The fashion and luxury industry is experiencing a significant transformation in its supply chain as a result of the lessons learned from the COVID-19 pandemic. Companies are reevaluating their operations, moving closer to their suppliers, and incorporating sustainability into their business models. This shift is expected to accelerate the rationalization of the textile and apparel industry as a whole. These are the key findings presented in a study by Sistema Moda Italia (SMI), Italy’s association of textile and apparel producers, during its annual general meeting.

The luxury industry has suffered a substantial decline in revenue, losing €13 billion in the first nine months of 2020, representing a 31% decrease compared to 2019. However, recovery is already underway, with the high-end segment expected to bounce back more quickly than the premium segment. Despite the positive momentum, the industry still faces several challenges, including the slow recovery of European and Japanese markets, weakened tourism flows, and rising energy and commodity prices. Additionally, new trends that have emerged during the pandemic, such as localized purchasing, the influence of younger generations, customization, digital sales, sustainability, and technology, add further uncertainty to the industry’s future.

According to Luca Bettale, a partner at Long Term Partners and the author of the study, luxury brands must recognize their vulnerability to demand discontinuity and the growing importance of ecological themes in the market. He emphasizes the need for faster decision-making processes and a revision of the operational model, starting with internal organization, supplier relationships, and logistics flows. The ultimate goal is to reduce risk situations by optimizing stock management and distribution.

Bettale suggests that this restructuring will lead brands to optimize their supplier portfolio and address deficiencies in their supply chains. Suppliers will be evaluated based on their responsiveness and ability to adapt to sustainable production, with a rigorous selection process expected to determine winners and losers. Italy is well-positioned to lead in this context and should maintain its strong presence in sustainable production. Collaboration between brands and suppliers on sustainability and social responsibility initiatives will become critical to their relationship.

To implement these changes, Bettale highlights the central role of technology in the production process and the need for strong connections between stakeholders. Significant investment will be required to support this overhaul, which can be achieved through horizontal manufacturing and vertical full-service offerings. The vision emphasizes the importance of suppliers providing creative solutions, developing prototypes quickly, and continuously offering new ideas to meet high demand. Production should focus on smaller economic batches delivered more frequently. Flexibility is key, and costs should be shared between suppliers and clients. Labels and luxury groups are also expected to acquire suppliers, leading to greater vertical integration, while investment funds may drive consolidation operations.

In summary, the industry must shift towards proximity production by sourcing from European suppliers and increasing sourcing from Turkey, rather than relying heavily on countries like China, Vietnam, Bangladesh, and India. The focus should be on higher-efficiency models, establishing a flexible relationship with responsive suppliers, and prioritizing environmental considerations.

Overall, the fashion and luxury industry’s rethink of its supply chain is vital for its future success and resilience. By adopting a more sustainable approach, optimizing supplier relationships, and embracing technology, brands can adapt to new market realities and meet the demands of consumers, particularly the younger generations who highly value circularity and ecological themes. With the integration of these changes, the industry can navigate uncertainty and ensure its long-term growth.

Useful links:
1. Business of Fashion: Burberry to Unveil New Collection on Alibaba Livestream
2. Vogue Business: How Technology is Transforming the Beauty Supply Chain