The start of Trump’s global trade war is yet another emergency in a world of emergencies where, victims of ‘chaos and paralysis’, it is difficult, if not impossible, for companies to even plan for the next quarter. What to do?
by Massimiliano Viti
Years ago, a small footwear artisan (but he could be a leatherworker, a tanner, a textile manufacturer or their supplier) spent most of his time in the workshop, looking after production. He would get the bare minimum of information by reading a newspaper, watching the evening news, and discussing with colleagues. Today, that same craftsman is obsessed – as is everyone else, voluntarily or otherwise – with information. He spends less time on production and pays more attention to online news, social media and other channels that choke him with news.
He has not gone mad, though and he informs himself this way, partly because he is aware that his business is increasingly interconnected and dependent on what happens outside his laboratory. It only takes one decision made thousands of kilometres away to knock his business down after years and years of hard work. This is how we live and work today in a world of emergencies.
A world of emergencies
This craftsman probably knows that we are in the VUCA era, which stands for ‘volatility‘, ‘uncertainty‘, ‘complexity‘, and ‘ambiguity‘. It is the definition of a rapidly changing world. A world of emergencies in which – for companies – it is difficult to adapt and survive. Rapid and unexpected changes have become the norm (volatility). Economic changes, political upheavals and global pandemics make it impossible to predict the future (uncertainty). Challenges are interconnected, multifaceted and often difficult to address (complexity).
Decisions are extremely difficult to make, and we live from day to day (ambiguity). Trade tensions (tariffs and so on), the rapid development of technology (artificial intelligence, for example), health crises, geopolitical conflicts, climate change, and sustainability challenges are all aspects of a picture that Nate Herman of the American Apparel and Footwear Association (source: WWD), has described as ‘chaos and paralysis‘, as it is difficult, if not impossible, for companies to plan even for the next quarter.
Five times as much
According to the industry.fashion website trade barriers have increased fivefold in recent years: as many as 3,000 new trade restrictions have been introduced globally in just 12 months. Conflicts have increased shipping delays by up to 30%, inflating costs and lengthening delivery times. For one in three companies, economic uncertainty is considered a primary risk to their supply chain.
The condition of consumers
If this is the scenario that companies see, one must also take into account the condition of consumers, who are struggling with high inflation and rising interest rates and the cost of living that have eroded their purchasing power. Hence, they are increasingly price-sensitive. Fashion brands, therefore, find themselves at the centre of an increasingly complex maze of challenges. But, as always, there are opportunities. The ones to seize them are often the newest and most innovative, ‘challenging’ brands, unencumbered by established conceptions of products, shops and customers.
Think strategically
“Change in the fashion industry is not only cyclical but also structural, as there are many problems that are bound to persist. For example, the shift towards perceived quality over price re-established the quality-price equation,’ says McKinsey‘s Gemma D’Auria (source: Modaes). ‘Companies need to stop being tactical. It is no longer useful. What can be useful right now is to take a step back and think strategically. Study and understand the real strategic options and different scenarios because it will be less important to predict exactly what will happen and much more important to know how to respond quickly to what will happen. If I were an entrepreneur, I would be worried, but I would also think about the opportunities that exist.
The concern of finance
The financial markets are also worried. In its recent report with the evocative title ‘Fasten your seatbelts’, Bernstein cut its 2025 estimates for luxury by seven percentage points. Previously, he estimated a 5% growth, now a 2% decline. Analysts are alarmed by the extreme uncertainty, the devaluation of the dollar and, above all, a possible global recession. “Consumers do not buy luxury only because they are rich, but also because they are confident about future prospects”.
For this reason, the “numerous tariff crises” and “unexpected changes in US relations with Ukraine, Russia, NATO and more” have had consequences that will directly affect luxury demand, according to a report by HSBC (source FashionDive). All analyses, words, and concerns that the small footwear artisan of the first lines, bombarded with information, knows perfectly well. What he probably does not yet know, however, is the winning strategy to tackle a market that has become far too complex and, often, no longer within his reach.
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