Preparing for the Next Disruption

LAUREN PARKER

The effects of the Covid-19 pandemic had major repercussions across fashion supply chains, retail operations and consumer behavior. Even as the industry still attempts to get back on its feet, it’s time to assess the lessons learned and start mapping out a strategy for the next crisis—no matter where it comes from.

Here, industry experts from the American Apparel & Footwear Association and Bain & Company look back—and ahead—to provide actionable advice on how fashion can insulate against the next shock.

WHAT WE LEARNED… STEVE LAMAR, PRESIDENT AND CEO, AMERICAN APPAREL & FOOTWEAR ASSOCIATION (AAFA)

At the AAFA Executive Summit in March 2021, Li & Fung’s Spencer Fung noted that the Chinese word for crisis has two roots— one for danger and one for opportunity. The pandemic required two simultaneous, and interlocking, responses—protecting your enterprise against that danger and identifying and seizing the accompanying opportunity. AAFA members were able to survive, and indeed thrive, during the crisis by doing the following:

Be strategically tactical: Much has been written about the importance of flexible supply chains and the resiliency of the industry. Whether it involved the pivot to production and distribution of life-saving PPE items or management of endless and massive inventory challenges, agility has been key. Even as we near the exit from the pandemic, it is entirely unclear what the new normal will look like. Companies like to identify and settle into long-term strategies, but 2021, so far, is not the year to do that. (Over)communicate often: Coupled with nimbleness has been the need to frequently communicate with your supply chain partners, your employees, your consumers and your stakeholders. The unprecedented nature of this novel virus, and the lack of a coordinated response to it, meant that reliable, fact-based and actionable information has been in high demand for much of the year. Early, constant and clear partner communication helped solve other problems, such as integration of new technologies, facilitating payments, making timely shipments and addressing remote compliance concerns.

Pick your partners well: A lesson learned simultaneously through Covid-19 supply chain breakdowns and the forced labor crisis in Xinjiang is the importance of transparency and traceability. Like picking our pandemic cohorts carefully, we need to be especially vigilant to know who our supply chain partners are, and who they’ve been doing business with. This becomes increasingly important as supply chains go through some

of the biggest upheavals in years, reflecting the growing pressures to diversify, be oriented toward “local for local” and be sustainable.

Embrace your inner geek: We integrated 10 years’ worth of technology in the first 10 months of the pandemic. It kept our supply chains functional, allowed us to work under the most challenging of circumstances, and enabled us to interact with our consumers. In nearly every case, the technology was either already deployed or about to be turned on. Our future is undoubtedly digital, suggesting that the most successful companies will be those who can best marry fashion and technology.

WHAT WE DO NEXT… AARON CHERIS, REGIONAL PRACTICE LEADER FOR RETAIL IN THE AMERICAS, BAIN & COMPANY

Natural disasters? Cyber-terrorism? Geopolitical wars? Right now, retailers are just thinking about how to get through the backlog of extra inventory from the last year without creating a longer discount binge. More people are talking about supply chain resiliency and diversity so you don’t have 100 percent of everything coming from one part of China that could always shut down for one reason or another. But looking beyond that, here’s what we’re considering:

Plan for natural disaster scenarios: Walmart does really well in crises because everybody stocks up on essentials, and they’ve built in contingencies like cleaning the store to quickly get it back open. Others might strategize where to put distribution nodes to make sure warehouses and fulfillment centers are spread out—not just for customer proximity but if something goes down due to floods, hurricanes, earthquakes and the like.

Be proactive versus reactive: People are funny this way. No matter how many times they see a disaster on TV, it doesn’t feel real until it hits their factory or DC, or that of their closest competitor. Usually, supply chain policies start because companies want to make sure something doesn’t happen again.

Think data security: Every company has its own set of cyber units to protect against getting hacked, but the weak point for many is a vendor partner in the chain with a bunch of your data in their less-secure system. In their contracts, more companies are building in protections and liability clauses, and also checking into what others do for data security.

Pay attention to behavioral shifts: What about the great work from home disruption? If that’s a permanent shift, companies need to worry if their stores are in the wrong place. Are they predominantly near offices when people no longer go into work? Think about where people will be shopping in the future.

Look for ways to maximize profits: During the pandemic, depending on the category, we saw a two-to-five-year acceleration of e-commerce, but the problem for most retailers is that e-commerce is dilutive, with lower margins than traditional stores’ businesses. So, a big worry is how to make that business more profitable, especially when there are such high returns in fashion e-commerce. How can brands deal with that, whether with fit technology or other things?

Listen to the money guys: The better-prepared finance departments are the ones asking, ‘What scenarios have you tried out and built for?’ Let’s push the supply chain team on what would happen if there was a demand or shock, or let’s ask the stores facilities and real estate teams what would happen if a store took on two inches of water. What about hypotheticals like 50 percent of the supply chain getting knocked out or everything from China coming in six weeks late? The majority of the disaster planning is probably done by the network optimization folks in the supply chain.

Accelerate change: Nike used this moment to really lean into selling direct to consumer and shortening the list of wholesale partners they allow to sell product online. Dick’s Sporting Goods took this moment to roll out curbside pickup—within a week—as it had been in their plans for a really long time. Companies are witnessing what they were able to do in a really short time during Covid-19, and thinking, ‘We should be able to do this all the time.’

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