MILAN — Brands and retailers have been impacted profoundly by the COVID-19 pandemic, and many know they are unlikely to rebound and recover lost market shares without forging closer ties with the textile suppliers and manufacturers that transform their creative inputs into high-quality products.
This was the main takeaway from a survey conducted by consulting firm Long Term Partners for Sistema Moda Italia, which was presented in Milan on Thursday. In order to understand where the sector is headed and what synergies suppliers and manufacturers can forge with brands, the survey interviewed chief executive officers and C-suite representatives across a number of Italian and French fashion companies relying on the Italian fashion supply chain.
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They included companies big and small that together generated revenues of 25 billion euros in 2019, some under the 500 million euros annual sales threshold, more dependent on ready-to-wear and wholesale, and others above that quota, which typically generate the bulk of their revenues from leather goods and accessories and have stronger retail networks.
Despite the relevance of suppliers within the fashion industry, their financial power has always been too limited, leaving them undefended when the pandemic hit, the survey indicates.
Margins are distributed unevenly across the supply chain with manufacturers and textile makers generating only around 5 to 10 percent of total earnings before interest, taxes, depreciation and amortization, and sales of 11 billion euros. Figures were calculated taking into account the ready-to-wear and luxury sector that includes around 300 brands worldwide, generating around 67 billion euros in annual sales.
“In the first half of 2020, fashion brands were forced to quickly adopt emergency strategies to face the crisis but then they started to think about how the entire value chain could be rethought,” said Luca Bettale, senior partner at Long Term Partners, formerly at McKinsey and Bain & Co.
Whatever brands and retailers might change in terms of operations and processes will impact the top end of the supply chain and involve suppliers, he said. Bettale believes that transformations should be implemented across the pipeline in a synergistic way in order for the sector to rebound at the end of 2022 or in early 2023.
“No player in this industry would have thought that the sector could have been impacted so strongly by contingent facts. On the contrary what happened with COVID-19 is that they realized how much stiffness and an approach dominated by cost-saving can impact in such occurrences,” he said.
The survey spotlighted five key areas of interest for fashion brands and retailers that the supply chain should not only be aware of, but also embrace for a win-win match. They include a rethinking of the collections’ structure in terms of seasonality, drops and use of big data and analytics to predict and align with customers’ demand.
Directly impacting the relationship between brands and suppliers, the former said they are committed to implementing the use of PLM, virtual prototyping and sampling to establish nimbler structures to be able to tap into customers craving for fresh products every month or so.
All this would mean forging closer ties with suppliers, not necessarily by way of acquisitions — as is the case of marquee names like Chanel with its Paraffection division of specialty ateliers — but more generally sharing working and technological resources, not to mention a common vision.
One of the topics seen as crucial was sustainability. The survey underscored that the efforts channeled into the implementation of more responsible practices will be increasingly shouldered across the supply chain. “These brands are aware that without the know-how and expertise in terms of materials and processes offered by suppliers, their ideas in terms of sustainable advancement would be just dead man walking,” Bettale noted.
He also said that brands increasingly appear more inclined to share the costs of sustainability as they realized that the erosion on profits occurring as the supply chain implements such transition would be more than compensated by the acquisition of loyal customers looking for eco-friendly products.
“It’s no longer the case for brands, and suppliers alike, to ask themselves if and how much consumers are willing to pay more for sustainable products, it’s already a given [that they are],” he said.
In order to exploit the opportunity that this shift at the brands level is bringing about, suppliers should continue banking on creativity, nimbler structures and establish ongoing conversations with brands and retailers.