The invisible virus that has waged an invisible war on the world could be the catalyst that finally rights fashion’s long erred path.
For years, fashion brands have continued the consistent—albeit archaic—pattern of presupposing what consumers will want a year ahead of when they’d be expected to buy it, and delivering goods to stores when the weather and the wares may be entirely out of alignment.
The behavior has given rise to a distressing markdown cycle that hits brands at the bottom line, leaves consumers unwilling to pay full prices for anything, and contributes to an excess of inventory that makes for waste at a time when the environment can’t stomach any additional strain.
It’s a vicious hamster-wheel cycle the fashion industry hasn’t been able to spin itself out of. But with COVID-19 suffocating the existing system, there may be little option otherwise.
“For the first time, we’re going to be shipping spring/summer in June and July,” Gary Wassner, CEO of factoring and financial services firm Hilldun, said during a recent Fashion Law Institute online event outlining the pandemic’s impact. “We have to realize that the sequence, the cadence of apparel has changed.”
With brick-and-mortar stores boarded up to duck and cover from the rapidly spreading storm that is the coronavirus pandemic, consumers aren’t shopping and new product is considerably less necessary. And a rapidly escalating rate of furloughs and layoffs means essentials are the only things many consumers can even focus on for the moment. All challenges considered, many retailers have pulled out of, or put off, new order shipments from suppliers—which means summer goods that would have already been in stores will idle either in factories, warehouses or distribution centers.
Flexibility will have to be the modus operandi for fashion’s foreseeable future. Even where production cycles are concerned.
“If we ship summer in June/July, we produce it two months earlier than we do now. Bloomingdale’s, for example, is considering taking Fall in when they’d normally take in Resort, and skipping Resort this year,” Wassner, who factors for more than 450 fashion businesses, said. “People buy fall in October, November and wear it immediately now. So, it’s just complying with the cadence of the consumer.”
The entire fashion sector has been forcibly slowed to a screeching halt, and that may mean consumers will finally have access to apparel in the season it’s designed for.
“Reality tells me the ‘buy now, wear now’ consumer has been thinking that way for years,” Wassner said.
“Here we are with an opportunity to change the cadence of our industry, ship when people actually want the product and [not] mark it down as soon as you have in the past,” he added.
To do otherwise, he said, is no longer appropriate for the moment the market is in. “People aren’t frivolous in these kinds of times,” he added.
And neither can the industry afford to be as it fixes to move forward into what’s now a new reality.
Supply chain parade
For too long, the “front of the parade,” or the brands and retailers, as John Thorbeck, chairman of consultancy Chainge Capital, describe it, and the “back of the parade,” or the supply chain, have been operating at incongruous cadences.
“The complexity of the supply chain adds uncertainty with hidden tiers of where things are made. The whole network is not visible to designers or consumers, and I think these are very strong arguments for why front and back have to move at the same cadence,” Thorbeck said. “The idea that there’s going to be sort of industry rules or industry expectations or industry calendars, I think that’s going to be very much diminished.”
Where design—which has traditionally driven the so-called front of the parade—was once a creative division tasked with putting compelling and relevant product out into the market, the quick turn, low-margin makeup of the ‘modern’ apparel industry has diminished the design function. In today’s market, many designers are relegated to churning out creations at a quick clip and only carrying forward those that hit minimums and bear a lower markdown risk, which often means more conservative (and often less compelling) designs.
“Designers are going to have to be closer to their sources of supply, because they really don’t have the ability to finance for the long lead times and the uncertainty of their customers,” Thorbeck said. “So, the idea that you’re going to be making in season, for the season, and that we evolve into a more or less seasonless system of fashion is a very good thing. We’re being brought back to the state of necessity, and the state of necessity is, how does an industry generate its own capital at a time when lenders and investors will be hard to find?”
While it may be near impossible to see from here, COVID-19 could spell an opportunity for the fashion industry.
“Why did Toyota create a just-in-time system after World War II? It was a devastated system in a devastated economy. They did it out of necessity,” Thorbeck said. “How was it that Zara created this small-batch home manufacturing system when [Amancio] Ortega began to produce for stores? It was purely out of necessity because they didn’t have the funds to invest in a factory, and they didn’t have funds to invest in holding inventory.”
While Inditex, which owns the Zara brand, won’t come out of coronavirus unscathed, its approach to inventory will certainly be a boon.
“Because of their supply chain, they have 24 seasons, collections a year, they’re not going to have absolutely any inventory overhang except what’s inside the stores,” Jose R. Suarez, founder and CEO of supply chain solutions company Impactiva, said on a Sourcing Journal webinar Thursday. “And a lot of us still run with four collections or six collections a year. We’re all going to have a huge spring/summer overhang, and that’s a big concern when we go into October, November and we have all these unsold goods.”
Moving to a more in-season cycle means brands and retailers won’t be buying things that aren’t going to sell, Suarez said. It also means cash wouldn’t be tied up in unsold inventory.
“If we had that cash sitting in the bank, we could help and support our factories instead of having inventory that’s going to sit around for an entire year without being sold,” he said, addressing retailers’ order cancellations that have put garment factory workers in low-wage countries at risk of destitution amid the pandemic panic.
“We have to start thinking about sustainability and sustainable growth, and…this could be the inflection point, that tipping point to have the industry transform itself,” Suarez said.
Embracing a new cadence for fashion could also help curb the crippling markdown rhythm that has roiled so many retailers and left them hard-pressed to financially sustain themselves in a changed industry.
“Markdowns would be fewer because markdowns are the cost of uncertainty,” Thorbeck said. “So, the idea that you can buy in large volume and that you can bring in 65 to 70 percent initial margins and end up in low single digits, you will no longer need that kind of a cushion because you’re closer to season—or in season. So, the size of that cushion will shrink back to more reasonable markups and fewer markdowns.”
And, as Thorbeck added, capital will have to come first in fashion’s new conversation.
“If you don’t have a lifeline, then you can’t expect investors and lenders to come back to an industry that does not have a vision for itself,” Thorbeck said. That’s why changing the cadence and the patterns of production, may be critical. “It’s a smaller, more frequent but more integrated idea, and will be the basis for rebuilding a more vibrant, relevant fashion flow of goods.”
Capital, value and ‘a lot of workarounds’
Capital will also be the key to unlocking sustainability for an industry that will now require it more than ever.
As Liz Simon, chief sustainable transformation officer at Fashion3, an ecosystem of six European fashion brands—including Pimkie, Jules and Orsay—said, fashion has long had an “absolute focus” on entry margins, endeavoring by all means to buy goods as cheaply as possible. That mission is what has fueled fashion’s nonstop search for the lowest-cost suppliers and driven the move from China to Bangladesh to Ethiopia chasing dirt-cheap labor. The shift, she said, should be to a focus on final value, whether that’s profit, or impact, or value within the community.
“We’ve got to start readdressing and thinking that capital is not just the one measure,” Simon said. Fashion, when pitted against other industries, has historically bought large volumes with long lead times, so changing the game will mean thinking about how to use capital in a more efficient way, tapping into models, like on-demand manufacturing, that don’t tie up so much cash. “I think that’s where exploring of different models and how the capital then fits into that, how we use capital for good, can actually be advantageous both for a balance sheet and for a new model.”
If you ask McKinsey & Company, fashion is drafting the plan for its new model now, whether many in the industry realize it or not.
“A lot of underlying beliefs and persistent processes will get challenged and probably also changed throughout this whole crisis,” said Achim Berg, senior partner at the management consultancy.
“I think we’re going to see a lot of innovation because people are now forced to change the processes that they probably haven’t changed for 15 years,” Berg added.
And key in those changes, will be reimagining the time between sell in and sell out, and how much time exists between product development and delivery to stores.
“There’s a clear incentive for a lot of players to adjust the lead times,” Berg said. “People will underbuy now for autumn/winter and spring/summer 2021. As a consequence, if things improve, they will have to buy on shorter lead times and they will be more flexible about it.”
From a vantage point of shuttered stores and sheltering-at-home consumers, retailers won’t be keen to make commitments now for 2021 merchandise, anyway.
“A lot of players will push that out several months in order to get more information,” Berg said. “If we can wait with our orders until the summer, or even after the summer, we will be much smarter for summer 2021 than what we know now.”
Where having more insight before making decisions—which many retailers have turned to data to facilitate—may have been a nice-to-have for companies willing to spend the time to parse all of that info, it will be the only way to navigate a post-COVID-19 world.
Right now, retailers are finding new ways to view product, to examine samples, to unearth new trends, and to turn tradeshows into Zoom meetings. So, shifting the product cycle may just be one necessary adaptation among many.
“We will see a lot of workarounds, and a lot of those workarounds will become a new standard,” Berg said. “It will be agile, it’s going to be a lot more flexible and it will be faster.”