China’s daigou personal shoppers – What effect will lockdown have on the apparel industry? – Reduce Carbon and Costs with the Power of AI

Again, today’sTextileFuture Newsletter provides three different items to you, stemming from three different sources.

The first article is entitled “China’s daigou personal shoppers aren’t going away” from guest atuhor Annachiara Biondi from Vogue Business. She elaborates the situation with international travel constricted dring the global pandemic, putting the so called daigou shoppers doubting their very existence.

The second feature is written by guest author Mostafiz Uddin, Managing Director of Denim Expert Limited and Founder and CEO of Bangladesh Apparel Exchange (BAE). He expresses his thoughts based upon his own experience on What effect will lockdown have on the apparel industry?.

The third item is by guest authors from the Boston Consulting Group and is entitled  Reduce Carbon and Costs with the Power of AI (Artificial Intelligence). We at TextileFuture think that AI and reduction of carbon are becoming important management tools of the near future, and we seek to compile all aspects for our reader’s benefits.

Here starts the first article:

China’s daigou personal shoppers aren’t going away

Post-pandemic, can brands formalise their relationship with China’s selling agents?

By guest author Annachiara Biondi from Vogue Business.

Caption and graphs courtesy by Vogue Business

The unofficial personal shoppers or sales agents who buy products abroad on behalf of Chinese consumers were in trouble last year. With international travel constricted during the global pandemic, so-called daigou shoppers found their very existence in doubt.

The limited options for travel weren’t their only problem. Supply chains clogged up, global logistics were interrupted, and stores and factories closed.

Demand from Chinese consumers also plummeted. “The business was impacted tremendously, with sales cut by 50 per cent,” says Sunny Xu, senior analyst at market intelligence agency FrontierView. “For some, there was no business at all in April.”

The daigou industry was already in decline pre-pandemic. Since 2014, the Chinese government has targeted daigou commerce, seeking to stem the losses in tax revenue caused by a flourishing grey market in luxury and beauty goods. Stricter custom controls have been introduced, while import taxes have been lowered.

Around the same time, luxury brands such as Chanel started pursuing price harmonisation, narrowing the price differential between Mainland China and Europe from 50 % to between 20 and 30 %. Daigou shoppers became less important as Chinese domestic consumption surged alongside the increasing availability of foreign luxury brands through official local channels, including Tmall flagship stores, and cross-border platforms. According to Bain, between 2014 and 2015 the daigou market for luxury goods fell by an estimated 33 per cent to RMB 50 billion (USD 7.6 billion).

How daigou bounced back

But Chinese consumption began to pick up again in the second quarter of 2020. “After April, the demand recovered and daigous resumed their business quite quickly to capture that demand,” says Veronique Yang, managing director and partner at Boston Consulting Group in Shanghai. Yang estimates that of the RMB 230 billion (USD 35 billion) spent by Chinese consumers in the overseas luxury market in 2020, a remarkable 70 to 80 % was spent through daigou shoppers, or between USD 25 and USD 28 billion.

China’s daigou personal shoppers aren’t going awayBy Annachiara Biondiost-pandemic, can brands formalise their relationship with China’s selling agents?

The estimate is in line with a recent report published by Shanghai-based AI and data solution company Re-Hub, which analysed the daigou commerce of five bestselling handbags from Gucci, Prada, Loewe, Celine and Balenciaga in February 2021. For just these five products, and only on the Taobao platform, daigou shoppers made RMB 28 million (USD 4.3 million), according to the report. “In terms of spending, these numbers are a tiny percentage of the total spending on brands through daigou,” says Re-Hub CEO Max Peiro.

The slump in luxury sales experienced by the European market in 2020 also put unprecedented pressure on luxury sales assistants in European stores to fulfil sales targets in different ways. That led them to sell to Chinese consumers indirectly, creating a “new stream of daigou”, points out BCG’s Yang.

Other sales assistants formed alliances with daigou shoppers, allowing them to film live streams in the stores and taking orders directly from them, says Rocky Chi, head of planning at Emerging Communications. “The daigou would give sales people an estimated sale quantity, potentially a 15-bags order in the next two weeks, then call and pick it up.”

Spanish newspaper El Mundo recently reported on a luxury outlet, Las Rozas Village, near Madrid, where a sales assistant was quoted as saying that daigou shoppers account for 20 per cent of the store’s monthly sales. FrontierView’s Xu says brands and retailers have actively reached out to daigou shoppers to notify them of online discounts, encouraging purchases with offers of free shipping.

“The pandemic tightened the relationship between the [daigou shoppers and sales assistants],” says Chi, adding that for at least the next year the balance of power will remain with the daigous as Chinese travellers are not expected to return to Europe much before 2022. “It’s something [luxury brands] can’t live without, but they also don’t want to admit.”

Fight for control or tap the daigou channel?

Luxury brands’ relationships with daigous are not straightforward and their economic implications are difficult to quantify. Zuzanna Pusz, executive director of European luxury goods at UBS, observes that brands themselves don’t know for sure the volume or value of product bought by daigou shoppers, as LVMH chief financial officer Jean-Jacques Guiony also pointed out in 2018. In some cases, including during the Covid-19 pandemic, daigou shoppers bring business to brands that might have been difficult to secure through other channels.

“For a reputable brand, it’s really more about what it means for them as a brand rather than some strong financial implication,” says Pusz. “Anything that is outside of control in an industry that is all about control — of pricing, image, distribution — is certainly not something that brands are happy about.”

The issue of counterfeiting also persists. ReHub’s Peiro estimates that when daigou shoppers offer a discount of more than 20 % on an official price, the sellers are either not making any margin or the product is a potential counterfeit. According to these calculations, a large percentage of products included in the Re-Hub’s report are likely to be counterfeits, bought unknowingly by consumers.

Brands can counter daigou influence in many different ways, but some commentators argue that brands might consider formalised relationships with the most established daigou shoppers, who can play the role of personal shoppers and influencers among their hyper-loyal clientele.

“Daigous are not only commercial mediators, but also act as tastemakers and taste shapers,” says Adam Knight, co-founder of China-focused marketing agency Tong. Formalised collaborations might see brands empowering daigous with preferential access and exclusive content to pass on to their audience.

The risk for brands, suggests Knight, is little different to that posed by working with an influencer or brand ambassador. A starting point might be in the beauty and skincare sector, where brand control is less strict than with luxury fashion. Niche brands that are seeking to build a presence in China may be the best candidates to start openly collaborating with daigou shoppers.

FrontierView’s Xu says this approach is already a reality, with many brands perceiving daigous as an additional channel to reach consumers. A FrontierView client in the premium consumer goods sector asked the agency to identify the most influential daigou and come up with a collaboration strategy. “[Daigous] can play a very important role in a number of different areas,” she says. “That includes educating customers, building trust and getting consumer insights for your brand.”

Digital marketing agency Verb China has helped brands with strategies to reach out to daigous with the aim of helping sales or testing products not available in the market. “Daigous aren’t great for branding, though they’re useful for brand awareness, so they should be used strategically and carefully,” says Verb founder and CEO Chris Donnelly.

Chi of Emerging Communications says that for UK-based luxury clients it’s already standard practice to collaborate with a UK-based Chinese KOL, leading tours around flagship stores and hosting private events. The closer relationship that daigou shoppers have often established with sales assistants during the pandemic has boosted the status of some daigous as influencers.

A formalisation of this relationship is not far off, Chi suggests. But first the daigou category needs a rebranding and, perhaps, a change of name. “The traditional stereotype of daigou is stopping further relations,” she says. “During the pandemic, the relationship between brands and daigous certainly evolved and there might be further collaborations as long as they shake off the daigou title.”

Here starts the second feature:

What effect will lockdown have on the apparel industry?

By guest author Mostafiz Uddin, he is the Managing Director of Denim Expert Limited. He is also the Founder and CEO of Bangladesh Apparel Exchange (BAE).

The Bangladesh government is set to enforce a week-long hard lockdown across the country, beginning April 14. Many murmurs it may go beyond that as well. While I understand “why” the government feels compelled to act that way, I believe we need to rethink the strategy and find some creative ways taking into account the economy of the country, especially its apparel industry, which is intricately linked to global chains, and is already at a fragile state and passing through a critical moment in its recovery.

A better way ought to be pondered which would protect our people as well as their livelihoods. I believe “Lockdown Lite”—which has been practised in many other countries—could be more apt for Bangladesh and its needs and circumstances. I am no expert in pandemics or public health, nor do I claim to know more than our esteemed health professionals. Yet, I may submit that the policymakers behind the decision for a heavy lockdown need to consider several other factors.

The first is the safety of the garment factories. The RMG industry in Bangladesh has gone to extraordinary lengths to create safe working environments since this pandemic erupted last year: workers constantly wash hands, wear masks, follow strict hygiene protocols and stay six feet apart.

Medical assistance and doctors are always available. Staff are constantly educated on how to stay safe. Workers are also encouraged to share the good practices they learn at work as they return to their homes. Temperatures of workers are recorded twice a day in factories. Anybody with symptoms is immediately tested and isolated, when necessary.

These strict protocols have been vital in ensuring that outbreaks of coronavirus in the workplace have been rare in the past year. Numbers over the past 13 months surely vindicate that.

In many ways, the workplace now provides the safest environment for garment workers, not least because many of these workers live in cramped housing spaces where there are often six or more people in a tiny environment. Are they being tested while they are at home? It’s unlikely. Do they stick to strict protocols? Again, we simply cannot know, although we can safely assume that not all will follow the kind of stringent hygiene norms at home as they do while at work.

When they are at home, workers may be carrying the virus but remain asymptomatic. Lulled into a false sense of security, they can spread the virus in their surroundings without knowing.

There is another issue at play here. If we lockdown from April 14, it is likely that many workers will not remain in Dhaka and will instead return to their villages. Speculations could kick in, as did last March-April. Our villages, which up until now have remained relatively Covid-free, now risk becoming infected—thus increasing community spread. Indeed, the nation does not want that. Surely, the workers are relatively safer to be at work where they can be monitored, tested and isolated, if needed.

I believe that a hard lockdown is likely to have unintended consequences by increasing the spread of the virus, rather than dampening it down. Let me outline “lockdown lite” which, to many, should offer a more considered approach.

Don’t get me wrong, I am not pitching “business” ahead of life. Under the present circumstances, it is a fact that if we want a successful, world-class healthcare system, we also do need a flourishing economy.

As it stands this week, many of our key markets are set to re-open fashion stores, the UK being a key one. All analysts suggest there will be a surge in buying as markets reopen and pent-up demand is unleashed.

If we do not fulfil this demand, our competitors will. And, if the orders move away once, it may well do for a good long time. This is something we cannot ignore. For instance, lockdowns have not stopped factories from opening in Cambodia. Instead, the Cambodian government has managed the situation creatively, i.e. implementing curfews and restricting inter-city travel. Can’t we do something similar?

If we must lockdown, going for “lockdown lite” has the benefit of being more easily sustained over a longer period.

Morocco and Turkey are also taking a similar approach, e.g. closing certain shops at particular times, restricting movement and encouraging good levels of personal hygiene. Common sense, basically.

During the last heavy lockdown or “general holiday”, as the government called it, many factories were prevented from completing critical orders. This has happened time and again these past 12 months, destroying confidence with customers—many of whom may never return if they start to believe that Bangladesh is in a perpetual state of closing down and opening up without a sustainable solution. This would render untold damage to our reputation as a garment hub.

Currently, all the factories are in a rush for completing shipments before Eid. If a lockdown is imposed, the factories would not surely complete these shipments. With schools and economic activities likely resuming in the western world from this August, buyers will also not be ready to agree to take the orders on a later date. Clearly, the repercussions of wholesale lockdown in the apparel industry will be far too heavy for the factories, in particular, and for our national economy, in general, to absorb.

The timing of the hard lockdown is also critical—it coincides with the celebration of the Bengali New Year holiday as well as the start of Ramadan. There is a risk that many workers will assume the hard lockdown will be extended, when in all likelihood they head to their hometowns, until after Eid. Thus, this could cause a new wave of the virus. And, Eid is another factor to consider: are we then still expected to pay Eid bonuses while factories stay closed?

This is in no way a criticism of our government. Our prime minister is providing stellar, prudent leadership, and the government is discharging a job which is virtually impossible under extremely trying circumstances. Governments everywhere have been learning on the job about handling this pandemic.

Surely, it does not have to be a black-and-white situation in terms of hard lockdown versus normal life. Possibly a third way should merit thinking in which we take advantage of our investments, time and effort that RMG factories have put in to ensure the workplace is as safe a place as any in the current environment. However, the importance of stricter monitoring of the safety measures in each and every factory by the government as well as by Bangladesh Garment Manufacturers and Exporters Association (BGMEA) cannot be overstated to contain and control the infection rate.

By all means, let us introduce curfews and enforce strictest movement restrictions on the private lives of individuals—these are sacrifices we are all happy to make for the collective, national good.

In the meantime, let’s please keep the wheels of our proud RMG industry turning—so that as we emerge out of this pandemic, we are ready to robustly hit the ground running.

This article appeared on April 11, 2021 in the Daily Star.

Here starts the third item:

Reduce Carbon and Costs with the Power of AI

By  guest authors Charlotte Degot, Sylvain Duranton, Michel Frédeau, and Rich Hutchinson from Boston Consulting Group. The authors thank Cyrille Viossat, Anouk Placet, Mathilde Duverger, and Hamid Maher for their contributions to this publication.

The pressure on businesses to respond to the threat of global warming is growing. Consumers, regulators, and investors alike are increasingly scrutinizing the climate impact of companies in every industry. In his January 2020 letter to CEOs, for example, Larry Fink, chairman and CEO of BlackRock, the world’s largest asset manager, put companies on notice that investors—among other stakeholders—now expect full disclosure of companies’ performance on a range of environmental, social, and governance factors.

But it’s one thing for companies to pay lip service to the need to reduce their greenhouse gas (GHG) emissions. Taking concrete measures to make a difference, especially in today’s pandemic-driven economic climate, is another matter entirely. The difficulty and expense of measuring the full extent of their carbon emissions, and then reducing or offsetting them, has forced many companies to delay the effort.

In this context, artificial intelligence (AI) can be a game changer. Its ability to deliver deep insights into multiple aspects of a company’s carbon footprint and quick cost-cutting wins offers a promising route to accelerating sustainable transformation and reducing expenses in a time of need. And because their size gives them access to huge data sets—a key success factor for deploying AI—large companies are in an especially strong position to benefit from its power.

The promise of AI

The threat of climate change is growing, and time is running out. Global GHG emissions currently total about 53 gigatons of carbon dioxide equivalent (CO2e), according to the Carbon Disclosure Project. If we are to meet the goal of limiting the increase in average global temperatures to 1.5°C, as specified in the 2016 Paris Agreement, we must reduce those emissions by 50% by the end of this decade, according to the Science-Based Targets Initiative. In our experience with clients, using AI can achieve 5% to 10% of that needed reduction—between 2.6 and 5.3 gigatons of CO2e.

Meanwhile, BCG studies show that the potential overall impact of applying AI to corporate sustainability amounts to USD 1.3 trillion to USD 2.6 trillion in value generated through additional revenues and cost savings by 2030.

This added-value figure for companies does not take into account changes in the price of carbon offsets. That number, currently set at around $30 in the EU Emissions Trading System, could double by 2030. BCG expects to spend $80 per ton by 2030 on high-quality, permanent GHG removal as part of its Net Zero pledge. At this increased price level, the value of reducing GHG emissions through the use of AI would represent an additional savings of $208 billion to $424 billion for all companies globally. If carbon offset prices rise even higher over the coming years, AI opportunities will surely represent even greater savings.

How It Works

The great strength of AI lies in its ability to learn by experience, collecting massive amounts of data from its environment, intuiting connections that humans fail to notice, and recommending appropriate actions on the basis of its conclusions. Companies looking to reduce their carbon footprint should turn the AI spotlight on all three components of the effort:

  • Monitoring Emissions. Companies can use AI-powered data engineering to automatically track emissions throughout their carbon footprint. They can arrange to collect data from operations, from activities such as corporate travel and IT equipment, and from every part of the value chain, including materials and components suppliers, transporters, and even downstream users of their products. AI can exploit data from new sources such as satellites. And by layering intelligence onto the data, AI can generate approximations of missing data and estimate the level of certainty of the results.
  • Predicting Emissions. Predictive AI can forecast future emissions across a company’s carbon footprint, in relation to current reduction efforts, new carbon reduction methodologies, and future demand. As a result, they can set, adjust, and achieve reduction targets more accurately.
  • Reducing Emissions. By providing detailed insight into every aspect of the value chain, prescriptive AI and optimization can improve efficiency in production, transportation, and elsewhere, thereby reducing carbon emissions and cutting costs.

In short, AI can help large companies reduce their environmental impact while also alleviating the financial pressure they face as they emerge from the COVID-19 crisis.

Industries that can benefit from this approach include industrial goods (see “A Steelmaker Cuts Emissions and Costs with AI”), transportation, pharmaceutical, consumer packaged goods, energy and utilities (see “AI-Powered Sustainability at a Large Oil and Gas Company”), and others.

A Steelmaker Cuts Emissions and Costs with AI

Recently, a global steel producer wanted to optimize its production processes to reduce carbon emissions and lower costs. In the course of just six months, we implemented AI-based process controls designed to eliminate waste and reduce energy intensity. Thousands of sensors collect billions of data points, which are then fed into the control system’s algorithms. This enables the company to precisely calculate and predict energy needs and track and reduce sources of waste.

Since implementing these controls, the company has pursued a subset of initiatives that have already achieved carbon emissions decreases of 3 %, representing approximately 230000 tons of CO2 per year, along with cost reductions of USD 40 million—a significant benefit for a company with USD 8 billion in revenue.

As impressive as these gains are, the company had already made significant progress in optimizing its operations before adopting these changes. We calculate that AI would have a much greater impact for the industry as a whole, helping steel companies reduce their emissions by 5 % to 10 % and their costs by 1%. If every steel company achieved such reductions, the industry would emit 200 million to 400 million fewer tons of CO2 each year.

AI-Powered Sustainability at a Large Oil and Gas Company

A major European oil and gas company was facing production losses due to unexpected problems with machinery and to dependence on control systems that followed a report-and-react approach. To compensate for the losses, the company had to increase production, leading to higher emissions and increased costs.

To rectify the problem, we redesigned the control system to implement a machine-learning-based predict-and-act approach and created an integrated operating center to unify the views on all plant equipment. We also encouraged the company to adopt a change management strategy to foster the adoption of the new tools.

The new end-to-end system uses a number of machine-learning models, including tools that predict maintenance problems and CO2 emissions for each production unit. This capability enables plant engineers to predict the energy consumption and emissions of all of their units for the next three to five hours—and to isolate, analyze, and fix any unit responsible for excess emissions.

As a result, the company lowered its carbon emissions by 1 % to 1.5 %, representing 5000 to 5500 tons of GHGs per year, and reduced its costs by approximately USD 5 million to USD 10 million. The system also achieved 87 % accuracy in predicting equipment failures and had an 80 % success rate in forecasting emissions anomalies.

By scaling up this AI-powered tool and using machine learning to replicate it across machines and plants, oil and gas companies can gain a comprehensive, real-time view across all of their production operations.

Reaping the Benefits

To gain these benefits, company leaders must make it a top priority to target areas with high carbon emissions and significant costs—especially those with a potential payback period of less than 24 months. Even the practice of AI uses large amounts of energy, and companies should subject its emissions, too, to analysis. (See “Mitigating AI’s Carbon Footprint.”)

Mitigating AI’s Carbon Footprint

We recommend adopting a three-pronged approach:

  • Aim high. Use AI to improve the visibility of carbon emissions across the value chain. Then determine where to apply the technology to reduce the footprint, starting with the largest sources of carbon emissions and costs.
  • Start small. In designing your AI approach, use prototypes and pilots, to create a strong basis for further learning and development. Use the minimum viable product (MVP) concept to design a workable AI system, and then iterate on it, integrating feedback to make it better.
  • Scale fast. Scale up the MVP solution and transform the organization around it to increase its impact. Invest in building core capabilities and enablers in parallel with scaling up the MVP. These should focus on developing enabling tech platforms at scale, defining new ways of working, and implementing the organization and governance models needed to align AI and overall strategy.

Act Now

AI has already demonstrated its near-term value in helping companies reduce their GHG emissions and cut costs. By generating a positive ROI, often within a year, it should quickly become a financial benefit to companies, rather than yet another cost. We believe that AI can be especially valuable now, as companies recover from the COVID-19 crisis, in lowering costs and beginning the transition to a low-carbon future.

In the longer term, as the price of carbon emissions rises and as advances enable AI to tackle more complex climate issues, the technology will become increasingly important in mitigating the effects of global warming.

Now is the time for leading companies to begin reaping the benefits of AI. Aim high, start small, and scale fast.

BCG GAMMA is BCG’s global team dedicated to applying artificial intelligence and advanced analytics to business at leading companies and organizations. The team includes 800-plus data scientists and engineers who apply AI and advanced analytics expertise (e.g., machine learning, deep learning, optimization, simulation, text and image analytics) to build solutions that transform business performance. BCG GAMMA’s approach builds value and competitive advantage at the intersection of data science, technology, people, business expertise, processes and ways of working. For more information, please visit our web page.

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