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Fashion Tackles Sustainable Sourcing at Scale

McKinsey & Co. released a report today finding that the fashion industry may be ready for overhaul sooner than expected.

In a report published today, McKinsey & Company finds that the fashion industry is poised for change with consumer demand for sustainability in full throttle. McKinsey surveyed 64 sourcing executives, accounting for a total sourcing value of 100 billion, and over the next five years they see sustainable sourcing at scale as a priority.

The report correlates a shift in sourcing countries to demand volatility accelerated by the heightened trade tensions in the U.S.-China trade war.

“The willingness and ability to change is what’s going to be the distinguishing characteristic of the winners and the losers in the next 10 years,” said Edwin Keh, chief executive officer of the Hong Kong Research Institute of Textiles and Apparel, in the report.

Process improvements are top-of-mind for sourcing executives because they have to be. Digitization along with consumer demand and a macrostate of change is driving this focus. With severe gross margin losses from a culture of markdowns, apparel companies are making a shift from a focus on minimizing the price of supply to a focus on customer-centric, agile product development to meet demand.

According to the report, “More than 40 percent of respondents named digitization of sourcing processes, consolidation of supplier base, and end-to-end process efficiency as the top three priorities in which action was needed in their companies.”

Sustainability is a priority for most of the surveyed executives, as more than 50 percent of respondents put sustainability and transparency in the top three of these priorities. With that, more than half of the respondents said they plan to produce at least half of their products from sustainable materials.

But still only less than 1 percent of products launched in the first half of 2019 boasted “sustainable” tagging. And the product collaborations, launches and collections that did tout a sustainable angle invited closer scrutiny from leaders in the sustainability space, as green-washing is rampant in the industry.

David Savman, general manager of global production at the H&M Group, explained the complexities ahead in implementing sustainability at scale into practice, in the following interview with McKinsey. “As an industry, we have work to do in understanding all the elements and collaborating with many different stakeholders across different paradigms to meaningfully engage with these issues,” said Savman.

One of the core challenges expressed in the report is the “availability of sustainable materials,” with a majority, or 95 percent, of the players in the study producing for the mass market (representing over 1 billion in sourcing value) agreed that they see this as the main obstacle.

Other than sustainability, transparency and traceability in supplier relationships are core priorities. In line with previous reports, apparel firms are shifting reliance from China to countries such as Bangladesh (with 30 percent seeing the country as a top destination), Vietnam, Myanmar, Ethiopia and India by 2025. With that, almost half of the respondents expected to increase proximity sourcing, perhaps reducing the number of middlemen in their value chains.

Reshoring values are expected to remain largely stable, perhaps propelled by the “buy local” movement but a lack of capacity in U.S. apparel manufacturing will be a pertinent issue. In recent events, Louis Vuitton is opening a new leather goods workshop in Johnson County, Tex., as previously reported in WWD, showing the luxury sector is vying to bolster U.S. manufacturing.

This report represents the fifth report in its ongoing series of analyzing sustainable sourcing at scale.


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