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What competition will you face on the European apparel market?

Takes about 18 minutes to read

Following the recession that began in 2008 and lasted for several years, the European apparel market has rebounded and consumption is growing. However, the market has changed drastically. Margins are minimal and competition is at its fiercest. Buyers no longer travel as much as before, instead expecting you as a supplier to visit their local office. This means you need a professional marketing team with, preferably, a local representation servicing buyers almost daily.


1 . What are the opportunities and barriers when I try to enter the market?

The European market is difficult to enter

The European market is one of the world’s most difficult apparel markets to enter. Europe has very strict legal requirements. And European businesses have many non-legal requirements you must meet as well. These non-legal requirements are customer-specific; you can usually read up on them in the suppliers’ manual provided by your buyer.

Tips:

  • Study the requirements laid down in your customer’s suppliers’ manual carefully: once you have signed your agreement, you will be expected to keep to them rigidly.
  • Make sure you discuss requirements laid down in a manual before signing, as they are sometimes unworkable.
  • Closely study the claim procedure, as this can have a big impact on your profit in the event of a delay or problem.
  • View your buyers’ supplier manuals as a legal contract in which the customer will always try to shift all responsibility onto you as a supplier.
  • Check for supplier manual updates (most buyers update theirs every year).

It is getting easier for buyers to switch suppliers, but good CSR performers are hard to find

On the other hand, market entry is getting easier. With large numbers of suppliers offering more or less the same in terms of speed, price, flexibility and quality, it is getting easier and cheaper for buyers to switch from one supplier to another. This provides opportunities for new suppliers to enter the market.

One of the challenges buyers face in finding new suppliers is the fact that Corporate Social Responsibility (CSR) requirements and expectations in Europe are getting tougher. Suppliers, especially in developing countries, who can match buyers’ legal and non-legal requirements as well as their service levels and speed, are rare. If you can develop your company to meet these demands, your chances are good.

There are more factors creating opportunities for you to enter the European market, such as:

  • The rise of online distribution methods – web shops, trade platforms and shop-in-shop concepts – creates new opportunities for buyers to try out new suppliers (for more information see the section on omnichannel strategies in our study on trends on the European apparel market.
  • The rising cost of labour and materials in important producing countries, notably China, is leading European buyers to look for new suppliers in other countries and also to get more serious about automation and robotisation (see the aforementioned Trends study for more on this topic);
  • More and more garment manufacturing organisations target consumers directly through Business-to-consumer (B2C) sales. Using the Internet, social media and Big Data, you can create continuous volume with profit margins that are much more interesting than those in the conventional channels (see the aforementioned Trends study for more information).
  • Customers are looking for new suppliers who can offer a fully transparent supply chain to guarantee sustainable production matching their requirements.

Lesser known sourcing countries are gaining interest

Many buyers will look for new suppliers in established supplier countries, such as Bangladesh or India. However, more and more European buyers are interested in relocating to new and less expensive regions. Usually, these are countries offering low wages or duty-free price benefits through Europe’s Generalised Scheme of Preferences (GSP), such as Cambodia, Myanmar, Vietnam and Ethiopia (see next paragraph).

Many buyers try to convince their existing suppliers to invest in these countries. For example, they might offer to help you move your production to one of these new, lower-cost regions. Exploring a new source country together with an existing supplier is a safe option for buyers.

Buyers are moving production for different reasons, such as minimum wages in their current supplier countries going up, environmental regulations becoming stricter or governments deprioritising garment exports.

As a new entrant, you may benefit from the Generalised Scheme of Preferences (GSP)

Although much apparel will continue to be sourced in Asia, European buyers are widening their horizons with regard to alternative sourcing destinations. In some countries, exporters to Europe can benefit from the European Union’s Generalised Scheme of Preferences (GSP). Effective since 2014, this scheme allows developing countries to pay less or no duties on exports to Europe.

The GSP has caused some shifts in global supply chains. Countries that in the past did not have to pay import tariffs in Europe – such as China, Morocco and Tunisia – no longer have that advantage under the new scheme. This has improved the competitive position of countries still benefiting from GSP arrangements, such as Cambodia, Bangladesh, Myanmar and Pakistan.

China is still one of the largest suppliers to the European apparel market, but its export numbers are decreasing every year. This is because of rising wages and domestic demand in China and new environmental regulations set by the China government. It creates good opportunities for factories in other developing countries capable of manufacturing the same product groups at the same service levels. In addition to the countries mentioned above, think, for instance, of countries closer to Europe where the apparel industry is still emerging, such as Ethiopia, Tanzania, Kenya and other Sub-Saharan countries.

Tips:

2 . What are substitute products?

China remains the world’s largest apparel supplier, but is facing a substantial labour cost increase. Also, China is clamping down on polluters, forcing many garment factories to shut down.

Because of this, buyers are looking for alternative sources, so that they can move (part of) their production from China to lower-cost GSP countries, or even back to Europe, as this 2017 Reuters news article states.

The first products to be relocated or reshored are high-value, labour-intensive products: the higher the export value, the higher the GSP benefit.

Tips:

  • To get a foot in the door with buyers currently sourcing to China, focus on labour-intensive products to create a greater price advantage.
  • Focus on product groups that are currently manufactured in China, such as leather, denim, footwear, outerwear and knitwear.
  • Be alert to automation trends, as over time these may cause labour-intensive production to be taken over by robots. Two ways of keeping ahead of this trend: invest in technology; invest in finding other ways adding value that robots cannot copy.
  • For more information on technology and automation, see our study on trends on the European apparel market and our new study on technology in European apparel.

Substitution levels differ from one segment to another

Some consumers can decide more easily than others to refrain from buying a certain apparel product because they want some other (non-apparel) product instead. This is known as substitution. The level of substitution in specific market segments depends largely on demographic factors, such as age, income, gender and education.

For example, young consumers with medium to high levels of education may easily buy high-quality, sustainable products at the expense of conventional apparel. In the high-end market, apparel is a luxury item that can be substituted by gadgets, such as smartphones, tablets or other luxury items.

Avoid being substituted by knowing your segment

As a supplier you must know which segment you are targeting and what matters to that group. This will help you avoid being substituted and make you more competitive. It will also create new crossover opportunities. For example, you might offer garments with integrated gadgets and wearable technology.

Tips:

  • If your product is easily substitutable, look for ways of adding value. Competitors – whether apparel or non-apparel – will have a hard time replacing value-added products.
  • Use new, sustainable fibre garments or innovative, man-made fibres and fabrics to gain a sustainability advantage over competitors.
  • Stay up-to-date with new techniques (for instance, dyeing processes) and form alliances with fabric makers who often visit trade fairs in Europe and who have state-of-the-art materials. This is another way of keeping your product from being dismissed by buyers.
  • Stay up-to-date with the latest trends in Europe in terms of fabrics, colours, style details and accessories by following fashion websites and blogs or visiting fashion and fabric trade fairs in Europe.

3 . How much power do I have as a supplier when negotiating with buyers?

Competition is fierce in the apparel industry. It is usually worst in segments offering ‘much of the same’, or undifferentiated products. These segments are dominated by large suppliers who can deliver large quantities at (fixed) low prices.

As a small or medium-sized enterprise in a developing country, you may not be able to compete with these large players at the low-end. The middle and higher segments offer more room for product differentiation and value addition. Consumers in these segments focus less on price and more on aspects like quality, design or sustainability.

Tips:

  • Do not focus on price negotiation. Be aware that your success lies selling your organisation and its reliability and service levels, not the cheapest product. The value of on-time delivery and top service levels is very high. By focusing exclusively on price, you run the risk of losing, as buyers will always be able to find some other supplier with an even sharper offer.
  • Do not be afraid to say ‘No’ to a buyer whose demands are too high.
  • Niche markets, or higher market segments, offer better margins and less competition than the low-end mass market. If you have a unique product, or some other distinguishing feature – such as excellent craftsmanship, alternative yarns and compositions, ethnic designs or sustainability – the higher segments are a good target. If you believe you can grow as a low-cost, high-volume supplier, the low-end is probably more suitable.
  • If you find a niche area with growth potential and fewer competitors, realise that you cannot reach that niche overnight. It is a gradual process that requires significant experience on the European market.
  • In every segment buyers are under pressure with regards to margins and looking for cheaper alternatives. Tap into that need. At the same time, as we saw above, you will never be the cheapest for very long, so don't try and compete only with basic styles, but focus on features that add value to the buyer’s collection. Eventually, reliability and good results will lead to orders over and above your basic collection.
  • Focus on unique products and qualities and maximise the quality of your service levels.

Competition from within Europe is a potential threat

Some European manufacturers are beginning to compete with suppliers from developing countries. They have built up competitive advantages, including higher flexibility, shorter lead times, quality and design, higher productivity and innovation. As a consequence, production of high-end, ultra-fashionable clothing is more and more likely to remain in or near Europe, in countries like Portugal, Spain, Italy and Turkey.

The growth of competition from inside Europe has several drivers, such as a need for shorter lead times and more control over design and production in some higher segments. Particularly in segments that rely on fast fashion or high quality, this development is a threat to you as a developing country supplier. For example, a lot of high-end (leather) fashion is being relocated from the developing world to Portugal.

In order to compete with these fast fashion organisations, more and more manufacturing organisations are moving parts of their design making, sample making and merchandising to high-turnover markets. This saves time in the approval and decision-making processes.

Another threat is automation.

Tips:

  • Reduce your sample lead times by setting up a sample room near your biggest customer. It is a good way to compete with European players and more and more suppliers are doing this (for more details see our study on Doing business in Europe).
  • Arrange for local representation with easy access to your buyers’ offices. This is another good way of building the relationship and ensuring good service levels. Note that the traditional agent is disappearing. A local representation is no longer willing to work based on commission only.
  • To strengthen your competitive position, build relationships with buyers. You can do this by offering extra services and/or competitive prices. Think of pre-production services, sourcing, collection proposals, forwarding advantages and capacity bookings.
  • Distinguish your products from those of your competitors by innovating or improving features.
  • Compete with European suppliers by helping buyers reduce their time to market. For example, work with them to exchange data more efficiently and to speed up decision processes in the organisation of your supply chain. Reducing time to market can increase the likelihood of a good, profitable resale.
  • If you have a mid-sized operation, you can cooperate with buyers and other supply chain partners in design, production and logistics to reduce lead times and strengthen your competitive position.
  • Another approach is to avoid fast fashion and focus on slower, more labour-intensive products for niche segments. For example, sustainable products, unique designs, ethnic craftsmanship etc.
  • For more information see our study on trends on the European apparel market and our new study on technology in European apparel.

Most of the buying power in the supply chain lies with large retailers

The most powerful players in the apparel supply chain to Europe are large corporations, such as Inditex, H&M and Primark. The consolidation efforts of these retailers are putting a lot of pressure on smaller players.

Inditex (Zara) focuses on having the right product in the store at the right time, and values short lead times and product innovation.

H&M is more focused on low prices and manufactures largely in countries with GSP advantages and low wages.

However, within these organisations diversification is growing. Different concepts have been introduced on a different price level servicing different customers.

Watch out for Amazon

Although in fashion today Zara and H&M are growing the most and quickest, their growth is slowing down. A major grower is Amazon, a non-fashion company driven by technology and Big Data.

Some market observers predict that Amazon and similar tech-driven players will change the apparel industry. Amazon has taken over 35% of the United States market for basic garments in a very short time and is preparing a major fashion offensive. It is not at all unlikely that in a few years Amazon will be the biggest apparel supplier worldwide.

If you have a strong offer, negotiating with smaller, independent buyers is easier and less risky

As a developing country exporter, you will be up against significant buyer power if you do business with these large retailers, department stores or tech-driven newcomers. Negotiations will be easier if you focus on smaller, independent specialty shops that mainly serve the upper-middle income segment.

In the smaller segment, buyers are less price-sensitive; their main goal is to find special garments with good designs, made from quality fabrics.

For many suppliers, this means moving out of the low-end to middle and higher market segments.

New e-commerce organisations are looking for manufacturers who can offer high flexibility. These newcomers tend to be less complicated to work for and therefore represent a market opportunity for smaller exporters in developing countries.

Use innovative or scarce materials to trade up

There are different ways for you to trade up, or to develop more selling power as a supplier. One is to work with less common materials. For example, in-demand, scarce materials like organic cotton, bamboo, flax and hemp, or bio-based materials. More innovative materials and higher quality – and a deeper understanding of quality – will also give you more power.                                                      

You need to have experience on the European market in order to deal with niche-market players. They often have higher demands in terms of product quality and design. You also need a good understanding of their market, as their customers are more demanding than those of the retail giants.

Tips:

  • When focusing on a specific market segment, such as the upper-middle income segment, consider distributing your products through alternative channels, such as web shops, social media, home parties and pop-up shops. For more information see our study on channels and segments in European apparel.
  • Make your communications and service programme stand out and promote your product in a unique manner. For example, tell a story about how the garment got made, and who made it; focus on the sustainable and social responsibility aspects. These are good ways of adding value and reaching higher market segments.
  • Look for original, affordable materials that can compete with mainstream materials in terms of look and feel, durability and so on. If a buyer normally purchases cotton, he will always compare the quality and price of alternative materials with cotton. Make sure to look for a variation that is more attractive, but ultimately cheaper for your buyer. Sourcing fabrics in countries like China is a perfect way to create a competitive advantage. Create a setup in which new materials are sourced monthly and send to buyers.
  • Here are some other good selling points that will increase your power and your margins: your efforts for the environment; the use of organic or biological materials; use of fewer chemicals; technical additions, such as Gore-Tex; use of recycled materials.
  • With the increasing importance of transparency in the supply chain, it is becoming even more important for you to know the origins of your raw materials and the conditions under which they are produced. Map out your supply chain, identify and mitigate risks, and invest only in suppliers with ambitions that match your own.
  • Join platform organisations that support innovative manufacturers, such as Fashion for Good.

4 . Who are my rivals?

Some supplier countries are more competitive than others

When a buyer starts looking for a new country to start production in, he will use several search criteria. Does the country have a low minimum wage? Low or no import duties (GSP)? A tradition in producing apparel? Access to good raw materials? Safety and political stability? The more of these criteria your country meets, the stronger your competitive position.

Factors that make your company more or less competitive than others

In addition to your country’s competitiveness, one of the most important competitive criteria in the future will be your corporate social responsibility (CSR) performance. Consumers and governments are putting more and pressure on apparel brands to stay away from factories with poor CSR standards. Most European buyers engaging in outsourcing take this seriously, making a point of visiting and auditing supplier factories frequently.

Of course, any European buyer will also look at the competitiveness of your company. He will be especially interested in your speed, price, labour costs, flexibility regarding volumes and design, MOQ (minimum order quantity), ability to offer different quality levels, to mix qualities in one product or to produce several categories of products (knits, t-shirts, woven textiles, trousers, tops, etc.) and your degree of specialisation.

Tips:

  • Look at the above country criteria to assess the competitive position of your country. In communicating with potential buyers, emphasise the strong points your country offers.
  • Develop a company CSR culture and regulation that matches the standards requested by your buyer, while also including a long-term CSR growth plan.
  • For more information on how to improve your CSR see our study on Sustainable apparel in Europe.
  • For details on the trade position of your country in relation to Europe, check the European Union’s website on the Generalised Scheme of Preferences (GSP).
  • Look at and use the company criteria in the same way. Be aware of your weaknesses, but always focus on strengths in communicating: they are your selling points.
  • Be aware that before selling products you have to ‘sell’ your organisation. This means convincing a buyer with arguments such as your country, your factory, your corporate social responsibility (CSR) performance, or, for example, your vertical setup (a company with a vertical setup is an organisation in which each factory involved in the production process – from yarn to fabric to final product – to the same organisation).

Being competitive is one thing, communicating it is another

It is one thing to know all about your competitive strengths and weaknesses – and those of other players on your market. But it is another thing to communicate your competitive strengths effectively. On European markets, this ability to communicate your competitiveness is as important as the competitiveness itself.

Tips:

  • When you start communicating about doing business with a buyer, make sure that in your introduction you highlight the distinguishing features of your country and your company, as discussed above. If these meet the client’s wishes, then a meeting will follow to discuss product and price.
  • Building good relationships with buyers is key. This means that how you communicate is as important as what you communicate. For example, stand out from competitors by always answering questions quickly (within 24 hours) and correctly. Clear and efficient communication that radiates a sense of confidence can be decisive in bringing in new business – and keeping it.
  • Your first contact with a prospective buyer is vital. Look for good examples online of European business introduction letters.

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