Welcome to Kingpins
At July’s Kingpins show in New York, I saw a bit of the future, along with some stark reminders of the past. For one thing, I saw the director of the Better Cotton Initiative share a discussion panel with the director of Bayer CropScience’s e3 Cotton program to describe the lives of farmers in both the developing and developed world. Whereas just a few years ago such a panel discussion would have been impossible, at the Kingpins event I witnessed the future of cotton production: a blending of technology, sustainability, and desire to improve the lives of farmers throughout the world.
As recently as five years ago, such a discussion – if it had even been possible to get the two groups together – would have deteriorated into who had the “greenest” products, fears over GMO, and tedious technical refutations. Today, it is clear that more constructive dialogue in cotton is more possible than ever before, setting the stage for future collaboration and initiatives. As a cotton person, I can attest that the Kingpins panel was an event to behold — a positive development that holds great promise for the future.
And then there were reminders of a painful past. Visitors spoke of tight margins, flat domestic sales, and woeful corporate results from the most recent quarter. Exhibitors, in turn, worked feverishly to sell products made with technologies and business practices that have existed since the dawn of the Industrial Revolution: mass production, unit price programs, and product design. Or, to put it more succinctly: price, availability, and delivery. In fact, despite the challenges of today’s market, many buyers visiting Kingpins sought out only those manufacturers using the oldest equipment and techniques because these suppliers have the lowest prices. Buyers today look for old in an effort to stand out in a crowded market of new and because lack of investment leads to lower cost. Contemporary innovations, like sustainable production, were marketed by virtually all exhibitors, along with the promise of simpler supply chains, a return of U.S. production, and above all, value for the purchasing dollar.
So, I participated in a show where I had a glimpse of the future, while being reminded of the past – a dichotomy for an industry struggling to exist in a rapidly changing world. For me, it’s ironic as I can see would-be cotton foes working to find common ground while buyers of today’s textiles are looking to turn back the clock to a simpler time, when production was crafted locally, and customers were visited by car or train, as opposed to 747 jet. Today’s market, although more interconnected thanks to technology and the Internet, is actually a far more impersonal place. Sellers and buyers just don’t spend the time with each other as they used to, before the advent of Skype, IM, and email. Today’s far-flung supply chains and quick-turn business practices developed in tandem with the Internet. Which gets me thinking about the future of textiles, the outlook for sourcing, product development and innovation. It also gets me thinking about the fate of today’s major producers of textiles – in particular, China. But I am not concerned with the far future, but rather just the next 10 years. Let me explain.
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Where We Are Today
Today’s industry is complicated, if not convoluted. Supply chains wrap around the globe, consumer preferences are constantly changing, governments advocate conflicting trade policies, raw material costs fluctuate, weather events confound even the most carefully calibrated deliveries, and technology impacts traditional ways of doing business. All the while, fashion continues on as the arbiter of good taste and next year’s trends in fiber, fabrics and designs. In the midst of this seeming chaos, executives struggle to figure out the next hot product, the next innovation that will secure their company’s place in an uncertain future. How does one best hedge against an uncertain future? In the cotton business, merchants develop a strategy of puts, calls and options that provide insurance to protect against price fluctuations (or so they hope), while in the textile and garment business, costs are reduced to protect ever-thinning margins.
Cost is the overriding consideration today. Whether it’s the cost of cotton, or a yarn or a fabric, garment-makers struggle to find a formula that provides profit and pleases their customer, the retailer. For retailers faced with an often-fickle consumer market, low costs help provide a degree of flexibility in meeting demand.
Some may blame Walmart for driving the industry into a ditch of low prices, but the reality is more due to a stagnant standard of living for many consumers. They really have less money to spend on clothes, as incomes for the average American have stalled in recent years. As a result, the textile supply chain looks for the lowest price, figuring out strategies to cut costs and preserve profitability.
Enter China, followed by Bangladesh, Vietnam and Cambodia–all low-cost producers with plenty of cheap labor, access to raw materials and enormous garment industries. There was a time when a buyer, say, in Manhattan, could easily place orders with manufacturers, say, in Brooklyn. The Brooklyn of today is now Ho Chi Minh City, and before that it was Shanghai, and before that it was Hong Kong. Costs have fallen all the while, but the very nature of business has changed. Technology and rapid communications have replaced the Number 7 train to Brooklyn. And yet, as costs overall have declined thanks to cheaper labor and higher productivity in Asia and elsewhere, conducting business has only become more complicated. And as costs in China–like Hong Kong before it–have risen, new suppliers have rushed in to fill the low cost void not just from places like Bangladesh, Vietnam and Cambodia, but also from places like Tanzania, Mauritius and Myanmar.
The bottom line for our industry today is just that: the bottom-line. But it is also fraught with change; a constant churning of suppliers to meet the demand of increasingly stressed buyers. Where does this end? Let’s fast-forward 10 years…
It’s Now 2024
It’s always hazardous to predict the future, but there are some trends evident today that will likely shape the global textile industry over the next 10 years. In fact, barring some unforeseen technological development (it’s always possible), or some global conflict (let’s hope not), or a global contagion (also, let’s hope not), the world of 2024 will seem like the world of 2014, only more so. For one thing, it is doubtful that people will stop wearing clothes, although demand for clothing may grow in China and India, while demand in the U.S., Europe, and Japan may be even, or slightly behind, today’s levels. For another thing, fiber composition will be more important than ever: if warm climate countries increase consumption of clothing, will that favor synthetic or natural fibers? Additionally, will climate change prove to be a challenge for cotton and wool producers? At the same time, would a global shortage in petroleum impact synthetic fiber production? What about prices? More so, what about the environment?
When considering these daunting possibilities, I am left to conclude that global textile industry of 2024 will be shaped by the following 10 factors (listed in no particular order):
1. The Environment: There will be more competition over a limited supply of natural resources. As a result, the “green movement” will become more important as companies throughout the supply chain will work to find ways of using less fuel and water, while producing products that require less input from the planet and pollute less. Consumers around the world will continue to demand products perceived to be cleaner and more environmentally friendly.
2. Distribution: Supply chains will become more complicated than ever. The distances required to support some supply chains will be longer as the geographic centers of production move to different parts of the world. There will always be a low-cost segment of the garment business that will search out the lowest source of production, no matter where it is. In turn, the movement of raw materials — fiber, yarn and fabrics — may come from different parts of the world only to be incorporated into a final garment produced in a low-cost country or countries. The same may be said of dyeing and finishing. In this sense, cheap comes with the cost of complexity.
3. Communications: Tools for rapid communication will become more ubiquitous. IM, email, Skype, teleconferencing among other forms of technology, will morph into even more effective means of communications and make management of far-flung supply chains efficient. Certainly technology will play a role here, but over the next 10 years, the power of mobile devices may grow to a point where traditional computer networks fall into the background of corporate computing, as extra mobility will permit better communication.
4. Conflicts: Human history is littered with conflicts. That will not change in the future. If anything, social, political and economic conflicts around the globe will only complicate global business. In part, globalization has increased cross-border exposure to problems around the world as global integration will bring increased “trade” of social and political problems. In turn, global supply chains will be vulnerable to disruption. For example, what would a blockade of the South China Sea do to global trade of textiles and apparel? Or, as we saw with the SARS outbreak, what would happen to supply chains if a particular region suffered through some debilitating contagion? These are awful possibilities, but very real threats to global sourcing.
5. Hemispheric Sourcing: An irony of the most recent round of global trade talks (the so-called Doha Round) is that regional trade agreements have gained in prominence while multilateral negotiations at the World Trade Organization (WTO) remain stalled. As a result, regional training blocks have gained new importance. For example the Trans-Pacific Partnership (TPP) has taken on enormous significance in terms of political and economic impact. In fact, the WTO was established to help limit such regional agreements, to set a mechanism in place where regional trade deals, like the North American Free Trade Agreement (NAFTA) or the TPP, would be superseded by a globally focused, multilateral system of checks and balances. However, economic forces may ultimately win out over political considerations. Outward processing in the Caribbean, for example, has staged a comeback after years of stagnation. Why? Some companies wish to source closer to home for faster delivery and better quality control, among other factors.
6. Technological Innovation: A new, potentially disruptive technology will directly affect the production of textiles and garments. I do not believe that robots will replace garment workers any time soon, but work in robotics is ongoing and will eventually affect our industry. I can envision new technologies that would permit production of some garments by consumers. In particular, 3D printing holds promise. Science fiction? Magic? Crazy? Perhaps, but there’s already evidence of a breakthrough on the horizon. For consumers, the ability to “print” a t-shirt, say, at home from designs made available on the Internet has serious appeal, and financial promise for those willing to pioneer in the field.
7. Demographics: Aging populations, as well as overall population growth will play increasingly important roles in sourcing decisions. Growing populations typically translates into higher apparel sales. If population growth slows in the United States, Europe, and Japan, then apparel sales will likely decline or at least be stagnant. Then there is China and India. With so much of the world’s population gathered in two countries, the importance of greater population growth takes on new significance. Demographically speaking, India is a relatively young country, but struggles with economic growth, while China is facing an aging demographic despite its gains on the economic front. What will happen? If growth fails to materialize in these countries, then I fear aggregate global growth in consumption of apparel will suffer as a result.
8. Globalization: The limits of globalization will be realized over the next 10 years. The model of globalized growth will come under increased pressure. On one level, globalization has validated the economic model of market capitalism, but on another level, globalization has helped develop countries to leverage developing countries, not in the sense of exploiting the less fortunate, but by leveraging essential economic cost advantages found in the developing world as a way of bolstering increasingly squeezed margins in the developed world. Indeed, there are only so many countries left in the world capable of building up a cut-and-sew trade like that in Bangladesh — and virtually no country with the capability of China. In short, does globalization end at the shore of Africa or, once Africa enters a globalized world, were does globalization move to? What’s left?
9. Inequality: An outgrowth of globalization and the expansion of market capitalism is economic inequality. Simply put: some people will do better than others either by hard work or luck. On balance, global trade is good for the global economy, but development remains uneven. In the developed world, a small minority of people has prospered compared to the general population where incomes remain stagnant or have fallen. In aggregate, though, developed world economies have grown and become wealthier. The same can be said of developing countries. Places like Bangladesh and Vietnam have directly benefited from the expansion of market capitalism; without question, we know China has thrived in such an environment. Even so, the standard of living in the developing world continues to dwarf that of developing nations. This begs the question: what happens to apparel consumption? Will it be uneven or will it increase due to the sheer number of people needed to be clothed in the developing world?
10. Energy: It’s hard to envision a world that does not use fossil fuels 10 years hence, though such resources are limited and are a flash point for conflict. Concurrently, the price of energy will fluctuate over time, directly affecting the price of everything from synthetic fibers to transportation. Distant supply chains could become expensive to operate if the price of oil were to soar due to conflict or natural disasters. Regardless, energy remains an essential cost component for any sourcing strategy.
What a World!
For sure, some of these future factors are interrelated and some are diametrically opposed. Indeed, some of the factors are big-picture, while others are really small-picture. As I illustrated with the cotton seminar at Kingpins, new combinations of players, new ways of envisioning and executing on business, will necessarily have to be developed to compete in what will only be a more competitive industry over the next 10 years. Despite some quaintness, old techniques will no longer work.
The textile and apparel industry has been around for a long time. It has survived societal and economic catastrophes, as well as disruptive new technologies. Through it all, though, this industry has been at the cutting edge of economic and social trends. As the first wrung of industrialization, this industry has functioned in the forefront of globalization, both as beneficiary and victim, profiteer and exploiter. What remains interesting for me is what happens after this first wrung of industrial development moves on. What happens to China, for example? What’s left? Is it only consumerism or does the simple requirement, the desire, to wear clothes, transcend basic manufacturing?
This is an idea worth considering.
By Robert P. Antoshak
Managing Director
Olah Inc.