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1、Special Report | Research3 June 2020Sustainable & Thematic InvestingSustainable Fashion: The show must go onCOVID-19 has laid bare serious failings within the global fashion system. We see this as an opportunity for the industry to address the problematic take-make-dispose model and identify key cha

2、nges for companies to consider as they look to further prioritise sustainability and deliver on existing bold targets.FOCUS#virus #climatechangeSustainable & Thematic Investing Anushka Challawala+44 (0)20 3134 2326 HYPERLINK mailto:anushka.challawala anushka.challawala Barclays, UKHiral Patel+44 (0)

3、20 3134 1618 HYPERLINK mailto:hiral.patel hiral.patel Barclays, UKKatherine Ogundiya+44 (0)20 3134 1391 HYPERLINK mailto:katherine.a.ogundiya katherine.a.ogundiya Barclays, UKBarclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research repor

4、ts. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.This research report has been prepared in whole or in part by e

5、quity research analysts based outside the US who are not registered/qualified as research analysts with FINRA.This is a Special Report that is not an equity or a debt research report under U.S. FINRA Rules 2241-2242.FOR ANALYST CERTIFICATION(S) PLEASE SEE PAGE 50.FOR IMPORTANT FIXED INCOME RESEARCH

6、DISCLOSURES, PLEASE SEE PAGE 50. FOR IMPORTANT EQUITY RESEARCH DISCLOSURES, PLEASE SEE PAGE 51.CONTENTSTOC o 1-2 h z u HYPERLINK l _TOC_250028 EXECUTIVE SUMMARY 3 HYPERLINK l _TOC_250027 HOW COVID-19 EXPOSED UNSUSTAINABLE FASHION 4 HYPERLINK l _TOC_250026 Two critical issues have been further expose

7、d 4 HYPERLINK l _TOC_250025 Sustainability will not be ignored as it has been in the past 7 HYPERLINK l _TOC_250024 What is different this time? 8 HYPERLINK l _TOC_250023 Near term holds considerable financial pressure 10 HYPERLINK l _TOC_250022 Consumers will continue to care about sustainability 1

8、3 HYPERLINK l _TOC_250021 Implementation timeline: the path to sustainability 15 HYPERLINK l _TOC_250020 RECONFIGURING THE GLOBAL SUPPLY CHAIN 16 HYPERLINK l _TOC_250019 Improved transparency is essential 16 HYPERLINK l _TOC_250018 Enabling dynamic supply chains 18 HYPERLINK l _TOC_250017 Additional

9、 regulation for brand-supplier relationships 20 HYPERLINK l _TOC_250016 ADDRESSING THE TAKE-MAKE-DISPOSE MODEL 22 HYPERLINK l _TOC_250015 Four key approaches to transform the business model 22 HYPERLINK l _TOC_250014 Resale platforms well positioned, even for Luxury 23 HYPERLINK l _TOC_250013 Reinve

10、nting value: recycling and repurposing stock 25 HYPERLINK l _TOC_250012 Rethinking the fashion calendar to increase items sold at full price 26 HYPERLINK l _TOC_250011 The long-term goal: production-on-demand 27 HYPERLINK l _TOC_250010 SECTOR IMPLICATIONS 29 HYPERLINK l _TOC_250009 Extending Barclay

11、s Global Fashion Landscape 29 HYPERLINK l _TOC_250008 European General Retail & E-commerce 31 HYPERLINK l _TOC_250007 European Consumer Staples 37 HYPERLINK l _TOC_250006 US Specialty Retail, Apparel and E-commerce 38 HYPERLINK l _TOC_250005 European Credit Research: Luxury Retailers 40 HYPERLINK l

12、_TOC_250004 ESG considerations 41 HYPERLINK l _TOC_250003 Questions for management 44 HYPERLINK l _TOC_250002 APPENDIX 47 HYPERLINK l _TOC_250001 Key industry initiatives 47 HYPERLINK l _TOC_250000 Fashion Transparency Index 2020 48EXECUTIVE SUMMARYThe COVID-19 pandemic has laid bare serious failing

13、s within the global fashion system, bringing longstanding issues of wasteful inventory management, opaque supply chains and poor supplier relationships into sharp focus. The paralysis caused by global lockdowns and ongoing store closures has uniquely impacted the sector, with shocks to both supply a

14、nd demand. While the near term holds unprecedented challenges for brands, the damage has been far-reaching, with $3bn worth of orders cancelled in Bangladesh alone. We believe the pandemic presents an opportunity for the industry to learn from past mistakes, re-evaluate the way it operates and accel

15、erate the shift towards sustainable fashion. Considering the impact from COVID-19 in conjunction with our existing view on fashions environmental footprint (Global Fashion: Green is the new black) leads us to focus our discussion on two key issues: the opaque supply chain and the wasteful take-make-

16、 dispose model. In this report, we present our implementation timeline and identify key changes that we think will enable the industry to rebuild in the wake of the pandemic as it further prioritises sustainability and delivers on existing bold targets.Green is still the new black. Unlike previous e

17、conomic shocks (i.e. 2008), which saw sustainability strategies pushed to the bottom of the agenda, we argue that this time is different. While we acknowledge that there will be near-term financial pressure, the industrys flawed sustainability credentials have been heavily publicised throughout the

18、pandemic, revealing two key problems that require urgent attention, in our view. Rebuilding sustainably will be a gradual process per our implementation timeline, we identify several changes that we see brands embedding into their recovery plans and estimate the phasing of these through to 2030 and

19、beyond.Improving supply chain transparency. The outbreak has reinforced the need for companies to build resilience against future shocks into the fragmented and opaque fashion supply chain. While near-shoring remains a long-term possibility, we see brands opting to diversify operations and embrace t

20、echnology to enable better traceability. With 2m Bangladeshi garment factory workers jobs at risk, we argue that social issues go further than unethical working environments and see scope for industry initiatives and regulation to address poor buying practices and safeguard workers wages.Addressing

21、the take-make-dispose model. The volume of waste produced by fashion has been severely emphasised as a result of the pandemic. While the near term will see stark discounting, we discuss what COVID-19 could mean for business models in the long term. We highlight four key approaches that, in our view,

22、 brands may look to implement to prevent overproduction and reduce waste, ranging from own-branded resale platforms to redesigning the fashion calendar, virtual design & prototyping, and production-on-demand in the long term.Sector implications & Global Fashion Landscape. Following our initial repor

23、t Global Fashion: Green is the new black (15/1/20), our long-term view on company positioning with respect to Sustainable Fashion remains unchanged. We continue to see ASOS and Boohoo as more exposed than Zalando, given their reliance on fast-moving trends, while Primark emphasises a continued focus

24、 on its sustainable cotton programme.Encouragingly, many brands have actively recognised the importance of embedding sustainability into their recovery efforts and weve seen several companies joining or announcing new initiatives in light of the pandemic (ASOS, H&M, Kering). In a bold move, Zalando

25、announced that by 2023 all brands on its platform will have to go through a strict audit process and meet certain sustainability requirements. Some companies have also been better positioned to weather the initial shocks. Specifically, Boohoos test and repeat model has proved beneficial (inherently

26、leads to less waste) and the majority of Primarks unsold stock is largely non-seasonal, enabling it to re-sell next year. We extend our Global Fashion Landscape to include more companies key additions include Lenzing and Kornit Digital, as well as private companies TextileGenesis, Eon Group, The Fab

27、ricant (Figure 15).Why read this report?The pandemic has reinforced our view that the long-term costs of failing to prioritise sustainability within fashion are too great to ignore. Per our 2030 Thematic Roadmap: COVID lens (28/5/20), we argue that the COVID-19 pandemic provides a meaningful catalys

28、t for companies to reconsider the structure of their global supply chains and improve economic resilience. We believe the fashion industry is now at the centre of this debate and companies should use this opportunity to further integrate sustainability into their recovery plans and deliver on existi

29、ng bold targets.HOW COVID-19 EXPOSED UNSUSTAINABLE FASHIONPrior to COVID-19, conversations around sustainability within the fashion industry had been escalating. In our view, the outbreak has propelled long-standing environmental and social issues to the forefront of discussions, shining a much need

30、ed light on wasteful inventory management, opaque supply chains and poor brand-supplier relationships.We continue to believe that that the most impactful changes to reduce the industrys environmental footprint can be made within the production stages of the supply chain. Considering this in conjunct

31、ion with the impact of COVID-19 leads us to argue that the following two areas are worthy of discussion and are where efforts should be focused:1) fashions opaque and fragmented supply chain, 2) the wasteful take-make- dispose model.We acknowledge that fashion has been uniquely impacted by the pande

32、mic, with shocks to both product supply and demand - the near term holds immense financial pressure for brands along with uncertain consumer sentiment. However, unlike after the financial crisis, we believe the period after COVID-19 is an opportunity for brands to embrace sustainability and we expec

33、t to see a continued, if not accelerated, shift towards sustainable fashion as the economic outlook improves.Conversations that were rippling below the surface pre-Covid, like sustainability, will now be accelerated Business of FashionTwo critical issues have been further exposedFashions fragmented

34、and opaque supply chainLack of traceability and diversification blindsided brandsWhen the outbreak first escalated in China, components were not arriving from factories in China to other countries. Therefore, the brands that did not have visibility on their sourcing streams were blindsided. It demon

35、strated that poor transparency of their entire supply chain along with over-reliance on a manufacturing location can be paralysing in extreme circumstances.Poor brand-supplier relationships impacted garment workersAs the virus hit western markets, brands were forced to shut down stores. In turn, man

36、y of them cancelled any new orders with suppliers, existing shipments were blocked and brands refused to take stock of garments that had already been made. Manufacturers, however, were still liable for the money they have already spent to make the garments. Ultimately, these actions also led to mill

37、ions of garment workers in Asia being made redundant and have exposed the unsustainable buying practices still in evidence upstream. We highlight the response of key brands in Figure 1, page 6.To help illustrate, 86% of 500 manufacturing facilities surveyed across all main production regions have be

38、en impacted by cancelled or suspended orders (SAC & Higg1). As a direct consequence, 40% now struggle to pay employees, leading to layoffs and factory closures (April 2020). The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) estimates that, as of 31/3/20, c$3bn worth of orders ha

39、d been cancelled or postponed in that country alone, and in April 2020 Bangladeshs export revenue was down 83% yoy (garment exports accounted for 84% of the countrys overall exports in the fiscal year through June 2019).Both make us question supply chain dynamicsWe argue that these issues raise impo

40、rtant questions about fashions supply chain. We believe COVID-19 is a clear catalyst for companies to change the design of their global supply chains and build resilience against future shocks (e.g. geopolitical tension, climate change and global pandemics) see 2030 Thematic Roadmap: COVID lens (28/

41、5/20) for details across industries.The wasteful linear business modelBillions of dollars of unsold inventory put things into perspectiveIn Global Fashion: Green is the new black, 15/1/20, we argued that the fashion industry urgently needs to rethink its linear take-make-dispose model, which is pred

42、icated on overproduction and underutilisation. We identified waste reduction as a crucial solution to transform the industry and enable sustainable fashion. Fast-fashion has exacerbated the problem, with an estimated$500bn in value lost within the industry per year due to clothes being barely worn a

43、nd rarely recycled. Since lockdowns were imposed in the US and Europe, brands have been forced to close stores, leaving them with copious volumes of unsold inventory and highlighting the urgent need to transform production processes and reduce waste.Historically, there has been no incentive for chan

44、geIt is typically cheaper for brands to produce at higher quantities than respond more closely to demand; therefore, brands have not been incentivised to invest in a more responsible production model. In addition, the retail market now functions assuming that most products will not be sold at full p

45、rice: the remaining unsold stock at the end of a season will be automatically discounted.Consumers are also accustomed to discounting, with sales periods being extended each year and some waiting until items are discounted before purchasing. Since an ongoing discounting culture consistently chips aw

46、ay at margins, we argue that reducing waste and producing efficiently should be a key focus for the industry.We highlight key statements made by the main brands under our coverage in Figure 1.1 Higg Index is developed by the SAC and is a tool to measure a companys sustainability performance.FIGURE 1

47、Newsflow relating to store closures, supplier contracts, and new sustainability commitmentsCompanyNewsflow23/3/20 - UK Lockdown imposedInditex18/3/20 - Inditex announced it would be writing off almost 300m worth of Spring/Summer inventory.New Look3/4/20 - New Look anounced it will be delaying suppli

48、er payments indefinitely.H&MIn April, after initially saying it would cancel existing orders, H&M agreed to take both finished garments as well as those on the production line and stick to agreed payment terms and prices.InditexIn April, Inditex committed to take shipped goods and apparel in product

49、ion.H&M8/4/20 - H & M signed a new 12 months EUR 980 m revolving credit facility with a 6 months extension option in order to further strengthen its liquidity buffer and financial flexibility in response to the Covid-19 situation.16/4/20 - Oasis and Warehouse fall into administrationAsda (owned by W

50、almart)Primark19/4/20 - Asda cancelled 25% of clothing orders with suppliers.20/4/20 - Primark announced that, following talks with suppliers, it would now pay for an additional 370m of orders that were either in production or finished and planned for handover by 17th April (initially committed to 1

51、8/3). The new arrangement means Primarks total stock, owned and committed, is worth c2bn, although its shops are closed and it does not trade online.M&S24/4/20 - M&S committed to both collecting produced goods, those in progress and unused raw materials.H&M28/4/20 - H&M announced permenant closure o

52、f 8 Italy stores. As of 30/4/20, 60% of stores remained closed (vs 80% in mid-March)ASOS30/4/20 - ASOS stated that it had cancelled and delayed orders. The amount of made stock cancelled by ASOS totals approximately 5-6m at cost value, or less than 1% of its total Spring/Summer 2020 intake.Primark4/

53、5/20 - Primark reopened 5 Austrian stores and 20 Dutch stores out of a total 375 stores worldwide.10/5/20 - UK update signals shops to reopen in June 202011/5/20 - Lockdown eased in France, Italy, Spain allowing small stores to openLVMH11/5/20 - Opens Paris Louis Vuitton store at 50% capacity.15/5/2

54、0 - The company has now committed to paying in full for all made orders that had previously beenASOScancelled. ASOS is now a signatory to the UNs International Labour Organisation proposal: COVID-19: Action in the global garment industry.18/5/20 - Stores allowed to reopen in ItalyRichemont18/5/20 -

55、Chloe signed a petition proposed by various industry designers to shift away from the seasonal fashion calendar.H&M19/5/20 - H&M Group signs UN Global Compact initiative20/5/20 - Topshop and New Look have teamed up with fashion app start-up Mallzee in collaboration with theTopshop/New LookSajida Fou

56、ndation to launch a mystery clothing box to help Bangladeshi factory workers. Each box reportedly costs 35 and is filled with over 70 worth of surplus stock .Kering24/5/20 - Gucci announced it would be abandoning the traditional fashion calendarAsda (owned by Walmart)26/5/20 - Activist group Remake

57、says ASDA is refusing to accept a percentage of George orders and is imposing “enormous discount” from 40%-70% on suppliers for a proportion of orders that have not yet been completed.Zalando27/5/20 - Zalando announced a partnership with SAC and Higg: all brands will be audited to meet strict sustai

58、nability requirements by 2023.15/6/20 - Non-essential stores to reopen in the UKZalando2/6/20 - Zalando announced it has set science-based targets (SBTs) in order to reduce GHG emissions in line with the 1.5 C Paris Agreement figure.Source: Company data, Barclays ResearchSustainability will not be i

59、gnored as it has been in the pastPost 2008, fashion brands turned to extreme productionPost the financial crisis, the desperation to recover led fashion brands to push their new sustainability strategies to the bottom of their agendas and return to a model built on perpetual growth, leading to short

60、er lead times and growth of disposable fashion.The culture of disposable fashion led clothing utilisation to fallAs we argued in Global Fashion: Green is the new black, 15/1/20, billions of dollars of marketing have normalised the culture of repeatedly buying clothes and disposing of unwanted items