stating that manufacturers cannot fight the market, GT Nexus Vice Chairman and Chief Strategy Officer, Kurt Cavano, also SLAAF Co-Chair, stressed it is imperative they understand what retailers are doing, who in turn are trying to understand what consumers are doing.
While social media is changing the landscape of the apparel industry, he said: “It’s all about the consumer. It is all about giving them products the way they want. It is not about the 'Brick And Mortar' (BAM) because people are starting to embrace technology. It is phenomenal how the customer is looking to get products anyway they can and the pressure that it puts on the supply chain is tremendous.”
Although the USA has been quick to embrace ecommerce, where in 2012 alone it had transacted approximately US$ 1 trillion, 21%, online, it is observed the country is ‘not’ the biggest bubble on this regard. According to Cavano, the biggest bubble is Asia.
Justifying his statement by taking the example of Alibaba, a platform conceptualised in China to facilitate online delivery, Cavano opined that Alibaba alone delivers more in China than all the ecommerce in USA combined. “That is how fundamental change is. The change is on all over the world,” he stated.
Focusing on a region close to Sri Lanka, Cavano stated the Indian market is a complete challenge as it is only 10% organised. “As big as the market may be, almost 90% of retailing is carried out in shops located in roadsides. Only 10% is organised retail and that is a really hard market to crack, particularly if you want physical space. To address this scenario, most retailers in India are now looking at the internet to help organise the market,” he shared.
Having shifted to the internet for ‘organised’ retailing, India is already seeing a 30% increase in the ecommerce sphere. While apparel is the second most sought after product segment in India, following consumer electronics, the major online brands are Jabong, Flipcart and Yabbie. Unsure of how many of these online platforms are going to survive as they are start-ups, Cavano said: “The challenge is not about organised retail, the challenge is not having an organised delivery system. Not only does India have to figure out how to get everything sorted to the customer, but also needs to look at how to deliver the last mile.”
Taking the scenario of emerging markets, Cavano said the Asia region has a “huge” advantage over North America and Europe in delivering orders made online as it has successfully taken up ecommerce.
“The real challenge in Europe and the USA is the huge investments made for the physical stores. We have more square foot of shopping space in the USA than we need by three- or four-fold. Particularly now, this issue is not there is the emerging markets. Emerging markets have the advantage of not having to get rid of the physical space. It is about having that balance in building that physical space and wrapping it with an ecommerce experience,” explained Cavano.
With China having a growing middle class and its leadership pushing to make a shift from an export-driven economy to a locally-manufactured economy, this transition Cavano opined brings out the opportunity “for Asia to produce for Asia”.
Exploring the changes brought about by technology and ecommerce, he said the two have made it more difficult for retailers to satisfy their customers. Customers’ increased access to technology has created the need for them to get hold of a product and experience it as soon as a want is realised.
Although such changes and trends help the industry to grow, the supply chain is hit with the pressure of delivering in shorter cycles. “It’s great to build powerful websites that allow people to order. But if the retailer cannot deliver and make the supply chain work, he will eventually lose since it is the consumer who holds the power now. So when shifting towards the ecommerce model, it is all about agile supply network,” he said.
With pressures changing the supply chain, when taking into account the growth in retail, Cavano pointed out that the top six retailers are not in North America but in Asia Pacific.
Stressing that this is where the growth is, he said for Sri Lanka, this is an opportunity for the nation to be part of that growth. By contributing to make supply chains better, Cavano emphasised that Sri Lanka can be a part of the huge revolution that is taking place in Asia.
Shifts in sourcing strategies:
A global CEO’s perspective
Representing a company that has a rich heritage dating back to the 1750s, Coats CEO Paul Forman proudly stated that the organisation is the world’s leading industrial thread and consumer textile crafts business, having a workforce of 20,000 employees in over 70 countries across six continents.
Elaborating on Coats’ position as a global leader, he observed the company has an unrivalled access to global markets and consumers which has allowed it to be recognised as a market leader across many areas of operations.
“Our industrial division is three times the size of its nearest competitor in industrial thread and our crafts division is the number one global player in the textile crafts market,” Forman stated confidently.
Operating for nearly 250 years, Coats’s pioneering history and innovative culture has ensured that it will continue to lead the way around the world as it provides value added products and services to apparel and footwear industries.
Serving over 5,000 brands, Forman stated that with the decades of experience the organisation has, Sri Lanka is recognised to be a place of good business that the company is delighted to be a part of and is confident that it will continue to grow.
Pointing out that Coats has been in the nation since 1979 and provides employment to over 600 locals, Forman said: “The key point here (Sri Lanka) is the proximity to the customer. The garment production in Sri Lanka is one of the most stimulating customer bases in the world. It is genuinely at the leading edge in terms of interaction and thinking. The skills, the education level, the efficiencies of the factories – all of these fantastic assets can and will be a huge advantage for the country in the future.”
Speaking on the physical trends observed in the industry from the perspective of Coats, he said while the company has been in over 111 sites, it has moved out of the Western world at the cost of three quarter billion dollars. “The reason was not to lower our own cost but because in the last decade there has been an unprecedented shift in the industry. So we have had to follow that customer base since essentially we have to supply our customers in 48 hours. We are now mostly in the Asia Pacific region. This effectively maps the apparel and footwear company in the world,” expressed Forman.
Elaborating further on the trends observed in the past decade, he said it has been recognised there is slow growth for apparel in North America, Latin America, Western Europe and Australasia. Whilst middle growth is witnessed in Central America, North Africa, South Africa and North East Asia, it is South Asia and South East Asia that have shown strong growth in the industry.
He explained that although North America is attempting to build the industry to what it once was, Forman opined that “nobody in North America know how to make clothes”. To uplift the industry, he shared that there is a debate on importing workers from countries such as Sri Lanka. Central America he said will continue to grow primarily because the USA and Europe has a deal on near and far sourcing strategies. South America is noted to be in a sluggish mode whereas Brazil is suffering greatly from imports, making it a tough market to penetrate.
According to Forman, the ‘big area’ for the apparel industry is currently Turkey as it is doing significantly well. “If one was to ask what the Sri Lanka of Europe is, I would say it is Turkey. While Central and South America are not taking off despite its attempts, the biggest hot spot in the world is South East Asia,” he said.
Shedding light on the top five growth markets in the apparel industry, he said currently it is Bangladesh, Vietnam, Indonesia, India, and China.
Moving on, Forman pointed out five elements that are important for the suppliers and manufacturers of the apparel industry. The first is the double digit structural cost inflation being the lower of gravity of the industry. The second most important element is that time is the basis for competition now and will be for the next decade in the industry.
The next is speed and development which is about spinning product development in a multiple angle during different seasons of the year. Opining this will be a vital challenge for both contractors and suppliers, Forman said: “The reality is that many retailers are subcontracted out or are removed in the name of cost reduction although a lot of them have the capability. There is going to be more pressure. But for Sri Lanka, the talent should be used as an opportunity to actually come up with proactive product development capability.”
The fourth he said is innovation in all aspect of consumer design service. He added if the industry is expecting brands such as Next or M&S to come up with ground breaking innovation, the simple answer to that is they won’t. The fifth being sustainability, he stressed that being a corporate citizen there are certain customers who insist on using companies such as Coats to protect brand reputation.
Forman opined that the apparel industry is about 150 years behind its development when comparing it to the automotive and aeronautic industry. To be ahead he said there should be better supply integration including information sharing.
“We still operate in an industry where information is perceived as power and not an opportunity. That’s a very backward looking and frankly a self-defeating mentality that people need to grow out of. However the Sri Lankan kind of industry is striding ahead of anyone else. The great news is that it is the most sophisticated producer of garments in the world in terms of thinking,” said Forman.
However, the challenge is to use the thinking and implement the same in the long run. In terms of neutral paradigms and supply chain integration, Forman said Sri Lanka is a classic example to follow on how new processes are taken up to generate speed.
Highlighting a few elements that would be needed in the future, he said: “The profound use of digital in the front end is essential. This is an important point that I don’t think many people in the apparel industry actually grabbed. But the use of digital to change the supply chain effectiveness, speed and efficiency is something that is needed in the next three years.”
Pix by Indraratne Balasuriya
