Solution for Entire Industry Is to Bring Back Value, Bring Down Volumes

The risks are becoming bigger. COVID-19, Russia-Ukraine war, Suez crisis, Shanghai situation—all these were unforeseen. But that's why those are called risks. Cem Altan, President of the International Apparel Federation discusses how apparel brands and manufacturers can mitigate risks.

Long Story, Cut Short
  • Nearshoring is not a major shift. ‘Demand manufacturing’ will create a rationale for small factories ultra-close to the market, but as of yet it is definitely not large volumes.
  • I do not see global supply chains collapsing and brands and retailers trying to source only domestically.
  • The need to spread risks is felt most in times of unforeseen and frequent supply chain disruptions, so one can expect that the industry has a strong focus on risk spreading in 2022.
The main reason that the fashion industry is able to provide high quality, fashionable garments when consumers want it for a relatively lower price than most other consumer goods is the fact that supply chains are truly global.
Global Showcase The main reason that the fashion industry is able to provide high quality, fashionable garments when consumers want it for a relatively lower price than most other consumer goods is the fact that supply chains are truly global. Osarugue Igbinoba / Unsplash

It has been two years since the first round of COVID-19 lockdowns, and just as things were starting to look better, the Russia-Ukraine war happened. The effect of this war is already being felt in other areas, especially trade. The question obviously is this: is the global apparel industry ready to handle a crisis when the earlier one is actually still raging on?
In all my years in the apparel industry I have learned that we are very experienced in dealing with crises. This is logical for such a globalised industry. It is naturally exposed to crisis situations because always somewhere in the supply chain there is a crisis. Of course, the pandemic and the Russia-Ukraine war are particularly harsh and extensive and certainly most of the industry is affected and some companies have suffered.

The first to feel the pinch in early 2020 was shipping. Though opinion is divided about whether the shipping sector in the wider logistics industry was able to sort out matters in these two years, the Shanghai port situation shows that there are still problems. In between, the Suez crisis had brought trade to a standstill. How do you see this? How will all the shipping crises re-shape the global apparel trade?
Perhaps shipping was simply too cheap, and we were acting like distances didn’t exist and transportation does not create environmental costs. So p,erhaps in a new normal, occuring when supply and demand are better balanced again, prices will be structurally higher. And perhaps some of the supply chains will be brought closer to the markets as a result, to save costs, but especially to avoid the high costs of delays. A structurally higher price level of ocean and air transport could also point to the oligopoly of just a few major global shipping companies.

A structurally higher price level of ocean and air transport could also point to the oligopoly of just a few major global shipping companies.
Shipping Costs A structurally higher price level of ocean and air transport could also point to the oligopoly of just a few major global shipping companies. Alexandre Gonçalves da Rocha / Pixabay

The COVID-induced crisis also showed something else: the pitfalls of putting all the eggs in one basket. Just as a brand cannot afford to source only from one (or even a few) sourcing hubs, similarly manufacturers cannot afford to have just one or a handful of buyers. Therefore, do you see the apparel industry spreading itself out?
This is really a continuous process moving between concentration and spreading out, between continuity in sourcing relations and of always looking for new sources of supply. The ideal balance differs per company, per product, per time period. Management must always be continuously calibrating the sourcing structure. Overall, one can say that the need to spread risks is of course more strongly felt in times with many supply chain disruptions; so, one can expect that the industry has a strong focus on risk spreading in 2022.

All these things show one thing: risks are becoming bigger. All these were unforeseen: COVID-19, Russia war, Suez crisis, Shanghai situation. But that's why those are called risks. How do you see apparel brands and manufacturers mitigating risk in the future. Do you see investments being hit in the near future because apparel gets hit every single time? Or, do you think more countries will tend to re-look at their own domestic markets?
Risks are part of our business. The main reason that our industry is able to provide high quality, fashionable garments when consumers want it for a relatively lower price than most other consumer goods is the fact that supply chains are truly global. The industry is able to construct the garment from the right mix of components, always having a very broad choice because of global sourcing. I do not see global supply chains collapsing and brands and retailers trying to source only domestically. Nevertheless, many manufacturers are discovering that for their own spreading of risk it can be smart to devote more attention to building a domestic or regional brands. This reduces dependence only on foreign buyers and at the same time it helps the manufacturer improve its performance towards these buyers because it develops its design capacity and, having become a brand itself, is better able to see things from the client’s perspective.

The flipside to all risk factors is resilience. Would that mean that we are going to see more re-shoring or near-shoring. Campaigns to boost these have been around for a while, but those have not made much of an impact. How do you see these shifting the trade balance (if at all) in the near future?
Nearshoring is definitely taking place, but on the full scale of the industry it is not a major shift. The simple fact that for instance the capacity in Europe is currently limited as compared to Asian capacities ensures that no dramatic shifts can be expected quickly. Certainly, such developments as ‘demand manufacturing’ will create a rationale for small factories ultra-close to the market, but as of yet we are not talking about large volumes.

Audit and standard fatigue are serious burdens for manufacturers. They can be reduced if brands and retailers drop their proprietary codes and if standard holders are willing to collaborate much more and if global industry efforts to prevent fragmentation of efforts are supported by all.
Audit Spool Audit and standard fatigue are serious burdens for manufacturers. They can be reduced if brands and retailers drop their proprietary codes and if standard holders are willing to collaborate much more and if global industry efforts to prevent fragmentation of efforts are supported by all. Myriams-Fotos / Pixabay

There are other things that are surely going to impact global apparel trade, and this specifically includes the new EU Textiles Strategy. Rules and regulations for brands and retailers in the EU are going to tighten. How will this affect manufacturing in sourcing hubs? The EU also wants to cut down on fast fashion, which necessarily means cutting down on production? Is the apparel industry ready to do that? Many small countries have built their industry by riding on the fast fashion craze in the West. Aren't they going to be affected?
The solution for the entire industry is to bring back value and bring down volumes. This could lead to less, but better paying jobs, or even to more and better paying jobs if manufacturers are able to develop more value-added activities. However, it is not sure if the EU legislation, even if the intentions are good, will be able to create this optimal scenario. A worst case scenario is that tightened legislation leads to higher costs which are passed on to the manufacturer, maintaining ‘races to the bottom’ in the industry. Avoiding this worst case scenario requires much closer collaboration between buyers and their suppliers. It also requires legislators such as the EU to really make a level-playing field, avoiding the situation where some companies gain an unfair advantage by not following the rules because rules are not well enforced.

Pressure on brands and retailers to be both transparent and clean has been mounting. In this backdrop, the recent reports about the certification process itself being controversial does not help matters. So, where does that leave us? And what happens to the Standards Convergence Initiative of IAF? Does this mean that we have to start from scratch all over again?
Audit and standard fatigue are serious burdens for manufacturers. They can be reduced if brands and retailers drop their proprietary codes and if standard holders are willing to collaborate much more and if global industry efforts to prevent fragmentation of efforts are supported by all. The aim of the Standards Convergence Initiative (SCI) is to keep pressing the industry on these messages. We do not have to start from scratch. On the contrary, we are on a trajectory where the industry has found better methods to keep improving itself and to be transparent about this.

It is not sure if the EU legislation, even if the intentions are good, will be able to create an optimal scenario. A worst case scenario is that tightened legislation leads to higher costs which are passed on to the manufacturer, maintaining ‘races to the bottom’ in the industry. Avoiding this worst case scenario requires much closer collaboration between buyers and their suppliers. It also requires legislators such as the EU to really make a level playing field, avoiding the situation where some companies gain an unfair advantage by not following the rules because rules are not well enforced.

Cem Altan
Cem Altan / President / International Apparel Federation
 
 
  • Dated posted: June 2, 2022
  • Last modified: June 2, 2022