The apparel/fashion industry is facing major changes in the way goods are manufactured, distributed, and sold. With consumers becoming increasingly conscious of ethical and environmental practices and the emergence of new technologies, the industry is undergoing a transformation. The pandemic has further accelerated this, with many companies having to quickly adapt their supply chains to the new reality filled with constant disruptions. Looking forward to 2023, three key trends stand out, with several big players putting significant investment and resources into them: digitization, sustainability, and nearshoring/reshoring.
Digitization has been on the rise since the pandemic. According to McKinsey, fashion brands spent around 2% of their revenue on technology in 2021. This number is expected to increase to 3.5% by 2030. A bulk of this investment falls to robotics, advanced analytics, and AI/machine learning to improve operations and provide more information to relevant stakeholders for better decision-making. For example, the sports giant Nike has invested in 1000 robots throughout their US distribution centers to improve speed for order processing and allowing their workforce to focus on higher-value activities. Similarly, Nike has also placed heavy investment into artificial intelligence and machine learning to determine what products their consumers favor, and how to get those products to them quicker, and more efficiently while keeping up sustainable practices.
Sustainability has gained significant traction in the fashion industry. In 2023, consumers will continue to demand brands to prioritize sustainable initiatives. Additionally, many governments, including the French and German, are mandating new laws around ESG disclosures. Patagonia, the outdoor clothing retailer, leads the charge on ESG initiatives and hopes to do more in the future. In 2014, they partnered with Fair Trade US, which positively impacted 75,000 workers in 10 countries. Similarly, in 2017, they launched their “Worn Wear” program for used clothes to help fight the massive amounts of textile waste generated annually. By 2025, Patagonia hopes to become climate neutral for all parts of its global business including its supply chain. H&M is another example of a large brand moving towards sustainability, hoping to halve their carbon footprint by 2030.
Lastly with constant disruptions to their global supply chains, brands are looking towards moving production back to their home country (reshoring), or closer to their consumers (nearshoring). Along with product being able to move to consumers a lot faster, this new model also gives the brand more control over their operations. One report by McKinsey finds that 71% of fashion companies are turning towards nearshoring. For example, Hugo Boss has set up a 3,500-worker production site in Turkey to serve the European market better. Another example is the Italian brand Benetton, which has moved production away from Asia to countries in East Europe and Northern Africa to help control the supply chain and shorten lead times.
The apparel industry is undergoing significant changes driven by technology, sustainability, and increased localization. Top brands that recognize and embrace these trends will be well-positioned to thrive in the years ahead, while other players that maintain the status-quo may face problems down the road.