Why are made-to-order garments, on demand production and AI forecasting important in stopping overproduction?
If the fashion industry achieves anything in 2021 it may hopefully be to rapidly reduce the huge issues surrounding overproduction. We see a lot of information shared about overconsumption and what we can do as consumers, but this year we must hold buyers and brands accountable for the overproduction problem in fashion.
When we look to statistics on overproduction there is generally far less to be read and examined than the topic of overconsumption. However, we do know that 30% of garments are never sold and another 30% of garments are sold at a discount. There is a $210 billion distortion between what brands have and what consumers want. From a statistical perspective, this appears illogical; to be wasting energy, money and time in billions of pounds worth of garments which are destined for landfill without even passing through the hands of consumers.
So the question is, where are brands going wrong?
There are many different reasons why overproduction occurs in the fashion industry. The first of which is that of the more you buy the less you pay. Unit cost is a central reason that brands might want to produce large batches. Alongside this, brands do not want to lose out on potential profit. Labour to manufacture garments abroad is cheap and brands would prefer to overestimate and produce more garments than they need, than underestimate and lose out on profit they could have gained from having the stock. They accept this forecasting error as a business risk taken to maximise profits.
Value and distortion of value have provided a further reason for overproduction. There is a growing demand for throwaway fashion as consumers' sense of value is completely distorted. Consumers seem to demand more so the industry responds by creating more. As well as a general ‘more is more’ approach brands appear to be finding it harder to predict trends in advance. Super fast fashion has made it increasingly difficult to predict trends ahead of time, consumers tastes are changing unpredictably & fashion cycles are accelerated.
Has the pandemic provided an opportunity to stop overproduction?
In the McKinsey State of Fashion report 2020 there was a mere one mention of the term ‘overproduction’ across their 65 pages. Michael Burke the Louis Vuitton Chief Executive stated, ‘the higher the percentage of made-to-order business, the less overproduction you’re going to get involved with. That’s the first thing that luxury needs to concentrate on; smaller runs, ideally a run of one’.
How can brands begin to tackle the issue of overproduction?
It can be said that there are four methods by which brands can prevent overproduction: technology, reduced inventory, on-demand production and reacting to consumers.
Producing only what is expected to sell is the best possible way for brands to reduce overproduction. But what is the best way to do this? Utilising AI technology can help to reduce forecasting errors by up to 50%. Using new technology can help brands to optimise their production and support their demand planning with the result of reducing their inventory by 20-50%. Analytics led by AI will support brands in the product development process to use data from the very beginning of their design process.
2. REDUCE INVENTORY
This year has demonstrated that more does not equal more. The pandemic has shown us that more collections, more products and more inventory does not necessarily yield better financial results. In order to move away from this approach brands must find ways to increase the sell-through of their full-price products by taking a demand-focused approach to assortment.
58% of respondents in a McKinsey survey stated that assortment planning was a vital area for data and analytics in 2021. By mid-2020 brands were sitting under mountains of unsold inventory after seeing an average of a 36% decline in sales. There are an almost unlimited number of methods brands can adopt to reduce their inventory. The best approach is to begin this transition at the design management phase and revise assortment, reduce product development time, move towards seasonless fashion and reduce the number of collections shown per year.
The traditional fashion calendar has limited the flexibility of the industry for decades. If we are to continue to design, showcase and sell to this rhythm wholesale pre-orders must be kept low and open-to-buys increased. This will provide brands and buyers with the opportunity to bring in products that consumers want and to replenish their bestsellers.
Large luxury brands have made statements that they will be making departures from the seasonal schedule to ‘take back control’ of deliveries. Gucci’s comment to this avail supports the movement towards season-less fashion.
‘Assortment’ has been a word thrown around by Vogue Business, McKinsey and BoF writers in 2020. We expect brands to reimagine their assortments using new technologies, high-quality analytics and product testing with consumers. Utilising these methods can allow them to test the market ahead of production, reducing the likelihood of overproduction.
60% of respondents in a McKinsey survey stated that improving analytics for consumer insights is a key strategy for them to reduce overstock in the future. 54% of respondents commented that it would be a revision of their brands assortment which would be essential for preventing overproduction.
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