Fibre2Fashion: The successful apparel companies in the near future will be those that take the lead to enhance the apparel value chain on two fronts, nearshoring and automation, according to a recent report. Both must be addressed, and in a sustainable way. Apparel brands and retailers in Europe and the US can no longer do business as usual and expect to thrive.
Owing to stagnation in Western markets and to the internet, competition is fiercer than ever, and consumer demand is more difficult to predict. Mass-market apparel brands and retailers are competing with pure-play online start-ups, the most successful of which can replicate new styles and get them to customers within weeks. Furthermore, apparel companies have lost much of their clout in setting the tone. In most mass-market categories, hottest trends are determined by individual influencers and consumers rather than by the marketing departments of fashion companies, says the ‘Is apparel manufacturing coming home?’ report by McKinsey & Company.
In light of these factors, speed to market and in-season reactivity are now more critical than ever to an apparel player’s success. Indeed, nearly two-thirds of US apparel executives and about 80 per cent of international chief procurement officers say that these two capabilities are top priorities. Most of the established fashion players are burdened with slow commercial processes and legacy supply-chain and sourcing setups—and therefore struggle to keep up with more nimble competitors.
The report adds that about two decades ago, European and US mass-market apparel brands and retailers were rushing to move as much production to Asia as possible to gain a cost advantage. Since then, the trend has been a unit-cost play, which focuses on adjusting the sourcing footprint and moving from China to even more cost-efficient frontier markets. Apparel players that have successfully done this—while still ensuring high quality, speed, and compliance—have been able to deliver relevant products to consumers at the best prices.
However, the industry now is at a crossroads where speed beats marginal cost advantage and basic compliance is upgraded to an integrated sustainability strategy. The traditional supply chain setup is now challenged, and as labour costs converge, brands and retailers are starting to rethink their sourcing and production models more broadly. Moves to increased nearshoring and more automated production models have the potential to enable sustainability further and to support the adaptation of a circular economy in the apparel sector.
Consumers are becoming increasingly aware of the environmental impact of the traditional linear apparel production modes, and the public outcry concerning overstock liquidation is becoming louder. Some 78 per cent of respondents to the survey stated that sustainability is also somewhat or highly likely to be a key purchasing factor for mass-market apparel consumers by 2025. Mass-market apparel players that embrace automation technologies to become faster and more sustainable will likely be tomorrow’s winners.
“Many apparel companies need to make bold yet disciplined and balanced investments in nearshoring, automation, and sustainability—and to do it immediately. Given these market shifts, it isn’t surprising that 79 per cent of respondents in our survey believe that a step change in nearshoring for speed is somewhat or highly likely by 2025, especially as the economics of nearshoring are starting to add up,” adds the report.
Even from a mere landed-cost price perspective, nearshoring can be economically viable in certain cases, mostly due to savings in freight and duties. For instance, a US apparel company that moves production of basic jeans from either Bangladesh or China to Mexico can maintain or even slightly increase its margin, even without higher full-price sell-through. For Europe, unit costs remain significantly lower when sourcing from Bangladesh, but reshoring from China to Turkey is economically viable. Landed-cost prices for denim, for example, can be 3 per cent lower when sourced from Turkey. Onshoring the production to Germany or the United States, however, will not result in breaking even.
As the mass-market apparel sector is moving to a demand-focused, agile supply model—and as labour costs are rising—automation will play a key role in increasing labour efficiency, throughput, and flexibility. In the future, automation will be crucial to increasing the financial viability of on-demand nearshoring or onshoring models.
Before being able to comprehend fully the prospect of automation for apparel manufacturing and its potential impact on nearshoring or onshoring, companies need to have a granular understanding of the technology landscape. For certain products, automation not only makes nearshoring more attractive for European and US apparel retailers and brands but also makes onshoring to the United States economically viable, the report notes.