“Sustainable reshoring in high end fashion”

A case study

Pamela Robinson

MAKERS SUMMER SCHOOL 2016

Birmingham Business School, University of Birmingham, 28th – 29th June 2016

Introduction

The main aim of the presentation is to build an understanding of the requirements needed for

reshoring to be economically viable.

The study that supports this presentation includes a number of semi-structured interviews with

suppliers to and representatives of the high-end clothing sector and secondary data sources.

The focus of the study is how companies have undergone a change from outsourcing certain

‘product activities’ to low-cost producer counties (Jabbour, 2010) to a position of reshoring key

‘product activities’ in order to re-establish brand authenticity and a renewed market emphasis on

‘heritage’ and ‘iconic’ British brands.

This presentation will expand upon the following:

1. The context of the research study.

2. The theoretical framing of the analysis and research design.

3. Situating the market and the dynamics of apparel supply chains.

4. International market conditions for ‘Made in Britain’ products.

5. Conclusion.

Context Setting Reshoring: a growing trend that could create 200,000 jobs over the next 10 years, notably in

sectors such as textiles, electrical equipment and machinery (PwC, 2014).

Reshoring: moving manufacturing back to the country of its parent company (Gray et al., 2013).

• in-house reshoring; reshoring for outsourcing; reshoring for insourcing; and outsourced

reshoring

A recent survey by EEF/Squire Sanders survey (2014):

• 1 in 6 companies reshored production in-house in last three years

• 1 in 6 companies reshored sourcing to a UK based supplier

Main reasons for reshoring are:

• Improved quality, closely followed by issues surrounding delivery and minimised logistics costs – linked

to issues of control in the chain

• Delivery schedules from overseas suppliers did not fit with firms’ shorter order books; risks of supply

chain disruption; greater control of brand; and the erosion of labour cost benefits

• 84% of companies see the UK’s reputation for quality as an advantage

Context Setting (continued) Location decision from the International Business (IB) literature: “…the critical choice of a multi-

activity firm is whether it should internalize its intermediate product markets within its home country

or in a foreign country; and that the outcome of this choice is primarily determined by the costs and

benefits of adding value to these products in the two locations” (Dunning, 1998, p. 45).

Total Costing (TC) perspective: Hidden costs of offshoring (Larsen et al., 2013), such as costs of

managing an offshore contract, loss of control and transaction costs resulting from the shift of

ownership to an external partner-might erode a firm’s capabilities and resources, property rights and

protection, etc.

More recent research (Cantwell, 2009; Gereffi & Lee, 2012; Mudambi, 2008) on the manufacturing

location decision suggests a move away from resource seeking, primarily cost advantage toward

strategic asset seeking, including knowledge creation and value creation and capture the decision

is both about controlling costs and leveraging capabilities.

Firms are beginning to look at their manufacturing location decisions beyond cost savings: consider

impact on total cost, profitability, and customer value creation (Ellram et al., 2013; PwC, 2013).

Institutional actors, political agency – UK’s drive for ‘Made in Britain’ campaign.

Theoretical Framing and Analysis Following the chain in the research journey – drawing on Global Value Chain (GVC) analysis:

the concept of the lead firm (Gereffi et al., 2005) and governance typology, that is

relationships at particular nodes in the chain – for example ‘market’ or more ‘relational’.

Sustainability: the ‘three’ pillars – economic, ethical, environmental.

Decisions made by lead firms are influenced by institutional actors, e.g. Government Trade

policies (Ellram et al., 2013).

Focus of analysis:

o Case study approach – focus on SMEs

o The ‘buyer-driven’ chain (Gereffi et al., 2005) – to identify the types of relationships in the chain;

temporal or more committed

Key research questions:

1. Reshoring - bane or boom for the apparel sector?

2. What is the real comparative advantage?

International Product Markets

Dynamics of apparel supply chains include:

Fast-changing consumer preferences for fashion, the desire for more customised products

with smaller production runs.

High levels of uncertainty in terms of delivery schedules in fashion can be problematic –

relying on just-in-time stocking of retail stores can prove costly with sudden surges in

demand due to seasonal changes and an unexpected uplift in sales of particular products

and ranges of clothing, e.g. milder weather and the need for summer/lighter wear.

Short lead times are crucial for clothing firms, enabling them to handle fashion fluctuations

back-sourcing/reshoring or near-sourcing (minimize the distance between manufacturers

and customers may offer greater competitive advantage than simply low-cost production in

the Far East and Asia).

SO, Reshoring for certain market segments is an option? For instance: high-end apparel,

fast fashion, and products with more added value in the manufacturing process.

International Product Markets (cont.) UK clothing positioning in international markets

‘heritage’ and ‘iconic’ brands are key in international markets.

The appeal of domestic production is manifold:

Higher overseas labour costs, increased transportation charges, difficulties in sourcing

raw materials, the prioritisation of domestic production in China, a revival of traditional

‘British’ fashion, and a growing concern for environmental and ethical standards in far-

flung production sites (Felsted, 2014; Key Note, 2015).

The above factors have led to a revision of possible supply chain configurations for fashion,

and signalled a shift back to UK-based production.

Since 2007, clothing manufacturing in the UK has seen a striking revival due to the

adaptation of existing business models: the return of production to the textile

heartlands of the East-Midlands, Yorkshire and Lancashire and the new business

model of on-line retailing (Key Note, 2014).

The UK has the ‘unique’ product positioning of ‘Made in England’ e.g. Mulberry bags

designed in the UK, leather selected from local sources and treated in an English tannery,

cut and assembled in China, but finishing & final tooling undertaken in Yeovil, England.

Market Drivers Rising national minimum wages in the international apparel manufacturing industry, e.g. in the

People’s Republic of China (PRC) – the world’s clothing factory – is making the opportunity for

outsourcing production less lucrative to brands and retailers involved in fast-fashion: this is driving

companies to source production more locally and/or set up their own factories in the UK (Key Note,

2014).

UK manufacturing is becoming more viable for fast-fashion brands and retailers – the UK market

for clothing manufacture increased by 2.9% in 2013, in part due to many companies reshoring

production back to the UK (Key Note, 2014).

Reshoring is becoming increasingly popular among small- and medium-sized enterprises (SMEs)

as well as big high street brands, e.g. Marks & Spencer (PwC, 2014; Key Note, 2014).

British design and fashion trends are popular among global export markets and companies

marketing themselves under a British heritage are seeing a rise in demand from international

consumers (Key Note, 2014).

Ethical concerns in overseas manufacturing, following the tragic collapse of the Rana Plaza

clothing manufacturing factory in April 2013, are driving demand from both retailers and consumers

to manufacture clothing in the UK, where the supply chain is more transparent and considered to

be more socially responsible.

Reshoring Production Back to the UK

British products have a strong reputation for quality and luxury expertise, which has reaffirmed the UK

manufacturing industry as a viable option for high-end clothing production. High wage costs in comparison

to international locations, among other factors including lack of adequate machinery and a small skill base,

make domestic production more expensive and thus this sector caters best for the luxury, high-end,

designer clothing marketplace, where production costs can be passed along the supply chain and into the

retail price (Key Note, 2014).

During the last decade or so where outsourcing was increasing, SMEs continued to make use of UK-based

manufacturing – but whilst in the recent past this led to a less competitive position with leading fast-fashion

brands, especially on price points, this commitment to UK production is now becoming more popular among

British consumers.

SMEs have led the way in terms of UK production, with several high-street retailers following suit and

declaring their commitment to UK manufacturing. In 2013, John Lewis announced its plans to increase

sales of its ‘Made in the UK’ products by a minimum of 15% by 2015 to £550m, as part of its commitment to

using more domestic suppliers. Meanwhile, Arcadia Group, which largely dominates the UK high street, is

also increasing its use of British factories along its supply chain (Key Note, 2014).

With fashionista and media hype for goods that are ‘Made in Britain’ or have ‘Made in England’ labelling and

authenticity, the Engineering Employers Federation’s (EEF’s) report (2014) predicts that the trend for

reshoring will continue throughout the following year as more companies follow the trend to bring

production back to the UK.

Global/British Brands – a case study In recent years, the UK government has been capitalising on the global

success of the London Olympics, through its development and branding

‘Business is GREAT’ campaign.

National pride and demand from luxury export markets has resulted in the

‘Made in the Britain’ label becoming more welcome to consumers. As such,

the fashion industry is currently championing a trend for quintessential

Britishness, in terms of both design and manufacturing.

One brand in particular that has been maximising its British heritage and

reminiscent market position is Burberry.

In 2006, the incoming CEO Angela Ahrendts overhauled the brand –

following other luxury brands – her focus became the ‘value’ of Burberry’s

heritage. Subsequently, the business was refocused around its iconic

trench coat (Ahrendts, 2013).

To ensure the brand’s authenticity, certain product lines were repatriated to

the UK.

Global/British Brands – a case study (continued) Burberry is a brand that continues to capitalise on its Britishness and its

quintessentially ‘Made in England’ label:

– “British roots are incredibly important to this brand” Christopher Bailey, CEO

(quoted in Armstrong, 2015).

– Building on its Britishness, the company’s London Los Angeles show in 2015

even had the Queen’s First Battalion Grenadier Guards take part (Armstrong,

2015).

– “It’s all about the Britishness of the product... consumers in China don’t want to

buy a Burberry trench coat made in Shanghai… they want the real thing, it has

to be truly made in England… it’s the craftsmanship and heritage of the brand

that consumers in emerging markets are buying into” as suggested by a Brand

Consultant (Robinson and Hsieh, 2016).

– CEO Bailey also claims “Our customers like that the cashmere is made in

Scotland and the trenches are made in Yorkshire” (quoted in Armstrong, 2015).

Conclusion How to future proof reshoring, manage rising production costs and fill the skills gap: are still

questions to be addressed if this change of business model is to be sustainable.

– The cost of energy and availability of suitable skills are seen as the biggest negatives to increasing

manufacturing activity in the UK.

Reshoring will be boosted by the use of advanced manufacturing techniques, such as

automation / robotics, which will make production a far less labour-intensive operation,

especially in low-value processes (PwC, 2014).

Dependency on skills – need to develop contingency, e.g. sewing college / factory

apprentices.

ASOS backs skills rebuilding in the UK clothing manufacturing industry by funding a stitching academy – a

training initiative designed to teach skills in clothing manufacture.

Launch of London’s Technical Fashion Academy at Hackney Community College.

However, the majority of clothing sold in the UK continues to be imported from global regions

where production costs are lower, and the level of skill and quality of machinery is higher

(Key Note, 2014).

References

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