A Digital Last Mile Meets Disrupted Logistics

Fashion can be a polarised place. Timeless classics compete for relevance with microtrends. Disposable fashion clashes with sustainable, durable pieces. And mass market volume meets luxury and scarcity. These are all long-running conversations and lively debates – some of which make fashion as exciting an industry as it is, and some of which are long overdue to be resolved – but there’s a major clash in the industry’s value chain, developing right now, that few people seem to be talking about. And that’s the difference between how easy it is to move around product that’s in-country vs. the difficulty in bringing that product over the border to begin with.

We live in a world with highly streamlined last-mile delivery – and it’s set to become even more frictionless soon. In a keynote address at the Consumer Electronics Show (CES) in Las Vegas this past week, Wamart announced it would be expanding its drone delivery programme to over one million additional households in the Dallas-Fort Worth metropolitan area later in 2024. 

Drones aren’t new for America’s largest retailer, which has already completed 20,000 drone deliveries across seven states to date, but this news is outward validation of the core model; Walmart is buying more drones, and using them to ship more things, because it believes there is a return on investment there. Whether that ROI is measured in cost savings, additional sales, or simple storytelling is beside the point – the drive is to make it easier and more seamless than ever for people to buy things and have them delivered.

As for AI, Walmart also, this week, announced a generative AI-powered search tool for iOS users that suggests relevant products for consumer queries. The company also mentioned their “InHome Replenishment,” service, which aims to use AI to learn consumers’ shopping habits and keep them stocked up on their favourite groceries, as well as a beta platform that allows customers to create outfits virtually using AI and to then receive feedback from their friends. All of this is building up the “agent” model for AI that’s creating such a wave of hype around CES at the moment, where mundane tasks – like repeat shopping, deal hunting and so on – are handled by autonomous models on people’s behalfs, and then drones deliver the results in record time.

And Amazon explained on Monday that it, too, is now using large language models and other foundational models (presumably its own) to power four AI-powered features that will help customers find clothing that fits: personalised size recommendations, a “Fit Insights” tool for sellers, AI-powered highlights from fit reviews left by other customers and reimagined size charts. 

These might all feel like table stakes in the current eCommerce landscape, but the business case is compelling here and now: all of this is an attempt to reduce the rate of returns, especially for clothes that are bought online, which was reported to amount to $743 billion in 2023. 

Sellers on the platform – on whom Amazon levy a transaction fee that they would very much like to keep charging in the era of AI shopping – will also benefit from the Fit Insights Tool and potentially other AI capabilities. And this is without mentioning the pre-generative applications of AI in inventory management, channel allocation, and other methods of intelligently making sure that the right styles, colours, and sizes are as close to the right consumers as they can be.

But despite these developments making the shopping experience for customers more frictionless than ever, there is a slowdown on the horizon when it comes to actually getting products into those consumption markets in the first place. Or, to put it another way, if there’s to be a defining bottleneck of the next era of retail, it’s likely to be in global sourcing, production, and logistics – not in the last mile.

And we could be seeing an indication of what that bottleneck might look like in the latest supply upheaval, which is unfolding as the Houthi militant group (which controls large portions of Yemen) have continued to attack commercial vessels in the Red Sea since late 2023 – coming to head in new, protective interventions proposed by the US and UK governments.

As a result, retailers are – just two weeks into a new year – expecting product delays and even more unforeseen disruption, and many are planning to use pricier shipping methods, diverting ships towards the Cape of Good Hope route, around the south of Africa, at an additional time, labour, and fuel cost.  And exacerbating the situation: the second most important trade route alongside the Suez Canal, the Panama Canal, is also experiencing a significant reduction in daily transits due to a severe drought. 

In early 2024, the dual axes that have been swinging towards supply chain stability for a while now, are still, therefore, going strong: climate change, and geopolitical strife. And the the commercial impact is already being keenly felt.

Is there a solution to this bottleneck? The Interline believes that it must, by necessity, be domestic or very nearshore production. How else will an industry that’s coming close to perfecting the art of getting products out of warehouses and into closets, but that’s being plagued by sourcing, production, importation and other logistical problems, address that disconnect between the first and last mile?

But instead of flourishing, domestic manufacturing – at least in the mass market – is floundering. First this week, there was news that Boohoo was considering closing a factory that it set up in Leicester, which was intended to serve as a model for its efforts to improve the treatment of workers. But while the sustainability side of this story drew the biggest headlines, the buried lede was two-fold. First, the firm allegedly put “Made in the UK” labels on thousands of clothes that were really made in South Asia. This comes after the Leicester facility was set up specifically to “showcase UK manufacturing and demonstrate that “great products can be produced responsibly and ethically in the UK.” And even aside the deceptive domestic production allegations, the brand’s official numbers indicate that it has already been progressively scaling back domestic production (in 2022 it sourced only 25% of its products in the UK and that fell to 20% last year).

Are other brands going in the opposite direction? Almost certainly. But Boohoo will be by no means alone in reconsidering or downsizing its domestic production commitments.

This is, as we see it, the opposite direction to where the industry should be headed, and there will soon be a gaping disparity between brands’ and retailers’ hyper-efficient domestic distribution, logistics, and fulfilment networks at the end of the value chain, and the shaky, risk-prone international sourcing and manufacturing network at the other. Scaling up domestic production isn’t necessarily easy, though; wages are higher and unionisation means protection for workers against exploitation, which is a necessary and civil thing, but also something that changes the calculus of unit costs and retail margins. These are just some of the underlying issues that have resulted in strike action at Amazon’s new £500 million fulfilment centre. The Birmingham fulfilment centre only opened its doors at the end of 2023 and will be the third Amazon workplace to face strike action. 

Even though it’s not the direction that the fashion industry seems to be going in at the moment, the only realist way forward – assuming the upstream disruption persists – is to depart from conventional methods that rely on mass production and predetermined quantities, instead moving to an on-demand production model where items are manufactured individually or in small batches based on real-time demand. Central to this is digital production (including direct to fabric printing, on-demand cutting and so on), where the need for huge minimum order quantities, associated with traditional offshore methods are eliminated.

To be blunt about it, if fashion is going to continue its race to make it as simple and automated as possible for consumers to buy new products, at the same time that the supply chain risk surface is spreading, the industry will need to find a way to design, develop and make in-country sooner, not later.

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