“We started working with D2C (or digital native) brands a bit earlier than most, so we've had more experience working with them. Today, more than half of our sales are from digitally native brands. I think that's really reflective of where we're going to be seeing things going in the future,” said Stanley Szeto, executive chairman of Hong Kong-based Leverstyle. At a time when most manufacturers were chasing big volume orders, Mr. Szeto saw an opportunity to work with ‘indie’ brands who were placing smaller orders and wanted better quality. For over two decades he has been pioneering ways to build greater efficiency into apparel manufacturing. “I think certainly there's a demand from the consumer for better quality and for more uniqueness. That’s where we're seeing opportunities coming from the indie brands. They are much better at targeting smaller consumer niches,” he said. “Even if it only caters to a very small percentage of the population – let’s say 2 percent – in the U.S. that would be 7 million people. If you can effectively reach 7 million people, you have a very viable business. “And these people are probably willing to pay a premium for your products because what you are offering exactly meets their needs,” said Mr. Szeto. <blockquote> There's a demand from the consumer for better quality and for more uniqueness. That’s where we're seeing opportunities with the indie brands. <footer> <cite>- Stanley Szeto, executive chairman, Leverstyle</cite> </footer></blockquote> The ability to understand what a subset of consumers want, and to deliver on it, has been a core factor in differentiating indie or D2C brands. However, as these brands grow and need greater manufacturing capacity, there’s often been a hurdle with order size and flexibility, since most Asian factories are used to larger orders with longer lead times. “If you have materials lined up, and if you know what you're going to sell, even if it’s something as complicated as a suit, you can produce it with very short lead times. “You don't know which fabric you're going to be using, but since you have the fabric already lined up, then you just pick up the one you need when the order comes in and the order can be filled very quickly,” he added. <blockquote> With on-demand manufacturing, the manufacturer or brand is taking on the risk of the fabric, but they are not risking having inventory of the wrong sizes or styles</blockquote> <h3><strong>From Theory to Reality</strong></h3> China is becoming the proving ground for on-demand manufacturing. “During last year’s Double Eleven shopping festival (November 11) we were fulfilling some orders for apparel brands. A lot of garments that were sold were not made yet. The materials were ready and the factory capacities were booked, but the garments were not made until those orders were taken. “After midnight on November 11, when the festival is over, they collected all of the orders that have been sold through various channels and then they tell the supplier which models to make, which fabrics to use and so forth. So we're seeing this happening already. It's not something that's way out in the future,” said Mr. Szeto. The manufacturer or the brand is taking the risk on the fabric or on the raw materials, because they don't know how many orders they're going to get. But raw materials are roughly half the costs of the finished product. “If you have unused material, you can always design into it. It’s much more flexible than having stock in the wrong sizes or the wrong styles,” he said. The advantage is that you only have to make a decision about the fabric. This allows manufacturers and brands to be much more responsive to the market. <figure> <a href="https://www.buzzsprout.com/1293362/5061617"> <img src="https://insidefashionlive.net/wp-content/uploads/2020/08/Screenshot_2020-08-22-What-D2C-Brands-Do-Differently-A-New-Formula-for-Success-A-Seat-at-the-Table-Leadership-Innovation....png" alt="" srcset="https://insidefashionlive.net/wp-content/uploads/2020/08/Screenshot_2020-08-22-What-D2C-Brands-Do-Differently-A-New-Formula-for-Success-A-Seat-at-the-Table-Leadership-Innovation....png 837w, https://insidefashionlive.net/wp-content/uploads/2020/08/Screenshot_2020-08-22-What-D2C-Brands-Do-Differently-A-New-Formula-for-Success-A-Seat-at-the-Table-Leadership-Innovation...-300x74.png 300w, https://insidefashionlive.net/wp-content/uploads/2020/08/Screenshot_2020-08-22-What-D2C-Brands-Do-Differently-A-New-Formula-for-Success-A-Seat-at-the-Table-Leadership-Innovation...-768x190.png 768w, https://insidefashionlive.net/wp-content/uploads/2020/08/Screenshot_2020-08-22-What-D2C-Brands-Do-Differently-A-New-Formula-for-Success-A-Seat-at-the-Table-Leadership-Innovation...-750x185.png 750w" sizes="(max-width: 837px) 100vw, 837px" width="837" height="207"> </a><figcaption>Listen to the podcast</figcaption></figure> <h3><strong>Reduce Inventory, Reduce Risk</strong></h3> Brands have to accept the fact that this kind of production – ordered at the last minute and in small batches - will cost a little bit more, but then they will save way more by drastically reducing markdowns, discounts and write offs of inventory. For many traditional brands, shifting to this new manufacturing model is too big a leap of faith. However for newer companies, who have no legacy systems in place, there’s an opportunity to be creative and approach the supply chain from a new point of view. Many indie brands were started by people from outside of the apparel industry so they are not tied to assumptions about the way designing and manufacturing must be done. They are open to new ideas and willing to give a less conventional approach a try. <h3><strong>Survival of the Most Flexible</strong></h3> “I am actually cautiously optimistic. Many people point to these D2C brands as being fueled by easy venture capital, however investors are demanding a lot more given the current economy,” said Mr. Szeto. What will give them a competitive advantage is having a more variable cost structure that will let them be more adaptive to the economy. “These indie brands have a much more variable cost structure. They don’t have retail shops, which have fixed costs such as rent, staff salaries, renovations, and so forth. True, for e-commerce shipping costs can be very expensive, but then you only incur those costs when you make a sale,” he added. A lot will come down to who has the right cost structure to survive this downturn. Who's versatile and flexible enough to shrink when they have to, but also to expand quickly, when the market suddenly comes back?