Mention the phrase ‘fast fashion’ and most people will think of a cheap high street t-shirt with a predictable country listed on the inside label: China.
But increasingly, observant consumers are finding a new collection of countries on the label of their fast fashion clothing – countries that are a lot closer to home, such as Turkey and other Eastern European countries. This phenomenon is called ‘nearshoring’.
Why, in a world of innovation, globalization and changing consumer demands, are retailers choosing to move production closer to home?
Shortening time to market
The supply chain of the fashion industry is highly complex due to consumers expecting catwalk looks on the high street within weeks. Retailers need to be selling ultra-fast fashion, so are looking towards nearshoring in order to increase distribution speed. Zara, a Spanish retailer, make 60% of their clothes in Spain or surrounding countries. This strategic move allows the chain to frequently restock its stores and respond to an ever-changing market, with staff constantly reporting back on top-selling styles to scale. Being able to alter production within 2 weeks gives brands a competitive advantage over retailers that must provide a 6 week lead time to Asian factories, and then wait another 30 days for their goods to be transported.
Pairing nearshoring with automation in local factories has additional benefits. One estimate suggests that automation can increase speed to market, as new technology such as 3D printers and robots are up to 70% more efficient than workers. There’s been limited investment in this technology so far, as the industry is traditionally labour-intensive, so investing early will give retailers a competitive advantage. Adidas is one of the first companies to open a fully automated factory in Germany, aptly named ‘speed factory’.
Low labour costs have traditionally been a key reason why many fashion retailers choose to import their goods from China. However, the minimum wage in China is increasing at a faster rate than the global average. 15 years ago, Chinese labour was 90% cheaper than the US; now it is only 65%. Whilst labour costs are still more expensive in Europe, when paired with productivity, the cost difference is becoming marginal and automation should offset any increases in labour cost.
Global uncertainty around tariffs, stemming from the US-China trade war is another reason why retailers such as Puma are deciding to move away from a heavy reliance on foreign production. Tariffs on fashion items equated to $74 billion in 2018 for the G20 countries, an increase of 60% from 2017. In the US, a pair of jeans, including 30-day freight and tariff charges, costs $12.04 a pair when made in China. Making that same pair of jeans in Mexico costs just $10.57. It seems a no-brainer to purchase stock from a cheaper, less volatile and closer factory!
Creating a circular transparent supply chain
Lack of transparency and sustainability in the supply chain is another major issue for retailers, as it affects customer loyalty. Nearly half of millennials say they want to know about the product supply chain before they buy and currently, it is difficult for retailers to fully track the supply chain due to fragmentation across multiple countries.
Reducing labour reduces the risk of poor working conditions in factories where you have limited control of the operating model – a good example being the collapse of Rana Plaza factory in Bangladesh which killed 1100 people and prompted condemnation of brands including Gap and H&M for profiting from modern slavery.
By bringing production closer to home and investing in advanced technologies, manufacturers will become less wasteful and more sustainable by reducing overproduction and decreasing transport emissions. 13% of the global fashion market, including Nike and Gap have made sustainability part of their business philosophy and have set ambitious targets for 2020. The drive towards sustainability has truly been a fashion revolution and reaching the 2020 sustainability goals are unattainable without strategies such as nearshoring and automation.
4C Associates have significant expertise in helping companies actualize cost savings, be it through freight and tariffs when nearshoring plans are in play, or in the way companies manage their manufacturing process. In addition, 4C has helped transformed businesses, to better operationalize their sustainable sourcing and manage their inventory. If you’d like to find out more about how we can help, please contact one of our team.