Artical has been translated from Handelsblatt, original written by Georg Weishaupt, 03.08.2017, Berlin
Many textile companies in purchasing are still slow as in the 20th century.
The online trade and new chains now force them to speed up their production processes drastically, so that they won’t get left behind Zara & Co.
At the first sight it looks like a normal online shop. There are shirts, jeans as well as T-shirts, and customers can click on each individual item to have a closer inspection. But the web portal is a digital showroom and its customers are not normal fashionistas, they are designers and buyers from fashion houses and fashion brands.
“With the digital showroom we want to reduce significantly the development time for our fashion collections”, said Konstantin Kirchfeld to Handelsblatt. He leads the large sourcing agency GMS in Hong Kong, which operates the purchasing and production of clothing in Asia for Peek & Cloppenburg (P&C) as well as for eight other brands, such as the CBR Group (“Street One”).
Designers from fashion houses can look, for example, at jeans in a three-dimensional model in Kirchfeld’s showroom, change details and send them directly to the factories in Asia through GMS, so then, they can produce as quickly as possible. This allows Mr. Kirchfeld to develop new styles within few days and then offer them to retailers. Until now, this has been taken two to three months, because fabric patterns had to be sent back and forth between fashion houses, GMS and the factories in the Far East until they met customer’s requirements.
Innovations such as the new showroom are a pervasive step for P&C and its own brands such as McNeal, Review and Jakes, moreover, also a revolution for the industry. This is because digitization in sourcing (purchasing and production) of textiles in the fashion industry has not begun yet. This is often the case as before 20 or 30 years ago.
Zara scores with speed
This old-fashioned working method is dangerous for the fashion brands. Due to the declining customer frequency in the cities, the expansion of digital department stores such as Zalando and the extremely fast fashion chains like Zara or low-cost chains such as Primark; the traditional fashion brands and textile houses are forced to speed up their processes and to reduce costs as soon as possible.
Because Zara & Co. manage to bring clothes to the stores faster than others, since they dominate the entire value chain from design to production and skip many production stages. Traditional fashion brands take almost three months to design a new dress or dozens of patterns for their sales people, who have to convince the retail later.
Zara saves this time. The Spanish company has the new designs made in its own factories and delivered from there to company’s stores.
“The modernization, especially, the acceleration of the entire procurement process is the main topic, with which everyone in the fashion industry is currently intensively concerned,” observes Michael Hauf, Managing Partner of Hachmeister + Partner. “All of this requires more transparency in sourcing.”
In recent years, some companies have focused too much on opening their own brands and online-shops as well as on investing in new services such as Click & Collect. Thereby, companies from Gerry Weber to Hugo Boss have created new sales opportunities, but at the same time they have also burdened themselves with additional high costs. “Many companies have neglected to modernize and speed up their sourcing,” says consultant Mr. Hauf.
Textile market is very complex
There is a lot of catching up in the industry. “Last year, we reduced the entire supplier structure by 15 percent,” says Alexander Wirth, the new chairman of sports and lifestyle brand Bogner in Munich. At Bogner, a large number of purchasing processes were running parallel to high-quality and low-priced fashion.
At the same time Mr. Wirth is looking for new suppliers in order to keep improving the quality, speeding up the production from design to finished garment and thus to reduce costs but that is not that easy.
All of them have long-term contacts in the industry and some recommendations are passed on through oral propaganda but this is often not enough. The global procurement market is huge and unclear:
On the one hand, there are about 80,000 branded companies as well as 200,000 other customers, such as private or commercial brands. On the other hand, around 350,000 producers of ready-made clothing are working worldwide, in addition, around 100,000 subcontractors are producing fabrics, yarns, buttons or zip fasteners. The entire global procurement market is estimated to be around US$ 800 billion.
Now, two experienced managers from the fashion industry want to provide more transparency in the intransparent giant market. Godecke Wessel, who used to work for the tights producer Falke and Jonas Wand, who comes from Bogner, have founded the start-up Four-source in Berlin.
It is a digital procurement platform on which fashion brands can find the suitable production partners in Asia, Europe and North Africa. “It is about to make, purchasing for the fashion companies and the customer search for the suppliers easier, more cost-effective, less risky and faster,” says CEO Wessel from Foursource.
This is a nerve in the industry. Around 150 brands, which represent retail sales of 16 billion US dollars, are already testing the new procurement system. One of them is the billion-strong S.Oliver group (S.Oliver, Liebeskind, Comma) from the vicinity of Würzburg. Their COO Andreas Baur sees great potential in Foursource: “As a company, we get a worldwide overview of suppliers through the profiles on the platform, which can be specifically selected according to our own requirements by using the filter options.”
Brax moved his production
Many from the fashion industry consider Foursource to be a good idea. But now it is no longer enough to find a supplier, who produces technically high-quality and fast, says Kirchfeld from the agency GMS, in which P&C is involved: “He needs to develop regularly clothing variants with new washings, colors or fabrics for the customer.”
At the same time, there is a growing pressure to achieve more transparency in sourcing because the regions of the world in which clothes are produced, keep moving as soon as wages in a country rise in the long term.
In the eighties and nineties many brands closed down their German factories and moved their manufacturing to Eastern Europe. From there, the production caravan moved many years later to Turkey, to North Africa and especially to Asia, first to China, then to Bangladesh and Vietnam and recently also to Ethiopia.
Fashion companies often have no choice but to follow the caravan. “For manufacturing tops, we had to move our production from the suppliers in the expensive south of China to the north,” says Johannes Weselek, Managing Director of fashion brand Brax from Herford.
But these relocations are risky as it often takes many months before the cooperation between fashion brand and the supplier runs so smoothly that quality and logistic are right.
For clothing such as pants, of which Brax is sewn around 6.5 million every year, are extremely complex. They consist of approximately 50 individual parts. That is why Weselek “tries to work with suppliers as long as possible to ensure the quality”, whenever it makes sense.
In addition, since the collapse of the Rana Plaza factory in Bangladesh four years ago, when more than 1100 people died, the companies have had to make sure that their suppliers work socially and sustainably well. This means that the requirements on the suppliers increase, and therefore the responsibility of the brands, so they know under which working conditions their suppliers manufacture.
Moreover, in the face of rising wages and high exchange rates, procurement costs can only be reduced in smaller steps when companies relocate production. “It is easier to facilitate the processes in product development, logistics and the organization of the company”, Weselek from Brax admits.
Thereby, the showroom of GMS shall also help. At the moment the test phase is running with P&C only, but from October, Kirchfeld wants to open the showroom to all customers.
All in all, many fashion brands have to modernize and accelerate their global procurement. Otherwise, they are finally suspended by the fast Zara and H&M of this world.