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With The Global Supply Chain Crisis Intensifying, How Will The Fashion Industry Deal With This "Life And Death Test"?

2021/11/22 16:12:00 3

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Thanksgiving Day is approaching, Christmas and the new year are not far away to wave, at the same time, this year's "holiday season" seems to be a little less warm than before, but a little bit more anxious to prepare for the future. Affected by the epidemic situation, a "supply chain crisis" is spreading all over the world. The shortage of materials and the shortage of commodities have become the common problems faced by consumers and enterprises preparing for the festival.

In the context of a high degree of globalization, any link in the production and supply chain has a fatal impact on the fashion industry.

Affected by the epidemic, the global supply chain including the fashion industry is facing unprecedented pressure. The outbreak of the new coronavirus variant in Southeast Asia led to factory closures in Vietnam, Cambodia, Indonesia and Malaysia in May and August this year.

The production capacity of clothing and shoes in Southeast Asia has been greatly reduced due to the repeated epidemic situation

The closure of factories in Southeast Asia will undoubtedly have a great impact on the garment manufacturing industry, a labor-intensive industry. At the same time, the influence of the epidemic situation makes the logistics of the port into chaos, the stevedores can't rework in time, the quarantine policy in various regions is tightened, and the customs overstocked documents. All kinds of factors make the container pile up in the port, and the ships park at the main port to wait for unloading, and the speed of goods circulation is greatly reduced. Even so, due to the approaching of important festivals, closer ties with family life under the epidemic situation, and the fiscal policies of governments to stimulate consumption, consumers' shopping enthusiasm has increased.

According to reports, the volume of cargo handled by U.S. ports this year is equivalent to 26 million 20 foot containers, an increase of 18.1% over last year. At the same time, as of August this year, retail sales in the United States increased by 20% compared with last year, a large-scale rebound based on the recovery of sales in 2020, reaching $4.3 trillion. The trend in fashion is even more dramatic. In the first few months of 2020, physical clothing accessories store sales fell by 33%, and this year they soared by 64%. Clothing and accessories sales in general stores fell 17% in the first nine months of 2020, and are up 22% this year. Because of this, even if the supply chain is greatly impacted by the epidemic, enterprises are also trying to make the production and transportation efficiency can catch up with the unprecedented surge of consumers' shopping enthusiasm.

The relationship between capacity and demand has become unbalanced

However, the highly strained supply chain has increased the transportation cost and time of goods, breaking the business model and rhythm that enterprises and suppliers have been used to for the past 30 years.

According to a port report, due to the tight capacity of freight ships during the epidemic period and the slowdown in unloading caused by the epidemic, the sea freight price of goods is at an all-time high, and the transportation cost of sea routes from Asia to the United States and Europe has increased 10 times compared with that in 2019. The price of 40 foot TEUs freight from China to the west coast of the United States has exceeded US $20000, and the delivery date cannot be guaranteed. It is estimated that the peak price of ocean freight will last until 2022. The dilemma of transportation is perplexing the clothing retail industry. The high transportation costs have prompted some retailers to postpone orders or reduce inventory, while more enterprises are seeking to move their manufacturing links closer to their market or switch to air transportation, which was once considered to be expensive.

Lululemon's latest second quarter 2021 results show that its revenue has increased by 61% compared with the same period last year. Even so, as one third of lululemon's global supply comes from Vietnam, the recent factory shutdown in Vietnam still causes concerns, which has an inevitable impact on delivery time. In response, Calvin McDonald, lululemon's chief executive, said in an interview: "if necessary, our autumn and winter cargo will be transported in by air and other means." to avoid shortages during the holiday season.

Lululemon's capacity was also affected by the decline in Vietnam

In contrast, Nike seems to be more affected by the supply chain crisis. As about three-quarters of Nike's footwear is produced in Southeast Asia, 51% and 24% of its production are in Vietnam and Indonesia, respectively. Therefore, the plant shutdown during the epidemic period in these two places forced Nike to cut its planned sales and thus affected its revenue. Nike originally planned to achieve double-digit growth in this fiscal year based on the previous year's revenue. However, due to the influence of the supply chain, the revenue of this fiscal year is expected to increase in single digit. At the same time, in response to the crisis, Nike said it would plan to increase air freight charges during the holiday season. This series of factors also implied that consumers would face the pressure of rising commodity prices and fewer product choices.

Vietnam accounts for half of the capacity of Nike shoes

In addition to relieving supply chain tension and pressure from logistics and shipping, some enterprises focus on solving fundamental problems from suppliers.

The 2021 fashion industry benchmark research report shows that in response to the epidemic, fashion brands are consolidating their goods production base, or focusing on strengthening ties with closely cooperated suppliers, so as to respond flexibly to changes. Flexibility is one of the most important competitiveness of enterprises during the epidemic period.

Sheng Lu, a fashion and clothing researcher at the University of Delaware, says some suppliers are "super suppliers.". They may have factories not only in China, but also in other South and Southeast Asian countries. Because of this, "super supplier" can make a more rapid response to "non economic factors", for example, when a factory is shut down or in a certain place, the "super supplier" can quickly transfer products in the global supply chain and break away from the deadlock. Enterprises can even reduce the shortest lead time of purchase orders from three months to one month by establishing a deeper relationship with such suppliers, which is very important for enterprises to control time and money costs.

The trend of anti globalization and sustainable development is unstoppable

However, due to the rise of Asian labor force in recent years and consumers' concern for product supply chain and sustainability, more and more fashion enterprises are going through the process of "de globalization", and are considering giving up the low-cost manufacturing centers in Asia. This is also one of the important impacts of the epidemic on the fashion industry. In an interview with Reuters, Massimo renon, chief executive of Benetton, said in an interview with Reuters that the company will shift production closer to "home" and strengthen production in Serbia, Croatia, Turkey, Tunisia and Egypt, and is expected to halve production in Asia by the end of 2022, aiming to strengthen control over time and production costs.

Canada goose, by contrast, seems to have always been a "outlier". Instead of joining the upsurge of transferring production overseas to reduce costs, Canada goose has a factory in Canada that produces Parka coats, knitwear, light down coats and now shoes throughout the year. Even though the products are made of materials purchased from all over the world, due to its production in Canada, Canada goose has been able to successfully maintain the supply on hand, ensure the operation of the production line, and make a sensitive and rapid response to consumption trends during the epidemic period. This sudden supply chain advantage has made Canada goose's sales increase steadily at the end of this year. And the CEO of Canada goose said that the company had all the inventory needed to meet the holiday season, as well as all the raw materials needed to make goods for next year.

Canada Goose ?

In the new situation, many fashion enterprises began to reflect on their industrial layout strategy. They began to think whether the production chain relying so much on China and Southeast Asia still has advantages. Many enterprises are considering turning globalization into regionalization, that is, transferring the industrial chain closer to the enterprise. Although labor costs will increase, supply chain disruption and freight costs can be greatly reduced. "Anti globalization" has become a post epidemic era, relying on a single supply chain capacity in the face of many "black swan events" will inevitably put the brand in a passive position, so globalization and anti globalization will still be the key trade-off issues for fashion enterprises.

However, in the face of the global crisis of the supply chain, it is a universal challenge for every individual in the globalization, whether it is enterprises or consumers. As U.S. President Joe Biden said of the supply chain crisis during the outbreak, "the world has changed and we need to take a longer-term view and invest in creating a greater range of resilience to withstand the shocks that we see year after year, whether it be pandemics, extreme weather, climate change, cyber attacks or other disruptions."

The simple three words "supply chain" do not seem to be enough to describe its complexity and its potential crisis. Fashion supply chain consists of many production stages, including, first of all, planting natural resources and raw materials to create fibers. These fibers are then harvested and used to make fabrics. Finally, the fabric is dyed, cut, and garments are made on this basis. Once the clothes are ready, they are sent to retail stores for consumers to buy. It can be seen that the fashion industry is labor-intensive because it involves people from all over the world. At the same time, a lot of water, chemicals and oil are used in these production stages. Therefore, clothing manufacturing industry is also one of the most polluted industries in general. Because of this, in recent years, fashion consumers and enterprises pay more attention to the traceability and transparency of supply chain and production links, hoping to promote the sustainable development of clothing manufacturing industry.

And the use of green electricity is becoming the only way for fashion enterprises. Re100 is a global enterprise renewable energy initiative, which brings together hundreds of large enterprises and is committed to 100% renewable energy power. In September 2019, Kaiyun group adjusted its sustainable development strategy to use renewable power. Ralph Lauren and Chanel also joined re100. Chanel, a member of the ? two thousand and twenty ? An official document named "Chanel mission 1.5" was issued in March, 2003, aiming to control the rise of global average temperature within 1.5 degrees Celsius through its own efforts. Meanwhile, fashion companies such as lululemon and gap have signed power purchase agreements with Enel green power. In the production process, they only use 100% renewable energy such as wind energy, water power, solar energy, geothermal energy and biomass energy, so as to stop imposing a burden on the environment.

Chanel Mission 1.5

In addition, Enel green power, after building Lily solar energy + energy storage project in July and October last year, and azure sky solar energy + energy storage project in Texas, announced in March this year the construction of a project for CO location deployment of wind power generation facilities and energy storage systems in Texas. At the same time, the company said the azure sky wind energy + energy storage project, after opening, will generate 1300 GWH of electricity per year through its 79 wind turbines. The battery energy storage system will store part of the power and provide power services for the grid. In July, Enel green power North America also acquired 3.2 GW of solar and solar energy storage projects in the mid Atlantic, Midwest and western United States from Dakota renewable energy, a joint venture between Dakota power partners and eolian, and plans to put it into commercial operation in 2023.

With more and more industries from fashion to science and technology put into use green power, such as Enel green power and other sustainable energy developers, as well as the continuous expansion of advocacy organizations such as re100, green power is clearly becoming a new wind outlet, and further promoting the two-way benefits of economic and sustainable development.

Wind power generation

At the same time, this renewable energy with both power attributes and environmental protection attributes will inevitably be further expanded in a wider range of global industries. Through the self built green power energy system, fashion enterprises will be able to better cope with the energy tension in the process of global energy upgrading and transformation. Even in the context of declining traditional energy production capacity and increasing costs, "green power" can still provide enough energy supply for enterprises and ensure that there is no environmental pollution burden.

In addition. For many years, the blockchain, which has been concerned by the fashion industry, has become one of the powerful tools to realize the traceability of the supply chain because of its characteristics of non tampering and decentralization. Affected by the epidemic situation, the continuous pressure from consumers and supervision institutions also makes enterprises achieve visibility of all links with the help of blockchain. Companies such as ukft and H & M have launched new pilot projects to track supply chains with blockchains. Current H & M and fashion tracking platform with blockchain as the core technology ? Textilegenesis's collaboration is in the experimental phase.

From increasing investment in "green power" to moving production capacity back to areas closer to "home" with the help of blockchain technology, we can be sure that if the fashion industry wants to "survive" this global crisis, it is essential to break through the barriers of competition for cooperation. These irresistible "black swan" events not only increase the uncertainty of the development of global fashion consumer market, but also make fashion enterprises face greater pressure of rising costs. Although these challenges are unavoidable and uncontrollable, enterprises still need to adjust their strategies more flexibly and improve their ability to resist pressure according to market changes.