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Texworld USA: Editors Discuss What’s Really Happening in Sourcing

From holiday sales to fast fashion and what’s happening with factories, two experts touched on everything affecting sourcing today, highlighting supply chain changes and the consumer’s current role in the mix.

At a Texworld USA seminar Tuesday titled, “Sourcing: Ask the Editor,” moderated by Tricia Carey, business development manager at Lenzing, Suzanne Kapner a reporter for the Wall Street Journal and Edward Hertzman, founder and publisher of Sourcing Journal discussed the state of the sourcing sector as they know it.

Carey opened the panel by asking what’s happening in retail and addressing the flood of store closures and bankruptcies presently plaguing the industry, including Wet Seal which recently filed for Chapter 11 bankruptcy protection and Macy’s, which announced this month that it would close 14 stores as part of a restructure.

Kapner started by addressing recent sales for the holiday season, which were up roughly 4 percent for the November to December period and said, “Store closures notwithstanding, we had a better holiday than normal.”

Unemployment may be falling, she said, but wages are not going up so it is difficult to tell how healthy the consumer really is, “But she seems to be getting better,” Kapner said.

Hertzman added that the sea of store closures comes as little surprise. “All you have to do is walk through the mall and see that the traffic isn’t there.”

He urged the audience to look beyond sensational headlines about store closures, however, to understand what a business is really doing. In the case of Macy’s 14 stores to be shuttered, the company said in the same announcement that it would open nine new stores and focus on digital retailing and e-commerce, areas where investment is increasingly necessary.

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The real problem in retail, Hertzman said, is that the consumer has become savvier than the retailer. “Everyone is on their mobile phones today and the retailer hasn’t caught up quick enough.”

It’s not that people aren’t buying clothes, he said, it’s just that the retailers who get it are outshining those that don’t. Things like rethinking inventory and having stores as fulfillment centers will be what moves the needle today, and according to Hertzman, “The retailers that are at the forefront of this evolution are the ones who are going to survive.”

Omnichannel and the idea of seamless shopping has been a buzzword for some time as retailers tap into the trend to target today’s consumer, but the real big breakthrough for the industry, according to Kapner, is seamless inventory.

Retailers that have incorporated the necessary technology that enables them to know what stock they have where at any given moment is what leads to a seamless shopping experience for consumers.

Macy’s—which was named 2014 Mobile Retailer of the Year by Mobile Commerce for embracing image recognition, beacons, mobile payments and event-driven mobile commerce—is “absolutely ahead of the curve,” Kapner said, also naming Neiman Marcus and Nordstrom as luxury leaders in the seamless shopping space.

“A lot of other companies, like J.C. Penney, are just playing catch up,” she said.

The talk turned to the ever-present promotions that today’s consumers have been conditioned to expect, and Hertzman said this new reality is causing retailers to push factories to go cheaper as a result.

“Input costs are going up year after year after year, but the consumer doesn’t want to pay any more,” Hertzman said. “Everyone is a little bit spoiled after the recession. To me, every day is Black Friday now.”

The continued need for lower prices has driven more companies to source outside of China in places like Bangladesh and Cambodia, and some are even looking to Myanmar as the next low-cost locale.

“At some point we’ll run through the low-cost producers,” Kapner said.

Fast fashion has perhaps been the sector most often chasing the lowest costs in order to provide the everyday affordable fashion that has set them apart. But these retailers, like H&M and Zara, have uncovered a model that works—and that isn’t just about buying cheaper.

“They buy less and they buy broader,” Hertzman said. “By doing that, they can replenish the stuff that’s working and get out of the stuff that’s not faster.”

Kapner added that Gap and Abercrombie & Fitch are even trying to tap into fast fashion, but trying to cut lead times from 11 months to six, is nowhere close to the weeks true fast fashion brands can turn goods in, she said.

Activewear has stormed the retail industry, and Carey asked the panelists whether they though the trend was here to stay.

Kapner said a Barclay’s study estimated that activewear will have grown 50 percent by 2020, and that with brands increasingly joining the fray to steal market share from leading Lululemon, the trend may not be going anywhere fast.

Hertzman agreed, noting that the change in lifestyle toward wellness will give the trend permanence, but warned that brands should take heed before deciding to produce activewear, considering the high duty costs on synthetics and the infrastructure and skill required at the factory level to produce performance goods.

And at the factory level, compliance is also a necessary concept to consider.

Hertzman stressed the difference between ethics and compliance, noting that compliance is a checklist of things to take care of and ethics is what really lets you sleep at night.

“If you’re going to ban sandblasting, but you make your goods in a factory that still does it, you’re really not saying that you care that people are dying,” he said. “You just don’t want them dying making your product.”

Brands are creating non-compliant behavior by constantly pushing factories to make faster for less, and consumer apathy is also doing little to encourage compliant behavior.

Kapner said the Wall Street Journal surveyed consumers after the building collapse at Rana Plaza killed more than 1,000 workers and the resulting media storm cast a negative light on conditions in the apparel industry, and found that consumers generally don’t care where goods are made. “It’s the price and value that really drives their purchase,” she said.