Strategic development or meeting the needs of the future garment industry?
31-8-2022
STRATEGIC DEVELOPMENT OR MEETING THE NEEDS OF THE FUTURE GARMENT INDUSTRY?
In the 27 years from 1992 to year to date July 2022, garment retail market share fell from 5.9% of total retail sales to 4.4%: A decline of 26%.
Our industry may well be in the final phase of a three-year disaster that began in 2020 with the Covid-19-pandemic and hopefully will end in 2022 that will long be remembered as the garment industry year of chaos, when US retailers increased imports by 40% compared to the same period in 2021 expecting a great increase in consumer demand that never materialised, with the result that the retailers faced mountains of unsold and possibly unsaleable goods.
The big question: What next?
Many in our industry still believe, or at least hope, that the events of the recent past were due to some weird anomaly and that soon things will return to normal. They can take comfort in the solution: Do nothing! Eventually, things will take care of themselves.
At the same time, others finally recognise that these events mark the end of the old industry which will be replaced by a new post-virus industry.
Those trying to look ahead face these serious problems, notably how does one look ahead from the present period of chaos that we do not yet understand, to a future that we cannot understand because it does not yet exist? Unlike their counterparts operating in the do-nothing world, they are in a most uncomfortable position: They must do something.
Regrettably, our industry’s professional consultants have little to offer because their knowledge and experience is based on incremental development (ID), whereby their role is to analyse their client’s current structure and system, and based on that, to design a strategy to move forward towards the future. The best consultants work to increase their client’s productivity, reduce costs, improve quality, increase profits, etc.
Incremental development is often of great value, but not in periods of change. By its very nature ID deals exclusively with a single entity at a single moment in time — Your factory or your retail operation, now. It is a one-dimensional dot in a multi-dimensional universe operating in a time space continuum.
Bear with me. I am not about to drag you into the abstruse worlds of Einstein cosmology or quantum mechanics. I am going to stay in our world of sleeves and shoulderpads.
To understand what has happened we must add two factors: when (time) and where (space).
Imagine you are living in 1900, operating a factory producing horse-drawn carriages. You are living and operating at the cusp of change when transportation by horse is about to disappear, replaced by the automobile. Ask yourself: Will increased productivity, reduced costs, etc. etc. be of any value?
Consider the ‘when’
Let’s go back to the 2022 chaos. Ask ourselves: Why did increased consumer demand fail to materialise?
There are many reasons, but one point is clear. The problem has nothing to do with the three-year disaster and even less with the 2022 chaos. We know this because US consumer demand for garments has been in decline for decades. As we can see from the graph below (derived directly from US Government data). In the 27 years from 1992 to year to date July 2022, garment retail market share fell from 5.9% of total retail sales to 4.4%: A decline of 26%.
Looking only at the present provides no answer. We can neither understand what is happening now nor what will happen in the future unless we go back to the past. The graph gives us a viable trendline to the future.
Consider the ‘where’
The 2022 chaos is fundamentally a US problem. During 2022, US garment imports increased by 40%, while imports to the EU increased by 17%. If we look at the wealthier industrialised countries of East-Asia we can see that garment imports to Korea increased by 19%, while imports to Japan actually fell marginally by 0.3%. Why the US? Why not the EU? Why not East Asia?
Looking only at the US provides no answer. Once again, we cannot understand what is happening in the US without looking at our local problem in a global context.
Any rational conclusion about the recent severe difficulties culminating in the great 2022 chaos must take into consideration both the time – 27 years – and the space – the United States.
We must ask ourselves: What strategies have US retailers consistently carried out for the past 27+ years, that are fundamentally different than strategies of EU retailers?
Ironically, the answer may lie with the “successful” efforts on the part of the incremental development consultants who worked so hard to ensure annual cost reduction.
As you see from the chart below, FOB prices have fallen every year with the exception of 2011, the year following the 2010 recession, and the current year-to-date when retailers fell into the throes of unnatural exuberance.
To understand what has happened we must once again step outside the US into the greater global garment industry world. As of 2021 (the most recent year for which data is available).
The following were the top-10 garment exporters:
Global Garment Maketshare
China 31%
EU 27 27.5%
Bangladesh 8.8%
Vietnam 6.7%
Turkey 3.6%
India 3%
Pakistan 1.7%
Indonesia 1.7%
Cambodia 1.6%
UK 1.0%
We can see that China and the EU together account for over 58% of global garment exports. Everyone else is in the second or third tiers.
We can understand China with its enormous garment and textile industries and its competitive prices.
However, why the EU? If you break down the EU to its constituent countries, five of the top 10 garment exporting countries — Italy, Germany, France, and Spain — are EU countries. These are not the less developed EU member states. Indeed, daily wages in these five countries are higher than monthly wages in Bangladesh.
What do they offer?
I suggest four benefits:
1. Brand: Made in Italy, France, or Spain labels are worth more to the consumer than made in Bangladesh, Pakistan, or India labels.
2. Design: The EU is the world’s greatest design center. This does not mean that French or Italian designers are more talented than US or UK designers, but rather that the most talented designers migrate to the EU where talented designers are appreciated and where interesting clothing is marketable.
3. Access to quality fashion fabrics.
4. Better make: I accept that many will disagree, on the whole a garment made in Italy, Germany, France or Spain is better than the same garment made in Bangladesh, India, or Pakistan.
Consider the top-10 US garment imports for the same period: 2021
US Garment Maketshare
China 24%
Vietnam 17.6%
CAFTA-DR 10.6%
Bangladesh 8.8%
India 5.1%
Indonesia 5.1%
Cambodia 4.7%
Mexico 4.1%
EU27 3.1%
Pakistan 3%
With the exception of China, Vietnam, and of course the EU, seven of the top-ten are cheap labour commodity producers. The EU, the world’s second largest garment exporter, ranks 9th with a 3.1% marketshare, higher than Pakistan but lower than Mexico.
When we examine the most recent data for year to date July 2022, we see an even clearer picture.
As we can see from the chart below, total imports for the most recent period, year to date June 2022, increased by 4.1%. While all the major suppliers showed substantial increases, not all increases were equal. With the exception of Indonesia, the big winners — Bangladesh, India, Cambodia, and Pakistan — were all cheap labour commodity producers.
US PCT Increase YTD 06-21 – YTD 06-22
World 40.1%
China 40.1%
Vietnam 35%
CAFTA-DR 24.6%
Bangladesh 60.3%
India 57.3%
Indonesia 60.3%
Cambodia 52.5%
Mexico 20.4%
EU27 41.8%
Pakistan 50%
Conclusion
I suggest that the secular decline of US garment retail sales is the result of the long term effort by US importers and retailers to continually reduce garment costs.
The US consumer is not buying garments offered by US retailers for the same reason the rest of the world is buying made in EU garments, only the other side of the coin. The very qualities that make the EU the supplier of choice are held to be of negative value by US retailers.
This is the result:
1. Negative Brand Value: Garments produced in countries that are not held in high regard by consumers.
2. Boring designs; Designers’ efforts are invariably discarded to allow for quality assurance — the need to allow production in low cost, low quality factories.
3. Poor quality basic fabric.
4. Poor make.
As the world moves into a consumer driven economy, the US garment retail industry is moving in the opposite direction.
This is just my opinion. You may well disagree. However, I would ask that you present an alternative, based on existing data.
• 27 years of declining retail market share
• A problem unique to the US
• 30 years of declining FOB prices
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