What does the “platformization” of fashion retail mean for supply chains?
Andy Warhol once said: “They always say time changes things, but actually you have to change them yourself.” He might as well have been speaking about the global fashion industry today. With the impact of COVID-19 catapulting us into a time of unprecedented uncertainty, fashion has been one of the hardest hit sectors but the industry has been undergoing a paradigmatic shift years in the making.
In the early 2000s and into the 2010s, the fashion industry was operating in a decidedly different world than the one in which we live today. It was the time of Mickey Drexler’s heyday at J Crew, Amazon was around but far from the behemoth it is today, Macy’s was THE place to launch your career as a fresh fashion grad, and I remember idolizing now defunct brands like Gap’s Piperlime and Abercrombie & Fitch’s Ruehl. Merchants and designers were the royalty of corporate retail, decisions were largely based on a combination of historical sales data and gut feel, and the supply chain was seen as a support function — a necessary evil, but certainly not a path to the C-suite.
E-commerce was a burgeoning trend, yet many retailers who had expanded into huge brick and mortar businesses in the early 90s could not fathom a successful retail business existing with no stores. Nascent brands and retailers emerged on the scene. Bonobos launched in 2007 because the founders couldn’t find pants that fit. Stitch Fix was founded in 2011 under the premise that the experience of shopping for clothes had not changed since the 1950s and established a loyal following, adding new business lines and expanding its data science and personalization capabilities. We saw the rise of DTC companies like Everlane buoyed by claims of radical transparency and inexpensive Facebook advertising. Amazon quietly expanded into designing and selling its owned private label apparel in 2015. Nike historically drove the majority of its sales through wholesale channels but has invested heavily in digital, focusing on its direct to consumer platform, trimming its wholesale accounts, and experiencing an 82% increase in digital sales during the first quarter of fiscal 2021.
Today we have moved beyond the dominance of specialty and department store retailers in the 1990s and early 2000s and into the “platformization” of retail. Platform businesses facilitate value exchange between multiple interdependent parties, usually buyers and sellers. Traditional linear business models take, make, and sell — with all of the waste and operational complexity that entails, including holding inventory. We have seen the rise of enormously successful platform businesses like Facebook, Airbnb, Uber, DoorDash, Amazon, and Alibaba in all industries. It is a flexible, demand-driven, digital world defined by data, personalization, and convenience, not constrained by monolithic brands, stores, inventory, and seasons.
We live in a world characterized by uncertainty coupled with more choices and information provided to consumers than ever before. What impact does “platformization” have on supply chains?
For one, supply chain management is recognized as a critical business enabler and strategic advantage now more than ever. In 2018 President Trump imposed tariffs on $550 billion of goods imported from China, and suddenly supply chain management was on the forefront of every CFO’s agenda. While reducing sourcing penetration in China had been on the radar for many companies for several years due to rising costs, the tariffs increased urgency and there was no viable short-term solution. No single country has the range of raw material and product capabilities that China has developed over the years, nor can they replicate its efficiency and capacity.
Complexity has increased exponentially with the focus on offering personalized experiences meaning more sku’s to manage, wider assortments with more inclusive size offerings, and products tested in small quantities before orders are placed. Gen Z consumers want products with meaning — they were born into a world of digital connectivity and have witnessed the dire effects of climate change on our world today. They want to support causes and want to know the story behind the products they purchase. At the same time, they are skeptical, and for good reason. Many companies do not have visibility into their supply chains beyond Tier 1 (manufacturer who makes the finished product the company purchases directly) and Tier 2 (raw material) suppliers. A complex and volatile world places more pressure on these suppliers and supply chains. While there have been steps towards greater transparency with more companies disclosing lists of Tier 1 suppliers, there remains great progress to be made on ensuring the well being of vulnerable employees.
So much has changed, but so much is still the same.
In his 1928 book “The Economics of Fashion”, Nystrom surmised “The development of machines and power in the apparel industry, while exceedingly important, has probably not been equal to the development of the use of machines and power in most other industries. In fact, there are few if any fields in which the application of power has been so limited during the last fifty years as in the production of clothing.” This statement still rings true today as we enter the digital age.
While we’ve experienced unprecedented technological advances in the past 10 years, the apparel supply chain is largely designed for the overconsumption of goods, a “make more than you could ever sell” approach, a business model whose heyday was in the 1990s and early 2000s. The fundamentals of long lead times, low cost, and large minimum order quantities to achieve economies of scale still hold true though there is recognition that this simply does not work for the world we live in today. Apparel manufacturing is incredibly labor intensive and there has historically been little incentive for innovation due to the once plentiful supply of low cost labor in developing countries. Automation efforts largely take place within one company’s own four walls diminishing their potential impact on the broader ecosystem. The upstream product development process is analog and difficult to automate due to lack of standardized processes and industry-wide technology partnerships.
What’s next and who is accountable?
With more companies who were once specialists and retailers of select products now becoming or being replaced by “everything store” platforms, does this even further disaggregate supply chains? Are we moving to a more intentionally transactional world? The apparel industry in the US moved from tailor shops, to the specialization of labor in local vertically-integrated manufacturing facilities during the industrial revolution, to outsourcing to contract manufacturers in developing countries beginning in the 1980s. Platforms are one step beyond this. Platforms presumably provide increased convenience, consumer choice, data, and access on one end. In effect, they can make a global world local. On the other end, who is ultimately responsible for vetting buyers and suppliers, paying for the inventory holding costs, reducing waste, and ensuring fair wages and decent working conditions in the platform model?