Fashion has reached an unfamiliar crossroads. Specialty and department stores are struggling, off-price retailers reign supreme and high-end brands that once previewed runway shows to a select audience six months out are now shifting to consumer-facing shows and a “see now, buy now” business model.
And more changes lie ahead.
“We are at the beginning of a revolution,” declared Edouard Macquin, executive vice president of sales at Lectra, speaking last week at the technology provider’s Fashion Forward event in Bordeaux, Paris.
Nearly half of Lectra’s revenue comes from the fashion and apparel industry—47 percent to be exact—and 80 percent of the company’s research and development (R&D) efforts in software are dedicated to fashion. While Macquin didn’t disclose an exact amount, he did say that roughly 9 percent of Lectra’s annual revenue is invested back in R&D, totaling about 185 million euros ($203 million) over the past 10 years.
“So our main focus continues to be on fashion, but we also are very happy to have automotive and furniture as our second and third markets,” Macquin said. “We learn a lot from the automotive industry, particularly in the manufacturing sector, and we learn a lot from furniture. Furniture is one of those industries that learned a long time ago that manufacturing close to retail is very important. Obviously you do not transport a sofa like you transport a shirt! So with those three industries we learn a lot and there is a lot of cross-fertilization between the industries.”
As such, Lectra is looking to where the apparel market is headed and what’s at stake for its customers, and incorporating that in its technology solutions. Here are four mission-critical trends the company expects will shape the industry in the next five to 10 years.
Hardly a day goes by that a research firm doesn’t come out with yet another study on millennials (people born roughly between 1981 and 1997) and their impact on everything from fashion to the global economy. But the fact of the matter is, millennials account for 40 percent of retail spending worldwide and that share is only going to grow. Unfortunately for brands and retailers, millennials can’t make up their minds about what they want. “What matters to millennials, according to studies, is high quality products. They want quality, but they are only willing to spend between $10 and $20 per item. There is a contradiction right here,” Macquin laughed. “On the one hand, they want high quality products. But on the other hand, they’re not willing to pay for them.” Similarly, millennials say they want more sustainable products but they’re not willing to put their money where their mouth is, which puts retailers in a pickle. And while some companies assume millennials do everything online, they actually prefer having options, from physical stores to e-commerce to mobile.
“This new consumer brings a lot of challenges for the fashion industry, from managing the supply chain differently to managing the stock in a different way,” Macquin said. “Those guys are ruling this industry and obviously you, as the fashion industry, and us, as a provider of technology to the fashion industry, we need to embed some of those trends in our solutions.”
Technology has become a big part of everyone’s daily life, not least in the fashion and apparel industry. “This will translate into collaborative solutions, 3-D rendering, connected devices and the Internet of Things, augmented reality, virtual reality and analytics, making the data speak and providing information,” Macquin said. “These are all things that the fashion industry won’t be able to avoid.”
Looking back at major moments in apparel production, steam-powered machines ushered in the first industrial era, electricity brought the second and electronic equipment was the third. Macquin said Industry 4.0 will be when everything from machines to systems to data and analytics are connected in the cloud.
“It provides the capacity to anticipate in manufacturing but also in retail, but more than anything it gives visibility and transparency to the complete chain,” Macquin said. “Sometimes in retail you think you don’t care what’s going on in manufacturing and vice versa. Industry 4.0 provides a kind of visibility for all the actors in this chain.”
That kind of panorama helps data to “speak,” leading to more accurate costing and trend forecasts and boosting performance.
“This is one of the major, major challenges of this industry and it’s creating things that were not so possible before, like moving from mass production to mass customization,” Macquin said. “This is where manufacturing and the consumers are starting to have a direct connection. Some call it manufacturer-to-consumer, or M2C—it’s like a new model where there is less intermediary between the consumer and the manufacturer.”
Some people believe China’s days as a manufacturing powerhouse are numbered, thanks to rising production costs. But manufacturing in Asia as a whole is not as competitive today as it once was and Macquin said it’s almost on par with producing in the U.S. That’s not to say China is losing its grip on the apparel industry, however.
We have one of our major subsidiaries in China and we see that our Chinese customers are talking about implementing factories in other countries: Vietnam, Cambodia, Thailand, Bangladesh,” Macquin said. “So it’s not moving away from China—it’s Chinese companies setting up their own factories in other countries.”
At the same time, China is no longer just an export market. The country’s economy doubled over the past 10 years, mainly thanks to its becoming a domestic market, and the share of its GDP is higher now in services than in manufacturing. In addition, fashion retail sales are projected to reach $400 billion by 2020, versus $100 billion in 2005. By comparison, fashion retail sales worldwide are expected to grow from $900 billion in 2005 to $1.8 trillion by 2020.
“So when the overall market is doubling, China multiplies by four,” Macquin said. “There is a very strong internal demand, a very strong domestic market, with people that are really willing to spend their money in the fashion industry…China is a great opportunity for everybody in the room, including us.”
With regard to who the next manufacturing dynamo will be, Macquin doesn’t think it will be Vietnam.
“I think Vietnam has a role to play but the reality is, if you double the production of Vietnam it’s just a one-digit percentage of the world’s production,” he pointed out. “So, yes, we can all get excited about Vietnam but the reality is the capacity of Vietnam is rather limited.”
Similarly, Africa’s infrastructure is not yet up to spec, but he does think the continent is one to watch.
He concluded, “For me, everything that’s to do with locating manufacturing closer to where the goods are sold is obviously very, very interesting.”