More and more companies are starting to look beyond China for sourcing apparel, for myriad reasons, but integrated technology provider Lectra said the country is on track to become its biggest market in the next five to 10 years.
According to the French company’s 2015 annual report, published Thursday, China has the potential to represent a third of its growth in terms of business activity, taking the top spot from Europe.
“The country remains a major manufacturer as almost half of all garments and furniture, as well as a quarter of all vehicles worldwide, are produced in its factories,” the report noted. “Stimulated by the government’s ‘Made in China 2025’ plan, which notably focuses on boosting innovation and integrating information technologies, Chinese factories are preparing to move up the value chain.”
That’s good news for Lectra. Despite reporting its best financial figures in its 43-year history in 2015, major currency shifts took a toll on the company and the results—particularly in its fashion and apparel business—fell short of expectations.
Total revenues increased by 13 percent to 237.9 million euros (about $268 million), nearly half of which came from the clothing sector. Meanwhile, income from operations rose 61 percent to 23.4 million euros ($26.4 million) and net income jumped 63 percent to 23.4 million euros ($26.4 million).
The company unveiled the latest version of its product lifecycle management (PLM) software last March, an iteration that focuses heavily on collection planning and calendar management, but orders lagged behind expectations. It also offers Kaledo (which allows designers to virtually create garments and textiles in real time), Modaris (3-D product development and pattern-making software) and Vector (automated fabric cutting).
“Our sales activity was very mixed… Our 9 percent increase in [orders for new systems in] fashion and apparel was held back by European manufacturers’ hesitancy in the wake of the euro’s steep fall against the Chinese yuan and its impact on their subcontracting chain,” Daniel Harari, chief executive officer, noted in the report.
“At the same time, our customers’ competitive situations have shifted radically,” he continued. “Many European customers, particularly in fashion and apparel, have been obliged to review their sourcing strategies. On the other hand, the loss of competitiveness among Chinese manufacturers has correspondingly depressed orders received: some of them are now experiencing overcapacity, which is adversely impacting their investment decisions.”
With that being said, Lectra has pinpointed PLM as one of its growth accelerators that will drive most of the company’s development in the coming years, due to the increasing complexity and number of collections demanded by brands.
“In fashion and apparel, the challenges linked to the increasingly strong integration of the entire supply chain, from design to production, makes us an indispensable player,” Edouard Macquin, executive vice president of sales and executive committee member, added.
The report pointed out that half of the almost 105 billion garments produced in 2015 were made in China. It’s projecting global production to reach more than 115 billion in 2018 to respond to the constantly growing demand—and cheap labor will cease to be the main reason for relocating manufacturing.
“The weight of other criteria, such as innovation, quality and being close to consumers, is now increasing,” the report said, though it did acknowledge that the 12-nation Trans-Pacific Partnership could see even more production moving from China to the ASEAN region and adjacent countries. “Many companies are opting for multi-shoring, particularly to shield themselves from currency exchange fluctuations.”
For that reason, increasing production capacity is no longer enough; the product development phase is critical to quickly bringing to market a garment that will entice consumers. Therefore, production must adapt to more frequent, flexible orders. Moreover, a design-to-cost approach helps manage rising raw materials costs and the demands of brands while preserving profit margins.
“Brands need collection life cycle management that organizes collaboration in real time,” the report said. “Integrating the whole value chain allows working simultaneously together so that the development teams involved can assess the impact of their creative choices on cost, as well as guarantee fit and quality. Each collection is thus optimally managed.”