Every second apparel company sourcing executive reports that a quarter of their suppliers are already facing financial problems, according to a new survey released in Germany’s Dusseldorf by McKinsey & Company, which found some 45 per cent of respondents said they expect more than half of their suppliers will be financially distressed within six months.
Some 19 percent of respondents state that they make advance payments on orders. However, one in four purchasing executives said that their company does not provide any support measures for suppliers.Every second apparel company sourcing executive reports that a quarter of their suppliers are already facing financial problems, according to a new survey released in Germany's Dusseldorf by McKinsey & Company, which found some 45 per cent of respondents said they expect more than half of their suppliers will be financially distressed within six months. #
Some 90 per cent of sourcing executives say that their sourcing volumes will decline in the second half of this year compared to the previous year’s volumes. Nearly 80 per cent of the companies have already cancelled at least a portion of their orders. The number of items per order as well as the total number of orders will be reduced.
In this context, European companies cancel orders less often than do companies from North America. Only 2 per cent of the European companies surveyed said that they cancelled more than half of their orders. One-third of them even had no cancellations at all. In contrast, there were cancellations by 11 per cent of the North American companies and only 13 per cent of them reported no cancellations at all. Only a few are paying as agreed: fewer than one-third of the companies are paying for more than half of the orders and 18 per cent are not paying at all.
“The situation is extremely difficult for fashion retailers in Europe and North America. Cancellations of orders and halted payments lead to dramatic situations for workers in producing countries,” says the leader of the apparel, fashion & luxury group at the company and senior partner Achim Berg.
The McKinsey study, titled ‘Time for change: How to use the crisis to make fashion sourcing more agile and sustainable’, surveyed 116 purchasing executives from leading apparel companies and retailers from North America and Europe that together, are responsible for managing more than $120 billion in sourcing value.
The study also includes insights from more than 230 other Sourcing Journal subscribers, who are stakeholders across the value chain. “The crisis provides the opportunity to now work on making fundamental changes in apparel sourcing and create more flexible supply chains,” says Karl-Hendrik Magnus, expert for sourcing and sustainability and senior partner at McKinsey.
Nearly half of the sourcing heads surveyed said that over the next 12 months, they would rely more heavily on nearshoring, that is, producing in nearby countries like Turkey for Europe or Mexico for North America. One in three respondents anticipates that the degree of automation will increase. The topic of sustainability will also become more important again, the survey found.
More than 40 per cent of consumers in Europe and North America say they would be more inclined to purchase from companies that supported social and medical causes during the crisis.
More than 20 per cent said that for sustainability reasons, they would purchase less clothing. And 16 per cent of European consumers said that in future, they would seek to buy more socially- and environment-friendly apparel, according to a press release from the company.
ALCHEMPro News Desk (DS)
marketing@alchempro.com
