Rebooting the Fashion Industry

The shift from physical to digital

According to the BOF & Mckinsey State of Fashion survey the industry is not likely to return to 2019 levels until late 2023. The silver lining is the crisis and ensuing lockdown continue to accelerate the consumer shift from physical to digital channels.

The “Digital Sprint” driven by consumer sentiment and behaviour, has seen companies like luxury e-commerce Farfetch become profitable for the first time in 2020 since launching 12 years ago, with revenue increasing 64 % to $1.7 billion, thanks to its digital-first approach, focus on sustainability with future sights set on China and new categories like beauty.

Major brands such as Adidas and Nike have announced ambitious plans to shift from a largely wholesale-driven towards a direct-to-consumer model which is expected to make up 50% of net sales by 2025, as e-commerce doubles. This shift means that an increasing share of sales is realized by shipping individual parcels to consumers instead of large bulks of products to wholesale partners. Individual product returns need to be handled, omnichannel offerings are becoming more important. All of this increases the complexity in supply chain.

Sustainability takes on a heightened concern with brands making science-based commitments to reducing their environment footprint, consumers are seeking justice, with an increased focus on how retailers and brands treat employees, suppliers and workers all along their supply chain. While reputation risk of getting caught out will be dear this also presents a huge opportunity for companies to make significant positive steps, those that do will be rewarded by consumers to become responsible brands of choice.

Due to the unprecedented pressure in 2020, the consensus is that there will be huge focus on restructuring supply chains to become much more resilient, agile and robust. A key theme will be deeper partnerships with suppliers, strengthening suppliers’ contracts, vertical integrations between mills and factories, increasing near shoring onshoring and a continued drive to digitalizing of product development, automating manufacturing and incorporating A.I into forecasting.

The Pandemic Winners!

Riding the boom in digital commerce and cloud computing Amazon has posted its best quarter ever in 2021 of $125.6 billion in revenue, up 44% from the year-ago quarter. Amazon’s clothing and shoe business is now the US newly minted No. 1 seller of apparel and footwear.

Wayfair, the home furnishing digital commerce leader also had a stellar 2020 with a 50% increase in its NET revenue to $14.1 billion due to the impact of lockdowns and the mass adoption of remote working. Home Depot also continued to be a beneficiary of the pandemic with its revenue up 20% in 2020 to $132.1 billion as consumers diverted expenditure away from travel and entertainment towards spending on home improvement.

As the Retail industry is in a state of flux due to smart phones usage and data available, consumers are driving this change for the first time in the 150-year history of mass Retail. China is at the frontier of this transformation towards social commerce. The Chinese market in ecommerce is almost twice the size of USA and Europe combined and is a pioneer in digital commerce innovation.

Notable in 2020 was the phenomenal rise of Pinduoduo [PDD], a company founded only in 2015, with a market value of more than US$ 200 billion. It has now overtaken Alibaba by annual shopper count. In 2020 it was China’s fastest growing internet stock rising by more than 300% on the Nasdaq and is predicted to turn profit this year.

Shopify became the 2nd biggest e-commerce group after Amazon in the US in 2020. It is ushering in a new era where small merchants and entrepreneurs can compete with major brands. While retaining their brand identity they can reach a mass audience directly without listing on Amazon and enjoy rates similar to what the biggest companies are getting in terms digital payments, shipping and fulfilment. Digital native brands Allbirds and Gym Shark were born on the Shopify platform. Gym Shark, founded only in 2013, is now bigger than the value of Reebok thanks more to creativity rather than resources. Shopify is enabling this upheaval of a market dominated by small group of large players.


Hong Kong – The Global Sourcing City?

In the light of VF Asia’s (The North Face, VANS, Timberland) decision to relocate its product supply organisation to Singapore, is Hong Kong losing its edge?

According to KPMG: Future of Sourcing 2021 report, Global Sourcing Executives across the industry still maintain confident that Hong Kong has the strongest appeal as a sourcing and supply chain hub.

It has the talent and expertise, speed and efficiency which take decades to build. Even with factories moving out of China, components and raw materials are still predominantly from China. China will no doubt remain the dominant force for any product supply chain and Hong Kong links to the Greater Bay area will provide huge benefits to its role as a global supply chain hub.

The report also cites Hong Kong strengthening position as a major international trading hub. According to the World Trade Organisation Hong Kong’s global ranking of merchandise trading increased from number 12 in 2009 to number 8 in 2019 reflecting the increase in capacity and efficiency of import and export of goods to other regions by land, air and sea.

Amid these developments, Hong Kong’s regional role is changing and driving supply-chain connectivity between Mainland China and Southeast Asia. Hong Kong is effectively transforming from being home exclusively to traditional sourcing in which businesses act as intermediaries between vendors and buyers. Today Hong Kong and its many industry players are responsible for a fuller range of supply-chain management tasks, including a rise in higher-value-adding functions.

The World Intellectual Property Organisation (WIPO) has published its list of Top 100 Science and Technology Clusters Ranking, in the Global Innovation Index 2020. Shenzhen-Hong Kong-Guangzhou as a cluster, came second.

Over the next few years, Hong Kong and Mainland China are expected to focus on higher added-value products as well as product design and development. This is leading to an increased demand for highly skilled creative and technical people. Flows of talent and technology into China are creating a big opportunity for Hong Kong to go to the next level of being a super connector.

This article was originally published with our March 2021 edition of our Proco Thinking New, read the full newsletter here.

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