The current pandemic has sent shock waves through the fashion industry and its entire supply chain, including the apparel and textile manufacturing. Sustainability has been on the agenda of the fashion industry for years. Representatives have called for greater integration; attempting to move away from the linear economic model to an approach that more intensively tackles pressing issues around sustainability and its ecologic, social, economic and cultural agenda. Businesses, with varying degrees of willingness and success, have in recent years begun to integrate elements of sustainable practice into their business models. However, Covid-19 and its subsequent economic impact has brought the sustainability in fashion at crossroads.
Impact of the pandemic on the bottom line
Sustainability focus has in the recent months moved down the agenda as the entire fashion value chain with fashion brand and retailers as well as its suppliers struggle to protect their bottom line. In some cases that means fighting for survival. Unless businesses are able to pivot to service the demand for PPE and/or have the ability and resources to innovate and reconfigure whilst moving through recovery, the threat to their existence is palpable.
The fashion industry is one of the most negatively impacted industries in the consumer goods/services market. On a whole, it can expect a drop in sales of at least 28 to 38 per cent year on year, as per BCG analysis from March 2020. McKinsey Global Fashion Index expects a contraction of revenues by 27 to 30 per cent in 2020. There will be even deeper declines in some subsectors and geographies, decimating the industry after 5 years of positive growth.
Throughout the pandemic, as the demand for fashion goods fell, manufactures all over the world have been grappling with cancellations of orders. A survey of over 500 factories covering main global production regions indicated that 86 per cent of them had experienced order cancellations or suspension. Almost half of the impacted facilities now struggle with paying employees. This is leading to layoffs and factory closures, and existential struggles of communities in the most disadvantaged societies with low economic power.
The image above, from the report Weaving a Better Future: Rebuilding a More Sustainable Fashion Industry After COVID-19 by BCG and Sustainable Apparel Coalition, shows the scale of the impact the crisis has on textile and apparel manufacturers.
Recent McKinsey’s fashion sourcing survey findings  further support the hard-hitting reality around sourcing by confirming that 49 per cent of fashion sourcing-executives have cancelled less than a quarter of their existing orders. In contrast, 22 per cent have managed not to cancel any orders. This still leaves nearly one-third of respondents cancelling more than a quarter of their existing orders of fully produced goods. This figure does not include orders that have not been started or have been partly produced.
Meanwhile, 53 per cent of respondents stated that their suppliers are only partially able to fulfil orders in the second quarter of this year, and 38 per cent are only likely to fulfil their orders to a certain degree in the second half of this year.
Overall, two-thirds of fashion-sourcing executives expect a cut in volumes of at least 20 per cent in the second quarter of this year. In addition, almost a quarter of surveyed expect a fall by 50 per cent, slightly recovering in the second half of the year.
Small fashion brands, where the impact has been more difficult to estimate, have experienced issues with the wholesale model, where the balance of the power has magnified their subordinate position. Cancelled orders or pressure on discounts to take the already ordered products by the retailers couple with deferral in payments and demands for rushed orders for categories that are performing well. This cocktail of issues causes significant problems for small brands.
Sustainability in the mid and long-term
Businesses are, in the short-term, focusing on the immediate response to recover from the economic shocks. In the mid and long- term, all trends indicate that sustainability, in varying degrees and forms, may become a basic expectation within the fashion industry. This can manifest in consumers’ demand for products associated with health, well-being or heighten protection and hygiene; requesting conscious (environmental, ethical – sourcing & supply chain) and durable, higher quality products. Furthermore, brands will be expected to engage and give back to communities.
In other words, elements of sustainable business models are to re-emerge and stay here as one of the key factors of success. And as the environmental and social aspects of sustainability are becoming new normal, the sustainable sourcing will follow suit. In fact, Sourcing Journal points out that some sustainable practices such as the development of closer partnerships with suppliers and use of sustainable materials are reaching the tipping point to become the norm. These developments have accelerated as a result of the current crisis.
Sustainable approaches as a critical success factor
McKinsey’s report Time for Change summarises issues that the fashion sourcing is currently faced with. I also looks into how fashion sourcing can be made more agile and sustainable as a result of the current crisis. This means that a demand-driven and flexible supply chain will become critical. Practically, it suggests that businesses should focus on:
- Re-mapping the sourcing mix – balancing risks, costs and flexibility.
- Sustaining and developing stronger supplier partnerships through innovation and end-to-end process improvement solutions.
- Value chain digitalization – scaling-up innovations in consumer engagement, using technology from design, merchandising and planning through to sourcing and supply chain.
- Adapting operation models as well as an organisational/industry culture through agile approaches, collaborations and change of mindsets.
The “protect and survive” mode will soon lead the industry to start the road to recovery. It will have many turning points but inevitably will lead to embracing the new reality. And how the new reality will look like? According to the BCG and Sustainable Apparel Coalition, it should carry the following features:
- Trust and transparency
- New business models and innovations
- Competitive advantage building through technology, data and digitalisation
- Sustainable programmes becoming an integral part of business practices
On 12 May 2020 designers, retailers and other influential luxury industry professionals have launched a forum and issued an open letter to make changes to the fashion calendar. The petition calls for fewer collections, deliveries that would reflect the season the clothes are being worn in, and an end to mid-season discounting. Collectively the petitioners want fewer products, less material and inventory waste, less travel for fashion weeks, more innovation, collaborations and partnerships. Although individually these points are nothing new, collectively they hold power and revolve around sustainable practices.
Overall, it looks like the fashion industry is on the same page in terms of an agreement on possible solutions to bring about the change. However, it is also faced with tough decisions and questions that need to be answered to effectively respond to the new landscape. The real shift will happen once businesses start to integrate sustainable practices into their business strategies and operations on a wider scale.
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