In the last few weeks, we have been exposed to headlines like; ‘The Coronavirus is Throwing Fashion’s Supply Chain into Disarray’ and ‘The Coronavirus is Wreaking Havoc on Luxury Fashion Groups’. If we were to take a closer look, there is no denying that the China-born virus has disrupted global supply chains and exposed its critical vulnerabilities. That all being said, some experts have pointed out that fears about the outbreak might have been a little bit excessive. Also that the Coronavirus is not as disruptive today as it could have been had this happened a few years ago. So who is feeling the pinch?
Future-Proofing The Fashion Industry
As citywide shutdowns and closures continue in the largest clothing factory in the world, it is quite understandable why many companies have felt the need to press the panic button. In a country that exports $157.8 billion in clothing each year, it looks like that the most affected fashion companies are the ones that adopted the just-in-time business models. It is an inventory system that aligns production with demand. Focusing on efficiency, it ensures that fashion businesses can respond quickly, and bring products to market based on actual demand. This method is known as the “pull” method. The traditional model embraces the “push” method, which is when products are pushed out based on best-guess scenarios and buyer predictions of future consumer demand.
In efforts to future-proof the industry, fashion brands that have adopted the just-in-time method have successfully reduced levels of overstock by increasing small-batch production cycles. Although it is a method that has allowed fashion brands to work intelligently, the Coronavirus has highlighted the vulnerabilities that this type of model is bound to suffer. We are now seeing how the just-in-time business models that were not spread across multiple factories and production partners were not prepared to deal with things like a natural disaster or an epidemic. Because of this, fashion companies are now scrambling to find ways to lessen the loss being brought on by unforeseen circumstances. Sabrina Finlay, CEO of footwear and apparel manufacturer Otabo, confirmed to Yahoo News: “Factories that have not planned for this disruption will become stagnant.”
Already preparing for the worse, are companies like Ralph Lauren Corp. and Kate Spade. These luxury brands have accepted the fact that they will likely suffer losses in Q1 and predict that their sales and profit will definitely be hit because of the outbreak. “Our dedicated teams are operating with agility in a highly dynamic situation, and we will continue to assess the implications for our business across retail, corporate and our supply base,” said Patrice Louet, president, and CEO of Ralph Lauren, in a statement.
Buyers and designers from China have also been affected by the virus, which, according to the Financial Times has kept as many as 1,000 Chinese fashion buyers from Europe’s top fashion shows this month. The paper states that this is most likely the luxury industry’s most significant threat since the 2008 financial crisis. There is a solution being offered to valued Chinese customers, by luxury brands, like LVMH and Chanel, is a live feed of their Milan and Paris shows. Other high-end companies like Prada have postponed their plans to pencil in separate events planned for May 2020 in China.
When it comes to Chinese designers, at last count, six have confirmed that they will be taking a step back and canceling their Paris Fashion Week shows, which was set to take place between 24th February 2020 and 3rd March 2020. Shiatzy Chen’s CEO, Harry Wang, said in a statement: “We think it is the most appropriate action after deep thoughts and considerations. We will now focus on a new format of communication to introduce our new collection.” As Giorgio Armani confirms this week that he has canceled his show due to the Coronavirus, it will not be surprising if all these decisions have been the reason why Asian clients, influencers and editors have stayed away from the big four this season.
The Death of the Seasonal Campaign
As confirmation of delays and cancellations on orders are reported, it looks like the Coronavirus is set to bring continued disruption to the supply chain beyond Q1. It has been predicted that the ripple effects will continue into Q4, as Autumn/Winter 2020 collection orders are delayed further. According to Vincent Djen, the director of Cheng Kung Garments and the Chief Strategy Officer of REmakeHub, orders that usually arrive from Europe in February, with manufacturing taking place in March to meet the major delivery month of April, will now be delayed until May or June 2020.
The worst-case scenario is that the situation gets worse, which could mean that European companies that rely heavily on Chinese manufacturers should expect the production of their Autumn and Winter collections to be delayed even more. “If brands have not diversified their productions outside of China, then there isn’t much they can do to minimize the losses,” said Xi Yang, an attorney at the Seattle-based international law firm Harris Bricken that specializes in investment with China.
He continues: “Factories are closed now and will not resume production anytime soon. Even when they resume production, it does not guarantee they will have enough manpower to complete orders placed, or that they will make products that meet the buyer’s standard.”
The End Is Nigh?
Although the fashion industry has been brought down to its knees by the Coronavirus, we now know just how much the fashion industry relies on China to make a substantial share of our clothes. Those who have been least affected have been the fashion businesses with flexible sourcing. They have been able to adapt their orders by turning to Portugal, Turkey, and Morocco. Although they have recognized that these countries could in the short term help them out, truth be told, those three countries combined could not absorb all of China’s production capacity.
So as the fashion industry recovers from the unexpected disaster that is the Coronavirus, many companies are already future-proofing by assessing mitigating strategies, including stepping up in production from existing suppliers in other regions. One of these companies is Primark, which is already talking to suppliers in Bangladesh, Cambodia, Vietnam, Turkey, and eastern Europe to fill the potential gap. On this Finance director, John Bason confirmed to Reuters that the problem they now have is that some items manufactured in China can not be replicated. He said: “There are accessories that China is very good at that are harder to source from elsewhere…So I’m not guaranteeing that we can replace all of the shortfalls from China.”
With crisis management and contingency planning in full effect, I do think that the frenzy is far from over. There is going to be a ripple effect that is going to keep the industry on high alert for some time. “If it’s resolved within the next two, two-and-a-half months, it won’t be terrible. If it lasts for two years, that’s another story,” said LVMH chairman and CEO, Bernard Arnault. As the economy takes a hit, the good news is that it looks like the fashion industry is taking positive steps towards rethinking its supply chain. Sometimes a disaster is what is needed for an industry to realize that their ways of producing must change. This is why I foresee a future where the Coronavirus experience will in some way transform how fashion works in China and also consumer behavior overall.