World fashion and supply chain shift

Fashion brands like Benetton are starting to “turn away” from their global supply chains and low-cost manufacturing hubs in Asia, which is considered a lasting “legacy” of the COVID-19 epidemic.

A store showcasing Benetton products. Photo: Reuters

Benetton is bringing production closer to home, in Serbia, Croatia, Turkey, Tunisia and Egypt, aiming to halve its apparel production in Asia by the end of 2022.

Benetton Chief Executive Officer (CEO) Massimo Renon offered an insightful commentary on the economic outlook, spurring a trend that has affected much of the textile industry, as supply chains are disrupted. segment has increased shipping costs and times, “disrupting” the business model that has prevailed over the past 30 years.

“It was a strategic decision to have more control over the production process and also to transport costs,” he said. Benetton has moved more than 10% of its production out of countries like Bangladesh, China and India this year. According to Mr. Renon, sea freight rates increased 10 times due to the scarcity of cargo ships, amid the fact that many ships were idle during the pandemic, while consumer demand increased again.

The problem of shipping difficulties is also changing the views of some businesses in the fashion and consumer industries.

For example, Hugo Boss is also looking to bring its manufacturing operations closer to its own market, while Lululemon, Gap and Kohl’s say they will have to air freight at a higher cost. to avoid out of stock during the year-end festive season.

The CEO of Benetton said that, even if production costs in Bangladesh are 20% lower than in Mediterranean countries, that difference comes at the expense of long delivery times due to supply stress.

In the past, the average delivery time for an order from Asia was 4-5 months, but now, this period can be up to 7-8 months due to the shortage of shipping vessels.

In contrast, when clothes are manufactured in Egypt, delivery times to European warehouses and stores can be shortened to about 2 months.

For wool garments made in Serbia and Croatia, even the manufacturer takes only 4-5 weeks to deliver each order.

However, the production strategy of the “big men” in the fashion industry is also different.

According to the 2020 annual report, the apparel market leader and “fast-fashion” pioneer Inditex, owner of the Zara brand, has 53% of garments produced. in facilities relatively close to its home market of Spain, such as Portugal, Morocco and Turkey.

Meanwhile, Inditex’s main competitor, H&M, is still dependent on factories in Asia for about 70% of production.

Many believe that this puts H&M at a disadvantage against rival businesses in quickly bringing new fashion models to consumers.

Consulting firm AlixPartners (USA) believes that the trend of shifting global supply chains to another region or specifically to another country will be maintained at least in the near future.

In its report on disruptions due to the COVID-19 epidemic, AlixPartners emphasized that the more the supply chain spans the globe, the more likely it is to create problems and malfunctions.

Gap says it’s investing in air freight as this freight method solves inventory delays and delays caused by shipping congestion and factory closures due to shipping delays. epidemic.

However, the cost of this solution is not cheap. Transporting an entire container of goods by air is 8 times more expensive than by sea, while for smaller shipments, air freight rates are also 5-6 times higher. Shipping by sea normally.

Data from research firm Cargo Facts shows that retailers are mostly choosing air shipping for smaller and higher-margin products such as clothing, computers, accessories, and more. accessories and household goods.

In addition, Mr. Renon said, customers now also focus on quality over price. According to Mr. Renon, the cheap race between garment companies today seems to be secondary. Consumers are more concerned with quality and want garments to last longer.

Therefore, Mr. Renon believes that, despite higher shipping costs and the trend of shifting supply chains, there will be some disadvantages, but fashion brands can still have a “Merry Christmas” and soon have a good time. Profits return after a difficult period because of the COVID-19 pandemic.