by APICCAPS

The world of trends is both attractive and volatile. What is true today, and is projected as real the next day, can quickly change its meaning. It's an exercise in observation that we could often compare to fortune-telling. But once again, with its share of volatility and margin for error. If not, let's see where the trends were in 2020 when the pandemic literally stopped the world. In truth, COVID, post-COVID and post-post-COVID trends were quickly created. All a natural result of the surrounding context.

The fashion industry can be proud of being a leader in this area, or trends wouldn't be one of the wheels that turn this universe. If observation and study help us understand this complex ecosystem, we would say that the environment is a fundamental part of it and that every six months it gives us a preview of what will be worn the following season, the colours, the fabrics, the shapes, the dresses... Everything changes and everything is naturally ethereal.
It's not uncommon for these "smaller" trends to respond to structural and social issues that we don't always manage to catch the thread of. We don't think this is the case today. Sustainability, the use of alternative materials and environmental concerns are increasingly being seen in the proposals of the big brands, both on the catwalk and in the type of products they offer their customers. We don't know if they are transparent and true. But it is a fact that they exist and are becoming more and more common. And this topic would lead us to other longer essays on greenwashing and transparency.

There's no getting round the fact that sustainability is the big word for all sectors. Under the current European Climate Law (agreed in December 2019), EU countries must reduce greenhouse gas emissions by at least 55 per cent by 2030, with the aim of achieving EU climate neutrality by 2050.

And there's a lot to explore. In this regard, the Portuguese footwear industry is investing 140 million euros through the Footwear and Fashion Cluster, led by APICCAPS and the Footwear Technology Centre of Portugal (CTCP), with the aim of being "the international benchmark in the development of sustainable solutions". The sector also aims to "strengthen Portuguese exports based on a highly competitive national production base, founded on knowledge and innovation". In two separate but complementary projects under the PRR (Recovery and Resilience Programme), APICCAPS and CTCP have brought together more than 100 companies, including universities, companies and entities from the scientific and technological system, and are preparing for a new decade of growth in foreign markets.

Have we opened the door to nearshoring?

When we talk about sustainability, it can't just be about the product. From production processes to transport, there are many metrics to fulfil. Is there room in this sustainability framework for a search for local partners? Are we looking at a new approach to nearshoring?

The international VEJA brand has just announced the start of production in Portugal. Although, for the time being, production is only limited to the V-90 model, the objective is clear: to find production in Europe to serve European consumers.

The article in Vogue Business sets the perfect tone for this reflection: "Made in Europe, sold in Europe: how VEJA developed a nearshoring strategy". Let's start at the beginning of the story: the two childhood friends Sébastien Kopp and François-Ghislain Morillion created VEJA 20 years ago. Although the brand is based in France, a trip to Brazil marked the beginning of a deep connection with the country. Sébastien and François got to know the organic cotton producers and wild rubber tappers and decided to set up production in Brazil.

Now, two decades later, a European supply line has been set up. The Portuguese company Samba is responsible for this. This move allows European customers to purchase the exclusive colours of the V-90 model - the brand's best seller - produced on European territory. "The creation of a European supply chain, specifically to respond to the European market, marks the first time that VEJA products have been manufactured outside Brazil," explains the Vogue Business article. Speaking to the media outlet, the brand's co-founder Sébastien Kopp explains that "between 2015 and today, we have reached saturation point in the factories in Brazil. We're also growing continuously, so it was natural to look for a new production centre, [and] we quickly came up with the idea of 'made in Europe, sold in Europe', in other words, producing pairs in Europe and selling them only in Europe."

For VEJA, the idea of manufacturing in Portugal (first launched in 2020) came about quickly, but the process to realise it was "very long", notes Kopp. The shared language with Brazil and its geographical location made Portugal a natural choice, as did the country's century-old experience in footwear production. Although the move to Portugal is extremely significant, it is a step that the founders have given a lot of thought to. VEJA produces approximately four million pairs of shoes every year.

VEJA is now also sourcing materials from Europe, including leather certified by the Leather Working Group (LWG) from Portugal and Italy (and potentially from Spain in the future).

Unlike the South American supply chain, which VEJA knows in detail, the Portuguese leather supply chain is still a "work in progress." The founders are working on mapping out the entire leather supply chain. "As a result, the brand is relying more on certification factors, opening up the brand to multiple unknowns, particularly at the pre-tannery level, which covers key issues such as welfare and deforestation. Our sourcing team is working with the Leather Working Group to ensure full traceability of the entire supply chain," Kopp says. "We are also working with Portuguese suppliers to develop new materials that can be acquired and used internally to reduce dependence on materials imported from Brazil."
Among the benefits of a local supply chain are agile production, reduced transportation costs, and reduced time to market. The brand states that some materials – such as Amazonian rubber and organic cotton – cannot (yet) be replaced and will be shipped by sea.
The brand has not yet established the concrete impact of a locally manufactured product, which heavily relies on imported materials, but plans to calculate the carbon dioxide impact.

Nearshoring

VEJA's project reflects measures to diversify supply chains through nearshoring (the term nearshoring is a combination of the words nearshore and outsourcing, which together mean hiring a team/factory/production centre that is geographically close to the company's headquarters). In this particular case, the brand decided to find a production unit closer to its customers.

Apparently, VEJA is not the only case in the fashion industry. Nordstrom shifted the volume of its own brand's production to Guatemala, Benetton transferred a percentage of its production from China to Turkey, Serbia, and Egypt, and Mango placed more weight on the proximity supply chain, mainly in Turkey and Morocco. Asos and Boohoo are also diversifying the supply chain (to Turkey, Morocco, and even the United Kingdom) to avoid constraints in the Red Sea.

Are we facing a trend or just a temporary phenomenon? From January to November of last year, 3.043 million pairs were imported into Europe. Of these, 1.308 million were imported from Europe itself, an increase of 3.8% (equivalent to 115 million pairs) of Europe's share in footwear imports.

According to the consulting firm McKinsey, nearly two-thirds of fashion industry executives are considering creating new production centers dedicated to serving the demand from the US and Europe.

At the top of the list of nearshoring benefits is risk reduction when working with certain countries. For example, some brands sought to reduce dependence on Chinese production after the impact of Covid lockdowns, supply chain slowdowns, and concerns about cotton from Xinjiang. For VEJA, China – and more broadly Asia – was never part of the plans, despite the higher costs of factories in Europe.

But Europe is not necessarily risk-free. "If we take a risk assessment at face value, what most companies do is look at the country and see if there is collective bargaining, very strong workers' rights, very strong trade unions, and say the risk is low," says Luke Smitham, managing director of management consultancy Kumi. "Decisions should be based on the context, not the country." "And they should take into account specific factors, such as who runs the factory, what the profile of the workforce is, how local regulations are enforced and how traceable the supply chain is. The Portuguese footwear industry shows many indicators of a low-risk production environment." The consultant adds that "the multiplicity of family-owned and locally-owned factories comes with a deep-rooted understanding of culture".

Opportunities for Portugal

In this competitive environment, there are countless opportunities for Portugal and, in particular, for the footwear industry. We must seize them. Firstly, Portugal benefits from operating in a cluster logic. For Paulo Ribeiro, "one of the industry's main competitive arguments lies precisely in the fact that, within a radius of 50 square kilometres from the city of Porto, there is a wide range of components and services available to footwear companies". For the vice-president of APICCAPS, "Portugal offers the footwear industry very interesting solutions in terms of practically all components and even tanneries".

At a time when so much is being said about proximity production, thePortuguese industry is one of the most qualified in the world, which has been able to reinvent itself, evolve technically and technologically, and is therefore on the radar of the major international brands in the speciality." At the same time, recalls Paulo Ribeiro, "the sector has ambitious investment plans underway, which will turn Portugal into one of the major international references in the development of sustainable solutions". "It's unreasonable that Asia accounts for almost 90 per cent of the world's footwear production," stressed the vice-president of APICCAPS.

In addition, in Paulo Ribeiro's view, the strong investments that the footwear components sector has been implementing, particularly in the areas of digitalisation and sustainability, place "the Portuguese footwear cluster at the forefront and capable of responding to new challenges that the market is demanding on an international level.

An industry in flux: sustainability and nearshoring
by APICCAPS