Integrating a fragmented clothing market
As Technological Innovation has raced towards a “winner takes all” integrated world, the Apparel industry — from manufacturing, to supply chain to brands to design to SKU assortments is *inevitably* headed towards a far more fragmented, distributed world.
WIDE AND SHALLOW
Between 2015 and 2016 many clothing brands like Quiksilver, Wet Seal,American Apparel, Sports Authority, and Pacific Sunwear (PacSun) filed for Ch 11 bankruptcy protection. Aeropostale just joined this group.
JC Penney, Nordstrom, Macys and Sears continue to close stores, cut jobs and lay off corporate staff as they struggle with overhead, poor sales and zero ability to react to inventories that aren’t selling.
The penetration of e-commerce has allowed online brands that serve customer niches to launch direct to consumer private labels that sell online-only.
These shifts have happened due to changes in consumer behavior around purchasing and global communication thanks to consumer software products emerging over the last 10 years. Social media has connected global consumers together around trends, news, events and of course purchases.. More connections equal more choices. This has led to awareness amongst larger retailers like Target, Forever21, and Charlotte Russe who have widened their offerings as well.
Investors have backed brands like Nasty Gal, Bonobos, Jackthreads, Le Tote,Rent the Runway, Fabletics, and Everlane in the hope that they will become the next generation of iconic retail brands like Gap and Abercrombie were in their heyday.
Consumer behavior, low cost clothing turnover, and the end of “Seasons” as a sales driver have created Fast fashion (which is the new fashion) and brands like Ross, TJ Maxx, Primark, Zara and H&M have grown their marketshare as the new retail powerhouses by showing that supply chain agility, wider SKU choice and quick inventory refreshes are possible in physical retail.
THE RISE OF THE SMALL FACTORY
The manufacturing era between 1965 and 2005 was one of protectionism. Large incumbent clothing manufacturers traded off government favors, industry tariffs, and built moats based on history, not capability.
This led to the growth and bloat of inefficient purchasing by Big Brands, large sprawling factories that absorbed significant operating overhead, labor unions, avoidance of small batch tests, and lacked ethical oversight
In 2005, The WTO abolished quotas, and tariffs restricting imports of Textiles and Apparel into developed countries like USA, Canada, and EU. Clothing no longer needed a “VISA” to enter these countries. The number of small manufacturers grew 1,000X in the next few years.
The supply chain has become more fragmented.
Individual providers like knitters, weavers, processing units, embroidery units, sewing factories, trims suppliers, and other parts of the chain have stayed independent. this has driven the average cost of goods lower every year.
Now, for a few hundred dollars, budding entrepreneurs could set up “verified” Gold profiles, create an impression of trust, and turn small factories into direct global manufacturers.
This changed the prospects for a contractors who worked for larger factories or as agent suppliers.
Hundreds of thousands of suppliers sprang up — some as knitters, some as weavers, some dyeing yarn, some making labels, and those who started sewing factories ostensibly became the only visible “manufacturer” to the final buyer in the chain.
These sewing factories aggregated the orders, sourced the materials and became the financial focal point of the order. They also carry the financial margin of the transaction from yarn to delivery.
The risk was if the buyer cancelled the goods, the factory was left with the goods.
In the last 10 years, Environmental and Ethical concerns in working with large manufacturers has increased costs across the board due to higher compliance costs, a 10x increase in labor costs due to a shortage of skilled labour, higher costs to balance environmental concerns, political and economic downturns, devaluations of currency and spikes in raw material costs.
Decreasing target prices led to lower Quality and Compliance / Ethical manufacturing standards. All these factors have led to many large factories shutting down.
DIGITIZATION OF WHOLE INDUSTRIES
Somewhere between clothing brands getting clobbered, and manufacturing units getting plastered, the Internet entered the “deployment” phase.
Chris Dixon (A16z)in 2013, and Fred Wilson (Union Square Ventures) in 2015 wrote about the same Carlota Perez phenomenon about how we’ll see geographically-diffused effects of the Internet finally becoming ubiquitous in multiple industries.
Marc Andreessen in 2011, wrote at length on how software will “eat” whole industries and how technology is optimizing and digitizing ENTIRE industries — music, video games, retail, telecommunications..
Building a product is now easy with many Infrastructure Plug and Play Systems like AWS, WordPress, Tumblr, Heroku, New Relic, Intercom, Mailchimp, etc.
Scaling a product using Social Networks is easier than ever on the back of massive platforms like Google, Facebook, Twitter, Linkedin, and on App Stores like Apple (iOS) and Google (Android)
As Sam Gerstenzag says here (http://a16z.com/2014/07/30/the-happy-demise-of-the-10x-engineer/ ), the day when a non-programmer can build, operate and scale a tech startup is not far off because:
In the clothing industry, SAP and other companies have tried to create and implement ERP systems to streamline manufacturing in apparel manufacturing.
Companies like Gerber, Optitex, and other PLM providers have rolled out multi-million software platforms for brands, designers and manufacturers in USA who use it to control their work.
They’ve had limited success because the software is usually thrust onto the vendor by customers who’ve paid for it. But the files and strange file formats confuse and distract smaller vendors, small factories that do not meet compliance cannot integrate into these systems, and most factories do not use any software to run their own internal operations. Even large factories usually treat the back end systems of their customers as a hindrance.
The failure of software in manufacturing is usually a mental barrier to computer literacy from the factories that makes adoption an uphill battle.
The advent of smartphones, both Android and iOS, has changed the game for these individuals. Now every single person who has a tablet PC can check Facebook / Twitter / WhatsApp / WeChat to read the Newspaper, or to chat with his friends and clients daily.
It has now become easy to create business logic driven software systems that create objective to-do lists that then direct the field operative to enter backing data on the spot (geo location recorded) and then immediately submit this report to the cloud. This cuts down on the software data entry. In essence smart phones have allowed these companies to scale their businesses, stay on top of their orders with ease. This instantly allows them to record their data, speed up the feedback loop, enhances efficiencies and adds yards of agility to the process.
A UNIFIED PLATFORM
Google is a worldwide platform with over 1.5 Billion Users on Gmail, Google Search and Android.
Facebook is the premier social network of the world with 1.665 Billion Users on FB, FB messenger, and WhatsApp.
Android and iOS have the undisputed mobile OS of the world with over 1.5 Billion smart phones that have taught people how to use the internet without being computer literate.
iMessage / Whatsapp / weChat / FB messenger are the dominant mobile messaging platforms of the world allowing instant connectivity and communication around the world.
The clothing industry is in urgent need of a global, unified Software Platform that integrates these disparate worlds of Brands, Manufacturing and Supply Chain. The only way to connect these fragmented markets to unleash value is with a end to end, connected platform.