In the first instalment of a new four-part series of blogs, Thomas Gronbach, Director of Marketing at Lectra Germany, explores the impact of exchange rates and innovative technologies on the sourcing strategies of today’s fashion retailers and brands.
In the present day, how does Innovative Technology, or the impact on exchange rates, disrupt your sourcing strategy?
Exchange rates, political environments, government subsidies and geopolitical implications are all strong external factors, constantly changing things for the European textiles and clothing sector. The need for continuous developments, in order to keep up with these ever-changing factors, is a challenge for today’s businesses .
Impact through exchange rate
Let’s, as an example, take the rise in the US dollar against the euro. Asian production capacities, internationally priced in US dollars, became 15-20% more expensive within 4 months without any additional value. Would that be a reason for European fashion and apparel companies to consider back-shoring? Does this trigger demand for larger production capacity in well established Eastern European countries such as Bulgaria, Romania, Poland, Hungary or the emerging clothing production regions in Serbia, Macedonia or Montenegro?
Apart from production cost, increased importance of a short turnaround time, proximity to consumer markets, distance and flexibility all play increasingly important roles in investment and production decisions in the time-sensitive and fashion-oriented clothing market. For example, producing product closer to the consumer entails the benefit that the shipment of that product can be reduced by up to 6 weeks (from Asia to Europe). This represents valuable time to shorten the collection cycle in an effort to support consumer demand for fast, more frequent newness of styles and colors. Also, proximity sourcing offers the opportunity to re-order small batches of successful products responding to short-term consumer demand.
External factors outlined above are complemented by market dynamics – for example consumer developments, technological advances, changes in business models, growth in retailers’ purchasing power and environmental issues. The effect on the European textiles and clothing industry is characterized by being in a state of continuous restructuring and modernization.
Technological advancements in the years 2007-2015 revealed huge advantages, especially in the Fashion & Apparel industry. For example, automated cutting machines increased capacity x fold, advanced to 0-buffer cutting techniques guaranteeing fabric savings of up to 10%, implemented remote monitoring and predictive maintenance capabilities which provide process security, resulting in less downtime and eliminating entire shifts from the production schedule. These technical advancements are the reason why the European Union Investment Fund offers to finance innovative technology – making them available for European apparel manufacturers, bolstering Europe as a production region.
Topics as discussed above – the rising US dollar against the euro, its impact on ‘cheap production’ resources or proximity sourcing for added business value, technological innovations their benefits and implications – are topic of Lectra’s Executive Forum Fashion meets Apparel in Vienna. Industry executives and Eastern European manufacturers will be discussing technological advancement, dynamics in sourcing and the return of production capacity to Europe. The objective of the event is to find answers, outline action paths for the future and provide input for an ever-moving market and decision complex in the Fashion and Apparel industry.
Part two of this series‚ Fashion Sourcing in Eastern Europe, will focus on the European Union Investment (EUI) fund – the largest they have ever launched – and how it is applicable to light industries, i.e. Clothing and Apparel production.