2023 could be a year full of risks but also opportunities for the industry.
The Ukraine war, inflation, soaring energy costs and a turbulent market environment are all taking their toll on the global apparel and textiles industry. Weakened consumer demand is inevitable next year, while the US and China trade war is likely to continue impacting supply chain decisions. While challenges will be rife, opportunities will be found in sustainability and reducing waste, investment in technology and exploring ways to bring the supply chain closer to home.
The year ahead will be full of challenges and opportunities for the industry.
At the macro level, we will see how fast the EU and the US climb out of a possible recession. Probably the EU will fare worst as it also has a war that seems to go on and on and even when that stops, the amount of resources needed to rebuild Ukraine will run into the billions and will take decades.
The rest of the world will fare no better as the Chinese economy grinds to low single-digit growth and the trade wars continue between China and the US.
All of this will impact consumer sentiment on one hand, and supply chain and manufacturing decisions on the other.
Dreams and plans for onshoring and nearshoring are just that for now with small experiments but no wholesale shifts.
The most optimistic scenario is that East and West will come to some uneasy truce for the sake of easing inflationary pressures and reducing global tensions.
As concerns turn to alarm about our climate change crisis, how we make, ship, sell, resell, and dispose of our garments and textiles will come under more and more scrutiny.
There will probably be winners and losers in this as consumers make better and more conscious decisions and as greener brands make their offerings more compelling.
Better disclosure, more transparency, new rules about our responsibilities and probably new laws, and new taxes will mean we buy less and buy more intentionally.
For industry, there will be a race to zero; zero waste, zero discharge, zero carbon, and zero non-renewable anything. Winners are those who embrace the challenge the fastest.
The impact on the industry may finally be a cleaner, more responsible, and more digital industry.
Culturally, this means we went from fashion driven by art and inspiration a generation ago, to a more technical, functional, scientific fashion as a business. Having said that, just about every consumption decision in the fashion industry is discretionary, few of us would freeze to death this winter for lack of clothes, so how brands win hearts and minds will still be key.
Not all of this will happen in 2023, but I suspect like all changes in our industry when it happens, it will be much faster than we thought possible.
2023 is likely another year full of challenges and opportunities for the global apparel industry.
First, the apparel industry may face a slowed world economy and weakened consumer demand in 2023. Apparel is a buyer-driven industry, meaning the sector’s volume of trade and production is highly sensitive to the macroeconomic environment. Amid hiking inflation, high energy costs, and retrenchment of global supply chains, leading international economic agencies, from the World Bank to the International Monetary Fund (IMF), unanimously predict a slowing economy worldwide in the new year. Likewise, the World Trade Organization (WTO) forecasts that the world merchandise trade will grow at around 1% in 2023, much lower than 3.5% in 2022. As estimated, the world apparel trade may marginally increase between 0.8% and 1.5% in the new year, the lowest since 2021. On the other hand, the falling demand may somewhat help reduce the rising sourcing cost pressure facing fashion companies in the new year.
Second, fashion brands and retailers will likely continue leveraging sourcing diversification and strengthening relationships with key vendors in response to the turbulent market environment. According to the 2022 fashion industry benchmarking study I conducted in collaboration with the US Fashion Industry Association (USFIA), nearly 40% of surveyed US fashion companies plan to “source from more countries and work with more suppliers” through 2024. Notably, “improving flexibility and reducing resourcing risks,” “reducing sourcing from China,” and “exploring near-sourcing opportunities” were among the top driving forces of fashion companies’ sourcing diversification strategies. Meanwhile, it is not common to see fashion companies optimise their supplier base and work with “fewer vendors.” For example, fashion companies increasingly prefer working with the so-called “super-vendors,” i.e., those suppliers with multiple-country manufacturing capability or can make textiles and apparel vertically, to achieve sourcing flexibility and agility. Hopefully, we could also see a more balanced supplier-importer relationship in the new year as more fashion companies recognise the value of “putting suppliers at the core.”
Third, improving sourcing sustainability and sourcing apparel products using sustainable textile materials will gain momentum in the new year. On the one hand, with growing expectations from stakeholders and pushed by new regulations, fashion companies will make additional efforts to develop a more sustainable, socially responsible, and transparent apparel supply chain. For example, more and more fashion brands and retailers have voluntarily begun releasing their supplier information to the public, such as factory names, locations, production functions, and compliance records. Also, new traceability technologies and closer collaboration with vendors enable fashion companies to understand their raw material suppliers much better than in the past. Notably, the rich supplier data will be new opportunities for fashion companies to optimize their existing supply chains and improve operational efficiency.
On the other hand, with consumers’ increasing interest in fashion sustainability and reducing the environmental impact of textile waste, fashion companies increasingly carry clothing made from recycled textile materials. My latest studies show that sourcing clothing made from recycled textile materials may help fashion companies achieve business benefits beyond the positive environmental impacts. For example, given the unique supply chain composition and production requirements, China appeared to play a less dominant role as a supplier of clothing made from recycled textile materials. Instead, in the US retail market, a substantial portion of such products was “Made in the USA” or came from emerging sourcing destinations in America (e.g., El Salvador, Nicaragua) and Africa (e.g., Tunisia and Morocco). In other words, sourcing clothing made from recycled textile materials could help fashion companies with several goals they have been trying to achieve, such as reducing dependence on sourcing from China, expanding near sourcing, and diversifying their sourcing base. Related, we are likely to see more public dialogue regarding how trade policy tools, such as preferential tariffs, may support fashion companies’ efforts to source more clothing using recycled or other eco-friendly textile materials.
Additionally, the debates on fashion companies’ China sourcing strategy and how to meaningfully expand near-sourcing could intensify in 2023. Regarding China, fashion companies’ top concerns and related public policy debates next year may include:
Meanwhile, driven by various economic and non-economic factors, fashion companies will likely further explore ways to “bring the supply chain closer to home” in 2023. However, the near-shoring discussion will become ever more technical and detailed. For example, to expand near-shoring from the Western Hemisphere, more attention will be given to the impact of existing free trade agreements and their specific mechanisms (e.g., short supply in CAFTA-DR) on fashion companies’ sourcing practices. Even though we may not see many conventional free trade agreements newly launched, 2023 will be another busy year for textile and apparel trade policy deliberation, especially behind the scene.
After almost three years of the Covid-pandemic, many of us were hoping to see light at the end of the tunnel… and for a while, it appeared that way. Most production countries had reopened after prolonged lockdowns, stratospheric logistics rate hikes seemed to have stabilised and port loading, sailing schedules and factory shipment predictability had improved. For a brief while, it seemed like the worst was over. But then the Russian invasion of Ukraine took place, and with that, we were hit with fresh macroeconomic volatility in terms of unsustainable fuel and electricity price hikes, inflation, and predictions of a looming recession. As a result, supply chain consequences continue to unfold globally across critical sectors such as agriculture, manufacturing, energy and food. These tsunamis of overlapping economic and geo-political disasters, have made it impossible to predict and react, and have shaken not only the foundations of retail profitability but also the foundations of the supply chain and are forcing us to rethink how we will rebuild for a sustainable future.
If there is one thing that keeps supply chain orchestrators up at night, it is the uncertainty of the geopolitical environment. In an increasingly polarised world, diversification and risk reduction have become more important. With so many variables at play, brands and retailers need to constantly relook at their diversification strategy to be ahead of potential risks that may disrupt their supply chain. The days of a “narrow and deep” sourcing strategy have given way to diversified and agile strategies.
Last year’s pandemic-driven supply chain disruptions led to empty shelves, and most retailers’ knee-jerk response was to order an abundance of goods. With rising inflation and a pending recession in sight, consumers have less disposable income and have become more price sensitive. There are clear indications of lower demand in 2023 which underlines the importance of less knee-jerk reaction and a more planned response toward inventory management and getting the right goods at the right time. Brands and retailers must invest in data insights and digital tools to efficiently match supply to demand, reduce material waste and consequently lower emissions.
For apparel firms to be competitive, the centre of gravity has shifted from marketing and branding to the price-value equation of product. In this respect, three key factors will separate winners from losers in 2023:
The winners will be those that achieve the perfect interplay and balance between price, product, and agility. Technology will play a key role in achieving this balance. Retailers that can use technology to drive their decision-making, build trend-right and price-right products, just in time, as well as reduce their overall environmental impact, will not only survive but thrive in the near future.
In a world where one major shock to the global economic system follows another, it’s important to keep seeing the big picture of our industry’s development. In 2023 we’ll see legislative screws tightening on the global apparel production system while at the same time inflation and declining demand reduce its ability to invest in the necessary transition. But when the going gets tough the tough get going and in 2023 we’ll continue to see exciting responses to this challenging situation.
Naturally, the IAF is fixated on supply chain collaboration and we’ll see brands, retailers and manufacturers collectively taking steps on the improvement of purchasing practices, on living wages, on investments in climate action, on transparency and more. Winning brands and retailers treat their supply chains strategically. They realise that the combination of upping sustainability and flexibility demands and reducing prices for their suppliers ultimately doesn’t work. It doesn’t allow them to comply with legislation and it doesn’t allow them to compete in the long run.
Where we can’t rely on consumers to pay much more for similar products the industry needs to unlock all that money eaten up by the mismatch between supply and demand. It needs to do that through buyer-supplier collaboration and not by using suppliers as crumbling zones to catch blows of variable demand. At the same time, inflows of money are necessary to develop our recycling capacity at scale and to drastically reduce the energy intensity of the industry. Ultimately, winners realise that the supply chain can’t act green when it is in the red.
In 2023 the demands for supply chain transparency and due diligence and the continuous drive for a more flexible, nimble supply chain require growing collaboration between the apparel and the textile industries. We will see this in company-specific cases, with a growing market share of integrated manufacturers, on a country level, with growing investments in textile manufacturing to create proprietary textile bases where these don’t exist yet and on a global level where apparel and textile federations start to collaborate more.
At a time of external shocks hitting a still conservative business system, incumbents are vulnerable to new players introducing new business models. Shein is, of course, a good example where such a new entrant hits the existing business at a vast scale. But in 2023 at the edges of the market, more and more market share will be taken by new entrants with new models. Interestingly, sometimes these new entrants are manufacturers that set up their own brands. At times these manufacturers create digitally native brands, creating more margin, more export opportunities and becoming better suppliers in the process.
When considering the barrage
of environmental legislation that is being rolled out, particularly in Europe,
the danger I see is that legislation is passed but policed so badly that it
creates an unfair playing field. Whereas good legislation, enforced well, can be
a catalyst for needed industry change and fair distribution of costs across all
brands and retailers, badly enforced legislation has the opposite effect. It
will hand the advantage to those companies that don’t contribute to people and
planet. The industry needs to speak with one voice to prevent this situation
By Just Style