How Will 3-D Printing Affect the Apparel Industry?
It could eventually be a disruptive technology, but it has some barriers to clear first.
Although we believe that many apparel companies have developed competitive advantages enabling them to earn outsize returns, for the most part we see these competitive advantages as shorter term in nature, thus falling more toward the narrow-moat end of the scale. In fact, only two companies in our apparel coverage universe have a wide moat rating. As fashion trends change to reflect the values and cultural identity of the times, we think different competitive advantages are demanded and rewarded. In the 1990s, for example, consumers were willing to pay a premium for brands and wanted logo merchandise. After 2008, consumer preference shifted to value offerings. We think these constantly evolving preferences leave the industry very exposed to the threat of new entrants.
3-D printing is in its very early stages of market penetration, but it seems to possess many attributes that would allow it to be competitively advantageous in the current fashion environment. We note three trends that currently command price premiums: technical differentiation, improved fit, and customization. 3-D printing not only advances each of these three characteristics, but unites them and provides attractive cost advantages while doing so. However, we see quite a few barriers to overcome before 3-D printing is a significant threat to mass manufacturing. In the near term, we see 3-D printing most affecting jewelry and accessories manufacturers, increasing the presence of design-it-yourself kiosks in stores and used in one-off designs. In the very long term, if the technology can scale up, we expect companies with strong brands and technically differentiated products to be the winners, while those with supply chain cost advantages, value-oriented nonbranded products, and differentiated fit will be most exposed to the threat.
Bridget Weishaar does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.