Apparel industry is one of the major industries worldwide giving employment to several through its multiple operations that include manufacturing, production and supply of apparel. Earlier the big player in the industry used to outsource the manufacturing work to the under-developed or developing nations since they could get cheap labour however, in the past 5 years, it has changed significantly. The workers are being paid well and all the stakeholders have been seeing the growth at multiple levels. One of the reasons for the same is the increased disposable income of middle class buyers across the world and increased adoption of branded clothing in the emerging economies. As the market is evolving for the industry, there are different segments and increased use of organic clothing in some countries. However, that we will skip for now and look for the industrial outlook for apparel industry and try to see how it will be changed amidst the pandemic situations worldwide.

The industry consists of producers who buy fabrics and produce fabrics themselves and have fixed operating facilities. In the categories of: casual wear, active wear, necessary, formal wear & external wear, the clothing industry  included in the design and manufacturing of clothes and accessories for women, men and children. . Natural, organic or sustainable characteristics in the garments they create and sell are an evolving trend between designers and manufacturers. The fact that mass retailers started to invest some money on this sort of apparel is a symbol of a big trend in the clothing industry soon to emerge.

Market Segmentation By Type Of Apparel

• Women’s Wear
• Men’s Wear
• Kid’s Wear

Market Segmentation By Type Of Fiber

• Man-Made Fiber
• Cotton Fiber
• Animal Based Fiber
• Vegetable Based Fiber

Market Size

The worldwide apparel market is expected to expand from USD 1.3 billion in 2015 to around USD 1.5 billion by 2020, reflecting a worldwide increase in demand for clothes and shoes. The regional distribution of clothing demand should remain largely constant during this time, however, growth in the Asia Pacific region stood at 4%. The 28 Member States of the European Union, the United States and China are the three world regions with the largest apparel markets in the downward chain.

• In 2018, 37% of Apparel sales came from the Women’s & Girl’s Apparel market. In 2018 global revenues are forecast to grow to US$ 789 billion by 2023, amounting to US$ 642 billion.
• 25% of Apparel sales in 2018 were in the Men’s & Boys’ Apparel market. Global income of 446 billion dollars in 2018 is projected to rise to 556 billion dollars by 2023.
• Seven per cent of Apparel sales in 2018 were created from the Sports & Swimwear category. Worldwide revenues are expected to rise from US$ 116 billion in 2018 to US$ 149 billion by 2023
• 16 percent of the Apparel revenue in 2018 was generated in the underwear category. Global revenues of 272 billion dollars are projected to grow to 349 billion dollars by 2023.
• The Hosiery category accounted for 3% of the 2018 Apparel revenues. In 2018, global revenues of 59 billion US dollars are expected to grow to 73 billion US dollars by 2023.
• 12% of Fashion sales in 2018 were in the Clothing Accessories and Other Clothes category. The global turnover for 2018 of 215 billion dollars will grow to 283 billion dollars by 2023.

Revenue Growth for different segments

From the past several years, apparel industry has been increasing at the whole and is considered to be a profitable industry. Many private labels have entered the market and the individual designers have started gaining fame all across the world. One of the major reasons is increased disposable income in the emerging economies. 

(Source- Statista)

The pandemic situation has impacted the apparel sector tremendously and the growth is estimated to decrease over the next 5 years. The worldwide lockdown measures has impacted the apparel purchasing and sellers are subjected to put discounts on their products.

However, the pandemic situation will also demand the industry to adopt technology and move towards online sales channel. It is estimated that in the Apparel market, 23% of the total revenue will be generated through online sales by 2020. The percentage of revenue is further going to increase in the coming years through online channels and considering the covid-19 impact trends will show more increase in sales through online channels. We can expect major changes in company strategy in their sales channel planning.

  

(Source- Statista)

Global Economic Condition

Managers regard the economic condition as a potential obstacle by citing it in the most recent BoF –McKinsey State of Fashion Survey as the third biggest theme for 2019. In 2019, 42% expect the conditions in the industry to worsen. The majority of managers are far more negative about the year to come but North American respondents as well as the luxury category, which is the main pockets of optimism. In recent years, the strong success of the world economy has been followed by growing investments by players of the fashion industry. 68% of the expenses in the last five years of businesses have increased, and only 22% have seen a decrease. According to McKinsey’s Global Fashion Index review, total revenue, general and administrative expenses were 36% of revenue in 2017, compared to 34% in 2013. The key investments in this year’s growth of sales were omnichannel and e-commerce, the improvement of consumer relationships, enhancing service within the shop and brand building investments.

The picture is more complex on the other hand for the expense of the products sold (COGS). Over the past five years, COGS increased revenue by 0.5% or more for 43% of companies in the index  and by more than 2.0 percentage points for 25 percent of companies, mostly owing to markdown.

Looking ahead, 17 percent of respondents to the BoF – McKinsey State of Fashion Survey said they’d focus more on cost improvement rather than sales growth. The main areas of cost-improvement cited include reviewing the organizational structure (up 11 percent compared to 2018), diagnosing end-to-end efficiency opportunities, and reducing the complexity of product-assortment.

Our study of “winners and losers” in the McKinsey Global Fashion Index may serve as an additional impetus for taking a move towards performance. On average, businesses in the top 20 percent of economic income over the past five years have seen slightly lower SG&A and COGS as a proportion of sales (respectively four percentage points and six percentage points) relative to those in the bottom 80 percent, indicating a strong correlation between holding costs down and a strong bottomline.

As the macroeconomic environment changes, we expect businesses to seek protection from slower growth through the introduction of “shock proofing” measures. This will strive primarily to improve productivity through greater performance and cost reduction. To ensure the long-term sustainability of these initiatives, fashion players will try to combine efficiency improvements with required innovation efforts, such as production automation, analytics-driven decision-making, omnichannel footprint analysis, and reorganization for better agility. Those who excel would most likely reap rewards in terms of outsize success.

 

Cross-Border Challengers

Developed brands and retailers will be facing rising pressure from new Asian challenges, as producers and small and medium-sized companies abandon their conventional positions and sell directly to foreign customers.Expect further competition from the previously unknown supply chain players who design common products to be sold on cross border e-commerce platforms at affordable prices. Year-on-year growth of the transaction value of APAC transboundary B2C is 37%. China is the proven leader in providing global e-commerce platforms. Amazon’s share in the last three years of Chinese sellers with sales above $1 million rose from 23% to 45% — not surprisingly, 70% of European sellers on Amazon’s websites are Chinese. China is the number one, based on the most recent purchase in 23 out of 30 European countries, non-domestic supplier. And we see that the same number plays in mode.

The creation of specialized distribution hubs has been a work of China to help SME globalization and TTC players. Yiwu is, for instance, a megalithic wholesale center and more and more e-commerce in Zhejiang province. It is home to some 70,000 shops and 10 million products under one roof in its International Trade Area. Ex: Orolay produced a winter coat, sold for $139 on Amazon. The maker has made $5 million in revenue in a single month, which is more than the overall company revenues in 2017, before it became viral.

The sheer dynamism of China’s ecosystem is another factor that accelerates international trade. Alibaba purchased NetEase Kaola in September 2019 in a $2 billion transaction. It aims to merge Kaola with Tmall to combine China’s second and third-largest e-commerce supply.

 

Unconventional Conventions

Traditional trade shows will adapt by taking on new positions and expanding their audience to increase direct-to-consumer engagement, reducing product cycles and digitalization.

To distinguish yourself – or even to survive – more of these activities should add B2C attractions to your company or introduce additional services and experiences, in order to boost ties with your conventional audience.  The trade fair for the future needs to be highly digital, represent its target market, and bring new business developments and innovations to the fore.

Digital Recalibration

The valuations of digital fashion players have reached enormous heights, with investors’ feelings deteriorating, amid a host of high-profile IPOs and private firms. Investor concerns are increasing for some digital players, from online retailers and marketplaces to direct brands and other digital first business models, to profitability. The average IPO over the last two years for fashion technology has seen its share price decline of 27 percent since publicity.

The fashion-technology trend, with StockX and Rent the Runway joining last year’s unicorns About you and Allbirds, grows enthusiasm (privated companies worth more than 1 billion US dollars). During their most recent fundraising rounds, numerous DTC start-ups, including the travel company Away and beauty brands Glossier and Pat McGrath, earned billion dollars. Meanwhile, an additional $50-billion group of marks was developed, including the ThredUp resale marketplace, the Goat sneaker retailer, the Moda Operandi Luxury Fashion Discovery Site and the ThirdLove online lingerie brand.

Material Revolution

Fashion companies are seeking alternatives to traditional materials today, with key players concentrating on more sustainable options that include recently rediscovered and re-engineered old classics as well as high-tech products that offer aesthetics and functionality. We expect R&D to concentrate more and more on science of materials for new fibers, textiles, finishes and other materials. The 67 percentage of respondents that think using innovative sustainable materials is important for their company. Many intelligent companies are beginning to combine products with [bast fabrics, such as] cotton, ramie or [for] linen. For ex says Nina Marenzi, founder and director of the London-based Future Fabrics Expo, The Sustainability Perspective. “All these mixtures are very nice and instantly reduce the environmental effect.”

Next Gen Social

The social-media giants’ global scope is overwhelming. In September 2019, Facebook registered 2.5 billion active monthly users and both Instagram and WeChat have over one billion users each. Yet growth appears to be slowing and users spend less time on some of the major platforms: in the US, average total time on Facebook fell from 41 minutes in 2017 to 37 minutes a day. The problem is that the abundance of ads could harm a commitment. Global consumer goods giant P&G found that people wait for their smartphone ads on streams for up to two seconds and that such advertisements appear too frequently. Marc Pritchard, Chief Brand Officer, told Wall Street Journal, “We seek to minimize the amount of times we get to the same user. Statistics show companies need to reconsider their social media approach. In particular, they need to re-evaluate how to make more efficient use of existing channels, capitalize on the growth of new media and consider how direct sales can be created by social networks.

While an impressive 86% of businesses are marketing influence,53 the engagement level for Instagram supported posts decreased from 4% in Q1 2016 to 2.4% in Q1 2013.54 Facebook and Twitter are 0% worse and 0.05% worse. Many other social media networks are growing, like gambling networks such as Fortnite or Tencent’s Honor of Kings mobile game, that are rapidly becoming part of the youth culture. Fortnite has over 200 million users and is free to play, but last year it sold avatar skins to a large part of $2.4 billion in sales. 58 Nike soon saw the opportunity and started selling the licensed skins. Overall, considering the increasing apathy – and sometimes antipathy – of customers towards conventional models of social media ads, we expect fashion brands to dramatically re-evaluate their strategies in a search for positive returns by 2020. Web ons, and chatbots are built in conjunction with messaging apps to generate more immediate online sales.

Store

Consumer demand for convenience and immediacy encourages retailers to complement traditional brick-and-mortar networks with smaller size stores that serve consumers wherever they are, and reduce consumer travel friction.

The winning recipe would feature in-store experiences and regional assortments outside the major shopping thoroughfares in communities and suburbs. More than half of fashion managers agree that a “localized brick-and-mortar experience” will be a key trend in the coming year.

More than 70% of shopping is now made offline in the fashion sector. But due to the current situation of covid-19 and increasing digitilisation there is a continous increasing trend in online sale and this is expected to increase in further years

Sustainability First

The fashion industry globally is highly energy-consuming, polluting and inefficient. Given some modest improvement, fashion has not yet taken its responsibility for the environment seriously enough. Next year, fashion players must exchange platitudes and advertising noise to concrete action and regulatory enforcement while meeting market expectations for dramatic change. Survey respondents said “sustainability” would be both the single biggest obstacle and the industry’s single biggest opportunity in 2020. According to Textile Intelligence, some businesses work to change their business models and create goods made with more sustainable materials. Adidas, for example, transforms plastic waste into recycled polyester in coastal areas and uses them in shoes and clothes. Chanel invested in the startup Developed by Nature, which substitutes synthetic chemicals with more environmentally friendly alternatives, to reduce its environmental effects.

Ex:

• Denim is famous for having to make a pair of jeans in vast quantities of water, but Levi’s latest line of clothes, Clothes < Less, uses up to 96% less water. Levi’s is committed to sustainability for this and all of its items throughout the design and manner of production, including the 100% sustainable use of cotton and the recycling of old jeans into house insulation.
• 75 percent of all Nike shoes and apparel now contain some recycled material
• Every element of design and production process by Eileen Fisher is designed such that the materials used for the ethical handling of the staff who stitch the parts are as safe and as environmentally friendly as possible. Air transport and innovative processes are avoided by the organization to reduce waste from fabrics. If the clothes can not be resold, Eileen Fisher buy back used pieces to recycle into new clothing or to turn into art.

Covid-19 impact

“The role of COVID-19 and its effect on the clothing industry can be viewed in two ways. If the country experiences a COVID-19 terror and possible health risk, we will be able to see a decline in apparel sales because of the closure of malls/shops. More specifically, customers’ mental capacity will also change from purchasing fashion needs like clothing to daily necessities like food and beverages. The clothing industry will see two types of consequences for the coming year, when things continue to recover.

One: The selling process in Spring Summer 20 will be effected as inventory has already been planned and will be accumulated as demand will take some time to recover. Secondly, as planning has already begun and the disruption will have a significant effect on the supply side in the fashion industry, the supply chain of the next Autumn Winter 20 collection will be affected. The fashion industry faces calls to take action to protect the salaries of the 40 million clothing employees worldwide who face hardship as factories shut down and orders drop after the Covid 19 epidemic.

It predicts that the markets have fallen by at least 30-40% in industry by at least August before returning to where they had been before March 2020, and then takes a further 10 to 12 months.It is anticipating significant job losses, especially in the manufacturing and marketing sectors.Huge policy funding is the only way to stop this blood bath. There are some positive steps revealed, but there is much more to do. Government must recognize that economic conditions can not be changed unless companies are funded.

Prepared by- Rahul Katara, IIM Nagpur

Tags: Apparel, Apparel Industry, Clothing, Clothing and Textiles, women clothing