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In 2004, Stanford economist Paul Romer opined that a “crisis is a terrible thing to waste,” a phrase that President Obama’s chief of staff Rahm Emanuel co-opted during the 2008 financial crisis. As we face our current crisis, I think all industries would be wise to take Romer’s words to heart. As industries line up for government funding, they’re ignoring an opportunity to truly innovate. These bailouts and loans provide temporary relief but postpone the inevitable reimagining that will lead to healthier, more resilient industries.
I make my living as chairman and co-founder of a technology-based, vertically integrated fashion holding company. Fashion is a $3 trillion global industry, and it serves as a model for defining a new industrial structure in a world that has changed forever.
But fashion’s business model is broken. It takes six to 12 months to get a product to market (though there are some exceptions); it’s based on technology mostly developed in the ’90s or earlier; it stifles rather than enables innovation; and its adverse impact on this planet is staggering. A government bailout for this industry as it operates now would be the equivalent of bailing out the horse carriage industry in 1910. It doesn’t need bailing out; it needs investment in comprehensive change.
The fashion industry has not changed in the past 25 years with two major exceptions — online commerce and last mile logistics. It has survived two major shocks (9/11 and the 2008 financial crisis), but it had plenty of time in between to recover. Meanwhile, the world we live in, the technology we have developed and the interconnectedness of economies and societies looks nothing like it did 25 years ago. This crisis is clear evidence that we are all affected (and infected) by each other’s political, economic, social and health crises and will become increasingly more so in the future. Real systemic change will not happen if investors and businesses continue focusing on incremental innovation in the last mile. We need to reimagine the millions of miles before that.
If you really want to change the fashion industry, make everything on-demand. Inventory is the industry’s version of musical chairs: If you’re left holding it when the music stops, you’re out. It’s your source of future cash flow and is now worthless.
Now imagine the entire fashion industry on-demand:
- Manufacturers wouldn’t hold worthless, out-of-season inventory. They would be able to pause their factories in an instant, restart within days and shift their manufacturing to a current product mix.
- Retailers would no longer make purchasing decisions six months before they need inventory. All store merchandise would be restocked multiple times each week directly from factories, minimizing bad inventory exposure.
- Brands would make nearly every element of their business variable. They would increase or decrease supply of their product dynamically based on market demand. There wouldn’t be any warehouses (products are shipped to the customer from the factory), no clearance sales for excess inventory, no sold out products and no cash tied up on unusuable merchandise.
- Fashion would be far more sustainable. Conservative estimates say 30 percent of all products manufactured each year are never sold and end up in landfills or are incinerated. Real, impactful sustainability starts with making the right amount of product.
Companies would look different – less overhead, more automation. But the industry would be healthy, creating more opportunity for workers and investors.
A distributed, transparent networked supply chain
On-demand manufacturing means a product exists only when it’s wanted. Distributed manufacturing means it exists only where it is wanted. For example, at the beginning of the year as production halted in China, it could’ve been picked up by factories in Boise, Idaho or Sao Paulo. Distributed manufacturing enables supply chain resiliency by diversifying geographic risk, providing real-time access to customers in a wide range of markets, reducing transportation impact, avoiding tariffs and creating local manufacturing jobs. It would also make it possible to measure the environmental impact of a single garment and hold businesses accountable for sustainability claims.
A network of thousands of manufacturing nodes would have been unimaginable even five years ago. But now, billions of blockchain contracts managed by advanced neural networks to control the manufacturing and delivery of individual unit orders make this possible.
A return to a creation-driven industry
Today, because of manufacturing and material minimums and cashflow timing, being wrong is too expensive for a brand. But in a world where product is made on-demand in real time, nothing is volume-dependent. A creator could design, sell and make one garment as efficiently as 1,000 without risk. This industry could recapture something essential that it has lost — its soul.
Fashion is an industry of art, not science. We lose track of this when we talk about AI-based design and machine learning-based analytics for trend forecasting. Too much investment in fashion tech has been focused on the areas of “magic” performed by talented humans — design, experience and excitement — rather than on the area where it can make a difference: value chain infrastructure. I propose that we use science to empower art. This is not a dream; it’s a reality today. My firm is incubating and pressure-testing companies focused on these innovative technology architectures right now.
There is an old adage: “If you find yourself in a hole, stop digging.” It’s time to stop digging. Change is painful, but with courage from the industry and capital from investors, we can use this crisis to build a more stable, more responsible fashion industry. We can provide more opportunity for brands, retailers, manufacturers, designers, workers, shareholders and communities. Preserving a broken, irresponsible, legacy industry in a time when it could truly change for the better would be a waste of a crisis.