Fashion’s New Centre of Gravity

This article first appeared in BoF and McKinsey & Company's The State of Fashion 2018 report.

LONDON, United Kingdom — Hindsight really is a wonderful thing. When future historians look back on 2017, they will see several potent symbols of the new world order hiding in plain sight. Obscured by some of the more dramatic events of the year, one discreet milestone that many mistook for a novelty was actually far more telling than it seemed. In October, for the first time since records began, it was revealed that a country in Asia now had the most powerful passport in the world.

According the Passport Index, a tool developed by residence advisory firm Arton Capital, this year saw Singapore depose Germany in its global ranking. Until then, the best passport to have — based on the number of countries granting visa-free entry or visa on arrival — was from a European or North American nation.

Barrier-free entry matters not only because mobility is an extremely valuable currency in today’s globalised business environment but also because it is a measure of a nation’s soft power, which in turn bolsters the standing and bargaining power of local companies, brands and entrepreneurs on the international stage.

For Singaporean startups like ViSenze, an AI-powered visual search engine used by the likes of Uniqlo and e-commerce platforms such as Myntra in India and Rakuten in Japan, having executives with a powerful passport represents a subtle but meaningful competitive advantage — especially when the company grew its international footprint by opening new offices in San Francisco, London, New Delhi and Beijing.

Singapore’s recent “passport coup” is just one of many signs that point toward the probability that the 21st century will indeed be “Asia’s century” and, more broadly, that the West’s grip on power is gradually waning. But at a time when the world’s axis is tilting east and south in a new and sometimes uncertain era of globalisation, not all industries are adapting fast enough to these monumental shifts.

New power brokers herald end of an era

Although its supply chains and retail networks have perhaps never been more globally expansive, the fashion industry remains disproportionately skewed toward Europe and the US. Even in recent years, the fashion industry has been guilty of seeing the world through a rather patronising prism of “the West and the Rest.” For far too long, some insiders claim, the regions of “the rest” — the huge expanse that includes Asia, the Middle East, Latin America and Africa — were treated as an after-thought. But now, in some ways though not all, the balance of power is shifting in their favour.

"It's crazy but it really wasn't that long ago that the corporate fashion world reduced the whole planet down to three territories. I remember the days when you'd look at a brand's financial report or some strategy document and see that they were literally only thinking about Europe, America and Japan. Everywhere else was lumped together in a footnote called 'ROW' which was basically this miscellaneous 'rest of the world' bucket. That kind of says it all, don't you think?" quips Shaway Yeh, group style editorial director of Modern Media Group in China.

“Now the industry is obsessed with China because they’re so dependent on it... but, you know, old habits die hard. Even though most brands now have a presence in most major countries, the way [fashion leaders] in the West approach the rest of the world needs to change. Apart from China, I don’t think they give most other emerging markets enough attention or acknowledge their contributions or needs or even their market value for that matter,” she adds.

There couldn’t be a better moment than now for fashion industry leaders to reflect on this apparent disparity, as 2018 will be a watershed year for purchasing power. According to the McKinsey FashionScope, the collective share of apparel and footwear sales from Europe and North America will fall from 50.4 percent of the global total in 2017 to 49.9 percent in 2018. Meanwhile, the collective share from Asia, Latin America, the Middle East and Africa will rise just above fifty percent and is forecast to continue to increase in the years to come.

For more than 1,800 of the last 2,000 years, China and India were always the two largest economies in the world... the past 200 years have been a major historical aberration.

“Well, let’s see if this sinks in at the next Paris Fashion Week. Just check out their seating plans and see how many [seats] big brands allocate for American and European guests compared to how many for the rest of the world [and] see if it matches the proportion of revenue the brand gets from each region. I bet it’s still way off,” suggests Yeh, who recently founded a sustainable innovation consultancy Yehyehyeh that partners with global fashion brands for projects in Asia.

“I mean, I get that having the big four fashion capitals and Hollywood and a century of designer fashion heritage will probably always mean that the West has a bigger role in fashion, but that should only go so far.”

This legacy has certainly had a lasting impact at the luxury end of the spectrum. It helped some of the more prolific B2B players to root themselves ever deeper into Western markets and it allowed retailers there much longer to develop, leading to greater market maturity. In the case of Italian showroom L.A. Distribuzione, it means that Europe remains one of its strongest global market regions despite serving a very diverse international retail clientele.

"Back in the '90s, Japan was a big player in luxury fashion [but other] Eastern countries were a novelty and Asia was only about a few names like Joyce [boutique in Hong Kong]. The early 2000s were the first picture of the situation we're witnessing today, where we can see big growth in Asia [and other regions]," says L.A. Distribuzione co-CEO Leonardo Cappannelli. Today, the showroom represents Loewe and Outerknown among others, but in the early years it wholesaled brands like Alexander McQueen and Balenciaga around the world.

Another veteran who has witnessed the meteoric rise of emerging market retail is Maria Lemos, director of Rainbowwave, a wholesale showroom she founded fifteen years ago in London after leading sales teams at Sonia Rykiel and John Galliano in Paris. For Lemos, it is not only a matter of growing sales volume but growing influence in terms of the number of innovative retail concepts and business models coming out of emerging markets.

“There was the Korean wave with Boon the Shop, Space Mue and Rare Market, then waves from Turkey and other countries, but that was just the beginning. Look at stores like Homme et Femme in the Philippines, which is this incredibly curated boutique in Manila extremely ahead of the curve in a market you wouldn’t necessarily have known to be so advanced,” Lemos says.

Farfetch has been partnering with a growing number of retailers in non-Western markets. The online marketplace now serves customers in 10 languages, shipping designer fashion from over 700 partners to 190 countries worldwide. In recent years, as buyers from its non-European store network became increasingly adventurous and avant-garde, an interesting phenomenon started taking place.

Some European customers using Farfetch have come to rely on its far-flung store partners to buy European designs that are not readily found back in Europe. Instead, they shop online, for example, from a unique selection of Raf Simons from Saudi menswear boutique Le Gray in Riyadh or Simone Rocha via Lebanese boutique Pia in Beirut, and buy hard-to-find pieces from the likes of J.W. Anderson at South African retailer Maison Mara in Cape Town.

"I think Europe will continue to dominate the creative and craftsmanship sides of the industry, simply because they are impossible to replicate and this [European cluster] is at the heart of the industry. In terms of demand, however, this will definitely be the decade where emerging markets will take the lion's share of growth," says Farfetch founder and CEO José Neves.

Asia’s purchasing power needs soft power

“For more than 1,800 of the last 2,000 years, China and India were always the two largest economies in the world,” Kishore Mahbubani told Asia One in 2016. The former diplomat and dean of the Lee Kuan Yew School of Public Policy in Singapore is a great proponent of this being an Asian-led century. “The past 200 years have been a major historical aberration [so] it’s perfectly natural for China [and] India to resume their places... all aberrations come to a natural end.”

The Asia-Pacific region currently accounts for around 38 percent of the world’s apparel and footwear sales, the largest share of any region. Europe is now in second place at around 27 percent. However, global influence is not gained solely by scale or purchasing power. What has been helping to push Asia closer to the fashion industry’s centre of gravity is a combination of supply chain leadership, tech innovation and Asian-led international investments. This is how the region will continue to gain a louder voice.

Opening of the Louvre Abu Dhabi Museum in the United Arab Emirates | Source: Getty Images

“In technology, Chinese firms are actually ahead of Western firms in areas such as e-commerce and social media,” says Neves, citing the country’s ubiquitous WeChat platform, which has often left fashion marketers scrambling to keep up with its breakneck pace of development. Interestingly, it was WeChat’s parent company Tencent that swooped in to the rescue of Snapchat when it amassed a reported $2 billion stake in Snap in November 2017.

Asia’s clout only grows when one of its pioneering firms makes a bold move on international peers. Whether it is Alibaba Group’s recent appointment of a US-based quantum computing scientist to drive exponentially faster machine learning for its e-commerce platforms or the push by Chinese manufacturers like Suzhou Tianyuan Garments — a supplier for Armani and Adidas — to open a T-shirt factory using advanced robotics in America’s Deep South, the innovation tide is turning eastward.

“Whoever owns the supply chain will eventually be the winner, since there are not many countries left for chasing the cheap needle,” says Gerhard Flatz, managing director of Chinese manufacturer KTC, whose Guangdong factory produces for specialist athletic and performance sportswear brands including Rapha and Mammut.

This sentiment was especially evident in October when supply chain management company Fung Group welcomed a host of venture capitalists and tech entrepreneurs to the launch of its new Explorium incubator lab. With hopes that the lab will help further accelerate the rapid prototyping of omnichannel concepts across fashion retail, the Hong Kong-based giant chose Shanghai for the lab’s location because the city is at the forefront of “new retail” in China, which in turn means it sets digital retail trends across the world.

"We're connecting innovators who want to create digital supply chains of the future with logistics and retail innovators who want to be the best at serving the digitally-enabled consumer of today and tomorrow," said Fung Group chairman Dr Victor K. Fung. Seen in the broader context of China's colossal One Belt One Road infrastructure project, the impact of this on future trade dynamics for global fashion players could be huge.

East Asian nations like Japan and South Korea now spend more on R&D as a percentage of GDP than many of their Western European counterparts and a culture of entrepreneurship is taking hold across much of the region.

According to the World Intellectual Property Organization, China became the first country to file one million patent applications in a year in 2015. Stringent IP protection and enforcement is a pillar of Singapore’s successful startup scene, contributing to the nation ranking third on the World Economic Forum’s 2017-2018 Global Competitiveness Index. Only the US and Switzerland score higher.

As the global fashion industry becomes more reliant on tech innovation for growth, Asia’s achievements in this realm are a growing advantage. From Japan’s cutting-edge designers using textile nanotechnology to Taiwan’s drive to carve out a niche for itself in eco-friendly high-performance fibres, the region has many things to celebrate.

But as is evident from Asian brands as diverse as Comme des Garçons and Manish Arora, fashion is as much an applied art as it is a creative industry. Most Asian nations have yet to effectively deploy soft power strategies to boost their fashion industries as well as their legendary designers naturally do.

“The soft power of my country’s made-by-hand [sector] is underestimated,” concedes Indonesian designer Toton Januar, the 2016 winner of the Woolmark Asia Prize. “The Indonesian government fought for the heritage-craft batik only when the Malaysian government stepped in to patent it.”

Something similar could be said about India’s dizzying array of artisan textiles and ancient techniques — though Prime Minister Modi’s “Make in India” campaign aims to remedy that.

In the same way that India’s vibrant entertainment industry has been underleveraged to promote the country’s fashion sector on the global stage, China has built hundreds of Hanban (or “Confucius Institutes”) to promote Chinese culture around the world yet few of them feature anything like Chengdu street style or the rise of Shanghai Fashion Week. Clearly there are many missed opportunities.

Leveraging Latin America’s cultural capital

Whether it be high culture or pop culture, one way for emerging market fashion players to have greater global impact than pure purchasing power is to leverage their cultural capital.

At the highbrow end of the scale, global fashion brands have been turning to world renowned artists and architects to boost everything from visual merchandising to marketing. A growing number of them have come from Latin America. Giorgio Armani's collaboration with Colombian artist Marta Luz Gutiérrez for an in-store installation and Louis Vuitton's ad campaign using a building designed by the late Mexican architect Luis Barragán as a backdrop are just two of many examples.

The rise of south-south trade and cooperation — exchanges between developing nations — is compelling some creative industry leaders to reassess their investment priorities.

Beyond the region’s links with Europe and the US, however, there are other opportunities to explore. The rise of south-south trade and cooperation — exchanges between developing nations — is compelling some creative industry leaders to reassess their investment priorities.

With Latin music now topping the international charts from Dubai to Delhi, for example, the social media channels of young Latin American reggaeton musicians represent an increasingly influential marketing vehicle for local fashion brands hoping to tap into new markets on the other side of the world.

Latin America’s “telenovelas” (soap operas) could represent another opportunity for mass market players. Mexican multimedia giant Televisa is one of the most prolific telenovela content creators in a region where product placement on TV is commonplace. As early as 2015, the company’s international sales rep told Variety that Televisa sells about a dozen telenovelas annually to 37 countries in Sub-Saharan Africa and 24 Middle Eastern and North African territories.

“I wish we, as designers, could influence... fashion as much as the soap opera stars [here] do. Their reach is outstanding,” said Dudu Bertholini, a designer who was a wardrobe consultant for Brazilian telenovela Verdades Secretas in 2015.

The formula certainly works elsewhere. Seoul’s fashion industry famously benefited from the Hallyu wave of Korean soap operas and music exports to other Asian markets. Success, however, depends on execution. While Japan reigns supreme in the 2017 Soft Power 30 global ranking, the government’s “Cool Japan” campaign was criticised by insiders for trivialising Tokyo’s globally influential fashion scene by packaging it with sectors that resonate less well abroad like J-pop music.

Building knowledge economies in the Middle East

Unfortunately, top-down initiatives don’t always suit the fashion industry. But capturing momentum from grassroots design movements and channelling entrepreneurial flair in an organic way is not easy either.

"Projects that are ignited by the government may start based on a perception of top-down. [But] the soul is created [and] enhanced by the people working on it and experiencing it and these initiatives can come to life in magical ways resulting in repeat business," says Ghizlan Guenez, CEO of The Modist, a Dubai-based e-commerce site that offers contemporary designer brands like Stella Jean and Maison Rabih Kayrouz to women whose religious, cultural or personal tastes lean to a modest style aesthetic.

Pointing to the framework offered by the Dubai Design District and the Dubai Design and Fashion Council, Guenez clearly feels that she has benefited from the top-down approach often used in the United Arab Emirates. The Algerian-born executive has lived in the UAE for 20 years and says that “there’s more to be done [but] the entrepreneurial engine is in full force within the UAE.”

“What is impressive is the strength and speed of initiatives taking place to enhance [and] develop the influx of talent from all over the world into the Middle East. As entrepreneurialism accelerates in the region, high levels of investment are following opportunities across the fields of art, architecture, technology and education,” she adds.

The November opening of the Louvre Abu Dhabi is the latest example. But in neighbouring states like Qatar, there are concerns that some of its megaprojects could end up as white elephants. In Saudi Arabia, Crown Prince Mohammad bin Salman recently announced a plan to build a colossal $500 billion mega-city on the Red Sea coast near the border with Jordan and Egypt called Neom, to be loosely modelled on the "free zone" concepts in Dubai.

One area where there is a lot of optimism is education. In a bid to diversify away from hydrocarbons, the Gulf states are investing in ways to become knowledge economies. One of several new higher education institutions in the region KAUST, the King Abdullah University of Science and Technology, is a progressive research university where seminars on wearable tech and grafting smart surfaces onto textiles are becoming commonplace.

With a growing number of Western universities present in the region — such as the Paris-Sorbonne University Abu Dhabi, a Dubai campus of London Business School and Georgetown University in Qatar — the fashion education sector is likely to gain more traction too. Currently the region is served by Shenkar in Israel and branches of Esmod in Dubai, Istanbul, Tunis and Beirut. Now, however, several prominent fashion schools from Europe and the US are said to be exploring an opening in the Gulf in the coming years.

The great strides made by fashion players in non-Western markets certainly do not unburden them from the many challenges they can face there.

In December 2016, the Istituto Marangoni Group's then-managing director Roberto Riccio told a press conference that Dubai had been earmarked as its next opening after Mumbai. More fashion schools are needed to meet demand from the Middle East where the global success of Lebanese designers has inspired a new generation to pursue fashion as a career. Interestingly, one of the drivers Riccio cited for a possible Dubai campus was to attract fashion students from Africa — where there is also growing demand — who could find the visa system in Europe onerous.

Africa’s ambition to leapfrog ahead

"The common phrase 'Africa is the future' is a reflection of how the continent is growing on its own terms and not necessarily just as 'new market potential' for the rest world to tap into," says Kenyan fashion PR executive Diana Opoti.

Opoti’s fashion career arc is a good case in point. After hosting the television show Designing Africa, she created a successful viral campaign called 100 Days of African Fashion that saw her travel the continent and showcase 100 different locally designed outfits on her Instagram account. It was this experimental social marketing venture that eventually led her to launch a multi-brand retail store that will bow in 2018 in Nairobi.

“Technology is one of the most visible ways we’ve ‘leapfrogged ahead’ in Africa,” she says referring to the way many African consumers skipped the landline and went straight to mobile.

“Kenya specifically is known for its innovation in technology [and] topping this is M-Pesa, the ‘SMS mobile wallet’ which became the most convenient way of making payments for millions. [It’s] so popular, in fact, that it’s now challenging global payment systems like Visa who’ve been forced to adapt by creating their own [rival] system here,” Opoti says, referring to the multinational’s new mVisa service.

A forerunner of many contemporary mobile payment solutions, the pioneering service was launched in 2007 in Kenya and Tanzania on the Safaricom and Vodacom networks and has since expanded as far as India and Eastern Europe.

Some believe another way African consumers could leapfrog is through cryptocurrency. According to Coin-telegraph fintech expert Olusegun Ogundeji, “decentralised, open and permissionless Blockchain technology may well become the foundation for economic empowerment in Nigeria [offering] peer-to-peer trade, new exchanges and innovative ICOs.” Anything that makes online payments easier in the region could eventually help African fashion ecommerce players like Kisua, Jumia and Konga.

On the manufacturing side, countries like Ethiopia where investment has poured in from Asia, have been able to take advantage of the sudden and radical changes happening in the fashion supply chain. Many Chinese and foreign-built factories in Ethiopia are built with the Japanese “kaizen” system in mind to keep standards high.

“We can learn a lot from what happened in Brazil and Vietnam and other places. We can use automation and leapfrog some of the traditional manufacturing processes into automated processes,” said Yared Alemayehu Simegn, manager of Ethiopian shoe factory Walia Leather who produces for several global brands.

The great strides made by fashion players in non-Western markets certainly do not unburden them from the many challenges they can face there. If anything, it points to a steely resilience that helps them deal with everything from poor infrastructure and political instability to trade barriers, bureaucracy and prohibitive tax regimes.

Most insiders concede that fashion will probably always be anchored in cities like New York, Paris, Milan and London but things are evolving fast. Empowered by digital connectivity, upwardly mobile consumers and bold business innovation, emerging market leaders are now helping to find a new centre of gravity for the global fashion industry. With Seoul, Lagos, Bogotá, Kuwait City and many more centres of influence now firmly fixed to the fashion map, power is increasingly shared and decentralised.

As Guenez puts it, this new era is “about seeing a diverse, representative and level playing field, [where] different cultures have influence on the global fashion industry rather than a fully Western bias dominating.”