Global Apparel Consumption Is Slowing Down

Apparel, Footwear, Fashion

Global Apparel Consumption Is Slowing Down

Is the message of sustainable consumerism getting through to the consumer?

The year 2016 witnessed a number of international retailers going bankrupt, many are planning to shut down their outlets in US, Europe and Asia. Global apparel exports have been stagnant for some years.

US, the single largest apparel importer has slowed down its apparel purchases for some time now. US imports in 2016 at US$ 80713.83 million, were 5.23% lower than in 2015. Imports from China were down 8.58%. Except Vietnam (2.3% up), imports from the top 10 exporters has fallen in 2016.

Myanmar witnessed a steep increase in its exports to the US. Exports were to the tune of US$ 73.51 million during 2016, an increase of 79.31% over that in 2015. US apparel imports from Ethiopia were up 85.13% to US$ 32.67 million in 2016 compared to the previous year. And imports from Oman at US$ 24.05 miillion grew 170.87% in 2016. But overall, US has been importing less.

This is also evident from the large number of closures and bankruptcies in the retail sector. In early 2016, J Crew was one of the first US retailer (in the list that kept getting longer through the year) which showed signs of failing, due to the inability to adapt fast to a changing retail scenario. Caught in the web of heavy discounts, the company, over the years, has built up huge debts.

Target, faced with unsold stocks was pressuring its suppliers to take on an additional 3-5% of their promotional costs, forcing its suppliers in Asia and elsewhere to thus chop down their already squeezed margins. Target has been in the dock for some years now, it has been trying (cluelessly at that) to cut down on discounts while maintaining sales and profits. It has put most of this pressure on the suppliers, tightening delivery schedules, charging higher fines and penalties, Target's answer to sprucing up its supply chain.

Retailers have been blaming their troubles on the "fickle consumer who is always on the lookout for discounts." And they excuse themselves for having traditional retail models that do not permit them to react as fast as Zara to consumer choices. The retailers' lack of understanding of consumer behavior and preferences, their adamancy to continue to remain unadaptable have been their undoing.

And that is why apparel inventories account for over 30% of total US apparel imports. US apparel inventories have been on the rise for the last four years, according to US government statistics. US apparel inventories, which amounted to around US$ 23 billion in 2013, were at US$ 30.24 billion in 2016, an increase of 31% in the last four years. US apparel inventories have been growing steeply since 2013. In 2014, inventories were to the tune of US$ 24.64 billion, 6.7% higher than in 2013. in 2015, inventories at US$ 27.73 billion were 12.5% higher than in the previous year. And in 2016, inventories were up 9.09% compared to a year ago.

Not only is it worrying that the world's single largest apparel market is witnessing rising apparel inventories, it is even more so that the inventories account for a fairly large percentage of the imports. In 2014, for instance, inventories were 30.13% of total apparel imports by the US. In 2015, this percentage went up to 32.5%. And in 2016, inventories account for 37.47% of the imports!

The demographics survey `Some eye-opening statistcs' further reveal how way off the retailers are in understanding the consumer. Almost every retailer has been whimpering that teens do not want their clothes. And they ignore the consumer group that has the spending power. Where are the collections for them? If we look at India's apparel exports, the most traded are the basic tee-shirt, and low value items of clothing for boys and girls. International retailers need a strategy makeover.

UK is India's third largest apparel market. UK's apparel imports have been slowing down over the last few years, with analysts predicting a weak 2017. In 2016, UK's total apparel imports amounted to GBP 13.09 billion, 0.94% higher than in 2014. 2016 has been termed the toughest year for UK apparel retailers. A depreciated pound will add to importers' sourcing costs, but retailers may not be able to increase prices as competition is severe, and inventories high.

Mass-market apparel is experiencing a period of unusual weak demand, as consumers spend more on leisure activities. According to the British Retail Consortium, retail footfalls in 2016 were down 0.2%. The slowdown in demand, stiff competition from e-commerce, and a slow response to changing market dynamics, has led to huge inventories with UK apparel retailers, which they have to clear off with steep discounts.

The situation is no better in the rest of Europe. Statistics for EU-28 reveal that imports of apparel to the region in 2015 at US$ 89.61 billion, were down 8.06%. Even as we await figures for 2016, there have been indications over the year that retail sales have been slow to pick up. European consumers are spending more on recreational activities than on clothing.

Apparel production

China is the largest apparel producer in the world, manufacturing around 35 billion pieces of apparel per year. China's T&A industry is undergoing important structural adjustment. Within the total industry output, the ratio of apparel, home textiles and industrial textiles has turned from 51:29:20 in 2010 to 46.8: 28.6: 24.6 in 2014, reflecting China's efforts to move towards making more value-added and technology-intensive textile products. This ratio is expected to become 40:27:33 by the end of 2020.

So, China's apparel production will slow down. China has overtaken US as the largest retail market in 2016. It is slated to become the largest apparel consumer in the world by 2020. A lot of this demand will be fulfilled by the domestic players, who understand the consumer preferences better than the international brands. And China will continue to remain an important supplier to the world market.

While production is expected to fall over a period of time, Chinese apparel manufacturers and exporters have a lot of avenues to operate in. In contrast, India's apparel production for the domestic market is pegged at around 5 billion units. India's exports amount to around 4.25 billion pieces of apparel. Exports have been stagnant for some years now, as its traditional markets are not doing well.

There are many optimistic reports and studies that talk about the potential of the Indian apparel retail market. However, this market too is being increasingly driven by discounts, even though organised retail has still to increase its reach in the tier 2 and 3 cities and the semi-urban areas of the country.

The effects of demonetisation are expected to be felt for much longer on apparel sales. The market will slow down in the short term. India is slated to become the second largest apparel retail market by 2030. So, certainly there is a possibility of an increase in production in the long term, to meet the needs of the Indian consumer. One hopes that there are more investments in understanding the Indian consumer behaviour, so that the Indian organised retailer gets it right.

What is the point of this discussion?

The reader must wonder what is the point of this discussion. The retailers, apparel exporters and manufacturers know what they are going through.

And that brings us to an array of questions as to why the apparel industry is going through this phase.

1. Retailers have been facing tough market conditions for some years now. Why is it so hard to get your act together?

2. Retailers have popularised the phrase `efficient supply chains'. So why have they not been able to come up with better supply chain solutions, that do not focus on squeezing margins of the Asian suppliers?

3. The reasons reported for the poor sales have been the stiff competition from ecommerce, and a sudden disinterest in the wares that the retailers have on offer. Are retailers even investing anything to understanding consumer preferences?

4. Retailers say they have to offer heavy discounts to sell goods which probably the consumer does not want in the first place. The sustainability brigade has been working overtime for many years now. Why has no one taken into account the fact that maybe at least a percentage of the sales drop could be due to the message getting across to the consumer. Or do retailers still believe that sustainability is a buzz word, but will have no impact on sales?

5. Why are retailers and agencies that are working to make textile production sustainable, not happy that consumption has slowed down?

6. Why are inventories never taken into account when we discuss how much clothes find their way into dumps?

7. Does any retailer have a stragegy in place to cope with sustainable consumerism?

8. And, if all the above are possibilities, is it not necessary that retailers at least now adopt more sensible strategies to produce, source, distribute? Their performance impacts the economic lives of workers millions of miles away.

9. International retailers source from Asia, Eastern Europe, Latam, which have a long tradition of weaving and fabric decorations. How difficult is it for the international designers to change their perception of fashion, to go truly global, and utilise these evergreen textile traditions in modern ways?

10. Would this approach not make a piece of garment a classic, rather than a fast fashion apparel, that would fetch a better price, would help in keeping these traditions alive, and would probably renew the interest of the consumer in shopping for apparel?

11. Is supply chain management about getting the supplier to give apparel at ever lower prices? If not, retailers and the various agencies that are proponents of socially and environmentally responsible production, need to include the producers and suppliers too. This cannot be a movement that is imposed on the producers.

Meanwhile, as the international retailers figure out the way, it is important for apparel producing countries to come up with more sustainable, long term strategies too. While China and India may do fine due to their own domestic demand, this will not be true for countries like Bangladesh, Vietnam, Myanmar, and others, especially if the US government passes the Border Adjustment Tax. These countries do not have a strong domestic demand. And will scramble for a share of a potentially smaller global market. Sri Lanka needs to be an example to follow for many of the apparel producing countries.

Some Eye Opening Statistics!

Here is a study that is quite an eye-opener, and again a serious pointer at how wrong some retailers may have it. The conventional wisdom is that teens and millennials drive e-commerce trends. In actuality, a disproportionate share of middle-aged consumers are shopping online.

1. 23% of online shoppers fall between the ages of 35 and 44, while only 18% of the US population is that age.

2. 24% of online shoppers are between the ages of 45 to 54, even though less than 20% of the US population falls between those ages.

3. In a recent report, BI Intelligence breaks down the demographics of US online and mobile shoppers by gender, age, income, and education, and takes a look at what they're shopping for, and how their behaviours differ . It's important for retailers to know who their potential customers are online in order to market to them effectively. Here are the surprising facts about how e-commerce and mobile commerce habits differ across age brackets:

4. 60% of teens' spending goes to clothes, food, personal care, and shoes.

5. Generation Z, those aged 18 to 24, spend the greatest percentage of their income online, about 9% . But Generation Z has far less money to spend compared to older generations, and spends less money overall online than any other generation except those older than 65.

6. Millennials, those consumers aged 18 to 34, remain the key age demographic for online commerce, spending more money online in a given year than any other age group. These consumers spend around $2,000 annually on e-commerce, despite having lower incomes than older adults.

7. But older adults, particularly Gen X shoppers, need to be taken into account, because of their large numbers and higher incomes . Those aged 35 to 44 are overrepresented in the online shopper population and they spend about $1,930 annually online, just $70 less than the millennial cohort.

8. It also may come as a surprise that boomers and seniors have also adopted mobile commerce . One in four mobile shoppers in the US is over the age of 55. That's about even with their share of the overall US population.