Spring 2019 - Inside Outdoor Magazine

Inside Outdoor | SPRING 2019 34 Made inAmericas today mostly comes from other parts of the world, particularly the Far East and the southern hemisphere. McKinsey analysts expect apparel sales in Asia to grow by 6 percent a year moving for- ward, accounting for about 40 percent of global sales by 2025. “This burgeoning local demand is creating competition for Asia’s apparel manufacturing capacity and chang- ing the export balance,” said the firm. “Though there are not yet substantial capacity issues, many Chinese manu- facturers are switching their focus and producing for the local market since the demand is so high.” Four in 10 apparel supply chain ex- ecutives surveyed by McKinsey believe is highly likely that labor costs in Asia will continue to increase, and by 2025, Asia will no longer have low-cost countries (LCC) compared to Eastern Europe and Central America. More than a third (36 percent) also feel demand surge in Asia and resulting ca- pacity shortages will drive fast-fashion companies to move substantial parts of their current Asian production to new re- gions by the end of the forecast period. Nearshoring economics become even more attractive when considering the potential higher full-price sell-through rates enabled by faster and more flexible production and delivery models. McK- insey analysis suggests a 5- to 6.1-per- centage increase in sell-through would make up for higher labor costs, depend- ing on the complexity and time required to make a particular garment. Of course, that assumes some al- leviation in overcoming capacity, capa- bility and component challenges in the near- and on-shoring markets, while the increased internal costs resulting from a move to a more complex sourcing model with a higher number of sourc- ing countries also must be taken into consideration, McKinsey researchers warned. On the other hand, an antici- pated surge in advanced manufacturing technology development and deploy- ment, including automation and robot- ics, will increase labor productivity and thereby boost the economic viability of near- and on-shoring. In surveys related to this work, 82 percent of respondents believe that simple garments will be fully automat- ed, affecting an 80 percent labor re- duction by 2025. Seven in 10 percent think that it is highly/somewhat likely that more complex garments, such as dresses and jackets, will be significant- ly automated (resulting in a 40 percent labor reduction) by 2025. Within five years, semi-automated factories could enable nearshoring and selected lighthouse projects of new business models, such as store factories, which could help build cus- tomer excitement. Within five to 10 years, suppliers with fully automated factories could enable full on-shoring. “More complex silhouettes will be semi-automated within a decade and to such a degree that companies can scale up new, high-margin business Last fall, Sierra Designs launched its California Collection of activewear garments designed and manufactured at its facilities in California. Moving operations to California meant working with a completely different set of partners and suppliers, said the company. Source: Kampgrounds of America; Cairn Consulting Group (Percent of respondents) 34.0% 30.0% are available The quality of the sites at the campground The location of the campground Campground atmosphere 17% 18% 30% 19% 22% 26% 20% 24% 21% 24% 29% 15% 19% 21% 26% Overall Millennials Gen Xers Baby Mature What percentage of your sourcing volume will come from nearshoring in 2018 and 2025? Likelihood that disruption will occur before 2025 (Percent of respondents) Source: McKinsey & Co; Sourcing Journal Source: McKinsey & Co. 0-5% 33 3 18 15 15 22 5 18 4 14 3 4 21 24 >5-10% >10-20% >20-30% >30-40% >40-50% >50% 2018 2025 Winning in fashion will mean that a substantial part of a company’s assortment will need to be a fast-track fashion cycle, which is possible only through nearshoring or air freight 1. Step-change in nearshoring for speed 2. Asia capacity shortage 3. Diminishing of Asian LCC status 4. Trade agreement impact 5. Emerging nearshore manufacturing clusters 6. Fabric production follows CMT re-location 7. Backward integration of brands Demand surge in Asia and resulting capacity shortage will drive fast-fashion companies to move substantial parts of their Asian production to new regions Labor costs in Asia will continue to increase more than the rest of the world, Asia will no longer have the low-cost countries (LCC) compared to e.g. Eastern Europe or Central America Political turmoil and resulting changes in trade agreements will change the economic equation off-shore and nearshore At-scale and highly capable apparel manufacturing clusters will emerge in nearshore markets to Europe and the Americas Fabric production will move nearshore, following CMT (cut-make-trim) move to enable integrated regional supply chains Apparel brands and retailers will backward integrate and own (or co-invest in) factories as a way to drive nearshore development and secure capacity 43% 36% 40% 37% 39% 31% 18% Highly likely Somewhat likely Somewhat unlikely Highly unlikely No response lization 2015 >100bn units (2015) RN