The coronavirus pandemic has hit virtually all businesses—but some have been hit harder than others. Indeed, some have barely been hit at all and a lucky few have thrived during the pandemic.
A result of this is that the nature of apparel brands and their supply chains have changed—maybe even forever—during the past 12 months.
But who have been the winners and who have been the losers? I started thinking about this issue when I saw recently that a major online retailer had posted record profits for 2020. Just imagine—the world undergoes the worst financial crisis for almost a century and your business comes up smelling like roses.
Where clothing retailers are concerned, the line between winners and losers is clear. Put simply, many of the world's leading pure online "e-tailers" have flourished as millions of people have been forced to shop over the Internet due to lockdowns. One only must look at the profits made by the likes of Amazon—now a major retailer of clothing—Asos and Boohoo to see that some businesses have prospered during the pandemic. This was inevitable, given they were not dependent on high street stores for their income and their businesses were able to respond rapidly to the new trading environment. While their competitors had to spend time and money boosting their online presence and logistics back-end during the pandemic, these businesses were ready to go straight away.
Online only retailers have thrived selling low value loungewear and sleepwear where fit is not an issue. The question we can't answer yet is whether high streets will boom again once lockdown ends and pent-up demand is unleashed; or whether the shift to online is here to stay.
In fact, already we are seeing a changing of the retail landscape in the countries of many of the major customers of Bangladesh garment manufacturers. High street stores are being closed and brands are reducing their physical store presence. Even traditional department stores are moving online. For instance, a major customer of Bangladesh—UK retailer Debenhams—went bust last year. The Debenhams brand was purchased by Boohoo but is now online only. This story has been replicated several times over with other brands.
There are implications in this for RMG manufacturers. These modern online brands want speed and agility from their suppliers. They are replacing fast fashion with ultra-fast fashion, demanding rapid turnaround times and shorter-runs, placing huge pressure on suppliers. Will suppliers in Bangladesh be able to step up to the plate for this new breed of retailers?
This is an appropriate point to consider the winners and losers among apparel manufacturers. I do not see many factory owners celebrating this past 12-months and it's hard to imagine if many—or any—have seen an upturn in production.
And yet, the coronavirus pandemic has undoubtedly ushered in a consolidation of the supplier base which is ongoing. This has seen larger players mopping up market share at the expense of their smaller counterparts. The big players have in general been able to ride out the pandemic better than small and medium sized enterprises. The reasons for this are numerous. On the one hand, larger players generally have been able to fall back on stronger balance sheets while their smaller competitors, in many cases, have lived a "hand-to-mouth" existence—moving from one decent sized order to the next. Numerous breaks in orders as we have seen from March 2020 through to the current date have meant smaller players have, in many cases, simply run out of cash.
Manufacturers of all sizes have been able to access various forms of finance to stay afloat but, unless a business has some money of its own in the bank, there is only so long it can survive on government loans and handouts. Sooner or later, any business needs orders, and empty order books have been an ongoing issue for all since last March.
There are other factors at play. Although there are no official studies to back this up, anecdotal evidence suggests to me that we are seeing a "flight to safety" from brands and retailers. By "safety" I mean huge suppliers, often with vertical integration facilities, which can offer one-stop-shops for brands.
As well as being able to respond swiftly and flexibly to the new online trading environment, these suppliers offer other benefits. They are comfortable extending credit to brands due to their stronger balance sheets. They are modern, highly efficient and are signed up to numerous internationally recognised certification and standard schemes. And they have the size, scale and financial clout to be able to negotiate fairer, more equitable purchasing practices with brands.
The only way I see smaller players remaining competitive is by coupling great marketing with innovation, creativity, prompt service and high quality, first time sampling.
Even so, I see a potential increase in mergers and acquisitions as larger players look to "bolt-on" specialist, smaller operations to their business. By adding smaller parts with niche products and services they can create larger, one-stop shops to offer an enticing proposition for customers.
When it comes to winners and losers in supply chains, I see the process of haves and have nots becoming more pronounced as time moves forward. We live in an increasingly regulated world—one where, more than ever, brands and retailers are thinking very carefully about the suppliers they do business with. They want safety, security and continuity—and will pay a premium for it if they need to.
Choosing the wrong supplier could potentially lead to huge reputational damage. Brands are waking up to the fact that it is simply not worth cutting corners on this issue and that they need to be working with best-in-class suppliers. In many cases, this means the larger players which are comfortable with the new, heavily regulated global business landscape. But don't include out smaller operators which have invested in modern, sustainable production methods and who can offer a safe pair of hands for brands.
There is a lesson in all of this for Bangladesh's RMG industry. Things will be tough moving forwards and I see a rationalisation of the industry—there will be more casualties. To grab a growing market share of the global apparel pie, manufacturers need to make themselves indispensable to brands by becoming leaner, more modern and reinventing themselves for the new, regulated trading environment where the adherence to recognised standards is everything.
Some might not be ready to do this yet, but those that are willing, innovative, ambitious and flexible, will surely reap major rewards moving forwards.
Mostafiz Uddin is the Managing Director of Denim Expert Limited. He is also the Founder and CEO of Bangladesh Apparel Exchange (BAE).