Amid lockdown, the apparel and textile manufacturing sector experienced a double-digit decline from store closures and stay at home orders from the Government. As a result, a full recovery is not expected to take place until 2025. Signs of industry transformation from how garments are produced and sold are already apparent in Asia, and others are likely to follow.
Jorge Martin, Head of Fashion Research, Euromonitor International and Grant Budding, Senior Consultant, Public Sector and Professional Services, Euromonitor International talks about the demand supply-side shocks the apparel industry experienced in 2020 and key recommendations for brands moving forward.
Current State of Apparel and Textile Industries
According to the latest report by Euromonitor International, apparel and footwear is one of the most heavily impacted sectors along with personal accessories and luxury goods. Due to the pandemic, there is a double-digit revenue decline, and the reason behind this is that the major sales of these industries were taking place in the stores. Global apparel and footwear industries will rebound in 2021. Yet, it will take several years to recover all revenue lost to the pandemic with recovery being sporadic across different markets and regions. India’s CAGR from 2020-2025 for apparel and footwear industries is estimated to grow by 16 percent. Therefore, textile manufacturers outside Asia will be competing for a slice of a smaller pie. In this context, it is more important now than ever to differentiate your firm or brand. The key question is, how?
The global textile value chain is undergoing an extensive transformation characterised by a convergence of supply and demand trends. The implication for the government, manufacturers, and exporters is that the recovery of the apparel and textile industry is a myth, transforming reality.
On the demand side, three key trends are impacting consumers and the purchases they are making are - Value for Money, Sustainability, and Digitalisation.
The post-Covid consumer will purchase with a purpose. They will require a clear and compelling reason, especially within the context of frugality. Sustainability has become a catch-all phrase that extends beyond environmental sustainability. It includes re-branding of CSR as well as diversity and inclusion. Consumers are increasingly buying from the brand that supports social and political issues that aligns with their values.
In terms of digitisation, there is an increase in online purchases across all generations. As a result of the pandemic, consumers are looking to reduce their in-store shopping and are moving to digital channels. The implication of this is that Industrial 4.0 results in a more seamless transition between the consumer orders towards the purchase and production part of the process.
For e.g., the Japanese brand Wacoal’s 3D Smart and Try includes a 3D body scanner where customers go in the measurement room, and the body scanner measures their specific body attributes and uses AI to match with a particular product that would suit them.
The sad reality is that these trends will not apply to everyone. The impact of the COVID-19 pandemic on global economies will result in a drop in the size of the middle class.
On the supply side, several trends and implications converge with the demand side. These include consolidation and vertical integration, the emergence of new players, and proximity supply chains. The implication of this is that post-Covid-19 will be driven by stronger, deeper relations between buyers and suppliers.
In terms of consolidation, frugality and lockdowns have fast-tracked bankruptcies. Consumers consistently rank saving money as their key priority in the post-COVID landscape. Apparel exports will need to pivot towards strategic partnerships, adapting their operations to each company's situation. The exponential growth of e-commerce has led the giant e-commerce players to move into the private label segments.
For e.g., Amazon currently has 74 private label brands, and 87.8 percent of them fall within clothing and apparel. As noted by the ILO, in the longer-term, the pandemic could affect the composition of global textile, clothing, leather, and footwear supply chains and trade, and accelerate reshoring or nearshoring production. Nearshoring is more efficient and environmental-friendly as it reduces lead times, allowing for more frequent, smaller orders. The government increasingly supports such initiatives.
There are 4 key things companies should consider adapting-
1. Facilitate Internationalisation of Textile Clusters: Collaboration is the key to short-term survival to increase efficiency.
2. Seek Real-Time Support and Guidance: This will lead to more significant specialisations and higher margin in the contracting market.
3. Re-pivot Your Industry to Focus on Depth, not Breadth: With recovery to be sporadic and mixed across different markets, Government should support the industry with real-time market intelligence on logistic, pricing, competition, and supply chains to help the members to make key decisions and understand the pocket of growth.
4. Prepare Members for the Future: Given the current crisis, individual firms will face challenges in allocating resources to anything medium and long term. The government can fill the gap by developing and rethinking cluster strategies.