Fabric Of Change
Opportunities for Social Innovation in the Global Apparel Industry Perspectives May 2017
“There is no beauty in the finest cloth if it makes hunger and unhappiness� Mahatma Gandhi
A.T. Kearney XX/ID
2
Agenda • Global apparel industry trends
• Opportunities for Social Innovation
A.T. Kearney XX/ID
3
Globally, Textiles is a large, complex value chain
worth USD 1.9 Tn at the retail consumption level (~3% of world’s GDP) Global Textile Value Chain (USD Bn, 2015) Fibre1
Yarn1
Fabric2
~ $180 bn ~$220 bn Others Open End 10% 8-10% Viscose 5%
~ $420 bn Airjet 1%
Garmenting & Non Apparel Mfg.3 ~ $780 Bn Technical 10-15% Home 10-15%
Knit 45-50%
PSF 19%
Retail/ consumption ~ $1,900 bn Technical 8-10% Home 8-10%
Ring Spun 45-50%
Cotton 30% Apparel 70-75%
Filament yarn (35PFY 36% 40%)
Apparel 80-85%
Woven 50-55%
1. Includes staple fibre+ filaments; split based on volumes 2. Split between knit and woven estimated based on trade data for fabrics and finished garments 3. Split estimated based on value; market size is estimated at manufacturing prices Source: Datamonitor, Secondary Research, A.T. Kearney Analysis
A.T. Kearney XX/ID
4
While it generates significant economic and social value, it does come at a heavy environmental cost THE GOOD – Economic and social value
7th
THE BAD – High environmental cost
23
If fashion industry were a country, it would be 7th largest
kgs of greenhouse gases1
of 2000 liters water of 4 kWh energy 2
60
Million people employed globally
Revenue in $ 60% increase in garments purchased annually +7%
CO2 emissions 4.4
million metric tons1
+77%
2.4
1.714
1.0
2002
2015
2
Environmental cost increasing over years
trillion1 6-7%
1
kg of fabric
2025 forecast
1. World bank and McKinsey reports 2. LCA benchmarking, by Natascha M. van der Velden & Martin K. Patel & Joost G. Vogtländer Source: A.T. Kearney
2015
Water use
Land use
billion cubic meters1
million hectares1
+21%
+8%
3.030
141
170
38
41
2025
2015
2025
2015
2025
A.T. Kearney XX/ID
5
While the industry is growing, not everyone is growing equally Industry is growing …
… so is income disparity
Fashion tycoons – some of the richest men on the planet
While Fashion industry has grown at 10+% (retail) - Wages grew at a meagre 4%1 (Less than even inflation)
Amancio Ortega Bernard Arnault Inditex (Zara) LVMH $86 billion $54 billion
Phil Knight Nike $24.5 billion
Fashion industry contributes a high share of country’s economy % of exports 88%
79%
59%
4.3%
4.6%
2012
2013
3.1%
2014
4.0%
4.1%
2015
2016
4%
Cotton farmers’ suicides in India (~12,000 annually)
52% 18%
Haiti Bangladesh Lesotho Cambodia 1. ILO wage report – 2016-17 Source: A.T. Kearney
YoY % growth of wages in APAC
India
Inhumane condition of workers in Bangladesh have led to high deaths of employees
A.T. Kearney XX/ID
6
Further, future trends likely to make this worse
1
Emergence of fast fashion has led to proliferation of designs and transition of apparel to a disposable item
2
Emerging trend for personalized/ customized products – companies targeting micro customer segments leading to high inventory levels
3
Increasing commoditization of upstream value chain due to oversupply and distance from end customer, squeezing margins
4
More aware consumers – and Increasing preference for eco-friendly and sustainable products
5
Worldwide, apparel companies are moving towards sustainable fibers
Likely to cause more environment al impact
A.T. Kearney XX/ID
7
1
Emergence of fast fashion has led to proliferation of designs and transition of apparel to a disposable item
Yesterday’s Closet
Today’s Closet
• Apparel is a durable item you “use”
• Apparel is a disposable item you “use up”
• Seasonal shopping to fill gaps in wardrobe and replace worn items
• All occasion, buy-now, wear-now shopping to capture bargains + chase trend
• Wardrobe is mostly practical staples with a few special occasion items
• Wardrobe is abundant, eclectic and features many impractical, infrequently worn items
Source: A.T. Kearney
A.T. Kearney XX/ID
8
1
With fast fashion coming in, there will clearly be 3 fulfilment calendars with different lead times Differentiated Calendar by Product Type PLC Start Date
In DC date
X
Typical SC lead times for a Yarn supplier Production
Transit
Long lead time product with steady demand through the season 2-3 months 1-2 months
Normal idea-to-store cycle
3-5 months
Fast fashion cycle Responsive cycle for replenishment/ NPD • Requires committing to styles, fabrics, and reserving capacity and/or producing closer to the DC
Fast fashion 1-2 months
1-2 months
2-3 months Replenishment 2 - 7 days
0 - 10 days
15-20 days A.T. Kearney XX/ID
9
2
Worldwide, apparel companies are diversifying products to target micro-customer segments
Case example of Ralph Lauren- “There is something for everyone” Polo by Ralph Lauren Classic men's sportswear at premium ready-to-wear price points
Lauren by Ralph Lauren Women's Better ready-to-wear line
Rugby Preppy, young professional line
Blue Label
Polo Golf
RLX
Ralph Lauren Childrenswear
Women's youthful, premium ready-to-wear
Golf technical performance wear/ sportswear, similar to Polo price points
Athletic apparel
Classic childrenswear for boys and girls, Better ready-to-wear line
Women's R Lauren Collection
Women’s Black Label
Men’s Purple Label Collection
Men’s Black Label
Crown jewel – runway collection, premium/luxury line
Women's premium line
Men's tailored premium line
Men's premium line
Club Monaco
America Living
Chaps
Homewear
Modern, classic urban professional line
First Global Brand Concepts line, JC Penney exclusive (mid-tier dept store)
Classic American, retails in mid-tier department stores
Bed-linen, towels, home accessories and decorations, tablewear
Source: A.T. Kearney analysis, Company webpage and reports, Press search, Citigroup
A.T. Kearney XX/ID
10
2
Strong integration with garmenter required to fulfill the “made to order” products within the delivery times
“Pull” supply chain Order management Order request
Order status update
Settlement
Order fulfillment Order receipt
Ready supplier
Make to order
Shipment request
Shipment process
Technology as enabler
• Trained staff for agile packaging and fulfillment • Fabric cuts and trims already prepped for order
• 3D knitting machines can help in quicker turnaround
• Strong vendor relationships for quick shipment • Express delivery to customer A.T. Kearney XX/ID
11
The evolving textiles and apparel industry means four key success factors for tomorrow’s leaders
1
Excellence in product development and new value propositions
2
Strength in brand and customer centricity
3
Flexibility in manufacturing and supply chain
4
Savviness in embracing digital technology
To make all this happen, a world class talent pool needs to be attracted and retained. How can ‘Social innovation’ help in achieving these goals? A.T. Kearney XX/ID
12
Agenda • Global apparel industry trends
• Opportunities for Social Innovation
A.T. Kearney XX/ID
13
Creating social impact and sustainability ranks quite high in the priority list for all stakeholders Leading Businesses Say “We established the first code of conduct for apparel manufacturers, ensuring the people who make our product work in a safe environment and are treated with dignity and respect.”
- Chip Bergh, President & CEO, Levi Strauss
“Frankly, I’m not satisfied with where the apparel industry, including Gap Inc., is today on a variety of social and environmental issues. …We’re striking up new partnerships, investing in new strategies and testing new ideas.” - Art Peck, CEO, Gap Inc.
“I’m convinced our new sustainability strategy … will take us closer towards our vision - to lead the change towards circular and renewable fashion while being a fair and equal company” - Karl-Johan Persson, CEO, H&M
1. Nielsen survey 2014 Source: Levi’s, Gap Inc., H&M
55% of global online consumers across 60 countries say they are willing to pay more for products and services provided by companies that are committed to positive social and environmental impact1
Government of India has directed the textile industry to adhere to Zero Liquid Discharge (ZLD) norms. ZLD essentially means that a factory should recycle all its effluents and not release even a drop into the water bodies. The textile industry has urged the union government to make a uniform levy of 5% (lowest slab) on all textile and clothing products under the GST.
A.T. Kearney XX/ID
14
And tremendous scope for collaboration exists as demonstrated by multiple examples Collaboration areas 1
Description
New customer value propositions
Creating awareness and demand for alternative and sustainable fibers within customers
Transparent and responsive supply chain
Transparency in the origin of inputs, and quick, responsive turnaround time
Community empowerment
Empowering the community with jobs, skills, dignity and respect
Close the loop recycling
Recycle the waste produced, follow principles of circular economy
Select examples
2
3
4
A.T. Kearney XX/ID
15
New customer value propositions
1
Companies are developing viable products based on alternative fibers
Alternative fibers
Not Exhaustive
Bolt threads
BOHECO
• Bolt Threads is harnessing natural proteins to create fibers and fabrics with practical uses
• Boheco is working to make hemp a mainstream textile fibre
• Bio-synthetic fabrics like spider silk are being created as alternative to petroleum-based fabrics like polyester, nylon
• Hemp is known to be three times as strong as cotton, biodegradable and very durable
• They are already collaborations with brands like Patagonia for use in their product
Source: Bolt Threads
• They have their own label, “The Hemp Couture”, under which they brand and sell their products
A.T. Kearney XX/ID
16
New customer value propositions
1
Globally many apparel companies are shifting towards sustainable fibers
Select examples
Not Exhaustive
2
1 Patagonia and TENCEL
G-star
• Patagonia , a sustainable clothing brand, is one among many firms to use TENCEL, a closed-loop fiber
• G-star is creating 100% bluesign certified products • All components, including zippers, rivets, labels, lining etc. to be sourced from bluesign certified vendors
• TENCEL is made of pre-consumer waste cotton scraps and wood pulp. Producing TENCEL uses 95% less water than cotton
3
4 C&A
Mango
• C&A has launched their Cradle to Cradle Certified GOLD t-shirts
• Mango has launched its collection called “Committed”, for both men and women
• These t-shirts, apart from being sustainably produced, are safe enough for home composting at the end of use
• The collection only uses environmentally friendly and recycled cotton and recycled polyester, with environmentally friendly inks used for dyeing
Source: Secondary research
A.T. Kearney XX/ID
17
Transparent and responsive supply chain
2
The footprint of Fairtrade India, GOTS certified businesses is increasing; this is improving transparency of the value chain Fairtrade India
Global Organic Textile Standard (GOTS)
Fairtrade certifies farmers and businesses with its Fairtrade mark. This mark acts as a guarantee that the farmers have received a fair price for their crop and that environmental standards have been followed in production
31% 97%
lower environmental impact by Fairtrade farmers1 improved social impact for Fairtrade farmers2
1,39,000
Producers working with Fairtrade
~90-100
Fairtrade certified organizations active in India
GOTS certified fibers contain 70%+ organic fibers. In addition, all dyestuffs and auxiliary chemical inputs meet the defined environmental and toxicology criteria Hazardous chemicals are prohibited
Factories are regularly inspected
14883
GOTS certified facilities in India (highest in the world)
1.4 million
Workers worldwide under GOTS
1. Environmental factors measured include land use, water pollutants, water use, GHG emissions and soil pollutants 2. Social impact as measured by fair wages, income, social cost of child labor, social cost of overtime 3. GOTS press release, 2nd May 2017 Source: Research by Pi foundation, GIST advisory and Trucost
A.T. Kearney XX/ID
18
Transparent and responsive supply chain
2
Fabindia’s operating model has evolved; it is moving to a more responsive supply chain
Artisans Community owned Companies Acted as vendors for Fabindia CoC 1
Artisans
Shareholders and suppliers
CoC 2 … Pre-2015
Benefit: With direct interaction with the artisans, Fabindia’s supply chain will now be more responsive
Post-2015
Pre - 2015
Post-2015
• CoCs acting as middlemen between Fabindia and artisans – CoCs tried to maximize profit by raising process and Fabindia wanted better prices • CoC model was good for social impact, as it made the artisans (CoCs) rich • However, incentives were misaligned between CoCs and Fabindia
• 14 CoCs have been wound up, 2 continue to operate
1. Figures of 2016 Source: Secondary research, A.T. Kearney analysis
• Fabindia has merged with almost all of its CoCs
• Artisans, who were shareholders of CoCs, are noe shareholders of Fabindia post the merger. • By the virtue of being direct shareholders of Fabindia, artisans’ incentives are now aligned with Fabindia. Direct dealing will improve the responsiveness. A.T. Kearney XX/ID
19
Community empowerment
3
Mother Earth creates and secures sustainable livelihood for artisans to create apparel and home décor products
In rural India, the most critical thing is regularity of income. And that’s what the artisans get with us] - Neelam Chhiber, co-founder, Mother Earth
Apparel
Overview • Mother Earth was founded in 1994 to tap the market of home accessories produced by rural artisans • They work with marginalized rural communities to provide for their livelihoods • Mother Earth’s products categories include fashion, food (organic and natural), home linen, home decor, furniture and gifts.
Accessories
2000+ 15% IKEA
Rural artisans working with 2 cooperatives Cooperatives’ shareholding in Mother Earth Partnership to sell Mother Earth products across 60+ stores A.T. Kearney XX/ID
20
Community empowerment
3
Raymond has launched India’s first branded khadi label – this will further help promote Khadi
Public – Private partnership between Raymond and KVIC
The rise of khadi KVIC revenue from Khadi products ₹ Cr. +58% +23% 5,000
2 cr.
Initial order in 2016 by Raymond to KVIC (Khadi and Village Industries Commission)
98,000 Meters of fabric ordered Raymond will start selling products under the Khadi brand name from August 2017 onwards Other groups exploring khadi forays
1,635
2,005
2015-16 2016-17
2018-19 Target
Khadi products will be sold at over 7000 outlets across the country Khadi to expand through franchisees and e-commerce in the coming years Introduction of solar energy powered charkhas will increase khadi production A.T. Kearney XX/ID
21
Community empowerment
3
Anokhi, an apparel chain from Jaipur promotes revival of traditional textile skills through community capacity building Artisan ecosystem • 40 years of producing eco-friendly textiles
Overview
Operating model
• Anokhi is an expert in block printing with vegetable colour dyes • The company develops designs inhouse, samples them and then sends the fabric, dye and the blocks to artisans in the villages who are free to work at home. • 1,000 craftsmen work in conditions of their own choosing while at the same time, providing them with the security of regular work
Common ownership
Anokhi works closely with Jaipur Virasat Foundation that provides capacity building inputs to artisan suppliers on design, techniques, quality control and enterprise development
Creating eco-friendly ethnic brand Commitment to people • Conscious decision to create employment options for women - gets much of its embroidery work done by women's groups • Healthcare benefits for all employees – A crèche within the premises of the factory – Educational support for the children of its employees Source: Company websites, A.T. Kearney
A.T. Kearney XX/ID
22
Community empowerment
3
John Hardy, luxury handmade jewelry brand is committed to its core value of environmental & social sustainability Illustrative “We are always working to do better. We are implementing energy-efficiency programs and evaluating ways to become a carbon-neutral, or even carbonnegative company, throughout all areas of our operations." - Damien Dernoncourt, CEO, John Hardy
• Founded in 1975 in Bali as a collective with local artisans – dedicated to creation of artisan hand-crafted jewellery
Highlights
~1 million
Have planted bamboo seedlings in Bali to offset carbon emissions
Employees ~700 designers and artisans
Community
Environment
Key initiatives
“Wear Bamboo, Plant Bamboo” • Jobs for Life and apprenticeship program: Provide • 10th year of the environmental renewal employment to local initiative- proceeds from the purchase of artisans, financial jewellery in the collection goes to the planting support and of bamboo seedlings. Planted bamboo is then continued used for building design workshops vocational training • Utilize 100% certified reclaimed silver and gold as well as gemstones sourced under best practices
Source: Company websites, A.T. Kearney
400 acres of design
workshop – includes rice paddies & farms; built from lowimpact materials. The property can be returned to rice fields within 3 months Member of the
Responsible Jewellery Council A.T. Kearney XX/ID
23
Close the loop – recycling
4
NGOs like Goonj recycle clothes & make them available as needed; they run 2000 initiatives annually across India Select recent campaigns; non-exhaustive “Mata ki chunni” campaign (2017) Recycling ‘Mata ki chunni’ (used in bulk for religious ceremonies) to make lehengas for brides “Look good, Do good” campaign (2016) Partnership with Raymond. It offers free custom tailoring services on a new pair of trousers in exchange for old trousers
• Goonj is an NGO focused on basic necessities like clothing and sanitary pads for rural India
“Your Saree For Dignity” campaign (2017)
• Goonj uses waste and discarded clothing, recycles/repurposes it and distributes it to far flung areas where these clothes can be used.
Goonj recycles old, unused sarees by colleting and redirecting them to women in rural areas
1. The textile recycling industry in Panipat, Asia’s largest textile recycling center, is known as ‘shoddy’ in the local parlance Source: A.T. Kearney
A.T. Kearney XX/ID
24
However, the impact has remained small due to both internal and external challenges Limited budget, and lack of adapted structure key internal challenges
Choosing right partner, operating model considered most difficult by most companies
Question: What were/ are the internal challenges to actively co-create?
Question: What were/ are the external challenges to actively co-create? 89%
81% 65%
67%
61%
60%
Interesting to note that perception of challenges is quite different for various companies 55%
47%
44%
39%
32% 18%
53%
50%
35%
35% 24%
19% 17% 15%
6% 8% No budget Lack of Limited Difficult adapted leadership to find structure/ support strategic talent societal issues
Culture Others preventing external collaboration
Companies not engaged in Co-creation Companies engaged in Co-creation
Source: Opinionway for Ashoka and CO Conseil
Right partner, Operating model
Cultural Size Lack of Others differences differences professionalism
Companies not engaged in Co-creation Companies engaged in Co-creation
A.T. Kearney XX/ID
25
Multi-layered systemic challenges exist before scaling and sustaining social impact in apparel industry Fourkey keybarriers barriers Four Consumer level
• Low willingness to pay – Willingness to pay higher prices for sustainability may be lacking
Consumers unaware or not motivated
• Inertia to change – Acceptance of alternate fibers, longer lead times, lower variety poses a risk
Changing consumption habits is qutie difficult
• Lack of awareness – Lack of fundamental awareness of apparel supply chains and their ethical challenges
Organization level
• Ownership unclear – Sustainability has no owner within a business. Who owns it? CSR? Core business? • Measuring impact – It is difficult to quantify social impact and leverage it for business • High opportunity cost – Sustainable business presents more risk and uncertainty
Industry level
• Complex supply chain– Even level 3 tracking of suppliers may not be enough to be certain of sourcing • Unclear guidelines – Multiple certifications, voluntary compliance, difficulty in regulating global supply chains • System-wide effort needed – Global interconnections mean significant cross-country co-operation needed
Source: Ashoka Foundation, C&A Foundation, A.T. Kearney
Sustainability not yet in the DNA Fast fashion’s current model disincentivizes value-driven economies
Hidden from view Conditions in forests, farms, factories are only visible to a select few
A job is not enough Low-income workers can’t secure long term well-being A.T. Kearney XX/ID
26
Scaling up is imperative – to make a real difference
“And” Mindset
• Break the mindset that business and social impact are antithetical Identify co-creation opportunities • Use regulation and a few industry leaders to drive change • Create forums for visibility to social innovators
Prove the concept is self sustaining
• Conduct pilots, demonstrate success • Scale up pilots, tap into collective resources, community capital
Build value chains and capacity
• Think end to end – what is needed to make this a way of life? • Disproportionate focus on the weakest link in the value chain
A.T. Kearney XX/ID
27
A.T. Kearney is a leading global management consulting firm with offices in 40 countries. Since 1926, we have been trusted advisors to the world's foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission-critical issues. For more information, visit www.atkearney.com. Americas
Atlanta Bogotá Boston
Calgary Chicago Dallas
Detroit Houston Mexico City
New York Palo Alto San Francisco
São Paulo Toronto Washington, D.C.
Asia Pacific
Bangkok Beijing Brisbane
Hong Kong Jakarta Kuala Lumpur
Melbourne Mumbai New Delhi
Perth Seoul Shanghai
Singapore Sydney Taipei
Tokyo
Europe
Amsterdam Berlin Brussels Bucharest
Copenhagen Düsseldorf Frankfurt Helsinki
Istanbul Lisbon Ljubljana London
Madrid Milan Moscow Munich
Oslo Paris Prague Rome
Stockholm Stuttgart Vienna Warsaw
Middle East and Africa
Abu Dhabi Doha
Dubai Johannesburg
Riyadh
Zurich
A.T. Kearney XX/ID
28