The apparel industry isn’t just feeling the heat: it’s passed its melting point.
The decisions that participants make now individually, and collectively, will determine whether the industry re-invents itself or mothballs itself to the back of the fashion closet. For the companies that survive the pandemic, the shape of the post-Covid apparel industry is likely to be digitized, connected and collaborative.
The devastation that coronavirus has brought is clear—consumer demand has plummeted by more than 70 percent in the U.S. and Continental Europe, compared to a 40 percent to 50 percent drop in global discretionary spending, according to a McKinsey report on the state of the fashion industry, and a two-to three-month lockdown will cause financial distress for 80 percent of European and North American fashion businesses.
Several U.S. retailers have already filed for bankruptcy, falling victim to heavy debt loads and stale business models that failed to keep up with changing consumer tastes and shopping behaviors. Covid-19 dealt a coup de grace to an outdated business model.
History will either see coronavirus as the crisis that accelerates the pace of collapse, or as an opportunity: the catalyst that transformed the economics of clothing. Either way, its impact will endure.
Industry reset: digitization
The first step towards an industry reset is digitization. Apparel has been notoriously labor-intensive and defiantly low-tech, relying more often than not on pen and paper administrative systems. There’s no big data to mine—what IT systems that do exist are isolated, and even the largest apparel participants individually collect too little data to generate the sort of insights that have transformed other industries.
A plethora of activities—sourcing, quality control and audits—are based on physical interactions, and the overwhelming majority of these activities are duplicated across brands. Much of the industry is also dependent on intermediaries—sourcing agents or buyers—to connect demand and supply.
- All manufacturers and suppliers need to build digital replicas of their physical identities. These digital replicas must contain detailed information about the companies and their supply chains.
- An “open source” platform needs to emerge to create an ecosystem that connects these digital identities to create something that is greater than the sum of its parts.
- Based on the digital interactions within this ecosystem, companies must share data openly with partners to make informed decisions and build relationships.
To move forward, the industry must come together and collaborate—share data, strategies and insights on weathering the storm.
The apparel sector was struggling even before the outbreak of Covid-19, hampered by a lack of transparency in supply chains, falling profit margins and a highly competitive environment.
Digitization will not only provide real-time data, but also create end-to-end transparency across the apparel supply chain by connecting multiple standalone systems that companies are currently using to manage their processes. This increased transparency could then translate into higher levels of trust between buyers and sellers for improved efficiency, thus reducing operating costs and a need for face-to-face contact.
The future now
Instead of waiting for things to return to the way they were, we must re-imagine the industry’s conventions and practices.
By moving to an open source platform with a shared approach, the apparel industry will be able to reduce duplication and costs, re-build trusting relationships and make faster and better decisions. The technology to do this exists today. It only requires the industry to take the initiative and collaborate.
In the years ahead, the apparel industry will be measured by its ability to work as one and change for the collective good. Let this be the moment of transformation.
Vivek Ramachandran is the CEO of Serai, a technology subsidiary of HSBC Group that brings together buyers and suppliers to build trusted relationships, with an initial focus on the garment and apparel industry. He was previously the head of growth & innovation, global commercial banking, responsible for driving strategic growth and innovation initiatives for commercial banking and the adoption of new technologies. He earned a Ph.D. in Economics from Carnegie Mellon University.