Environment, changes in the supply chain, size and technology are the four main topics in the latest edition of Global Fashion Drivers, created by Mds and sponsored by Everis.
At what speed does fashion move? What are the main drivers of the industry? Personalization, price reduction, sustainability, reorganization of the store network and full commitment to Rfid are some of the drivers of the fashion business, which is in the middle of an uncertainty scenario marked by political and economic uncertainty.
For the fourth year in a row, Mds analyzes which are ten drivers that mark the evolution of the sector in the Global Fashion Drivers report, which is sponsored by Everis. The document is based on the analysis of the information published by a sample of the one hundred largest and most representative companies in the fashion sector in the world. Mds submits companies to a comprehensive questionnaire that sums the key areas of their operations.
Environment, changes in the supply chain, size and technology are the four main areas in which the ten macro trends that mark the evolution of the sector can be included. What are the ten Global Fashion Drivers of 2019?
US and China scare the world
March 22, 2018 will be marked on the calendar as the beginning of one of the great battles of international trade in history: trade war between China and the United States, for which an agreement is still being sought today.
This is just another element of uncertainty for a sector as highly globalized as fashion. In six out of ten reports of the 2018 fiscal year of the industry giants’, explicit reference is made to the uncertainty in which the global economic scenario is plunged and the difficulty in making short and medium term growth forecasts.
About 22% of operators clearly mention trade war between the United States and China as one of the brakes on foreign trade and 32% of companies, instead, point to currency volatility. Companies have spoken out loud and companies such as PVH, VF, Tapestry, Saphilo, Gap or Levi Strauss have asked the president of the United States, Donald Trump, to end the tariff riaise, which penalizes the sector.
This situation of global instability has made the giants of the fashion industry reorient their international expansion strategy. In 2018, 38% of the world’s top 100 fashion companies opened new markets, compared to only 8% of the companies that chose to retreat into one. Of the total number of companies that opened new markets, 47% opted for mature markets.
Oxygen to stay in the game: fashion refinances
Uncertainty. Promotions. Consumption slowdown. Ecommerce boom. These and other elements have impacted on the evolution of the profitability of the world’s largest retailers. About 32% of fashion giants dropped their sales in 2018 and 22%, their profit.
This fact has resulted in a significant number of companies having to talk with banks to analyze their liabilities. 19% of the giants of the fashion industry have refinanced their debt in the last year and four out of ten companies have activated a cost reduction plan.
Mothercare, Kiko Milano or OVS opted to refinance their debt during the past year. In Spain, El Corte Inglés, one of the world’s largest department stores by revenue, was one of the companies that faced a major restructuring of its liabilities, which reached 3.6 billion euros.
Buy or close: earning share against the competitor
Concentration. This is one of the trends that marks the evolution of the fashion business, marked by a scenario of weak growth, transformation of the model or processes of digitalization. Fashion is increasingly moving towards a game of giants.
Merges and acquisitions have been protagonists of numerous headlines in the last year. Of the hundred groups analyzed, 41% of the companies in the sector have bought a stake of another company in 2018.
In addition, 4% of fashion groups have switched hands in the last year, while 5% have sold some of their brands and 7% have created alliances with new partners.
In that sense, luxury, for example, has extended its commitment to digitalization through the acquisition of specialized companies, as well as digital startups to modernize the course of its business. In parallel, supplying in proximity has been another key to the acquisition of large luxury conglomerates through the purchase of their suppliers.
From fast fashion to flexible fashion
Supply chains are again in full redefinition. Not only volumes, the price and the speed determine at present the design of the supply chains, but a new variable has come into play: flexibility, the ability to adjust to the market demand.
Digitalization of consumption, and of the economy in general, forces several pieces in the structures of companies to move faster, and one of the areas where this transition begins to become evident is in its supply chains.
The new twist of the industry is not an ultra-fast fashion, that is, to speed the system but still working with large volumes; but for a flexible fashion, sharpening the supply much more to gain speed, but avoiding the nightmare of stocks. The new strategies in this regard go through establishing greater control over production, either by creating structure around productive hubs, establishing new logistic hubs, setting up their own factories or betting on automation.
The race that begun to take the fashion in sustainability stopped in 2018, although in 2019 it accelerated again. The Greenpeace Detox campaign in 2011, the collapse of the Rana Plaza in 2013 and the Climate Summit in Paris in 2015 were three blunt elements that placed sustainability on the radar of large fashion and luxury companies.
During the beginning of this decade, interest and investment in this area advanced rapidly. Sustainability ceased to be a corner issue in the area of marketing and communication to jump to the boards of directors as the spearhead of a new strategy.
However, this acceleration towards green fashion took a break in 2018. The stagnation was temporary and, in part, due to the system’s own ability to integrate and digest the changes, both in industry and distribution.
In parallel to this parenthesis, public pressure increased, with governments such as the British or the French that placed the fast fashion model in their sights. The British parliament, for example, came to suggest the payment of one cent per pledge to compensate for textile waste.
About 30% of the companies mentioned in the report are part of any of the international lobbies that are committed to sustainability. It remains high, but only three out of every hundred companies have a collection composed exclusively of sustainable products and only 5% of retailers and luxury operators are researching circularity.
Apocalypse retail: brick and mortar continues to struggle
The reordering of retail networks in the United States reached its peak in 2018. The speed of ecommerce, the entry of new generations of consumers and the change in shopping habits have forced the traditional distribution system based on retail and wholesale, the power of purchase and influence of historic department stores and the prominence of shopping centers in the culture of leisure, to turn 180 degrees.
The wave of closures that shook retail trade in the United States, which also hit the streets of the United Kingdom and, to a lesser extent, is also perceived in the rest of the main consumer markets, demonstrates the transformation of the channels and the need to link them together.
Although almost half of the retailers in the sector closed stores in 2018, two-thirds ended the year with openings, indicating that the retail apocalypse consisted primarily of a thorough review of the stock exchange, in relocation commercial premises and restructuring the commercial surface adapted to the digitalization.
Roadmap for fashtech: after Rfid, what’s next?
The Rfid (radio frequency identification system) is an invention that dates back to World War II. At the end of the 1990s, the potential that could come to have for retail trade a much more refined management of increasingly complex logistics networks began to be seen.
However, despite years wanting to enter the fashion business, it was not until Inditex took a step forward with this tool when its full potential was finally revealed.
In some ways, Rfid was an advanced technology in its time because its real value didnt emerged until the internet didn’t exploded in consumption and retailers. Once the fashion industry has accepted and integrated the sophistication of the Rfid, it started to track the market for of technological innovations in search of new tools that help in the transformation of companies towards digitalization and in its consolidation, that is, in extracting data and take advantage of them in an intelligent and scalable way.
Innovation in fashion has ceased to be in the product to focus on systems and processes, even creating in-house incubators to test the test-error with less risk.
Almost 43% of companies have already implemented Rfid in their structures. But actions in innovation and technology go further: 9% of companies have acquired a startup to strengthen innovation, 5% have added new payment methods and 10% of the industry giants have implemented virtual reality.
The brand: key to survive
In an environment where uncertainty hangs over business strategies, the brand once again stands as the safest asset for companies in the sector.
Chains thus become the most powerful weapons to fight the fluctuations of demand, to survive the price war, conquer new markets and address new consumers. Shielding has become one of the new strategic keys of the giants of the sector.
Five of the one hundred retailers and luxury companies modified their logo or graphic identity in 2018. On the other hand, the market trend towards concentration has also generated changes in corporate identities with the creation of new holding structures and name changes in the parent company.
In 2018, two major operations were carried out in this regard: the transformation of Coach in Tapestry and Michael Kors in Capri.
Double or nothing: more fashion, lower prices
Fashion continues its deflationary current. The current fashion system continues with significant mismatches between supply and demand, generating an avalanche of hard-to-absorb stocks that forces continued discount campaigns to save the seasons.
Mid-season sales have been consolidating throughout the seasons to start the different phases of the campaign. Its abuse has not only ended up distrusting the traditional period of promotions, but has modified the buying habits (with consumers who are always looking for a discount) and has misrepresented the mental prices of the garments. After decades of lowering prices, raising them is posed as a matter of titanic effort for distribution. Even luxury has succumbed and has also lowered its iron slats with a growing number of lines and collections aimed at the mass market.
During the last year, only 10% of the retailers raised their prices, while the promotional intensity intensified in 13% of the cases, a percentage that accumulates with that of the previous year.
I want you: fashion speeds in personalization
In a context of stagnant growth, one of the formulas to increase sales and market share goes through maximizing the purchase of each of the consumers through proximity. Technology, data and new communication channels allow it.
Placing the customer at the center of the strategy has always been the main goal of retail, but the available technological tools now allow it to be done automatically and scalable.
Loyalty and personalization have ceased to consist of accumulating points to a discount to become a fluid and personal communication between brand and consumer to create long-term relationships based on trust. Loyalty clubs are perhaps as historic as the trade itself, but the digital transformation of the business and its companies are restoring them at the center of the game.