Three key shifts in the global apparel industry

Transnational factory groups transform apparel industryThe rise of billion dollar transnational factory giants; the end of the shot-lived Bangladesh era of always lower prices; and the decline of the clothing retail store in the face of e-commerce technology and demographic trends.

I: The rise of the billion dollar transnational factory giants

The greatest sourcing challenge today is not the race to the bottom, or the decline of China or falling FOB prices. The great challenge is that the global garment exporting industry has split into two competing groups, each with its own strategy. On the one side we have the transnational factory groups, for example Esquel,  a cotton shirt maker, and the billion-dollar-plus transnational factory group personified. To put this in context, if Esquel were a country it would rank 22nd on the list of top garment exporting nations.  Esquel is mostly China based, but has substantial operations in Mauritius, Malaysia and Vietnam. The Esquel strategy is different: their number one asset is their ability to guarantee their customer peace of mind; more than product makers; they are service providers; they do not see labour rate as an important cost factor; they reduce overhead by increasing worker productivity; Worker training; Capital investment in cutting edge machinery; and reduce worker attrition to a minimum through: Greater attention to workers’ problems and needs; Better pay and benefits; Worker empowerment.

II: The end of the short-lived Bangladesh era

The current very very slow trend towards greater social responsibility will move up from priority 0 to urgent and become a dominant force in customer global sourcing decisions and supplier strategies. Customers will be searching assiduously for suppliers able to guarantee peace of mind and will turn to those who have proven 100% reliable in the past. The transnational factory groups, who are already moving towards 0-tolerance in areas of social responsibility will be the great beneficiaries. Countries wishing to develop successful garment exporting industries would do well to avoid the Bangladesh cheap-labour-at-all-cost strategy.

III: The decline of the retail store

In 2013, once again, in-store holiday sales took a beating, while e-business increased substantially. Almost all traditional store retailers have become omnichannel: store + Internet.  They have shown substantial increases in e-sales, albeit from a small base.  Nevertheless the omnichannel retailers find it difficult to compete with the single channel e-retailers such as Amazon, E-Bay etc, in part because they lack the technology.

Eventually, the clothing retailer with 5000 stores, like the dinosaur will become extinct; the world’s largest clothing retailers will be Amazon, E-Bay, etc. And when the major e-retailers form strategic relationships with transnational factory groups, the global industry will be changed forever, offering more original, higher quality, at substantially lower prices but much higher profits.

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