Retail

2020 trends that are shaping Global Sourcing and Retail Supply Chains

Looking back at 2019, one can sum up the state of the Retail industry with two words: “Disruption” and “Uncertainty” and many agree that 2020 will be no less volatile. Undoubtedly, there are seismic shifts that are redefining the Retail world but as we enter the next decade, what are the immediate trends that are likely to shape retail supply chains in 2020?

Amidst the technological transformation that is redefining everything – from customer behaviour to product design – over the next decade, we believe that the following 5 key themes will have the most significant impact on Retail supply chains in 2020. These themes will drive much of decision-making around hiring and organizational change.

1. Trade War

The U.S-China trade deal in January marks a step in the right direction. Despite this, uncertainty still looms over what has become an increasingly confrontational trade relationship. The continued uncertainty has accelerated the shifting of supply chains out of China. At the same time, sourcing strategies are under constant review, while production and sourcing costs are increasing. The tariff war is far from over and it continues to hurt brands, retailers, logistics providers, and companies throughout the supply chain.

2. The Battle for Margin

In 2020, supply chains will have to continue improving efficiency if there’s any hope of offsetting the costs that come with these trade uncertainties and tariffs. Whether you operate an office in Shanghai, Hong Kong, Ho Chi Minh or Dhaka, or use partner agencies elsewhere, will depend on what is the most cost effective solution for your business. Factors to consider are proximity to your supplier base, ease of regional travel, availability of talent, tax benefits, and admistrative flexibility. What we are discovering is that the salary gap for talent between locations is closing very fast, so cheaper personnel costs are no longer a long-term rationale for relocating your sourcing operation.

3. Sustainability to Traceability

In the past several years, consumers have become increasingly aware of fashion’s impact on the environment. As a result, many are deciding to spend their money on cleaner, more conscious brands. In December 2018, nearly 50 industry-leading brands signed onto the UN Fashion Industry Charter for Climate Action and have pledged to meet science-based targets for emissions and resource-use etc. In 2020, we expect to see more companies across the value chain—brands, retailers, and manufacturers—setting science-based climate change targets.

Without traceability, you can’t be sustainable. This needs to be the topic that’s discussed in 2020—how are we going to prove that we’re sustainable and build a business that could be sustainable at scale?”

E. Hertzman

President of Sourcing Journal

Ensuring the integrity and trust-ability of this information will be a major challenge going forward. We estimate that there will be an increasing investment in sustainability and compliance functions in Asia going forward. However, as brands and retailers work toward their 2020 or 2025 sustainability goals, they will not be able to leave traceability out of the conversation.

4. R&D Materials Revolution

In response to demand, brands and retailers are looking into low-impact inputs for the products they are putting into the market. We expect that R&D will increasingly focus on materials science for new fibers, textiles, finishes and other material innovations to be used at scale. There is a big push in moving away from petroleum-based plastics, dyes and polyesters, which seems to be pioneered by smaller brands and/or start-ups. Heading into 2020, many predict a heavy adoption of natural materials like organic cotton, hemp and linen, by mainstream brands. Additionally, other bio-based fibers are due to take prominence – for instance the wood pulp-derived Tencel Sorona – a performance fiber made from fermented sugars, as well as fibre from recycled plactics, while increased innovation in new materials continues.

5. The new reality for retail

The reality is that 2020 will likely see more store closures, as traditional companies may continue to lose out, with more finding themselves on the road to bankruptcy. Simultaneously, over the past two years, the average fashion tech IPO has seen a 27 percent decrease in stock price following public debut. Investors are beginning to look away from digital hype and for signs of “real profitability potential,” McKinsey said, resulting in the continuing trend of stock price decrease. In fact, 55% of fashion executives intend to focus on a localized brick-and-mortar stores, and personalized customer experience, which will mean a ramped-up presence in neighborhoods with small format stores that speak to the local community.

There is a lot of discussion surrounding transformation and change in the retail sector, but fundamentally, businesses are not changing fast enough as we still see old cultures, old philosophies and old practices that dominate the boardrooms of the biggest companies in Retail. Inevitably, those that do not evolve will eventually disappear or become less relevant.

In 2020, those that focus and succeed in product innovation, creating unique customers experiences and achieving genuine sustainability goals, will come out better prepared for the challenges of the future.

Receive a complimentary copy of our full 2020 trends that are shaping Global Sourcing and Retail Supply Chains report by clicking the link below to download the full report.

References:
Raconteur publication | Future of Retail, Sourcing to Face ‘More of the Same’ Challenges in 2020, 10 Key Trends Set to Shape Apparel in 2020, McKinsey & Company | Annual State of Fashion Report Nov 2019

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