There are many interesting and surprising similarities between the consumer electronics and fashion industries.
Firstly, both face the problems of seasonality and an increasing pace of change. Within apparel, the acceleration from two, to twenty collections per year has led to a new industry phenomenon known as fast fashion. Fast fashion was first implemented by Inditex, the parent company of Zara, and it and has also been a critical part of the growth of companies such as Primark.
There is a direct equivalent to this in the hardware and software development that drives frequent upgrades by electronics users. The pace of these upgrades has also accelerated, driven by customer demand for new functionality, as well as the need for software to be secure and to integrate more easily.
Both markets also face the dawn of mass customisation. Fashion consumers began the trend for personalisation and it quickly grew from the addition of simple personal touches to the idea of configuring entire products for a market of one.
Similarly electronics end users demand personalisation that ranges from simple cosmetic additions to substantial and profound changes to entire hardware designs. Across both industries, these changes must be accommodated quickly and cost-effectively.
And of course, there are strong similarities between the fashion and electronics industries throughout their supply chains and manufacturing bases. Both industries rely heavily overseas labour.
Lastly, both industries are utterly reliant on a smooth, agile supply chain and have been brought under intense scrutiny as major names in fashion and electronics alike have faced media enquiry into how their suppliers treat their workforce and the environment.
The role of the millennial
Why does this focus on supply chain and manufacturing matter? Because both fashion and electronics are at the mercy of that most fickle customer segment – the millennial.
Millennials spend a great deal on fashion and on electronics. But they have huge choice in who they spend that money with – they can (and do) change brands incredibly quickly.
A recent study by GT Nexus/YouGov found that in the UK alone, 55% of millennials admit to having switched one of their favourite brands in the last 12 months. While 24% said that consumer electronics was the type of product that would most likely see them switch allegiance. That is a huge amount of volatility.
But what does this have to do with the supply chain? Everything, because the top two reasons for why millennials switch their favourite brands are product quality, and availability. You are just as likely to lose customers if your product is not on the shelf or online, as you are if it is no good. Logistics and the supply chain are now – as far as customers are concerned – just as important as quality control and manufacturing.
Not every brand enjoys a customer base with the patience of the Apple user community, so it is clear that one lesson electronics can learn from fashion is that it must have products ready for the appetite of a hungry market.
Extending into the ethical
There is however, a further inflection and one that speaks directly to the similarities in the workforces and supplier networks within both the fashion and electronics industries.
The research highlighted that millennials throughout Europe and North America will gladly switch allegiance if a brand is found to have a poor track record in treating its employees or the environment poorly. And the research further suggests that this will not be offset by a sexy front-end app or website, because simply put, they are not the factors that will keep millennials loyal to your brand
And it is on this point of the intersection between employee fairness, environmental concern and the supply chain, that the electronics industry can again learn from fashion. It is possible to harness the finance needed within a supply chain as an incentive for suppliers to improve the social and environmental standard of their business practices.
As an example, sports brand Puma, and the International Finance Corporation (IFC), a member of the World Bank Group, recently entered into a partnership to provide financing to Puma’s suppliers in emerging markets. This will offer financial incentives for suppliers to improve environmental, health and safety and social standards.
IFC will adopt a financing structure with tiered pricing of short-term working capital, offering lower costs for those suppliers that achieve a high score in Puma’s supplier rating, based on adherence to the company’s social and environmental standards. In short, adopting business practices based on improving employee fairness and environmental concern will equate to lower borrowing costs.
And Puma is not alone in these efforts. Levi’s has also signed up to this programme and others are in the process of doing so.
There is little reason why such a system could not be put to use for the electronics industry. Indeed, in the wake of the recent recalls or the media attention on employment practices at well-known electronics suppliers and other manufacturing facilities, there is perhaps a pressing need to assess if and how this model of ethical supply chain finance can be applied to the electronics industry.
Boris Felgendreher, director of marketing at GT Nexus