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Impact of COVID-19 on the Textile Sector

Overview

The COVID-19 pandemic has radically transformed the way the world works. Many businesses have gone into survival mode while others have been forced to close their doors permanently. The crisis has caused severe disruptions to the global supply-chain and inherently changed consumer behavior. 

Prior to the pandemic, businesses were already seeing a shift to digital. Organizations further in their efforts to digitize operations are better positioned to tackle the crisis compared to those with low digital maturity. This highlighted the importance of technology to achieve greater resilience in the supply-chain.  

In light of the crisis, businesses have had to re-evaluate their existing business models to adjust to the new normal. Digital transformation is a key factor in determining the success and failure of companies’ post-pandemic.

Impact on Consumer Behavior

The pandemic has significantly impacted consumer behavior and purchasing habits. A study conducted by McKinsey found that 60% of consumers who changed their shopping patterns in response to the virus are likely to adopt these habits in the future. 

As consumers enter a period of financial precariousness bought on by COVID-19, they are spending less on non-essential, high-ticket items. One such category in which consumer spending is predicted to remain low is apparel. A survey of US consumers found discovered that 67% plan to reduce their spending in the apparel category, and this behavior will extend into the post-pandemic era. 

survey of US consumers found discovered that 67% plan to reduce their spending in the apparel category, and this behavior will extend into the post-pandemic era. 

Another behavior that will extend post-pandemic is the shift to online shopping. Customers will be spending more time online and seeking other contactless options, such as curbside pickup, instead of visiting stores in person. Retailers will need to take these new customer preferences into consideration and adjust accordingly to unlock success. 

The chaos ensued by COVID-19 in the global supply-chain led to various shortages in the market. The lack of availability of preferred items at stores led to consumers trying new products that were easily accessible. The crisis also made customers more aware about the products they purchase and the brands they interact with. It is predicted that these habits will be long-lasting, even as the world reopens.  The complete digitization of business processes will be an essential undertaking post-pandemic to meet consumer needs.

Impact of COVID-19 on Businesses

COVID-19 has had a severe impact on the fashion industry and it is predicted that earnings in the apparel and footwear category will continue to decline by 27-30% in the near future. Fashion brand Ralph Lauren predicted a decline in sales by up to US $70 million. The virus has caused leading brands to shut down stores as sales continue to decline and stock prices diminish. While large brands face serious consequences, it is small and middle-sized companies that are taking the biggest hit during this time.

One of the world’s largest fashion brands, Inditex, was forced to close 3,785 store locations amidst the crisis. 5 A study by McKinsey found that 53% of participants would be closing additional stores post-pandemic if they weren’t meeting performance standards. 4 Various retailers have been forced to sell their products at lower prices and implement strategies such as free shipping due to an excess in inventory in response to the pandemic.

The increase in online traffic during the pandemic did not translate to an increase in sales as consumers spent less on non-essential items. Leading sportswear manufacturer, Adidas, saw an 80% decline in sales in China during the first half of 2020. 

The pandemic created chaos in Fashion’s global value chain. 91% of supply-chain executives surveyed by McKinsey faced issues with their suppliers and all participants faced challenges in distribution and production during this time period.

The COVID-19 crisis exposed various vulnerabilities that businesses need to address as they navigate into the new normal and highlighted the need for digital solutions that allow stakeholders to communicate with factories virtually and monitor progress remotely.

How Businesses are Responding to COVID-19

Many stakeholders view the COVID-19 crisis as an opportunity to reinvent their entire business structure into one that is more agile, transparent, flexible with a core focus on the customer. 76% of international sourcing community surveyed by McKinsey found that the pandemic would enable greater flexibility and speed in the future. 

The pandemic demonstrated how businesses that were ahead in digitizing operations were more equipped to navigate through the crisis. Taking a step towards digital would enable them to be more prepared and adapt better to any future uncertainty. 93% of manufacturing and supply-chain professionals surveyed by McKinsey prioritized building resilience in their supply chain. 

As businesses resume operations, there is also a spike in demand for technical and analytical skills in the workforce. A study by McKinsey found that 90% of the supply chain and manufacturing workers surveyed planned to increase capabilities for digitization in their organizations.

Leading brands such as Zara have already announced their plans to invest approximately $1.1 billion in digital technologies. In the future, the brand also plans to invest $3.3 billion to develop an omnichannel approach. The crisis has heightened the demand for technology that increases agility and provides better visibility into the supply chain in real-time.

For businesses. the pandemic highlighted the importance of digitization and how it can improve the supply-chain in the future. A majority of executives surveyed by McKinsey planned to reinvent their supply chain processes and 58% intend to centralize operations post-pandemic. 

The COVID-19 crisis has allowed businesses to recognize the weaknesses in their supply chain and the need for digitizing operations. Digital technologies are expected to be at the forefront in the post-pandemic.

Recovery & Future Outlook

In response to the crisis, various apparel factories have started manufacturing personal protective equipment. The government is involved in mitigating the damages caused by COVID-19. In Myanmar and Bangladesh, the government has announced a stimulus package of US $70 million for the garment sector. The government is working to minimize damages caused to the global supply-chain.

For businesses, the pandemic has highlighted the need to shift to a more demand-driven and sustainable operating model. The crisis highlighted the issue of overproduction as companies faced an increase in inventory. The move to a more demand-driven supply chain would ensure production in small batches and a larger variety of products. Flexible ways of working would also enable businesses to better serve their customers and secure their position amongst competitors.

Technology will play a fundamental role in reshaping businesses for the future. By digitizing operations, companies will see an increase in efficiency and performance

Impact of COVID-19 on the Textile Sector
Denize Thiede (CMO, Triple Tree Solutions)
articles
Published 24. November 2020