An English magazine has just estimated the total amount of overproduction in the fashion industry in 2018. Their conclusion was that all the clothing produced last year around the world exceeded actual demand by 30%. The article then deals with issues relating to the environmental impact of this phenomenon: The Extent of Overproduction in the Fashion Industry.
This aspect, which is increasingly affecting the performance of many markets, is neither discussed nor researched much. The problem of overproduction is, historically, linked to agriculture but I think it is a phenomenon that is also spreading to many other products, especially those related to consumption.
The law of supply and demand explains that when the supply of a given product exceeds demand, prices fall. And the price war we are witnessing in many areas today can also be explained by using this simple model. If the giants of online sales claim to continually increase sales but not earn money, this means that their sales prices have fallen too much as a result of strong competition and therefore, ultimately, to a continuous increase in supply.
In a market economy there cannot be a central body that establishes the quantities that a given industry must produce. Everything is left to the law of supply and demand: those who succeed in producing goods with the right level of quality and with the lowest costs are the most successful. Globalization has increased the number of competitors; the web has done the rest by creating reverse-auctions – and driving prices down.
I do not want to deal with macro-economic issues here, like the functioning of a market economy which – in my opinion – still remains the least imperfect system. I just want to bring attention to how this phenomenon of overproduction is creating many problems for the many micro and small companies of our Bel Paese with which I work every day. What do we do?
If any reader wants to add their two cents worth then please do. As I wrote in my book Exporting in 7 Steps, in my opinion it is necessary to:
- know your market and your competitors well.
- have a product that differs from the competition; until you create real “market niches”.
- communicate well; both in the traditional way and online. And this is where our small businesses often get into trouble; facing this issue with few resources and even less competence.
- check your costs well so as to be competitive on prices.
We will discuss these and other topics on April 2nd at the Vicenza Industrialists Association – FarExport desk, during the conference Exporting in 7 Steps: How to find new customers abroad”.