While the current state of the market has shone a light on existing supply chain issues, which have a number of fashion brands caught in turmoil, the COVID-19 health crisis amplified their problems and ultimately revealed which strategies have become obsolete.

Around 15 years ago, many fashion companies viewed globalization as a chance to relocate their production to lower-cost countries to reduce costs. China benefited heavily from this, and remains the top source of clothing imports for the U.S. and Europe.

However, the apparent advantages of this long-distance supply have gradually deteriorated due to rising offshore production costs. 

Supply Chains Need to Be Reassessed

As the Chinese government deployed protectionist measures and a “local-for-local” strategy, fashion players began to review their sourcing strategies to limit their exposure to the risk of disruptions, while ensuring the profitability of their models.

Some have chosen to diversify their sourcing in Asia. In 2021, Bangladesh’s exports to Europe rose by 16%, while Vietnam’s exports to the U.S.A rose by 22% in the first quarter of 2022.

Other companies have developed more local and agile sourcing methods, particularly for certain high-value-added product categories. In 2021, Turkey in particular took advantage of this new dynamic. In the same year in Europe, intra-European imports grew twice as fast (+17%) as imports from outside of Europe (+6%).

While the transformation of global supply chains was already underway in the fashion industry before the health crisis, it was the pandemic that really forced companies to open their eyes. 

Longer delivery times caused by lockdowns, followed by the saturation of ports, highlighted the dangers of a sourcing strategy based solely on cost, to the detriment of supply chain adaptability. 

Distribution Choices Are Also Essential

Conscious of their dependence on raw materials and strategic know-how, some brands had opted for more integrated models, consolidating their relationships with key manufacturers and partners. 

This is the case for luxury players, but not exclusively. Between 2019 and 2021, Inditex reduced its supplier portfolio by 10% to invest in the development of numerous partnerships. Zara’s parent company — which in March 2023 announced exceptional results — is also reaping the rewards of its digital transformation, with online sales representing almost 25% of its revenues.

For brands that had remained dependent on long supply circuits and store-centric distribution, the health crisis brought a double blow: with production and delivery cycles of six to nine months, stocks no longer matched consumer expectations when shops were able to reopen.

Thanks to local sourcing, however, some brands were able to adjust their production to meet demand more easily. A recent study by CSCMP’s Supply Chain Quarterly found that 70% of U.S. businesses are planning changes in their operations, with 37% planning to bring production closer to the American shores and 33% looking to nearshore and shift their operations to a closer location. Combining short-distance sourcing with an online sales strategy is proving all the more relevant now that consumer data analysis makes it possible to monitor purchasing behavior in real time, so that assortments can be adapted accordingly.

The lessening of supply chain disruptions is just one of the perks that brands can reap from the combination of local sourcing and data analysis. Brands are also able to cut costs due to the elimination of tariffs and be more agile all the while having better control over production. Automation, along with working in a more demand-focused way, is allowing brands to manage inventory in a more efficient way.

With today's market increasingly being driven by social media influencers and viral moments, micro trends are on the rise, leaving retailers struggling with the task of managing inventory accurately. As it stands, 30% of inventory produced is never purchased – leading to 92 million tons of textile waste annually.  Retailers that focus on fast fashion produce their products in smaller batches, in order to attract a growing number of consumers.  

Produce Less, Better, and in a More Sustainable Way

The third major transformation in the fashion industry is that consumers are eager for novelties, but increasingly interested in the origin, production methods and sustainability of clothing. This is perfectly illustrated by the paradoxical behavior of younger consumers, who are attracted by the low-price novelties of fast fashion while at the same time demanding more sustainable fashion.

Here again, the quest for optimized cost prices alone is a losing plan, as the influence of brands also depends on their concrete actions in favor of more ethical and sustainable production. 

Adopting agile design, production and sourcing methods that minimize material consumption, transport-related pollution and waste (textiles, energy, emissions, etc.) has become a real competitive advantage. Every year, the United States discards more than 34 billion pounds of used textiles and 66% of them are sent to landfills in the U.S. where they decompose. Sustainability currently is, and will continue to be, in demand. In fact, sales of products marked sustainable grow faster than those that are not.

To move in this direction, fashion players are benefiting from Industry 4.0 technologies. They contribute, for example, to reducing the risk of unsold stock, and help guarantee the traceability of materials.

Admittedly, major barriers remain in terms of a radical overhaul of business models: access to raw materials, available skilled labor, investments to scale up 100% local production, etc.

But we can already predict that the brands that will emerge victorious from the current evolutions are those capable of intelligently combining — with the help of new technologies — more efficient sourcing, more flexible production methods and products better adapted to the new expectations of consumers and e-commerce platforms alike. The companies that are slower to embrace this chance are more likely to face major difficulties.

Leonard Marano is president, Americas, for Lectra.