Fashion brands such as Benetton are increasingly turning their backs on global supply chains and cheap manufacturing centers in Asia – a change that could be a lasting legacy of the coronavirus pandemic, Reuters reported, citing BTA.
Italy’s Benetton is bringing production closer to its homeland, stepping up operations in Serbia, Croatia, Turkey, Tunisia and Egypt. The company aims to halve its production in Asia by the end of 2022, the brand’s chief executive Massimo Renon told Reuters.
Renon explains the economic factors behind the trend, which affects most of the industry, as congested supply lines have increased transportation costs and time, undermining the business model popular for the past 30 years.
A strategic solution is to exercise greater control over the production process and transportation costs, he said, adding that the group has already exported more than 10 percent of its production this year outside countries such as Bangladesh, Vietnam, China and India.
A shipping container that used to cost $ 1,200 to $ 1,500 can now cost $ 10,000 to $ 15,000 and there is no clarity on the delivery date, Benetton’s boss said.
Rennon, who headed Benetton last year, faces the task of bringing back the company’s fortune, which became famous in the 1980s for its bold bright colors. He commented that even if production costs remained 20 percent lower in Vietnam and Bangladesh than in the Mediterranean countries, this was offset by greater delays due to supply problems.
The previous average delay of four to five months could now reach seven to eight months (from Asia), given the shortage of ships, adds Massimo Rennon.
On the other hand, if the clothing is made in Egypt, delivery to warehouses and shops in Europe could be cut to two or two and a half months, according to Benetton’s boss. For woolen goods produced in Serbia and Croatia, the deadline could be as little as 4-5 weeks, he added. In these two countries, as in Tunisia, Benetton plans to increase production at its own plants, while in Egypt and Turkey it will work with suppliers.
The strategies that individual companies in the fashion business apply are different. The market leader and founder of fast fashion Inditex, owner of Zara (Zara – Spanish Sara), has located 53 percent of its production relatively close – in the domestic market in Spain, Portugal, Morocco and Turkey, according to the annual 2020 report of the company.
On the other hand, competitor H&M relies on Asia for about 70 percent of its production, according to analysts. Critics of such an approach argue that this puts the Swedish company at a disadvantage compared to competitors in terms of delivering new collections to stores.
There are other factors that are contributing to the growing outflow from Asia, Reuters notes. Even before Kovid-19, rising labor costs in the region weakened Asia’s attractiveness to major Western brands, which preferred it for cheaper pay. Real wage growth in the world has risen by between 1.6 and 2.2 percent in the four years leading up to the pandemic. Growth in the Asia-Pacific region and Eastern Europe has outpaced that of the rest of Europe and North America, according to the International Labor Organization’s (ILO) report on global wages in 2020/21.
For the Benetton family company, based in the northeastern Italian region of Veneto, the change of production site is part of the drive to return to the path of profitability. The chain has about 4,000 stores, 1,500 of which are directly owned, while the others operate on a franchise basis. The company has been at a loss for the past eight years. The pandemic has thwarted the fashion giant’s attempts to reverse this process, although according to Rennon, the group is confident that it will have a very good Christmas and will soon leave the red territory.
