by Kazuyuki Matsui, Executive Researcher

 

(The original article in Japanese was posted in March 2021)

 

Apparel manufacturers’ business performance had been stagnant even before the coronavirus started spreading in February 2020. The COVID-19 crisis as a decisive blow influenced the former largest apparel company in Japan, Renown Incorporated, to file for bankruptcy. Sanyo Shokai Ltd. has been slumping in its business since around 2016 after it had lost Burberry license. Onward Holdings Co., Ltd. closed hundreds of real stores and developed the electronic commerce system to manage to continue its business. World Co., Ltd. wanted to take a lead in the apparel industry to operate a business platform, but its sluggish sales performance has been more serious and the activity of utilizing a platform has not been going as planned. TSI Holdings Co., Ltd. had reorganized the group with a new President and has been working for structural reforms. These days, we frequently hear the news of the apparel industry’s poor performance from newspapers or other news media, whose contents are the most caustic ever.

The apparel industry’s problem of a massive amount of dead stock has been reported in news media even before the coronavirus crisis. The professionals and specialists from other fields outside the apparel industry had been pointing out that the current business model of the industry is no longer reasonable and needs to be renewed. The opinions of those who criticized the apparel industry were mainly given from the viewpoint of environmental burdens and protection of human rights.

In terms of environmental destruction, piles of unsold products have been incinerated, and resources such as water, energy, and workforces have been wasted. A business model that produces the “waste” cannot reduce greenhouse gas, which means that the current apparel industry resultantly encourages the problem of global warming.

In terms of human rights protection, it has been a global trend that international organizations and human rights organizations warn people of risks or dangers in the supply chain that threaten human rights since the important trigger happened in Bangladesh, the collapse of a commercial building “Rana Plaza” where a garment factory was located inside. This tragedy resulted in more than 1,100 dead and more than 2,400 wounded. In Japan, “Respect for human rights” was added in “the Charter of Corporate Behavior” of Japan Business Federation (Keidanren) in 2017. Violation of human rights in countries where product manufacturing is active has been more serious now and not negligible anymore.

Those who belong to fields outside of the apparel industry had been pointing that the business model in the apparel industry should be changed, and now the industry needs to voluntarily change its business model to survive in the current coronavirus crisis.

Due to the COVID-19 pandemic, our lifestyle has changed. If the consumption amount in the pre-COVID-19 world is taken as level 10, that in the current society where we must coexist with the coronavirus is taken as level 7 to 8. Therefore, just maintaining the manufacturing amount before the pandemic is not enough, and an enormous amount of dead stock is inevitable. Continuing the business with the current business model is just “hopeless.”

A demand forecast of apparel products is difficult due to uncertain elements such as climate, trends, seasons, or change of lifestyle. A newspaper journalist of the economic press told me with a confused look that he was shocked when he heard a manager of a listed apparel company confidently saying that the sluggish sales were because of unseasonable or unusual weather. Those climate elements are given conditions and the manager’s opinion sounded like an excuse for the journalist. It is unbelievable that the manager himself/herself only said it seriously.

A certain number of products to sell at stores in every season is only manufactured based on the demand forecasting. Although some products would be manufactured again if necessary, within each season, the amount would be smaller than the total amount at the time of the first manufacture at the beginning of each season. It is hard to make enough profits if the product lineup is not complete at the beginning of the season. Following 5 methods are how I think to reduce dead stock and waste:

1. Increasing the ratio of made-to-order manufacturing rather than of make-to-stock manufacturing

2. Improving the accuracy of demand forecast

3. Developing more distribution channels of secondhand apparel products more promptly at right locations in appropriate seasons

4. Tightening laws and regulations on wasting clothes

5. Creating a legal system for environmental conservation and resource saving

The above methods 1 to 3 should be voluntarily made by apparel companies themselves, and 4 and 5 should be made by outsiders such as the government or organizations. However, even if the latter is strengthened, the problems cannot be fully solved without efforts of the apparel companies themselves. It is necessary to understand that the reduction of dead stock and waste can only be maximized when both voluntary improvement by the apparel industry and regulations by the others are established.

However, these five measures are economic activities that cannot be carried out without waste, and measures even at a higher level are required globally. These traditional economic activities that have been done with waste are generally called “linear economy” that follows linearly the order of “take-make-dispose.” This economic model is characterized by the fact that the ultimate customers are the owners of the products.

In contrast to the traditional linear economy, what has been promoted currently is “circular economy,” an economic model based on encouraging elimination of waste and environmental pollution. The feature is that owners of the products are the manufacturers/producers who are responsible for the products.

In March last year, The European Union (EU) unveiled the new plan “Circular Economy Action Plan” and estimated that the EU economy has the potential to increase EU GDP by an additional 0.5% by 2030, creating around 700,000 new jobs. EU also stated that although the fiber product market is divided into many processes and the value chain is complicated, a comprehensive strategy will be proposed.

It is unlikely for such trend to end as a transient thing because the transition to the circular economy is a strategy for EU to survive in the competitive society and to improve the ability to compete globally.

While Japanese apparel companies are needed to change the current business model to the one that produces as less waste as possible in the linear economy, other countries are going a few steps ahead.

In the situation where the world is becoming more globalized, it is uncertain when the apparel industry in Japan plays an active role in the global market.