Sign up to receive the Vogue Business newsletter for the latest supply chain news and insights, plus exclusive membership discounts.
After the pandemic paralysed global supply chains, delays and heightened costs became part of the new normal, and many brands and retailers integrated longer lead times and more localised production to minimise the impact. The next six months are set to bring a fresh wave of challenges for business leaders to contend with, from the threat of new tariffs if Donald Trump is re-elected and port strikes in the US to growing piles of unsold inventory as a result of sluggish global demand. Here’s what fashion brands need to know.
Unrest in the Red Sea is ‘entrenched’
Nearly a year after Yemen’s Houthi rebels first began attacks on vessels in the Red Sea, the situation remains “entrenched”, says Marijn Visser, global vertical head of lifestyle at shipping and logistics company Maersk, with current pressures on luxury global supply chains expected to continue for the remainder of 2024. European retailers sourcing from Asia are particularly affected, with vessels forced to divert around the south of Africa to circumvent the Suez Canal. This adds around 10 to 12 transit days, says Visser. One luxury brand tells Vogue Business it has seen three weeks added to timelines to move stock by sea from Asia to the UK. As a result, it has amended its approach to orders going forward to be category rather than collection-based to reflect the longer transit times required for certain garments.
The disruptions could wreak havoc on inventory levels, not long after the industry cleared through the pandemic’s overstock.
Manufacturers are also working with shorter lead times as a result. “The Red Sea situation has influenced the lead time for orders to many customers, who require earlier shipment to catch the original in-store time,” says Richard Watts, managing director of Dishang Group, which supplies a number of leading brands. There’s also a downstream impact on availability of equipment, congestion at ports and trucking capacity, explains Visser. “This creates a market environment where bottlenecks are frequent, often occurring in smaller local or national pockets of the global market.”
High freight costs and squeezed capacity
Compounded by geopolitical disruption elsewhere, such as conflict in the Middle East, sea freight costs are still well above pre-pandemic levels. According to the Drewry World Container Index, though average rates for a 40-foot container are 47 per cent below the 2021 peak of $10,377, they are 291 per cent higher than pre-pandemic levels — at $3,996 per 40-foot container versus $1,420 in 2019 — and substantially above the 10-year average of $2,791.
The luxury market is protected to some extent, says Attila Kiss, CEO of manufacturing hub Gruppo Florence. “Brands expect an increase in costs, mainly due to higher transportation and logistics expenses, but this issue is not particularly significant for the luxury market.”
More impactful, says Visser, is the absorption of air freight capacity by fast-growing Chinese retailers like Temu and Shein. “This trend has been building over the last 12 months, and we already see impacted companies deploying strategies that combine buying more air logistics space upfront with reducing their air dependency — mixing in other transport modes such as rail, trucking and ocean to diversify their supply chains.”
US election rhetoric piques concern…
Companies are keeping a close eye on the US election this November, not least because of threats by presidential candidate Trump to impose a flat tariff of 60 per cent or more on Chinese imports into the country. With around a fifth of US apparel imports by value and a quarter by volume imported from China in 2023, according to data from the US International Trade Commission (ITC), “retailers are concerned about the ongoing anti-trade sentiment, especially towards China, and how this may be exacerbated or alleviated by the next administration,” says Jon Gold, VP of supply chain and customs policy at the National Retail Federation (NRF).
“There is arguably no election in the world that will have more of an impact on global trade than in the US,” agrees Simon Geale, executive VP of procurement at Proxima. “A win for Harris would maintain the status quo in terms of the US’s approach to international trade, but a Trump victory would see a seismic change, particularly in relation to China. A potential decoupling of the two largest economies in the world and the risk of a post-election trade war would have a huge impact.”
… as does the threat of East Coast port strikes
Should current labour negotiations between the International Longshoremen’s Association (ILA) — which represents some 85,000 dock workers — and the US Maritime Alliance fail to reach an agreement before the current contract ends on 30 September, US members of the ILA have threatened to strike at all Atlantic and Gulf Coast Ports. This would have a “domino effect” on supply chains already impacted by existing disruption, says Spencer Shute, principal consultant at Proxima, driving volumes to the West Coast and leading to further delays in transit. “Increased transits, delays at ports, and last-minute changes are all adding costs to international shipping,” he says. “We have already seen a rebound in West Coast port container volumes where Los Angeles/Long Beach [terminals] have taken over as the market share leader of import volume.”
Widespread volatility has triggered a strategic shift
Several fashion brands are scoping out how to nearshore production to increase resilience against future shocks. One luxury retailer says they’re already moving production for shorter lead-time products out of China and into European manufacturers in Turkey or Portugal. Stavros Karelis, founder of London-based concept store Machine-A, says designers and brands he has spoken with have prioritised a “localised approach… diversifying their suppliers, working with a few different ones instead of just one, which allows for managing any risks as well as offering the ability to negotiate better pricing and payment terms”.
“We have certainly seen a focus from customers looking to nearshore products and activities closer to major consumer markets,” says Neil Shelton, chief strategy officer at logistics and supply chain management firm GXO. “We have similarly seen customers doubling down on reusing returned product to serve the next consumer in a market — reducing reliance on another product having to turn up from the country of manufacture.”
We look at the food, transport and beauty industries for some traceability strategies applicable to fashion brands.
To ward off the potential impact of new inbound tariffs on Chinese goods, should Trump achieve a second term, US brands and retailers “will also be assessing sourcing strategies with the aim of identifying the best way forward in terms of nearshoring or ‘friendshoring’, for instance, who will be the winners between Canada, Mexico and alternative countries in Asia”, says Proxima’s Geale. “This strategy has led to new condensed economic regions based on trading relationships closer to home or that offer reduced geopolitical risk.”
Adding to disruption is weakened demand
Dampened consumer demand is adding to the luxury sector’s woes. Last quarter, Capri Holdings and Hugo Boss were among companies that blamed the slowdown for disappointing sales. This slowdown has meant “brands are concerned about inventory build-up due to the slowdown and the uncertain mix of the demand”, says Kiss. One luxury retailer says they’ve heard of a “huge glut of stock building up” heading for discount outlets. “We have become much more controlled on inventory,” they add, with teams handed “strict budgets” and instructed to cut down on spend to reflect the decline.
Karelis says higher levels of unsold inventory have prompted “bigger markdowns” and a “revaluation of the whole chain” for many companies. “It was an issue that already existed pre-pandemic with many reports talking about huge volumes of unsold inventories, but due to the pandemic, this situation has been accelerated,” he adds.
“Prudence” is being deployed across budgets as a way to combat this risk, adds Kiss. At Kering’s Q2 earnings call in July, deputy CEO Jean-Marc Duplaix said the luxury conglomerate was working “to clean inventories” via a strategy that would see it “be more disciplined in terms of [its approach to] open to buy”. He added: “We have also adapted order quantities so that we are able to curb down inventories.”
“Everyone will have reviewed their purchasing and production budgets accordingly,” says Mario Ortelli, managing partner of Ortelli Co, which offers strategic and M&A advisory services to the luxury sector. “Some are cutting them, some are not increasing them, some are investing in those products that are easier to sell in the current market. But nobody in a volatile environment will be extremely bold [with expenditure] except those brands with a strong tailwind.”
As the sector fast approaches the ‘Golden Quarter’, developing resilient contingency plans will be critical when it comes to navigating the ongoing challenges set to shape global supply chains in the next six months.
“The best advice for luxury brands and retailers is to plan ahead,” says NRF’s Gold. “Have contingency plans ready for the next disruption. Ensure that your supply chain is nimble and able to adjust when necessary. Make sure your partners, both internal and external, understand the potential challenges and can adjust as necessary.”
Comments, questions or feedback? Email us at feedback@voguebusiness.com.
What suppliers need to know about upcoming legislation
