Recently, theglobal market is characterized byextremely fast changes in the technology as well as the demand of the market,the product life cycle of each product also getting shorter and shorter. Thisis mainly due to the faster change in the fashion trend. A single entity ismore likely to impose them into demanddynamism and volatility. In such a complex and competitive industry, the entity must ensure on provide proper assessingand managing risk connected to the different stages of the value chain,external and non-directly controllable risk in order to ensure on there is thecontinuity in supply. As if this section not being managed properly there would impose a high risk on the demand not equalwith the supply which may cause the instability of product price or even lossthe customer.
According to a more traditional’s point of view, Companies risk are usually focused only on the economic modeespecially in the risk of loss in the value of the potential asset. In reality, social and environmental risks shouldbe also taken into account but no purely on the economic risk (The State ofFashion, 2017).Normally fashionretail industry is highly unpredictable as the taste of the consumer changerapidly.
A company can’t be assured ontheir consumer’s taste will maintain the same during the whole period of newproduct release which means that theycan’t ensure on their product still in line with the current fashion trend.Thus, it is important for a company to put an effort on analyzing the risks connected to supply chain. The fashionindustry normally has extended their network of wholesalers, directly operated stores, franchisingmono-brand stores and factory outlet stores. Such a complex industry arerecommended to adopt the Analytic Network Process approach as this approach issuitable for real complex problems that cannot be completely representedthrough a simple hierarchical structure. The obtained results show that supplychain efficiency, in terms of correct management of both material and information flows. As it is considered the mostcrucial part also for a demand-driven supply chain as the fashion industry onewhich, in addition, is constantly seeking for customer tastes and alwayschanging trends.
In the fashion industry, there show an increasingtrend toward outsourcing to another country which has cheaper labor cost suchas Indonesia, Vietnam, and China. Thesephenomena are causing company loss of control over the full visibility of thesupply chains which further increase the risks connected to any possible changesor disruptions. As the sources of risk not only come from the externalenvironment such as legal restriction or natural disaster but also come frominternal parts such as the changes ofcorporate strategies, business models and interaction with the actors of thesupply network (Tang, 2006).In the view of the Erick Bang, who is the project manager of theGlobal Change Award which is an event sponsored by H&M ConsciousFoundation, clothes are a necessity no matter whether it is a fashionista or not, we still needing it in ourdaily life.
However, the current risk would be the how would enable the fashionindustry to create a fashion for the growthof population in the world in the same time still able to protect the earth byreducing the waste. As waste and not sustainable supply chain would be the mainproblem faces by the whole industry (Peter, A, 2017).The year 2016has been hardest years that the fashion industry as compared with the tough faces in previously. The whole industrywhich across the whole market segments, geographies, as well as productcategories, has been affected by thechange of global macroeconomic, geopolitical sphere, rapid change in consumer behavior and rising of business pressure on produce more product in order to reach the economicbenefits to reduce the time, money and effort needed.According to theGlobal Fashion Survey that done by BoF-McKinsey, the result show that there are67% of the respondents believe that conditions for the fashion industry havebecome worse over the past 12 months. The respondents are mostly from the arealike fashion executives, investor, creatives, and other industry insiders. Bylooking on this year situation, three words havebeen selected to describe the current fashion industry which is uncertain, changing and challenging.
BusinessEnvironment and Economic ConditionsPoliticalfactors playthe most important role in structuring a business but it can also be thebiggest source of uncertainty for the fashionindustry. Nevertheless, different business will have a different impact when there is a change inpolitical factors affecting businesses. Any activities done by every businesswill be known and be seen by the government. Thus, not just the public sectorwill be interfered by the governments, the private sectors too through taxesimposed (indirect interference), and restriction of certain products (directinterference). (“PESTLE-PESTEL-PEST analysis of Zara”, 2017) Economicfactors can be both positive and negative impacts on the fashion industry.
People have moredisposable incomes during economic boom periods. So, this makes them buy moreclothing for themselves and this increases the sales for manufacturers inclothing, retailers, and also a wholesaler.However, the impact will be opposite when a recessionhappens. During the recession, the salesfor clothing will decrease significantly causing a large amount of inventory stuck in retailer shops. This forcesthem to sell at a lower price.
Both manufacturers of clothing and retailershave to lower their prices too in order to compete with other brands. This isbecause consumers often prefer to shop for cheaper goods or brands when theyhave lesser disposable income. (“The Macroenvironmental Factors Affectingthe Clothing Industry”, 2017) Socialfactors playan essential role in the growth of fashion industry. The social factors affectthe industry through the consumer spending that iselastic to the economic stability.
Major changes have occurred in the pastdecade that has caused the change in thedemand for fashion products. The generation Y are now the target market for fashion marketers and their preferencestowards fashion are different from the previous generations. There are a numberof reasons cause people to shop differently and make their shopping decisionschange in terms of which brand they prefer. Millennials do not just demand lowprices but also with convenience and quality. This affects the fashion industrybusinesses to face new challenges. Thus, the fashion marketers have to findways to cater to different demands ofcustomers where they do not just push sales but also attract customers.
(Pratap,2017) Technologicalfactors affectthe fashion industry in many ways such as the resources availability, demand,and production, which will affect the growth of fashion industry. For example,the scarcity of materials such as leathermay cause companies to sell faux leather as a substitute.Retailers may have to increase the prices of raw materials used if they have a material shortage as they have to also pay themanufacturers or supplier more. (“The Macroenvironmental Factors Affectingthe Clothing Industry”, 2017) On the other hand, the usages of IT andmobile devices have affected sales,marketing, and consumer choices. The consumers today prefer to shop onlineespecially the millennials and like a personalized experience in terms ofshopping and also customer service. Technology can also bring a positive impactto the fashion industry by bringing a greater effectiveness to sales andmarketing of products.
In addition, technology helps the industry expansion tooverseas through e-commerce and this enables them to connect with largercustomer segment. (“PESTLE-PESTEL-PEST analysis of Zara”, 2017) Environmentalfactors and their sustainability are as importantfor any other fashion retail industry in the market. Fashion brands are carefulwith the products they used and tries to market themselves as more environmental friendly brands. They areinvesting in the environment and sustainability by using more environmental friendly products which include raw materials, packaging, andoperations. Consumers in this era are well informed and often prefer to useproducts from companies that care aboutthe environment. Any organizations that violatethe environmental safety will have a difficult time when they globalized theirmarket and the chances of being banned from different countries are high.Therefore, companies have to focus on the production of products from environmental friendly materials and take notesof any of their products have the capabilities in harming the environment inany way. (“PESTLE-PESTEL-PEST analysis of Zara”, 2017) Legalfactors are an essential part of all organizations.
The company has to make sure that theyare under the coverage of all legal rights and obligations and at the sametime, maintaining their costs and profit made. Legal formalities have theability to affect a company’s reputation and its costs. Fashion industry is oftenbeen affected by the issue regarding workers’ rights and child labor. This iswhere union workers in the fashion industrymay strike the employers, especially if their wages or benefits are lower thanthose other workers in the same industry. The workers that strike theiremployers will affect the production of products which will cause the delay in retailers,who are at the receiving end to receive their seasonal clothing.
An activist who isnot the workers of the manufacturing company can also protest the company that is known for violating child labor. This willhave a negative impact on the reputation of the company and also the sales andprofit of small retailers. In this era, the consumers are well informed andhave the freedom to choose their product from companies which fulfills theirrole in the society and is responsible for their actions.
(“TheMacroenvironmental Factors Affecting the Clothing Industry”, 2017). Furthermore,imposing of Good and Service Tax (GST)also has an effect toward Malaysia’s market where there is the downturnstarting from the second quarter of the year2015 and estimate will be slow down in retailer industry for 6 months (Leong, H, 2015). CurrencyRiskMost of the fashion companies intend toengage themselves in significant import and export activity that often shapedby the creative process (“Currency risk management solutions for the fashion industry – Kantox”, 2017).Therefore, the fashion industry has imposed themselves in a currency exchange that has a significant impact on their financial performance. The fluctuationof the exchange rate will affect theoperating profit of the companies as when the companies exchange products orservices across borders. it causes two or more currencies to be involved. As ifthere is a slight drop in the currencywhiles there also a slight increase in another currency rate, this would lengthen their marginof different although there is a slight changein the small area.
The fluctuation in exchange rates will lead to either gainsor losses for the business (Kokemuller, 2017). Last year, Malaysia’s ringgit has hit itsweakest point since the Asian financial crisis. The Malaysia fashion companies has affected by the fluctuation of currencyrate. The drops of Malaysia’s ringgit have leaded the companies pay more forthe import products.
The euro currency has strengthened dramatically this yeardue to optimism about economic growth and reduced political risks (Kottasová,2017). The US dollar continues to strengthen and push down on currencies theworld over (Wells, 2017). The strong of currency will make import cheaper.