By Cary Sherburne, WhatTheyThink
This article was published on WhatTheyThink March 1, 2021. It is an analysis of a recent session of the Texprocess Americas & Techtextil North America Virtual Symposium. Panelists discussed what is happening with respect to the textiles and apparel supply chain, especially what has been accelerated by the pandemic. Click here to learn more about the series and future sessions.
Texprocess/Techtextil continued its webinar series with a session entitled Fashion On-Demand: From Supply Chain to Demand Chain. Moderated by Edward Hertzman, Executive Vice President, Fairchild Media & Founder and President- Sourcing Journal at Penske Media Corporation, the session included three highly knowledgeable panelists:
John Thorbeck, Chainge Capital LLC
Omer Kulka, CMO, Kornit Digital
Edouard Macquin, President, Americas, Lectra
The topic was whether or not brands and retailers are shifting their mindset relative to sourcing. Thorbeck made the point that he was not sure there is a specific sourcing shift required, stating, “I prefer to think of this as more of a fashion system as opposed to the function of supply chain. There is no easy answer. You can’t merchandise your way out of this crisis. This is not a cycle; it is systemic change.”
Macquin added, “Brands have lost a lot of money during COVID. Changes that were a great idea for the future are now a matter of survival. Everything we were thinking about for two, three, four years out has to happen now.”
The session discussion conveyed a real sense of urgency about the need for this change, and discussion was around how the system could be better moving forward, with systemic change rather than concentrating on incremental fixes, which has been the pattern of the past.
A key element of this shift is growth in digital textile printing. And it seems the pandemic has spurred that growth somewhat—the latest numbers I have seen from WTIN indicate that 10% of all printed fabrics worldwide are printed digitally. While that’s still a small number, it was pegged at only 6% less than a year ago. That would seem to reinforce predictions by many industry pundits that growth in digital textile printing would be in the triple digits, some projecting as high as 250% growth. Even so, it will take quite a while to get to ubiquity.
Why is this important? Like digital printing in commercial printing, digital fabric printing is poised to turn the supply chain on its head. It enables the production of apparel and home décor on demand, or at least to a limited inventory, instead of over-producing inventory that will never be sold. Macquin noted, “Excessive inventory is a huge risk that has not been taken into account in the equation. Few companies could anticipate this crisis, and most are not prepared.”
But who makes the investments, and why? Kulka stated, “Brands don’t invest in the technology. One of their leading business models is not to go vertical in production.” He commented that COVID created a tectonic shift, and it’s more than just sourcing, adding, “We see a need for change from end to end, and we need to find a way to do things differently, investing or mutually investing in technology and introducing a completely new digital branch to the supply chain.” As with other industries that have undergone or are undergoing an analog to digital transformation, the more digitally native players are succeeding more so than conventional players. From my own experience in commercial print, and looking back to the late 90s and early 2000s and the dot-com boom cycle, it was the non-traditional competitors that drove change, and those that believed they could continue with business as usual suffered significantly.
One difference between then and now is the rapidity with which the pandemic hit. Most people I talk to peg March 16 as the day everything changed. And just like that, we were in unknown territory. An event like that requires, as Kulka said, not just adapting, but considering a whole new way of doing things. Some companies have been able to adjust better than others. Amazon, for example, as a digital native company, is in a position to manage this.
Aside from Amazon, who are the winners? Thorbeck noted, “Target has the best overall view in the U.S., and they have had longstanding and deep relationships with factories and partners with shared values between suppliers and brands. I’m also impressed with European Luxury, a leader in on demand and made to order.” But he also pointed out that new ventures that do not have to retrofit have a clear advantage, adding, “They are starting at the beginning with a zero inventory, zero waste concept and system.” In other words, those non-traditional competitors that might seem to more established brands to come out of nowhere.
Another key point from the webinar discussion noted the fact that the industry is still too focused on cost and not enough on how to share risk. One area of needed change is in the purchasing process; in order to drive real change, buyers need to be compensated differently. Too many are incented to focus on reduced cost per unit, but that can fail to take into account total cost of ownership. In other words, if you produce 30,000 units of a blouse, you’ll get a great cost per unit. But if you can only sell 10,000 at optimum margin, with 10,000 going to discount tables and the remaining 10,000 to the landfill, your cost per unit just tripled. And if capital is tied up in excess inventory and waste, capital is not available to invest in change.
Getting buyers to “buy in” to this concept in commercial print took a lot of work, and really had to be driven by a change in their compensation structures. The same is true in fashion.
Hertzman pointed out that Target, Wal-Mart, Nike and Adidas had some advantages going into the pandemic. Nike, for example, had the right product category for the moment and a great digital and direct-to-consumer strategy already in place, as did Wal-Mart and Target, who were able to quickly shift to a “buy online and pick up curbside” model adding, “They were set up from a back-end perspective to quickly take advantage of this opportunity.”
That’s mostly distribution, but manufacturing is also a big part of this, and much of that is likely to remain overseas for the foreseeable future. The bottleneck is talent in sewing, which is lacking scale in North America. But on the positive side, there are many on-demand manufacturers popping up here, some with a scalable architecture that could help to drive more product manufacturing on-shore.
So what’s the solution? Where to we find the balance? The panelists agreed that the industry needs to reduce risk from end to end, and that it can’t just be efforts by single players. Thorbeck’s point: “Too much time is spent on adversarial negotiations versus a collaborative approach to shared risk,” but also notes, “There is not a single large brand that is not investing right now in capabilities for on demand.”
And again, a very important piece that was reinforced by Kulka saying, “Disruption doesn’t come from within. But in this case, disruption should not be a surprise. People knew they needed to change.”
They just didn’t expect that drastic tectonic shift that is forcing that change into “now,” not five years down the road.
Thorbeck concluded, “Sewn products are simple, but they have a hugely complex supply chain. What’s changed now is an acceptance that it is the system that has to change. You can’t work individually to be successful in this system that has broken down.”
The winners will be those who can make the change, or new players that will drive the change. For others, well, the future is much less certain. Only time will tell if the industry can really step up and take the necessary actions now that will dramatically change a broken system.