The Global Fashion Industry'S Supply Chain Is Interrupted Again. What Should The Brand Do?

In the early March, Xu Jiawei was still optimistic.

He is vice president of Hongkong fashion group Lida Holdings Limited (PFGHL). His company's factories produce garments and textiles in the mainland and Hongkong. After the Spring Festival, in order to prevent the spread of the new crown virus in China, the government ordered the shutdown to stop production. He had to extend the downtime. Now, he has just witnessed the business start to return to normal, but the virus began to attack the western market.

"At first, the progress was smooth, but soon Italy began to suffer from the epidemic and then the United States," Xu Jiawei said. "American customers are adjusting or postponing orders from air to sea, or simply cancel them."

With the devastating impact of the rapid spread of the new crown virus to the fashion industry, such a situation will become more common in the supply chain of the whole fashion industry. Globally, the epidemic is attacking the manufacturing industry with alarming destruction.

In the past two weeks alone, fears of delays and disruptions in China's February slowdown have transformed into a full-blown financial crisis. As retailers in the western market shut down, cancel and postpone orders, demand for clothing manufacturing has bottomed out.

Not only clothing, including China, many accessories, manufacturing and other related enterprises have also received a great impact. According to the shoe industry, Sun Decong, chairman of the shoe and glue supply factory, Nan Bao resin, said: the shoe factories are not producing, and their glue is not sold naturally. The order has been continuously stopped. 80% of Wenzhou's shoe making enterprises which rely on foreign trade orders have been cancelled.

Sanjeev Bahl, founder of Saitex, a Vietnamese cowboy maker, said: "now is a massacre. The buyer takes the supply chain as a matter of course, and then creates a profound indirect injury.

To make matters worse, many fashion industry supply chains are not alone: the interruption of supply side or demand side is becoming more complicated as more and more manufacturing centers are becoming victims of virus transmission. Almost all factories in Italy have been closed. India is also an important garment and textile manufacturing country, and has entered a state of prevention. Other countries have followed suit.

The impact of the collapse of the retail industry is more direct and obvious. It seems that the impact of the supply chain shutdown is negligible, but in fact, it is related to how the whole industry recovers, which is a more significant and long-term issue.

Simone Cipriani, founder and chief executive officer of Ethical Fashion Initiative, said: "there has been chaos in the industry at the moment, but in the coming months, the impact will really show itself."

Demand has been seriously damaged.

As retailers shut down one after another in Europe and America, suppliers suffered a swift and devastating blow.

"E-mail sent from customers is just asking me to stop shipping," said Mostafiz Uddin, managing director of Bangladesh garment manufacturer Denim Expert. Then how do I pay wages to the workers and take care of them? How should I pay the suppliers of raw materials? "

Some manufacturers who focus on tailoring and sewing usually Book raw materials to meet customers' needs. If orders are cancelled, they will face huge payment risks. Bangladesh is one of the world's largest garment manufacturing centers. According to its clothing manufacturers and Exporters Association (BGMEA) data, up to March 30th, the value of nearly 2 billion 900 million US dollar orders has been cancelled or suspended.

BGMEA chairman Rubana Huq said: "a long time epidemic will definitely aggravate the situation. If the brand refuses to accept the goods, it will give us no choice but to lay off staff. We are an export-oriented industry that relies entirely on exports. "

The impact is also reflected in the luxury market, where orders are being cut before factories close to Italy. Danny d 'Alessandro, general manager of Assopellettieri, Italy Leather Industry Association, said suppliers are now ready to receive payment from outstanding debts.

Manufacturers say that some brands have been transparent and collaborative in how to cooperate with suppliers, looking for solutions that will enable both parties to survive in the current turmoil. But many companies simply cancel orders, even though orders have been completed. This makes manufacturers and their employees extremely unstable.

"This is very reckless behavior," Bahl said. Brands and retailers "cancel the order, do not pay the loan, the impact of the entire system... Suppliers are forced to make decisions." Saitex's current capacity is reduced by 25%. Bahl predicts that this proportion will fall to 50% by June.

This is a systemic concussion in the context of imminent economic pain.

Although China's consumption began to return to normal after its suspension in February, it is far from enough to offset a new downturn in other regions. Burberry has said it expects sales in the last few days of March to decline by 70% to 80% over the same period last year. Inditex, the parent company of Zara, has raised the reserve requirement of up to 287 million euros.

Primark, a British retailer, said it would cancel all new orders. The unusual announcement sent a clear signal that the company expects to have a long-term deep downturn.

Primark chief executive Paul Marchant said in a statement: "our stores, warehouses and transportation have large quantities of existing stocks, which are already paid. If we do not act now, we will receive those stocks that can not be sold at all. This is an unprecedented action taken in an unprecedented and frankly unimaginable era.

Primark promises at least to pay the existing orders and provides a clear strategy for its supply partners. But if other retailers follow suit, a slack season is the best outcome for manufacturers. "This is the death knell of this industry," Bahl said. "If there is little production between July and September, I don't know what will happen."

What is even more worrying is that if the situation does not improve, there may be a wave of destructive bankruptcies in retail business. Laura Ashley, a British retailer, has filed a bankruptcy petition because the impact of the epidemic has dealt a fatal blow to its business. According to Bloomberg news, Neiman Marcus, a luxury retailer in the US, is negotiating with the bank, Niemann Marcus. A wave of liquidation will give manufacturers a huge amount of bad debts.

TAL group, a garment manufacturing giant, serves many luxury goods and design commercial brands. Its clothing company owns 11 factories in Asia. Li Guoquan, chief executive, said: "this is our concern: we don't know how long this situation will last and how many brands will enter the bankruptcy process." If a retailer goes bankrupt due to debts, clothing is still in production. "This situation will destroy most manufacturers."

Adapting to the new reality

At the same time, manufacturers are adapting to the new reality as governments implement strict policies to control the spread of diseases.

On Wednesday, Uddin made a tough decision to close his factory in Bangladesh. "My workers need safety," he said, adding that their employees will receive paid vacation during their employees.

So far, Bangladesh's containment of virus has left room for garment manufacturers to continue to operate. But Huq said that BGMEA has now recommended that all factories be closed, and most factories have already done so.

Although workers' safety should be the most important thing, these measures still bring more pressure to the supply chain. Many manufacturers do not have enough assets to support labor costs for weeks or even months, and orders are being cancelled.

Larger companies can better manage costs, but the situation is still painful. Lian Ye group's factory in Malaysia is facing orders from the government to close at least four weeks. The company will continue to pay the salaries of 5000 local staff. Next week, due to a reduction in orders, the company's planned production in Vietnam will stop for seven days while paying 8000 employees.

In China, according to the National Bureau of statistics, sales of textiles, clothing and apparel declined by 28.1% from 1 to February, and the revenue of leather, fur, feathers and their products and footwear industry dropped by 28.3%.

The Dongguan precision watch industry, whose annual output value reached 1 billion, had to announce the cancellation of its order due to its largest customer Fossil. It announced that it had been on holiday for three months, and accepted the resignation of all the staff at all levels and posts. Many other Chinese manufacturers have also taken measures such as non mandatory holidays and layoffs, including companies encouraging employees to find their own way out.

Where permitted to continue operations, there are always new restrictions and regulations to protect workers. In Africa, the partners of the ethical fashion initiative have returned to the process that Ebola wreaked havoc on the African continent, including hand washing facilities for all parts and regular cleaning of all surfaces. Lida's factory now provides gloves and masks for all employees.

In Vietnam, Saitex checks the temperature of every person entering the factory. Outsiders are not allowed to enter. Facilities are sterilized weekly, toilets and public areas are conducted daily. The company has also set up advisory services and education programmes to encourage employees to wash their hands and take other preventive measures.

Many people also worry about developments in other sectors of the industry.

"Factory ventilation is often bad, workspace is very crowded, and goods need to be transferred from one factory to another," said Koen Oosterom, national manager of Bangladesh and Burma affairs, Fair Wear Foundation. "This may bring disastrous consequences."

Dangerous lifeline

Things could get worse. As countries shut down factories and borders, the sharp decline in demand is putting more and more pressure on the fashion supply chain. The long-term impact is still unpredictable, because the fashion complex and opaque manufacturers network will make the butterfly effect of interruption appear.

"The supply chain is destroyed, and even if only one part is destroyed, the rest will be affected," said Cipriani of the ethics fashion initiative. "No matter where we are, business is being disrupted."

The ethical fashion initiative, in collaboration with silk producers in Afghanistan, has delayed the export of silk because of the shortage of Customs personnel caused by epidemics. Because of the growing anxiety about the escalating crisis, European supervisors, who cooperated with their production facilities, had to fly back to China. Their work in Eritrea could only be temporarily suspended.

Because India is in a state of blockade, "production samples and production can not be carried out," said Vinod Dhawan, former chairman of the factory owner and India clothing exporter Manufacturing Association. "This seriously affects the orders currently in different stages of production, and also affects the samples we should deploy in the future."

Chinese manufacturers who have been struggling to cope with the pressure caused by the Sino US trade war may still have a chance. China has achieved great success in the fight against viruses, and when almost all the other areas were closed, China almost resumed full production capacity as long as there were orders.

Yossi Nasser, chief executive of underwear manufacturer Gelmart, said: "we are trying to skillfully handle the supply chain and bring a large number of overseas orders back to China." Orders placed in Bangladesh and India will continue, but the company is turning its new production plan into a Chinese factory.

Labor rights organizations in the country are worried that this shift in the supply chain may lead to more problems for disadvantaged workers.

Gelmart is working hard to ensure that employees in self run factories are protected and paid in any economic downturn. "These employees are extremely important to us," Nasser said.

At the same time, whether in China or in other countries, the crucial logistics system is facing unprecedented pressure. The massive cancellation of large number of passenger flights has disrupted the air cargo business. Some of the materials are transported by airplanes instead of freighters. The cost of suppliers continues to rise. The policy of high pressure and epidemic prevention has also caused great trouble.

"We can still produce deliveries, but many foreign clients' blockade policy has made it impossible for non essential materials to go to Hong Kong and enter customs," said a business manager of Zhejiang Sheng Hong group, who did not want to be named. The company supplies foundry for Max Mara, Zara and many other brands. Seko Logistics, vice president of sales and marketing in Europe, Middle East and Africa, told David Emerson that "the transport capacity of airlines is almost exclusively freight." The demand for freight transport is huge and the price is too high. "

Even the electricity supplier, the hope of many retailers' lifeline and manufacturers, is also threatened. Business tycoons are also trying to ensure that workers keep social distance and limit their working hours so that they can have thorough and regular disinfection, which slows down the speed of processing packages. The growth of demand for necessities is prior to clothing and other dispensable commodities.

Zach Thommann, executive vice president and general manager of PFS, a provider of e-commerce solutions, said: "in general, everyone sees that the volume of transactions is increasing and the ability to operate safely is decreasing, so the delivery time of some commodities has been lengthened. This increases the cost of the operation supply chain. "

Amazon, the global electricity supplier giant, has suspended the receipt and distribution of orders for ordinary consumer goods in the serious epidemic areas in Europe and the United States. It has a great impact on some brands that rely on the online market. Some companies have decided to close their transportation system completely. Stella McCartney and French shoe brand Veja also closed the warehouse and stopped supply. Even luxury electric giant Net-a-Porter and Mr Porter had to close their distribution centers in Europe and the United States. European and American consumers will be transferred to their website in Hongkong, which has a separate distribution base in Hongkong.

"If the electricity supplier is also closed, it will be very scary," said Li Guoquan of the joint industry group.

Existence

Few people in the industry believe that everyone can survive the crisis, but those who believe are trying to make the future more flexible.

Many companies are looking for partners to support them and seek to establish constructive long-term relationships. Many people believe that those companies that maintain transparent and open dialogue are most likely to put into operation immediately when the situation is stable again, and they can also provide manufacturers with the information they need to effectively plan and manage their businesses in the current turmoil.

Xu Jiawei, Li Da Feng, said: "consumers will stop buying everything, and consumers will make consumer decisions now. When the market starts again, you will need goods, but this will take months of planning and manufacturing. Brands need to focus on their supply chain, communicate with suppliers and customers, and really understand the situation.

Those who are optimistic want to be more responsible and morally sensible after the readjustment of the supply chain. The current crisis highlights a more prominent long-term problem, from poor procurement practices, wasteful inventory management, and oversized and opaque supply chains that allow businesses to turn a blind eye to risk areas.

Elisa Niemtzow, vice president of BSR, a non-profit consultancy, said: "at present, the brand is in crisis mode, and how to immediately protect the business can continue. But as we are in crisis, we need to consider expanding the supply chain and how it will affect developing countries. Soon... It will become everyone's problem. "

Niemtzow said that brands should carefully evaluate their buying behavior and try to be as fair as possible. It is very important to establish close partnership with suppliers so that enterprises can truly understand the possible impact of manufacturers and their employees and the support being implemented by local governments. For example, China's credit insurance has indicated that it will further expand the coverage of short-term export credit insurance, co-ordinate the allocation of resources, and introduce targeted professional services to help enterprises strengthen export risk management and reduce the loss of enterprises. Some local enterprises have also been adjusted for the production of epidemic prevention materials. Once the consumption is restored, how can brands and retailers regain the trust of these suppliers?

Some brands have begun to act. For example, L Or al has promised to shorten the payment time for small business suppliers, which are most vulnerable to the economic crisis caused by epidemics. (Or)

"Consumers are not stupid, and companies with vision and leadership will eventually be rewarded," Niemtzow said.