Fashion is facing a reckoning, but a highly unequal one. And no, we are not in it together.
For retail, this is painful, but for others it’s existential. The idea that we’re protecting designers and stores and bailouts on this side, but neglecting the factory support we get from around the world on the other, is unequal. The future capability to operate on speed and agility depends on a system that supports these garment factories. The fix for it is economic, above all else.
In the COVID-19 crisis, we cannot meet sudden strangeness with sameness.
Unfortunately, the fashion industry brings its celebrity sameness to the problem—this time, it’s Tom Ford and Tory Burch. Their appeal for federal help—in defense of retail’s GDP impact—would be much more effective if it included a signal for industry unity and greater U.S. competitiveness. Instead, it comes across as Upper East Side virtue when the burden on the other side of the world is outsize. Manufacturers in Bangladesh and other key sourcing countries are vital in this broken chain, even if not making Tory Burch or Tom Ford goods.
The fashion industry is incorrigibly insular, and now is the time to signal an end to business as usual.
In the country that provides global retailers with low-cost goods, Dr. Rubana Huq inspires a call to survival on behalf of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA): “All we have is our trust, hope and a spirit of collaboration.”
The lifeline to the future must be constructed so that resilience can be mobilized and monetized into rebuilding the world’s most globalized industry.
To survive, sustainability must be economic. Let’s not waste our crisis and communal pain on a return to the status quo. Global fashion, with few (but significant) exceptions, is based on low-cost sourcing. It is the cushion that allows high-margin goods to absorb extraordinary costs of uncertainty: markdowns, stockouts, working capital, and the relentless mismatch of supply to demand.
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That supply chain is broken and distorted beyond repair or restoration. Here’s why.
The country that provides the lowest-cost value is Bangladesh, second to China, and it is now being abandoned by its so-called partners. Primark cancelled undelivered orders, yet sits on $1.9 billion in liquidity. Uncertainty reigns for Primark, but it crushes those furthest upstream where 4.1 million Bangladeshi workers make an average $100 per month.
Adversarial bargaining always assumes excess capacity somewhere at a lower price. Since 2008 and the housing crisis, that capacity has been disappearing, and is further threatened by tariffs and now a pandemic. It is also being hidden in subcontracting outside of visible networks. Each hidden tier adds uncertainty largely unknown to the retailer or consumer. An example may be Chinese pre-work that supports finished goods Made in Italy, or production fanned out to Xinjiang, with exposure to forced labor.
Fashion’s adversarial bargaining culture for margin is a core reason for the high cost of low-cost goods.
Despite good intentions, initiatives to implement lean manufacturing have not been productive. Indeed, these variations for just-in-time (JIT) supply chains have backfired. Lean, in fact, resists strategies for speed and flexibility which support higher material hedging and staging of capacities in order to reduce finished goods. Postponement is still uncharted potential in fashion manufacturing, and is the single highest source for future earnings and capital.
Do you speak of near-shoring, or on-shoring, as strategic options? These are partial, marginal or unproven alternatives.
In Mexico, Nike expected Flex, an electronics manufacturer, to invest in the privilege to supply its footwear with automation. Their joint failure cost hundreds of millions of dollars. Location is not a strategy to counter a broken supply chain that relies on high volume and long lead times. Nike is still filling and spilling inventory out of its distribution centers, and is nowhere close to global speed or agility on its own merits.
Do you still manage your supply chain with emphasis on balance sheet impact, minimizing metrics for off-statement liabilities for materials, capacities, production and transportation? Do you quantify internal capital potential; for example, can you value a one-day reduction in finished goods inventory? How about one month and three months? The profit in productivity is startling in a low-profit, low-growth industry.
COVID-19 is a consumer crash course in supply chain reality, especially the bullwhip damage of uncertainty suffered disproportionately upstream in Bangladesh and around the world. To a new generation of consumers, transparency is now inseparable from brand identity.
What is the answer? What signals can communicate hope, trust and confidence in recovery and a better future?
There are four pillars of the new foundation for fashion to be sustainable, responsive and profitable. Together, they represent deep change and deep learning:
- Millennial consumers live under darkened skies, and are less material in wants. Their aspirations are lower, but their expectations for brands are much, much higher. Are you contributing to a better world, or are you just a purveyor of goods at a price? Primark, I am afraid, will soon know the difference, owed to over reliance on its buying power in a world that values commodity volume less and less.
- Capacity is constricting among factories able to deliver under rules for transparency and ethics. They will command a premium because they are key to achieving speed and flexibility over price alone. The retailers who partner to break down the divide between a digital customer (whose needs and wants we see) and analog supply will unlock—at less risk—unprecedented upside sales and replenishment closer to and within seasons.
- Speed is more than trends and turns. It means a business model for negative working capital, which will be the lifeblood of recovery. External financing will be scarce, and those that transform uneconomic volume buys into faster, more accurate order cycles will be the preferred partners for A-List factories.
- Data science. Optimization tools to link factories into shared risk management do not exist, yet the algorithmic capability does exist. The goal is not procurement and control to extract value, but rather end-to-end hedging to create value across multi-stage supply chains.
Each of these pillars is served by postponement strategies in a tightly coupled eco-system for less risk (inventory) and uncertainty (demand). What, exactly, is distinctive about postponement and what we call Lead Time Optimization (LTO)?
- Process innovation and analytics combine to drive productivity for untapped internal capital.
- Benefit is shared across each tier of the supply chain. The working capital equation alone is an engine for each partner, accelerating mutual performance and opportunity.
- Given the growing role of sustainability in investment, ESG (Environmental, Social & Governmental) metrics will reward strategies for total profitability and social impact, not just retailer advantage at the expense of suppliers.
Harvard’s Rebecca Henderson, in her new book, Reimagining Capitalism in a World on Fire, would call these strategies “Architectural Innovation,” or fitting puzzle pieces in a new way. In assessing obstacles to large-scale organizational change, she also recognizes shared purpose over shared value (advantage) and innovation (disruption) as the prime motivator to real transformation and impact. The process, analytics and cultural maps are quantified, proven and documented to deliver this future for fashion.
Fashion’s new imperative is to catalyze interests, incentives and integration as shared purpose. Fortunately, it is an industry of extraordinary potential to be the new school for globalization that is humane, united and serving a sustainable and equitable future.
John S. Thorbeck, chairman of Chainge Capital LLC, is an expert on the application of Fast Fashion business principles at retailers and brands. He has collaborated extensively with industry leaders, including Warren H. Hausman, professor of management science and engineering, Stanford University. Thorbeck is a former CEO of Rockport (Adidas) and G.H. Bass & Co. (PVH), and senior marketing executive for Nike, Timberland and the Aspen Skiing Company. He is a graduate of Harvard Business School.