Some answers to the question “how to add value in the international fashion chain?”
Investments in China
The Convention’s theme “creating value in the international fashion chain” really was given full meaning during the 29th world Fashion Convention in Shanghai. China’s rapidly rising costs are clearly causing a cascade of adjustments. A major value of the IAF’s Shanghai Convention was that several giant Chinese apparel conglomerates, major players at the heart of the storm, shared their vision. They exude confidence and welcome the changes.
[singlepic id=6668 w=320 h=240 float=left]Tianzhu Hong, CEO of Texhong, said “external pressure is conducive to the development of the Chinese industry on the long run. It is better to look at the source of the problems than at the problems per se. “ So how does Mr.Hong see the future of the apparel industry? He foresees an increase of the total size of the market and a decrease of the number of number of players. His company is planning a big investment in Vietnam and he sees Vietnam as having acquired a complete value chain because of these investments in 5-10 years’ time. Similar huge investments by Chinese companies are planned in countries like Cambodia and Indonesia. Actually, more and more the bond between the country of origin of the product and the country of origin of the capital is different. Where we may see less ‘made in China’ we will see more ‘Financed in China’.
At the same time the Chinese industry is moving to a domestic market oriented industry, delivering a high level of services, including helping foreign brands sell on the Chinese market. Size and vertical integration are important in the Chinese strategy for structural change. This was underlined by the Shanghai Silk Group’s CEO, mr. Xu Weimin.
Managing Hybrid companies
[singlepic id=6672 w=320 h=240 float=right]Lectra’s CEO Daniel Harari explained in an impressive way that in the fashion industry change and growing in size are very complex. Key to this is the development of what Harari calls hybrid companies. Big brands and retailers have to be a brand and a retailer. Certainly Chinese companies are often a brand, a retailer and a manufacturer. Essentially these are three companies in one. This hybrid then manages three business models in one: fast fashion, capsule and a basic fashion model. Again three business. Managing these hybrids is an important key to success.
Sourcing from China and alternatives
[singlepic id=6639 w=320 h=240 float=left]From the perspective of the buyers from Chinese factories, Kevin Burke the President and CEO of the AAFA was clear: “China will remain very important.” Achim Berg, a McKinsey partner, gave the IAF Convention the honor of being the place to first reveal the results of McKinsey’s Apparel CPO (Chief purchasing/production officer) Survey 2013. The research concluded that around 72% of the total 29 chief purchasing officers (CPO) surveyed are planning to move orders from China to other Asian countries in the next five years – although China will still remain the largest supplier. Among the alternative sourcing markets Bangladesh is the top choice for CPOs. However, mainly due to the enormous catastrophes in factories in Bangladesh, the enthusiasm for production there is diminishing.
There are no easy alternatives for large volumes out of China. China will remain important and the industry will also focus on investment in productivity and a better match to demand. Kurt Cavano of Tradecard- GT Nexus showed that using cloud based supply chain software can align financial and logistical objectives and help to create a much more effective collaborative effort by buyer and retailer to improve margins at the consumer end of the chain. One of the Chinese conglomerates remarked “We are not country hopping. Then you keep moving. You never invest. Now [by staying in China] we can invest in flexibility, sustainability. Speaker Mr. Xi Shiping, the CEO of Shangtex told the audience that his company invested heavily in technology such as high tech materials and in branding. Shangtex’s big involvement in the Shanghai Fashion Week clearly shows it willing to help build the infrastructure needed to support a strong fashion industry in Shanghai so that it is able to remain as a successful manufacturer in the Shanghai region in China.
[singlepic id=6687 w=320 h=240 float=right]Having said this, of course especially for low cost articles, alternatives to production in China are being sought. IAF has dubbed this the ‘Second phase post MFA’ period. And in this period we see a greater appetite among apparel buyers for pioneering in ‘new’ locations. Mr. Rajeev Arora, the executive director of the African federation of cotton industry associations (over 20 African countries), showed that production of apparel is increasing in Africa, especially in Ethiopia, Kenya, Tanzania, Madagascar, Mauritius and Madagascar.
Innovation for sustainability
[singlepic id=6800 w=320 h=240 float=right]Another major structural change the industry is going through is driven by the increasing call for sustainability. Sustainability has also become part of the strategy for manufacturers, brands and retailers to add value. This Convention used the jeans industry as a case and again added a Chinese perspective. Mariette Hoitink of Amsterdam based House of Denim; Andrew Olah, founder of the renowned Kingpins tradeshow and Vincent Qin of the Chinese denim fabric supplier Prosperity showed among them a large array of innovations that are aimed at reducing the environmental impact of denim products. ‘Recycled’ water for jeans wet processing; laser and ozone in laundry; numerous alternative raw materials and alternative sources of energy- which are more sustainable- are all already available to reduce the impact on the environment of a pair of jeans. Mike Fralix of [TC]2 showed that amazingly technology already allows for a printed jeans that is hardly distinguishable from the dyed product.
The jeans case showed how buyer – supplier alliances have emerged to create the necessary change. Innovations are often bought from upstream but they commonly require collaborative development. Prosperity has collaborations with Tencel, Clariant, Olah Inc and with Jeanologia and it has set up an innovation forum. House of Denim is an Amsterdam initiative bringing together brands such as G-Star, Tommy Hilfiger, Levi’s, Denham and Scotch and Soda. Its ‘brighter blue’ initiative will center around a research lab in Amsterdam aimed at sustainability.
But Andrew Olah made quite clear that the effect of all of this innovation and cooperation is still too little. The sustainable innovations are simply put used in too small a percentage of jeans. More action by the industry is needed to be able to push sustainability past the threshold where it is better noticed, understood and valued by consumers.
[singlepic id=6804 w=320 h=240 float=left]A very compelling case of adding value to the supply chain was presented by Shintex CEO Jason Chen. He showed how the Taiwanese fabric supplier is making fabrics out of the plastic waste and the coffee waste from fast food restaurants. ‘Drink it, then wear it’ sounds like a fairytale, but it was shown to be true and a very good example of how creativity and innovation can create value out of waste.
Ed Gribbin of Alvanon finally showed that there is more to that there is more to innovation than the invention alone. Implementation ultimately depends on the people that make the company. Innovation means big changes and people are often instinctively reluctant to change. Adding value by investing in innovation therefore needs good people management in addition to the inventions themselves.[singlepic id=6636 w=320 h=240 float=right]
Cross continental branding and selling
The IAF’s 29th World Fashion Convention that took place in Shanghai this year showed how successful brands are able to bring make export across continents work and so add value to their brands.
Mrs. Gao Mei Zhen, a member of the family owning perhaps China’s most famous brand, Bosideng, was very clear. “China is a big state of clothing”, she said, “but not yet a powerful state of clothing.” Only by inviting foreign designers to work intensively with Chinese designers is the brand able to launch the brand in Europe. And then still it takes lots of energy to get the details right.
[singlepic id=6816 w=320 h=240 float=left]Professor Piergiorgio Dal Santo, President of luxury brand consultancy PGDS told the audience that the Chinese market, and especially the younger middle class customers are acquiring more sophisticated tastes and successful luxury brands such as Hermès buy local Chinese brands to be able to understand the market better.
Stefan Lange, international sales director of Brax from Germany also pointed out major challenges on the Chinese markets, such as the lack of good store personnel and the need to find the right location for shops in a context of overcapacity of shopping centers.
[singlepic id=6826 w=320 h=240 float=right]Helen Chen, Vice President of Jiangsu Sainty, focused on the Chinese fashion identity. She underscored Professor Dal Santo’s remarks about the growing sophistication of Chinese tastes leading to a bigger appreciation of the own unique personality which in turn helps to create stronger Chinese grown brands. Interestingly, a stronger Chinese fashion personality is important for the success of Chinese brands on the domestic market and also on foreign markets.
Bosideng, Brax, and many of Professor Dal Santo’s clients show that success on distant markets is certainly possible. But the IAF Convention showed it requires remarkable dedication, character, patience and above all a willingness to invest in learning about the other market in great detail. Bosideng, finally gave a good reason to go through all the trouble. “Only by facing ourselves to stronger competitors, can we better understand ourselves, and keep motivated for progress.” In other words, they must do the toughest thing to remain the best.
The Convention clearly showed that investment is the key to creating value in the fashion chain. Investments in technology, branding and sustainability are crucial for a strong global fashion industry that can rely less on continuous relocation of production.