A new paradigm in retail can secure higher, more stable profits and a better future for the planet
In this series, retail experts at Shoptalk discuss the most pressing issues facing their industries today. Write your own #Shoptalk17 article here.
Furthermore, the fashion industry, for all of its glamor and style, is one of the most polluting industries in the world, resulting in significant environmental concerns. The World Bank estimates that 17-20% of industrial water pollution comes from textile dyeing and treatment. Furthermore, roughly 90% of clothing is transported via container ships from their countries of origin in Asia to the major ports around the world. One giant container ship’s annual trips can emit almost the same amount of cancer and asthma-causing chemicals as 50MM cars. The same study finds that this pollution leads to an estimated 60,000 deaths per year, and costs up to $330BN per year in health care costs. On top of that, Americans throw away more than 14 million tons of old clothing every year, which fills landfills and causes the release of methane, which is even worse for global warming than CO2. In fact, the aggregate volume of waste has doubled in the last 20 years because of fast fashion.
So the system of apparel retail is broken. It is hardly profitable anymore for many of the largest players and it is a major cause for worldwide pollution and global warming. To survive and compete, traditional retailers and apparel companies reorganize, close doors, set aggressive growth targets, and create innovation departments tasked with coming up with the next “big thing”. Constricted by significant investments in real estate and inventory, most retailers are risk-averse, so they repeat the same strategies that have proven to no longer work.
However, in times of crisis there is also opportunity. As much as 20% of all clothing manufactured will go unsold and is pure waste. What if you did not produce (or buy) that extra 20%? What if retailers earned on average 85% of the full price of clothing sales rather that the 60-70%, which is the industry average. Zara has proven this is possible.
If companies stopped overproducing and focused on cost of goods sold instead of cost of goods made, they would uncover a 30% EBIT opportunity right there. At the same time, the best thing we can all do for the environment is to produce only what we need. Elimination of overproduction is outright better for the environment than any eco-friendly production technology could ever accomplish.
Limited waste is possible with “just-in-time manufacturing” and it’s baby sister “on-demand manufacturing.” On-demand manufacturing in apparel is possible, and in fact, it employs existing technology. Zara uses the just-in-time model, and so does the automotive industry. I learned about it at a young age in a car radiator factory and later built an entire company based on on-demand manufacturing in the 3D printing industry (Shapeways). Apparel manufacturing is difficult because it launches new product at an extreme pace, but apparel manufacturing is not rocket science. With the right software, digital design and manufacturing tools, on-demand manufacturing is attainable. However, it is a complete paradigm shift for an industry already in distress.
Another way to go greener is to go local. For quick response times and short lead times going local is a great option. This is not only better for the environment, but it also reduces long-distance transport costs, import fees & duties that often account for 30% of total cost of goods sold. With an on-demand model, you ship 20% less over a much shorter distance, reducing the impact on both cost and the environment.
And then there are cleaner technologies. Interestingly, the manufacturing technologies that lend themselves well for on-demand production have a clean impact as well. With 3D-knitting, for example, you not only get a beautiful seamless product, but literally no yarn is wasted. Any leftover yarn can be re-used. For digital printing and dye sublimation, very little to no-water is used for dyeing; preventing water pollution. And by smartly combining demand of many different garment silhouettes into the same production run, fabric waste can be reduced by minimizing cut losses.
And yes, labor in the US is more expensive, and so are costs like materials and housing. However, with a higher level of automation, local on-demand manufacturing can compete with traditional manufacturing. If a company does not take on the high risk of inventory months in advance, it can afford to pay a slightly higher price for local on-demand manufacturing. With more stable margins and agile production system in place, apparel retailers and brands can focus on creating that glamorous and stylish dream.
So whilst, there are still decision makers out there, that think converting to more sustainable practices will hurt economic growth, it is possible to create success stories in the apparel industry, just as we are seeing in other industries. For instance, solar energy is a paradigm shift away from fossil fuels and it now employs more people in the USA than the oil, coal and gas industries combined. There is a large opportunity out there for retailers who want to incorporate the shift instead of being hit by it, just as in energy production. By making long-term, sustainable choices and going on-demand with cleaner technologies, companies will not only do the environment a favor but their bottom line as well.
Every few days there’s a headline of an apparel company in trouble and, next to big oil, apparel is the second largest polluting industry in the world. But now companies have the ability to break this cycle and propel themselves forward with smart solutions in digital manufacturing; improving their bottom lines drastically, while making significant improvements in sustainability.
The Retail industry is in trouble. Macy's quarterly earnings announcements talk about shortfalls, layoffs and store closings. The Gap's profitability continues to decline. The Limited announced in January of this year that it would close all of its stores. The retail industry is upside-down, and it does not appear to be correcting itself anytime soon. So why is this happening? There are many potential culprits. “Shifting consumer demand” is one of these, however this term may just really be a euphemism for Amazon offering everything, anytime, anywhere. At the core of this shift in consumer demand, is the behavior that consumers don’t shop just in stores to buy their apparel. They shop on any of their devices, at any time, and expect to receive their purchases quickly and seamlessly. To compete, traditional retailers promote their prices well below MSRP and, in order to maintain some profitability, they have had to source their inventory at ever-lower costs. As a result, the consumer has been trained only to buy on sale and clothing has become commoditized.Furthermore, the fashion industry, for all of its glamor and style, is one of the most polluting industries in the world, resulting in significant environmental concerns. The World Bank estimates that 17-20% of industrial water pollution comes from textile dyeing and treatment. Furthermore, roughly 90% of clothing is transported via container ships from their countries of origin in Asia to the major ports around the world. One giant container ship’s annual trips can emit almost the same amount of cancer and asthma-causing chemicals as 50MM cars. The same study finds that this pollution leads to an estimated 60,000 deaths per year, and costs up to $330BN per year in health care costs. On top of that, Americans throw away more than 14 million tons of old clothing every year, which fills landfills and causes the release of methane, which is even worse for global warming than CO2. In fact, the aggregate volume of waste has doubled in the last 20 years because of fast fashion.
So the system of apparel retail is broken. It is hardly profitable anymore for many of the largest players and it is a major cause for worldwide pollution and global warming. To survive and compete, traditional retailers and apparel companies reorganize, close doors, set aggressive growth targets, and create innovation departments tasked with coming up with the next “big thing”. Constricted by significant investments in real estate and inventory, most retailers are risk-averse, so they repeat the same strategies that have proven to no longer work.
However, in times of crisis there is also opportunity. As much as 20% of all clothing manufactured will go unsold and is pure waste. What if you did not produce (or buy) that extra 20%? What if retailers earned on average 85% of the full price of clothing sales rather that the 60-70%, which is the industry average. Zara has proven this is possible.
If companies stopped overproducing and focused on cost of goods sold instead of cost of goods made, they would uncover a 30% EBIT opportunity right there. At the same time, the best thing we can all do for the environment is to produce only what we need. Elimination of overproduction is outright better for the environment than any eco-friendly production technology could ever accomplish.
Limited waste is possible with “just-in-time manufacturing” and it’s baby sister “on-demand manufacturing.” On-demand manufacturing in apparel is possible, and in fact, it employs existing technology. Zara uses the just-in-time model, and so does the automotive industry. I learned about it at a young age in a car radiator factory and later built an entire company based on on-demand manufacturing in the 3D printing industry (Shapeways). Apparel manufacturing is difficult because it launches new product at an extreme pace, but apparel manufacturing is not rocket science. With the right software, digital design and manufacturing tools, on-demand manufacturing is attainable. However, it is a complete paradigm shift for an industry already in distress.
Another way to go greener is to go local. For quick response times and short lead times going local is a great option. This is not only better for the environment, but it also reduces long-distance transport costs, import fees & duties that often account for 30% of total cost of goods sold. With an on-demand model, you ship 20% less over a much shorter distance, reducing the impact on both cost and the environment.
And then there are cleaner technologies. Interestingly, the manufacturing technologies that lend themselves well for on-demand production have a clean impact as well. With 3D-knitting, for example, you not only get a beautiful seamless product, but literally no yarn is wasted. Any leftover yarn can be re-used. For digital printing and dye sublimation, very little to no-water is used for dyeing; preventing water pollution. And by smartly combining demand of many different garment silhouettes into the same production run, fabric waste can be reduced by minimizing cut losses.
And yes, labor in the US is more expensive, and so are costs like materials and housing. However, with a higher level of automation, local on-demand manufacturing can compete with traditional manufacturing. If a company does not take on the high risk of inventory months in advance, it can afford to pay a slightly higher price for local on-demand manufacturing. With more stable margins and agile production system in place, apparel retailers and brands can focus on creating that glamorous and stylish dream.
So whilst, there are still decision makers out there, that think converting to more sustainable practices will hurt economic growth, it is possible to create success stories in the apparel industry, just as we are seeing in other industries. For instance, solar energy is a paradigm shift away from fossil fuels and it now employs more people in the USA than the oil, coal and gas industries combined. There is a large opportunity out there for retailers who want to incorporate the shift instead of being hit by it, just as in energy production. By making long-term, sustainable choices and going on-demand with cleaner technologies, companies will not only do the environment a favor but their bottom line as well.
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