Digitalisation the way forward for global apparel makers in post-coronavirus era as bankruptcies reshape industry
- Garment manufacturer TAL Apparel closes two factories and furloughs 20 per cent of its employees as orders dry up
- Industry players say manufacturers that survive the downturn will turn to technology to streamline production processes and become nimble
Hong Kong-based TAL Apparel, which makes one in six dress shirts sold in the US for such brands as Brooks Brothers and Lacoste, held a virtual meeting with 1,000 of its top employees in March, after the World Health Organisation declared the Covid-19 as a pandemic.
During the meeting, chief executive Roger Lee warned of an ominous shift in the global apparel industry as the company projected a 50 per cent plunge in demand over the next 12 months. Since then, TAL has decided to close two plants in Malaysia it invested in since the 1980s, and furlough 5,000 staff, or 20 per cent of its 25,000 employees.
Apparel companies across the world have been hit hard, as one country after another has imposed lockdowns to curtail the spread of the coronavirus, severely affecting global economic activity, throwing dozens of industries into turmoil and sending the unemployment rate soaring.
In the fashion industry, billions of dollars worth of orders placed with manufacturers around the world have been cancelled, while some big fashion retailers such as JC Penney and J Crew have filed for Chapter 11 bankruptcy protection in the US.
The suppliers meanwhile are looking for ways to stay afloat and mitigate credit risks that could arise from future crisis. Industry players said a prolonged supply chain disruption for textiles and the unprecedented lockdown could see manufacturers and retailers switch from in-store to online, further shorten the design-to-delivery cycle, and move to digital supply chain processes, such as virtual samples production and approval.
Coronavirus: global textile industry braces for sharp downturn as orders dry up
Lee said that the next 12 months will be painful for the industry, including the company, as “a lot of business and a lot of factories will seek Chapter 11 bankruptcy protection”.
TAL started off as textile manufacturer, and later on diversified into garment making, exporting shirts, blouses, trousers, suits, and outerwear to the US and European markets. Apart from Vietnam and Ethiopia, it also has production facilities in China and Thailand.
Many of TAL’s clients have told the company not to ship goods held in its factories because of the unforeseen circumstances. Lee said a few have deferred payments, while others have been downright nasty, ignoring and walking away from the issue, saying “it’s your issue, you guys deal with it”.
The painful experience with some of TAL’s trusted clients has prompted the company to change the payment modalities to mitigate credit risks.
Financial payment terms are definitely going to change to prevent clients walking away from deals without paying, said Lee. Orders will be covered by letters of credit to serve as a guarantee for payments, he added.
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Stanley Szeto Chi-yan, chairman of Hong Kong-listed apparel supply chain manager Lever Style, said letters of credit are an effective way to mitigate credit risks and he expected more manufacturers to follow.
Some 90 per cent of Lever Style’s business is covered by credit protection, such as export credit insurance, upfront deposits from customers and bank guarantees.
“J Crew was our number one client eight years ago, but when credit insurers stopped covering them, we could no longer carry on with the same credit terms,” he said. “In the past decade, while the global economy was good, some factories have taken on excessive credit risks.”
Szeto believes retailers will move to online from offline model and digitalisation will revamp the supply chain processes.
“The pandemic’s impact on the supply chain is relatively limited – idling may be 15 to 20 per cent of the capacity … whereas demand has plummeted far more,” he said. “I expect bricks-and-mortar retailers to further lose market shares to online-driven rivals.”
Lever Style, a 62-year-old fashion producer for brands such as Hugo Boss and Paul Smith, has shed all of its factories – including its main production base in Shenzhen – around five years ago, turning into an “asset light” supplier.
Szeto said the pandemic-induced lockdown measures that prevented merchandising executives from working in offices will further shorten the design-to-delivery cycle, as they are forced to adopt digital supply chain processes such as virtual samples production and approval.
Besides pre-production time saving, factory processes can also be streamlined by technology, he added.
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“A dress shirt literally takes only 25 minutes of labour to produce, a fraction of the entire production time of 30 to 40 days, as raw materials and partially finished goods wait to be moved around various production queues,” he said. “This can be shortened by greater adoption of digital tools.”
As the honorary chairman of the Hong Kong Textile Council, Szeto recently met the Hong Kong consul generals of Vietnam and Myanmar, to try to lobby their governments to help their companies through the crisis.
TAL’s Lee meanwhile is striving to steer the company out of the crisis. He said that heavy sacrifices are the only way to survive in such poor environment, pointing to the plant closures and making sure the company has enough cash on hand to get through it.
“We talked about cash is king in 2008 [during the global financial crisis]. It is the same with the coronavirus crisis now. When we come out of the crisis we will be stronger and more ready [than ever] to take on the challenges,” said Lee.
