Decoupling Production Units From Turnover!

I think we would be foolish to look at the current economic hardship being faced across the middle classes in all Global North countries and not realise that our businesses are at risk from continuing with a business as usual approach to production.

Business as usual has us producing more units per style, and putting more of them into sale, than ever before. Full price sell throughs are down. The number of units that are never sold is up. And it's not going to be long before those tax reductions for stock dumping through charity donations or recycling will face the chopping block as tax incomes decrease. 

If at this point you are wondering why we aren't seeing a natural bell curve around a decrease in global spending against the back drop of falling incomes for the middle classes. This is where I tell you that this is because the top 1% increased their spending last year by 10%. 

A pile of branded boxes piled up in a delivery van.

Trump said it really well. "Perhaps kids will have only 2 dolls now instead of 30." But those that can afford it can now have 2 mega yachts. And this is where I would like to point you to the work of Gary Stephenson and Grace Blakely. Who are both UK based, but economies in the Global North run on Oxbridge Economics. Probably one of the UK's most successful export. It's why our exports are dominated by financial services. 

Inequality is growing, the middle class is shrinking, and while the wealthy class is not growing by number of people, it is growing with how much income each person has. So how do apparel brands, and manufacturers, who cater to the middle classes survive? It's not by doing the same thing as we've previously done. Which is increase production units to get a better per unit price, but then put more of them into sale. This is also a very new thing. At the time when I was developing millions of pieces for the UK High St each year, no buyer of mine wanted their products to be discounted. We had sale buys for that. Sure it helped styles that didn't land. Fashion is gambling after all. But you wanted full price sell through on products that you had spent time developing. And discounted products were made cheaper. 

Now though, we've reset consumer mindset and are too heavily focussed on instant gratification to make sales. It's this mindset that has helped grow Klarna into the massive behemoth it is today. Because why on earth are people using Klarna for their £17 Sports Direct t'shirt that we all know is going to be £8 next week?

And this doesn't just impact fast fashion, or businesses producing cheap products. This week I did an exercise on what a North Face jacket would cost in the UK 20 years ago (price range was between £80 and £120 back then). Today, a £80 jacket is around £110. If we were to accurately cost this product, based on inflation, it should be £219. Now actions have been taken to reduce this cost along the way. Production has moved out of China in that time to Vietnam, Cambodia and Bangladesh. Countries that have preferable duty rates compared to China (obviously ignoring the last few months). We've seen the number of sewing minutes reduced as the outdoor industry has moved from 2 layer fabrics that needed a lining, to 3 layer fabrics. So while not a fair representation, one that, I hope, goes to demonstrate we aren't paying enough for our clothes. 

So how do we combat this is global transfer of wealth in a way that can ensure businesses survive?

Firstly, we have to get off the overproduction train. And the goal with this is to increase full price sell through. So that means more frequent drops of smaller orders. If you are a garment manufacturer and you've just thought "no way", I'd like to introduce to Manny AI. Not only is this a great solution designed by people who ran a factory (and also advised by yours truly! Sorry for the services plug there!), but it is also affordable. While the current solution is fab, their plans for making the platform work even better, are wonderful for ensuring fair wages, but also for upskilling. You won't regret checking them out!

What we want to avoid in this reduced production scenario is having excess inventory of fabrics. While Shein lauds its reduced volume for the production of garments, it entirely ignores the fabric side, where 2000m are being ordered for 200 dresses. Hence the deal with Queen of Raw a few years back. While I will not shade Queen of Raw, seems a good time to reiterate that using deadstock is not circular. And we can do that by printing over solid dyeing. In all cases an all over printing method has lower environmental impacts than dyeing. (Caveating that some placement print methods have a very high environmental cost such as foil and flocking). Holding prepared for print fabrics is much less financially risky than committing to 500m in Aqua Green. 

We then have the many R's that need to be addressed as part of this strategy; Returns, Rental, Repair, Resale, Remanufacture and Recycle, as part of the ability to monetise products further. It would not be viable to try implementing all at once. Which is why I so often say we need to plan for degrowth (or economic collapse!). Did you know that, while Klarna say they can increase spend by 47% by using there service, they fail to mention that returns increase into the 70%? That's just bad for business. 

(As another shameless plug, I'd like to mention the time I reduced Zone3's swimwear returns rate by 40%! So if you want to review your returns, do reply to this mail!). 

Now we aren't going to eliminate returns in it's entirety, and I know that some of the returns can make you question how far we have come with cleanliness. Having a system in place to use these returns as rental is beneficial. Especially because you don't need to reprocess until you have sold something. Unlike a return to sale. 

I'm going to brush over repair and resale, I feel like they're self explanatory, and this newsletter is getting long. But I want to add that, when it comes to resale, getting a better price means selling it to the right geography. The idea of Grade A products being sold for more in Eastern Europe as opposed to Africa no longer holds true. Something I learnt only recently with The OR Foundation and Finisterre.

Recycling.... this is one where deals are going to be able to be had more into the future than now. The demand for good quality feedstock is growing. And we aren't producing enough of that. Remanufacturing will help solve the problem we have with blended feedstocks, although I'm not quite sure how easily that is going to be monetised. The win will be in providing recyclers with the good quality feedstock and negotiating on the weight of fibre you buy from them. 

If you would like to book a £200 strategy session to assess how you can generate more revenue from products, hit the Direct Line button!