The Corona pandemic has hit the apparel industry’s global supply chains hard. How are they recovering? What changes will the pandemic bring? Clothing manufacturers, sourcing platforms and buyers talk about their expectations for the future and whether they believe in the nearshoring trend.
Cancellations: premium manufacturers profit
In mid-March, when the lockdown was in full swing in Europe, Gerhard Flatz was able to reopen his textile factory KTC in southern China already. At KTC, which employs about 1,500 people, he produces highly technical clothing collections for international sports brands such as Mountain Force, Mammut, Helly Hansen or Rapha. The Corona crisis affected China first, as is well known, and hit KTC exactly at a time when the factory was taking two weeks off for the New Year in January.
Managing director Gerhard Flatz was in Europe at the time and had to remotely organise the factory’s forced closure. Returning was no longer possible. The factory was closed for four weeks altogether. In compliance with numerous hygiene requirements, it has been running normally since March. Did orders get cancelled? "There were cancellations, but only sporadic ones, especially with duplicate sizes. Warehoused goods have no chance in retail at the moment," says Gerhard Flatz. The premium strategy of his company pays off, says the native Austrian. "We make brand-shaping pieces, products that brands cannot do without."
Pandemic increases emigration from China
Not all garment factories in China are doing so well. "With the sharp drop in international orders, most Chinese apparel exporting companies have seen a significant decline in their workload, some companies have to reduce working hours, and some small and micro export companies are under enormous pressure to survive," said Chen Dapeng, executive vice president of the China National Garment Association, at the beginning of June. Although recent reports from China report an unexpectedly rapid recovery, it does not change the fact that the Chinese garment industry continues to shrink.
"From a manufacturer’s perspective, the Chinese apparel production has been declining in recent years; the pandemic only accelerated an ongoing trend," says Edwin Keh, CEO of the Hong Kong Research Institute of Textiles and Apparel. The demographic development in China, rising labour costs and, not least, trade tensions and tariffs between the USA and China have been driving production into neighbouring countries. The pandemic had once again confirmed "that labour-intensive production is difficult and not desirable for China," says Keh.
Profiteers: North Africa, Turkey, Eastern Europe
The early lockdown in China further fuelled migration. "After the lockdown in China, a hectic search for alternatives in other countries started," explains Jonas Wand, CEO of digital sourcing platform Foursource. Within a very short time, new partnerships had to be forged and finally broken again because the crisis reached there too. Manufacturers in India or Bangladesh may benefit but their situation is difficult. Lockdowns, the exodus of rural workers and the poor payment morale of foreign clients is forcing many businesses into bankruptcy.
According to data from the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), a total of 1,150 garment factories in the country had to cancel or suspend orders worth 3.18 billion US dollars. Many factories will not survive. The result: „In Turkey and northern Africa, capacities are filling up and the USA is looking towards, Mexico” explains Godecke Wessel, co-CEO of Foursource. Is production moving closer to consumer markets again? "China still accounts for 40 percent of world production, which means enormous capacities. One can't imagine them to be quickly dismantled or relocated. But more nearshoring for fast trends is definitely conceivable, for example from North Africa, Eastern Europe or Turkey," says Wessel.
Difficulties with supplies could continue into 2021
The chaotic supply chain situation continues. With a staggered coronavirus outbreak in different countries, factories have been closed at different times or had to scale down their production. In the meantime, everything is running relatively smoothly again in China, observes Miriam Anlauf, buying director for women's items and boutique clothes at German fashion retailer Peek & Cloppenburg Düsseldorf, which has more than 500 brands in its product range, including own brands.
In many sourcing countries, it still happens that goods are available but shipping does not take place, for example because port employees are not available, said Anlauf. "Then certain ports were not even sailed into. There are so-called ‘black sailings’ where goods were ready but never picked up at all. There will certainly be delays for the next six to eight months because factories in some countries are still working only partially and with a reduced workforce."
The P&C buyer is also responsible for the buying and strategy of own brands Christian Berg, Review and Montego together with the collection managers. Peek & Cloppenburg purchases the textiles for own brands currently from China, Bangladesh and Turkey, with shares varying by season. "For the coming season SS21, we are currently checking where to place which orders, so that we can get at least some of the goods in case there is another lockdown or the number of cases in individual countries increases," says Anlauf. "We are counting on different countries."
Is nearshoring becoming a trend?
What will be the long-term effects of this shift? Edwin Keh from Hong Kong Research Institute of Textiles and Apparel does not believe in long-term nearshoring solutions. "For western brands and customers, the short-term response is to think of onshoring or nearshoring solutions. But in reality, this requires considerable investments. The desire for speed, transparency and agility while simultaneously reducing costs and inventory risks does not mean a successive change of tactics, but a radical, strategic change. Only few companies have the means to do much more than reconstruct and survive in the short term. I would expect that with some test production in coastal countries, we will soon be able to return to business as usual."
Searching for digital solutions
Digitisation is generally considered to have profited from the crisis. Sourcing platform Foursource received a significant boost through the crisis. "At first, all activity was frozen. But after a few weeks, the situation turned around," adds Wand. Trade fairs have been cancelled and trips abroad have hardly taken place up to now, so many apparel companies are looking for new, digital solutions. "Traffic has roughly doubled since Corona. In Bavaria alone, we have a five-digit number of users and represent about 16 percent of world production," says Wand. Foursource is also a technology partner of the first Digital Global Apparel Sourcing Expo 2020 of the International Apparel Federation (IAF). The fair started on 15th July and will run until 14th August. At present, the platform is exclusively used for presenting ready-to-wear. Fabric manufacturers will go live for the first time in September.
Photo: Kua Chee Siong / Singapore Press Holdings via AFP
This article was originally published on Fashionunited.de. Edited and translated by Simone Preuss.