In a Bocconi study conducted for the European Commission, between 20 and 30% of European apparel producers complain about unfairness on the part of large-scale retailers. In their purchasing decisions, big chains impose punitive clauses, such as monetary contributions to start the business relation, ask for a share of promotional expenses, impose unjustified sanctions for hypothetical violations of the procurement contract, apply systematic delays to payments, and are said to appropriate the styles embodied in the collections proposed.
These data confirm an ongoing deterioration in the relations linking the retailing sector to the garment industry, a sector which shrank from 160,000 to 130,000 firms over the 2000-2005 period, thereby losing a third of its jobs, as increased imports and constant exports and low, if not negative, consumer price growth, lagging behind the prices of basic consumer goods. have taken their toll.
The growing pressure on suppliers is linked to important changes in the structure and strategies of international retailing, with the growth of hypermarket and specialized chains at the expense of independent and department stores. The giant retail chains (Tesco, Carrefour, Metro) have extended their aisles devoted to clothing, in order to generate higher traffic and margins, while demanding ever-declining prices from suppliers. The specialized chains (Zara, H&M, Calzedonia, Etam), having substituted the traditional multibrand shops, also wield significant bargaining power in the relations with suppliers.
A second change concerns the reconfiguring of the value chain of retailers toward a vertical model, according to which the retailer invests in the commercial brand and takes on stronger control of upstream, higher-value activities (purchases, product design, logistics), and thus reduces the supplier to a mere seller of production capacity. In addition, the introduction of new business policies aimed at squeezing times and costs, such as centralization of purchases, high turnover of suppliers, the introduction of online auctions, and the like, have changed the landscape of the industry.
It seems reasonable to say that in the near future large-scale retailing will continue to increase its weight in the European market, leaving behind efficient agents that are able to compete on price. It remains to be verified whether low prices (associated to enormous garment volumes in a market of standardized quality and variety) are the better option for the final consumer. In such scenario, which possibilities exist for European, and especially Italian, suppliers? In fact, Italy is the first European supplier in terms of value added for textiles, apparel, and shoes.
First of all, it must be said that textile and apparel production will stay in Europe, due to issues of delivery time and economic risk. Highly complex and seasonal products require proximity and specialization of suppliers; Asian suppliers are unable to meet small orders in a compressed time-frame. The European suppliers who have consolidated and made the relation with chains profitable have managed to evolve beyond so-called CMT (Cut, Make and Trim), transforming themselves into full-package suppliers able to offer not only products but also high-value solutions, ranging from creative contribution to product development and packaging. Innovation, speed and orientation to the customer seem to be the keys to the future of the European textile industry in a rapidly evolving economic scenario.
by Stefania Saviolo,
Lecturer of Strategic Management, Bocconi University and SDA Bocconi School of Management