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Publisher’s Note: Is the Apparel Industry Ready for Sourcing 5.0?

There are three D’s that have come for apparel supply chains: disruption, digitization and distress. And while we’ve spent some time mulling over—and overusing—each buzzword, we are at a point where these words represent an evolution in what people wear, how they shop, and how brands and retailers procure and manufacture these clothes.

And as we’ve been working to program the upcoming Sourcing Summit, one thing has become clear: digital is the driving force behind everything in the industry today.

Naturally, with the global consumer population more attached to their mobile devices and computers than ever before, being able to sell and market digitally is key. But more than that, the better able we are to communicate from store to retailer to headquarters to factory, and streamline that whole process, the more accurate we are going to be in how we purchase and fulfill our orders.

The industry needs to operate with less inventory liability and more product that resonates with consumers.

At one point, I was very bearish on the companies that ran the industry. But now, whether it’s through emerging technology or upstart niche brands taking market share, there’s a new guild taking over.

We’re no longer distressed. Rather, the apparel industry is one that’s ripe with innovation.

Entering the era of Sourcing 5.0

There’s a new definition of sourcing for today’s market. In year’s past, smart sourcing used to be about finding the cheapest country, the cheapest needle and buying the product at the cheapest price. Last year, it was all about who could get the product into the store the quickest.

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Speed is still a key priority, as days represent dollars, and the quicker we can get product to stores, the lower our inventory liability will be. That means we can buy less product and get it into stores to test, and if it works, we can replenish. If it doesn’t, we aren’t stuck with the goods.

While it may cost more, initially, to do that—which is counter-intuitive to the days of old where we believed we had to buy everything for the cheapest possible price—this new way of thinking allows us to be reactionary, lower our inventory liability and, at the end of the day, have a higher margin.

What Sourcing 5.0 represents and what today’s sourcing executives and companies are realizing is that we need to utilize technology, data and AI to help us become better manufacturers. We can identify how to be faster and which countries to manufacture in. We can change our culture and empower our merchants to be more entrepreneurial. But there is technology out there that can take even more risk out of the decision-making process.

And this data isn’t only being used in the supply chain, it’s also being used on the front end to learn who to market to, what to market to them and where to market it. The quicker we can get real-time reads on the floor and channel that back to the factory, the quicker we’ll see an even more efficient supply chain.

What’s separating the savvy from the bankruptcy-bound

The companies that have been able to get that real-time data and turn it into real useful guidance for the business, are the ones benefitting from the greatest success in today’s market.

A slew of new apparel players have entered the scene, many amassing tremendous market share and in some cases, billions of dollars in revenue. The most pressing question in the industry and among the more traditional players that haven’t yet seemed to crack the code on delivering to today’s consumers is: how are they doing it?

For these newfangled companies focused on serving a niche and serving it well, the culture and old-school corporate environment that stalls longer standing players doesn’t get in their way. That outmoded modus operandi doesn’t breed creativity, speed, flexibility or entrepreneurship. In many ways, fear is driving these traditional players to speed the death of their businesses.

The companies that are entrepreneurial and scrappy, are able to take chances and risks, and that has a lot to do with what’s made them successful.

So, do startups and new entrants have the ideal business models? Maybe, maybe not.

Some of these digital-first apparel companies have been able to position themselves as tech companies. They’ve raised a lot of money, they’re experts in marketing, they use social media and influencers and all the modern accessible tools to acquire customers. They are experts in marketing and customer acquisition.

But what they haven’t figured out is how to be profitable on the back end. And that leaves them with two competing forces: a seemingly successful business with loyal customers, but a business model that may not be highly efficient or highly profitable.

If you take companies like Wayfair, it’s valued at billions of dollars and bringing in considerable revenue—but still losing money. Wayfair has mastered the last mile. It has figured out how to acquire customers, ship home products in a day or two, which fits right in line with today’s demand, but it’s the profitability aspect that’s missing.

Some of these digitally-native companies are still trying to figure out whether there’s a more efficient way to acquire customers to help drive that profitability. Some are even turning to brick-and-mortar shops when they started out with online only intentions. Bonobos, Untuckit, Stance and Frank & Oak have all done it.

Is there really such a thing as online only even in this digital world?

Retail isn’t dead and neither is brick-and-mortar. The industry is in transition and making and consuming product will be a balance of the digital and physical worlds, albeit a much savvier and more efficient one. We haven’t hit the bottom—yet.

The industry will still see more casualties ahead, both among digitally-driven and traditional physical players. There are too many companies competing for a steadily shrinking pie. Consumer preferences have changed in favor of more experiences than stuff. Brands aren’t as important as they used to be.

Today, companies relying solely on traditional department store distribution will continue to suffer. Those channels continually get hit the hardest amid more price sensitivity and more discounting. Brands and retailers that are pivoting and have both a direct-to-consumer and a retail distribution strategy will be the ones that succeed.

Just a handful of years ago, Stitch Fix, Farfetch, Fashion Nova and Everlane weren’t the names being bandied about as those leading the apparel space, but each are finding success in the form of loyal consumers and more and more share market share.

We may get hung up on Zara and how Inditex has created the powerhouse fast fashion leader that continues to deliver, but Zara is an anomaly. No amount of research or mimicking will make other companies like Zara. You can go back to the same factories, hire the same designers, buy the same fabric, believe you’re embracing a Zara-culture, and still not achieve what the company has been able to achieve.

Unless you have the right management in place and you hire the right people with the right entrepreneurial spirit and empower them, all the fancy digital tools won’t mean much at all. It’s about having the right product at the right time in the right place and creating the kind of scarcity that makes consumers pay up on the spot.

The verdict is still out on how many of these direct-to-consumer brands will be around in a year, but it’s the aggregate of these brands that’s eating into traditional brick-and-mortar retailers and legacy brands. A $5 million, $10 million or even $100 million company may seem small, but with thousands of them popping up all the time, they’ve become a serious threat.

But enough about what I think, I hope you’re planning to join us for the sixth annual Sourcing Summit on October 11th, where we will host a stellar schedule of speakers who will address many of these points and more. Click here to get your ticket today to hear insights from companies like Google, Under Armour, Outerknown, Li & Fung, McKinsey, Perry Ellis and Ministry of Supply.