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4 Davos Themes Fashion Needs to Watch

As business magnates, presidents and economists converged at the 2018 World Economic Forum to discuss the state of the global economy, what important takeaways are there for the fashion industry?
The seven female co-chairs of the 2018 World Economic Forum at Davos | Source: World Economic Forum
By
  • Victoria Berezhna

DAVOS, Switzerland — Picture a group of suited billionaires and world leaders, crawling on their hands and knees, fleeing from advancing armies. Now imagine this happening at the World Economic Forum, where over 3,000 members of the global elite convene annually to discuss the state of the global economy.

In a 75-minute simulation meant to help them experience the hardships faced by millions of refugees around the world, this is exactly what happened during the four-day summit that wrapped up today. And while the simulation was nothing compared to the actual suffering refugees endure, it did reportedly provide a bit of context for this year’s theme: “Creating a shared future in a fractured world.”

The goal of achieving a global understanding of cross-border issues in a world gradually turning inwards is particularly pointed, with populist and isolationist rhetoric increasingly overshadowing a vision rooted in globalisation and free trade. Could it also be a lesson for American president Donald Trump, who flew into Davos the morning of January 25 seemingly as an act of defiance, having ran his campaign against the very spirit of the Forum?

Trump’s isolationist stance isn’t only problematic for the US, but also for the rest of the world, many said. "I am concerned,” said Ya-Qin Zhang, president of Chinese tech giant Baidu. “Some of the anti-China, anti-globalisation sentiment, it is detrimental to China, it is detrimental to the US and [to] the rest of the world.”

Donald J. Trump, President of the United States of America at the World Economic Forum | Source: WEF

Still, the IMF upgraded its global growth forecast to 3.9 percent this year and the next — up 0.2 percent from previous estimates, hailing last year’s economic health as the “broadest synchronised global growth upsurge since 2010.” Growth will come on the back of a better outlook for the US, where Trump’s $1.5 trillion tax cuts are likely to stimulate momentum further, accumulating to 1.2 percent through to 2020. European growth was also revised, increasing to 2.2 per cent in 2018. Even Japan, where persistent deflation hit economic growth, is predicted to grow 1.2 percent in 2018, up 0.5 percentage points from its estimate last year.

But despite every major economy expanding in a synchronised wave, there are still millions left out of the current model of globalisation. And in a world of growing inequality and uncertainty about a future already being shaped by the Fourth Industrial Revolution (4IR), this year's forum theme becomes even more poignant, suggested Christine Lagarde, managing director of the IMF.

On inequality, consider that it takes a chief executive from one of the top fast-fashion retailers only four days to earn what a Bangladeshi garment worker earns in a lifetime, according to an Oxfam report published just in time for the WEF.

“Imagine how the folks who aren’t in this room are feeling,” said Canadian prime minister Justin Trudeau in a rousing speech. “Workers, people who aren’t seeing the benefits of economic growth — for them, technology is a benefit to their lives, but a threat to their jobs.”

Still, the mood at Davos was largely self-congratulatory — particularly after IMF predicted a sunny outlook for 2018 and 2019. The fashion industry was much more integrated into this year’s forum, too. Behind closed doors, Adam Lashinsky, executive director of Fortune, hosted a private panel for JD.com’s Richard Liu, also attended by Greg Foran, chief executive of Walmart, and Ermenegildo Zegna, the third-generation leader of his family’s namesake fashion empire.

Achieving a global understanding of cross-border issues in a world gradually turning inwards seems particularly pointed.

Designer Stella McCartney stood by Dame Ellen MacArthur as she pledged to accelerate the transition time to a circular economy from 35 years to 10, adding that only system-wide innovation will lead to "prosperity for all." The Ellen MacArthur Foundation also announced the winners of its $1 million Circular Design Challenge, allowing for innovations to be scaled for wider use.

Britain’s Theresa May and Germany’s Angela Merkel, on opposing sides of the Brexit crisis, went head to head. The former avoided mentioning Brexit altogether, while Merkel stressed that today’s challenges could only be solved by multilateralism. Meanwhile, France’s Emmanuel Macron was received like a rock-star, his half-hour speech summarised by his statement: “France is back at the core of Europe.” And Indian prime minister Narenda Modi’s opening keynote speech focused on a united international front, while avoiding the deep domestic issues in what was one of the fastest-growing economies in the world last year.

Here, BoF spotlights four key takeaways from Davos that can help fashion brands and executives prepare for the world of tomorrow.

1. World trade tension points

"If trade stops, war starts," said Alibaba chairman Jack Ma to an engaged audience, after making the same statement in 2017. "Trade is the way to dissolve the war, not cause the war." China's e-commerce giant reported a 61 percent rise in sales to 55.1 billion yuan ($8.3 billion) in the three months ending September 2017, and certainly benefits from a globalised outlook as it looks to compete with US monolith Amazon.

Ma said even without perfect logistics systems, e-commerce continues to grow at a remarkable pace. He asked the audience to imagine what will happen when this challenge is solved.

Graph to show the correlation between US GDP, value of imports and exports and US retail

Though he wasn’t directly named in the speech, Trump’s protectionist outlook may hinder progress on global trade, particularly after imposing US tariffs on a number of consumer goods from China and South Korea earlier this week. The announcement comes at an interesting time, both due to his attendance at Davos, and because Canada and the 10 other remaining members of the Trans-Pacific Partnership — an Obama-negotiated free trade deal Mr Trump withdrew from during his first days in office — announced they would go ahead with the pact, only without the US.

Trade chokepoints, or the physical structures of international trade — such as the Suez Canal, Panama Canal or the Straits of Malacca — that are prone to blockage due to conflict, climate change or institutional hazards, were a focal point at the WEF. Their positions linking Western and Asian markets make them a particular concern for the world apparel and textile trade, whose exports value totalled $284 billion and $443 billion respectively in 2016, according to the WTO.

But institutional chokepoints, such as Trump’s “America First” policy which continues to threaten the integrity of NAFTA, could have an additional impact on the global fashion trade. Retailers faced a tumultuous overhaul of their supply chain plans when Trump withdrew from the TPP. Not only would it have generated savings for retailers such as Nike — which sources 40 percent of its shoes for Vietnam — and Walmart and Target, who would have benefitted from overall lowered import costs, but it would have also cut costs for consumers.

Trump's 'America First' policy which threatens the integrity of NAFTA, could have an additional impact on the global fashion trade.

The same concerns remain for NAFTA, since Mexico is currently the largest Latin American supplier of apparel products to the US. With annual bilateral trade between the US and Mexico running at $580 billion, industries like denim could be jeopardised — market sources estimate that the price of materials could increase by over 20 percent if American brands need to move manufacturing stateside.

Trump’s speech at Davos made it clear that his America-first brand of globalism will prevail, after attacking “predatory trade” practices, and denouncing the countries who exploit the free trade system at the expense of others. “Just like we expect the leaders of other countries to protect their interests, as President of the United States, I will always protect the interests of our country,” he stated.

2. Emerging market elections

“Brazil is back in business,” proclaimed Michael Temer, the country’s president, at an afternoon press conference at the WEF. With upcoming elections in October 2018, Brazil is one of several Latin American countries that form part of a yearlong electoral cycle in the region. Colombia will hold elections in May, Mexico in June, and Costa Rica in February.

A region sometimes overlooked when compared to the investor attention heaped on Asia, it is nevertheless in the midst of an upswing, with GDP likely to accelerate from 2 to 3 percent in the states that will hold elections, according the WEF. Growth has been steady in the apparel sector, too — it is forecast to grow in line with predictions for Asia (7.2 percent), with spending on clothing and footwear set to surpass $220 billion by 2021, according to BMI research.

The Session "Gender, Power and Stemming Sexual Harassment" at the World Economic Forum in Davos | Source: WEF

As a reflection of the region’s growing status, Latin American leaders were prominent at Davos; heads of state from Argentina, Brazil, Colombia, Peru and Panama attended with large delegations. They all emphasised one message: that their countries are “back” despite recent economic troubles, up and running, and ready to tap back into world markets. Despite the myriad challenges these markets continue to face, could this be the green light for greater international fashion investment?

3. Female empowerment

For the first time in its 47-year history, the forum has chosen an all-female co-chair leadership team including Ginni Rometty, chief executive of IBM, Fabiola Gianotti, director-general of the European Organization for Nuclear Research (CERN), Christine Lagarde, managing director of the IMF and Erna Solberg, prime minister of Norway. And yet, women represent only 21 percent of WEF attendees. This is higher than last year’s 18 percent, but a long way from gender parity or gender equality ambitions. Surprisingly, only two panels out of 150 addressed the topic of sexual harassment.

The topic has taken centre stage at Davos after a year of explosive sexual assault allegations that have led to the downfall of dozens of powerful men across many walks of life, including photographers Terry Richardson, Bruce Weber and Mario Testino in the fashion industry. The WEF has long been criticised for its “manels” (panels formed solely of male speakers) and been the butt of jibes about the “Davos Man,” a descriptor for the type of older white male who typically attends the forum. For many women watching this year’s forum from afar, the forum itself has still not made enough progress.

Part of the 'secret sauce' of our success is because we have so many women colleagues.

What is perhaps more urgent is the position of women at grassroots level, beginning with garment makers and factory employees, for instance. Female labourers “are the bottoms of the supply chains of big business,” kept down by social norms that “justify their economic exploitation,” said Winnie Byanyima, the executive director of Oxfam International.

Empowerment remains key for business leadership too. In Japan, the WEF predicts GDP could be 9 percent higher if women participated in the workforce at a similar rate as men. In India, the figure stands at 27 percent. Progress is being made, however, by certain companies. At Alibaba, Ma revealed that 37 percent of senior management are currently women. “If you want your company to be successful; if you want your company to operate with wisdom, with care, then women are the best,” he said. “Part of the 'secret sauce' of our success is because we have so many women colleagues.”

4. Production disruptors

When Google’s chief executive Sundar Pichai tells a 200-plus audience that AI is more important than fire or electricity, it’s probably time to listen up. AI has been touted industry-wide — along with robotics and the Internet of Things — as one of the elements of the impending Fourth Industrial Revolution (4IR), spurring new techniques and models that will fundamentally transform manufacturing and production processes.

Jack Ma, Executive Chairman of Alibaba Group Holding at the World Economic Forum in Davos | Source: WEF

For the first time in history, most of the biggest companies in the world are technology companies. This was the focus of a panel comprised Ya-Qin Zhang, president of Baidu, a Chinese technology giant and search engine, and Dan Schulman, chief executive of Paypal. “This is the first revolution that leaves the factory door and goes into every single job,” they said.

No industry has been immune — including fashion — and yet, how to capitalise on new production opportunities while mitigating risks and responding to unknown future shocks is a major concern. This is particularly so because fashion’s highly competitive, low-cost production model is increasingly looking toward automation.

But rather than focus on a direct threat of AI to jobs, attendees were much more concerned with “human computation,” where optimal AI capabilities are achieved by strategically inserting humans in the loop where the technology falls short. For Alibaba’s Jack Ma, “The computer will always be smarter than you are; they never forget, they never get angry. But computers can never be as wise [as] a man.”

An analysis by the WEF — the baseline report for artificial intelligence and 4IR panels — ranked 100 world countries by readiness for the future of production, assigning them to one of four archetypes. Over 9 in 10 countries from Latin America, Africa and Eurasia are categorised as least prepared, while Japan, South Korea, Germany, Switzerland and China are leaders in terms of drivers and structure of production. But how prepared are apparel and footwear brands, whose primary workforce comes from outsourcing production to low-cost countries?

Rather than focusing on a direct threat of AI to jobs, attendees were much more concerned with human computation.

Whereas producers once held the reigns, the consumer now demands increased transparency which has, for instance, compelled the likes of Target and Zara to pledge to map their Chinese factories' pollution in real time.

“We’re in the midst of a customer-driven growth revolution,” said Bill McDermott, chief executive of SAP, a multinational software corporation. “The consumer’s on the move, there are multiple channels, data has become the new steel.”

But the revolution can only be managed through multilateral frameworks, as ramifications span global economies and every sector of industry. Following the announcement at Davos of a global council on the 4IR, the best way to manage the many of the transformations and disruptions happening now is to do so through worldwide collaboration. No wonder this year’s World Economic Forum placed such a sharp focus on sharing and cooperation.

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