Bold Expectations: McKinsey’s Apparel CPO Survey 2019

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It can sometimes feel like the global sourcing community has been talking about sustainable fashion for a long time now with little in the way of concrete progress. But McKinsey’s 2019 Chief Purchasing Officer (CPO) survey, which focused on apparel sourcing, suggests many CPOs and sourcing executives believe the sector is on the cusp of a major acceleration in this area. Change is being driven by macro trends including the US-China trade war, changing consumer expectations, and technological advances.

An interesting subtext that emerges in the report is an “expectation gap” between what CPOs expect (or aspire to) and what their company will be able to achieve in relation to sustainable transformation by 2025. The survey results paint a picture of a dramatically more sustainable industry in just five years’ time, but given the relative lack of progress since the Rena Plaza factory collapse of 2013, it seems unlikely that a transformation at this speed and scale will actually take place. And for those who point to technology as a catalyst for acceleration, adoption has been disappointedly slow: despite excitement about the potential of Blockchain since the appearance of Bitcoin in 2009 (for example), adoption levels among the companies surveyed for this report sit at a disappointing 2%.

There are, of course, outliers in sustainable apparel procurement, and McKinsey’s report is peppered with case studies of what can be achieved through focus and investment in social and environmental sustainability.

Let’s look at three major takeaways from the report.

1. Sustainability and transparency is now the number one priority for CPOs in apparel.

Fifty-six per cent of surveyed executives consider responsible and sustainable sourcing to be a key part of doing business, and there has been a five-fold increase in the number of sustainable fashion products launched over the past two years.

McKinsey found that the majority of those surveyed expect the industry to transition to a much more sustainable model by 2025, driven by:

  • growing consumer demand for sustainable products
  • wider use of sustainable, recycled and organic materials
  • a lower carbon footprint
  • fairer wages
  • increased transparency and traceability
  • strengthened supplier relationships
  • resource efficiency
  • reduction of plastics and packaging
  • targeting zero discharge
  • increased social responsibility

However, the report’s authors express some skepticism that the industry will manage to undergo the expected transformation by 2025 due to the complex nature of sustainability, a lack of common language and shared standards, and ever-present margin pressure, writing: “Most apparel companies will need to shift current practices dramatically if they are to deliver on such bold expectations.”

2. Transparency and Traceability

The demand for increased transparency is coming from all directions: from customers, shareholders and executive teams.

  • Sixty-five percent of surveyed CPOs expect to achieve full traceability from fiber to store by 2025.
  • Eight in ten intend to “step up” transparency of social and environmental practices by 2025.
  • Six in ten CPOs plan to share information about their suppliers with customers at the point of purchase (only one in ten do so today). H&M, an early mover in this area, share detailed information at the point of sale on the production country, name of supplier, and factory details including the number of workers.
  • At present only half of the companies surveyed have transparency beyond their first-tier suppliers, yet eight in ten plan to publish transparent supplier lists to at least tier two by 2025. Executives believe that publishing information on second-tier suppliers will become the norm.

How will this be achieved? Through three key technologies:

  • Radio Frequency Identification (RFID): currently being used by 13% of respondents but expected to be used by 71% by 2025.
  • Blockchain: currently used by only 2% but expected to be used by 52% by 2025.
  • DNA Tagging of natural materials, expected to be used by 32% of companies within five years.

These figures reflect CPO expectation but again, the report authors express some scepticism about the industry’s ability to transform within five years: “[This] would require very rapid growth in adoption rates.”

3. The search for cheaper sourcing locations is running out of steam

In a globalised environment, finding cheaper sourcing locations for a product has been a common strategy for ongoing cost reduction in nearly every sector, but none more so than apparel. But when sourcing executives were asked what their top strategies would be to cope with macro trends, respondents indicated they would focus on process improvements rather than search for the next sourcing country. In fact, a “shift of sourcing countries” was the second-least popular choice, selected by only 20% of respondents.

That being said, the industry is currently undertaking a significant shift out of China, driven by rising sourcing costs, the trade war and associated tariffs. China’s woven garment export value fell by $US4 billion in three years to 2019, while over 50% of surveyed CPOs plan to reduce their sourcing value from China by more than 10% over the next year.

The top alternative sourcing countries are Bangladesh, closely followed by Vietnam, Myanmar, Ethiopia, and India.

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