Impact of Covid-19 on Apparel Manufacturing Business

Impact of Covid-19 on Apparel Manufacturing Business

Amarnath Sharma
MBA, NIFT-Bangalore, India
Email: sharmaamarnath1973@gmail.com

 

The digitization is rapidly increasing due to covid-19 impact. Business is rapidly changing for survival. At current scenario adopting e-commerce is looking the best way to survive. Though the business looks similar on first glance is sometime entirely different. Therefore working for e-commerce companies is entirely different from working with brick and mortar stores. Covid-19 greatly impact on apparel export business. E-commerce is remarkably increased for covid-19 impact.

For example.. In 90s many apparel manufacturing and bulk export companies started own retail brand and brick and mortar stores but most of them got fail due to following reason:

Mass manufacturing and bulk sale (export to retail company):

  • Very less working capital business.
  • Even before the raw-material purchase company gets the purchase order means even before the RM arrangement and make, the goods are already sold.
  • Bulk raw material purchase and bulk quantity manufacturing
  • Bulk sale and consolidated revenue generation
  • Comparatively less investment needed to start only manufacturing unit with machineries and manpower.
  • Comparatively no running cost

clothing-store

Own retail brand build-up and sale through brick and mortar stores:

  • More working capital needed compare to mass manufacturing and wholesale supply (Export).
  • After the goods purchased in bulk, the single-single sale in store. It may take years to off load one particular design product.
  • Single single sale and scattered revenue generation.
  • Heavy investment needed to brand build-up, advertisement, logistics, store management, rent, etc.
  • High running cost.

h&m outlet

Though it was looking similar business but without analyzing above many stores and brands started by manufacturer exporter and later closed.

Similarly in current situation where the entire garment manufacturing and retail is in distress, the changing business which is more towards digitization and e-commerce need deep analysis and understanding before the transformation decision:

The e-commerce is mainly divided into:

  1. B2B (Business to business): It happens between companies mainly producer and whole-seller.
  2. B2C (Company to customer directly): This model is between business to direct customers.
  3. C2C (Customer to customer): It is between customer to customer. For example paytm, ola, etc
  4. C2B (Customer to Business): This is about customer reviews and feedback influence final buyer.
  5. C2A (Customer to public administration): Government and public administration / agencies. PF, ESI etc

Apparel manufacturer falls under B2B or B2C model which is between producer to retail company and retailer to direct customer (end user).

Post Covid 19 pandemic there will be huge customer shift from physical appearance to brick and mortar ore to online buy. Through survey and market research it is expected that 14% to 20% customer will shift to online buy from current level.

Following need to be taken care in transformation of business decision:

B2B:
In apparel business this model works between manufacturer (Exporter) and wholesale brand retailer.

For manufacturer or exporter there will be no much change in modus operandi due to current changeover of digitization. The sampling, booking orders, processing of order, sharing information, ERP, etc. are already into digital and web assisted between apparel manufacturer and retailer.

For producer there would be only change of more presence into digital advertisement of company profile and branding the business to catch new retailers / buyers.

But if the retail company who is buying in bulk quantity product from the producer / exporter / manufacturer and selling goods to end customer like B2Cmay shift more towards online sale. Based on the change in modus operandi the retail company may demand manufacturer to change and support business.

For example if Producer Company is supplying goods to Retail Company and retail company has decided to go more in online sale than company may ask supplier to …

  1. Keep more storage space for ready goods stock to support in distribution
  2. Packaging change as according to the need of online single- single unit sale
  3. Probability of returns are always high in online sale because of measurement fitting, appearance not liked by customer, hand feel, raw materials not as expected, etc. In brick and mortar showroom customer physically evaluate all aspect in trial room and then buy.
  4. Buyer / retailer may ask supplier to modify contract for high return and sharing financial loss etc.

For retailer there will be no change in business dealing with manufacturer on below areas..

  1. Design selection no much change because digital method is already persisting
  2. Technical analysis and decision by technical team is already more or less through web facility
  3. Order booking process with manufacturer is already into digital mode therefore no much change
  4. Order processing like tracking quantity, quality, shipping information etc are already in digital mode through different software and ERP.

B2C:
In current scenario this is the model of business which is between businesses to direct customers and it is emerging fast due to customer shift from physical buy to on line buy.

Retailers of brick and mortar stores are changing their sale module which is more through online portal.

There are two major changes expected;

  • Manufacturer / exporter supplying to retail company may think of own brand and use online portal to sale.
  • Current retail company may think of transforming business more towards online and expanding reach to direct customer.

What need to be new for shifting sale to direct customer through online portal?

  1. Brand build up: For starting retail business through online sale brand build up will be required. Massive advertisement mainly digital module needed. Expenditure for this need to be taken into consideration.
  2. Making business Covid 19 proof: There would be requirement to implement artificial Intelligence and software like need based ERP, CRM (customer relationship management), PIM (personal information manager), etc simplifies marketing and helps in customer and order management.  Many software may get to incorporate into daily business to manage products, finance and taxes, spend management, automates shipping and enhance overall user experience
  3. Design / Styling: Product design and styling must be covering market and audience need.
  4. Production: Initially the quantity per design will be less in number. Gradually based on increase in demand, the production quantity would increase. Therefore method of production must be matching with smaller qty requirement. Pieces rate tailors will be ideal into initial days to manufacture smaller batch numbers of production per design.
  5. Quality: In brick and mortar stores the customer reviews product personally and then after trial buying decision take place. In online sale the product specification displayed on portal must be perfectly match with product offered. Type of fabric, Colour, measurements, hand feel, other quality parameters etc. if not matched than probability of return will be very high.
  6. Distribution: Space for storage and distribution will be needed more. Once goods made and displayed in portal will get demand by customer on single – single order. To manage sale and also returns from customer the distribution and storage space require more.
  7. Marketing and sale: Fast changing digital world need high level of marketing strategy. Analysing current performance of online marketing efforts and target audience, the proper plan and execution needed.
  8. Omni channel: It is cross and multiple channel strategy to delight the customer through better relationship and reward program.
  9. Sale return: As stated above in quality column the probability of sale return remains very high in online sale.
  10. Code of conduct: Catering own brand initially will have leverage on COC but as the brand goes high or catering global brand the COC need to be monitored very strictly.
  11. Finances: The retail sale business always need more working capital because
    • The goods are made and after stock creation the single – single items get sale. The payment will be scattered and in many small lots.
    • After creation of goods and money invested the wait for customer to put order seems very high risky
    • Many dead stock blocks finances. Unsold goods after some time period may offer on discounted sale.
    • High cost for delivery of product due to return and replacement in many transactions.

In detail pros and cons of this business is explained in beginning.

Problems of e-commerce:

  1. No physical appearance hence customer loyalty experience and customer verification is issue. Customer when not in physical one to one contact may not be loyal to brand.
  2. Competitor analysed because of data available on portal. Retail company need to display all technical specification and sale price etc to portal which may benefit to competitor.
  3. Product return and refund cost will be extra headache due to no physical verification while buying customer may only verify product on delivery. In case of any deviation from expectations  find by customer the return probability of product will be very high.
  4. Struggle to compete on price due to high competition from unorganized manufacturing and online sale sector. Online sale platform easily available to everyone.
  5. Data security remains big concern for e-commerce business. Based on threat analysis many different ideas may get implemented to secure data.
  6. High delivery cost due to door delivery and also probability of replacement and returns remains very high.

Some informatics data on e-commerce taken from web survey:
In internet many data and study is available on online sale growth. Some of them are shared as below;

  1. Fashion is the largest B2C e-commerce market segment and its global size is estimated at US$620.6 billion in 2019. The market is expected to grow further at 12.2% per year and reach a total market size of US$991.64billion by the end of 2024.
  2. India has 14% growth rate of internet user compare to 9% of world average.
  3. 57% of total world population is using internet currently. Emerging market is using only 35% and developed market has reached more than 90%. India total 34.4% population compare to china 54.3% is using internet.

covid19 impact on ecommerceIn the United States alone, eCommerce sales are expected to surpass $740 billion by 2023.

impact of covid-19 on apparel ecommerceimpact of covid-19 on apparel

Epilogue:
Through above statistics which has been taken from internet and many more similar data are available to review, one may conclude as below:

  1. If United States alone, eCommerce sales are expected to surpass $740 billion by 2023 where 90% + population is already using internet, one may think the possibility in India and other emerging market where only 35% or less population is using internet.
  2. In all FMCG product pre-covid online sale statistics it is analyzed that in apparel sale only 27% is getting sale online in India and 73% in brick and mortar store. Post Covid from 14 to 20% customer shift is immediate expected.
  3. Though the potential is very high in e-commerce but as stated above in this article the cautious approach is needed to start and run successfully.
  4. Developing and under developed market population which is using less than 40% internet has more e-commerce growth expectations due to current internet revolutions going on into world compare to developed market population which is already using more than 90% internet.

Articles published by the same author:

  1. Button and Buttonhole: Types, Techniques and Machines
  2. Methods to Control Fabric/Piece Goods Quality in Textile Industry
  3. Different Types of Testing and Approval Required for Fabric to Garment Manufacturing Process
  4. Denim Wet Processing: Importance of Blanket Wash
  5. Interlining in Garments – Complete Know How

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