As retail companies deal with excess inventory during Covid-19, the long-term result could be a more nimble fashion industry.
The industry is in liquidation mode, running promotions to clear inventory.
Flexibility will take priority over efficiency, as quantity is no longer the main priority.
Coronavirus is forcing apparel and retail companies to toss normal operational guidelines aside and figure out new ways to function, guided by gut feel and educated guesswork. The near term focus is on clearing inventory and shoring up businesses to survive the coming months. The long-term result may be a more nimble, flexible fashion industry as producers rethink their production and retail approaches.
James Miller, chief executive and chief creative officer of The Collected Group, says he was baffled in late March when he noticed that department stores had not yet cancelled orders placed before the coronavirus lockdowns. He quickly shuttered The Collected Group’s own retail stores and ordered his teams to focus on shipping its Equipment, Joie and Current/Elliott brand fashions to wholesale accounts.
“[The plan] was get it out the door as early as we can because then we can invoice it,” Miller says. He says he got about a week of shipments out before the industry’s supply chains clogged up, as stores cancelled orders across the industry, leaving finished fashions stuck in warehouses, factories and distribution centres around the globe. Then he began discounting existing inventory and cutting the next seasons’ production plans.
With stores shuttered and consumers sheltering at home, the fashion industry has shifted into liquidation mode, discounting spring collections that were just shipping into stores when coronavirus hit. The Collected Group’s brands are offering 40 per cent off promotions. So is Nordstrom. Even some who once took care to avoid the appearance of discounting have turned promotional: Moda Operandi is pushing 30 per cent off bags, shoes and contemporary designers.
Parts of the industry remain unable to ship products all together. Net-a-Porter’s US distribution centre is closed due to the pandemic, preventing it from shipping orders. Ditto for The Row, which promises customers they can place orders for expected shipment in May. And small brands that lack established names and sturdy balance sheets may struggle to survive all together. Relief programmes have been formed by LVMH and the CFDA/Vogue Fashion Fund.
The industry is in the survival stage of the coronavirus shutdown, and many fashion companies are planning for a more nimble future that involves cutting production and preserving profit margins. The last time the fashion industry fell off an economic cliff, in 2008, the ensuing discounting led to a domino effect season after season. Ever-earlier sales trained consumers to expect deep holiday discounts, for instance, before Thanksgiving rather than in January, when they had previously hit. Consumers learned to feel foolish if they paid full price for an item.
This time, manufacturers appear to be more willing to cut back collections and consider factory innovations that allow them to more easily meet consumers’ demands. That is likely to reduce revenues this year and into the next — a fact that is largely unavoidable for most brands — but could better preserve profit margins and reduce the unsustainable overflow of fashion goods that no one wants or needs.
Resonance is producing thousands of masks per week after the Dominican government granted its factory an emergency exemption and increased safety measures were applied to protect workers.
Blueprints for new production models
Once Miller clears out The Collected Group’s current inventory, he says the company is shifting to a new production model. Collected’s resort collections have been cancelled, full stop. Deliveries of the autumn collection and core replenishable designs will arrive in stores when they are appropriate to wear in terms of weather.
Equipment, which before coronavirus had been branching beyond its core shirting and cashmere jumper lines to reach into fashion looks, is retreating back to core. Miller hopes to nearly double the share of those base styles to 50 per cent of revenue from 25 to 30 per cent. Last month, analysts told Vogue Business that brands able to lean on cross-seasonal pieces will be most protected by sales downturns as customers shun trends.
Gelmart International Industries, a manufacturer of lingerie and loungewear brands including French Connection, Lively and Samantha that sell at retailers including Target and Hudson’s Bay, is looking more closely at its most flexible production model: two factories in the Philippines that make its Lively brand goods. Those factories, owned by Gelmart, were set up to trade efficiency for flexibility in order to respond nimbly to shifts in demand. Factory technicians learn to move from making one design to another rather than churning out the same pattern repeatedly, says Yossi Nasser, Gelmart’s chief executive.
“We didn’t want efficiency to be so high. We wanted the factory to be extremely capable of switching SKUs,” says Nasser, who says that Gelmart’s sales range between $150 million and $250 million annually. The Lively factories run at 60 to 65 per cent efficiency measures, compared with 85 per cent at the large factories elsewhere in Asia that produce Gelmart’s other apparel. The more nimble production process is particularly attractive now that the company’s executives are working up scenarios for going forward in a coronavirus economy and gauging were there is likely to be pent-up demand, or demand from certain types of customers, like the Gen Z consumers who continue to shop more than their elders, Nasser says, judging by sales in its juniors department.
Time to reset
There are even those who see the disarray caused by coronavirus as creating an opportunity that might have otherwise taken years.
At roughly the same time Miller was maximising his company’s shipments to department stores, Lawrence Lenihan and his team were minimising shipments to wholesalers by offering to cut production immediately. Lenihan is the founder and chairman of Resonance Companies, backer and producer of brands including Tucker by Gaby Basora, Little Minkoff by Rebecca Minkoff and JCRT. “In mid-March we called Tucker retailers and said we assume you will want to cancel your order. That’s fine,” says Lenihan. Resonance’s just-in-time production model allowed the brand to halt operations without being saddled with markdown inventory.
“If you asked me to trade having no inventory with having inventory that I won’t be able to sell pretty soon, I’ll take the former,” Lenihan says.
Lenihan is moving aggressively to expand Resonance Industries’ production from its single factory in the Dominican Republic by breaking ground on another large manufacturing facility and two smaller sewing factories (he calls them “nodes”) in the US by the end of July.
An entrepreneur and former venture capitalist who was a seed backer in Shopify and Pinterest and a primary backer of the Tommy John men’s apparel label, the self-funded Lenihan says he expects the pandemic to draw as many as 20 more brands to Resonance’s production platform by year end. Resonance prints, cuts and sews garments and ships them out the door within six days of orders being placed, using a cloud-based platform and a proprietary factory design.
“It’s a trillion dollar industry and it’s completely broken. Thirty per cent of all products made in this industry are never sold,” Lenihan says. “Our time is now.”
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