THE COVID-19 pandemic has had a mixed effect on consumption. Some categories and distribution channels for “essential goods and services” – from food and mass retail to e-commerce and online services – saw record growth; while “non-essential” products, like fashion retail or the creative manufacturing and handmade (CMH) sector, saw much of their business come to a standstill.
The artisans that make up much of the CMH workforce are among the world’s poorest and most vulnerable workers. Many of their businesses are now challenged with inventory backlogs, cancelled orders and supply chain disruption. Heritage skills have already been erased by offshoring in recent decades and more could be under threat.
Still, as with many consumer goods market segments hard-hit by the pandemic, the overall long-term growth outlook for CMH is very positive. A recent report suggests, with more than $500 billion in annual revenue last year, the global CMH sector is set to grow by 20 per cent per year reaching $1 trillion by 2024.
Yet retail buyers who source handmade goods still largely do so from assembly-line factories, while the sector more broadly is dominated by a distributed workforce of women, youth and rural populations. CMH is already the second-largest employer globally (after agriculture), but the sector has been chronically under-served by a lack of investment, digitisation, access to business finance and global markets.
As we emerge from the pandemic, a vital question is now to reframe CMH business models to ensure supply chains are more resilient, growth is more inclusive, and the makers of these unique and often sustainable products are rewarded more directly. In this, new approaches to everything from managing production to financing will be key.
Challenges and solutions
New technology platforms can be critical for supporting CMH businesses. However, many platforms are not optimised to their unique needs, slowing economic growth. Software platform solution Powered by People (PBP) offers access to markets, financing and digital production management tools. The PBP platform was developed from wide-ranging, shared experiences across the CMH sector.
PBP identified three major opportunities for where technology platforms must improve to better support CMH workers and inclusive growth. Platforms built with these pillars can take advantage of untapped opportunities, including high connectivity and smartphone penetration, a skilled and under-utilised workforce coupled with the demand of an increasingly conscious consumer.
Opportunity 1: Production Management
Robust manufacturing software has typically been reserved for factory-based mass production. It is expensive, complex and does not support a distributed workforce. The opportunity for change is Production Management software designed for CMH that digitises small batch producers, and enables them to better plan, optimise and scale their businesses is critical for the sector to compete internationally.
With this in place, platforms can connect CMH enterprises to networks of home-based workers, putting makers in control of their supply chain with transparency. Co-founder Ella Peinovich proved this in her previous business where she took advantage of high rates of mobile phone use across Kenya to develop a mobile-first application for “virtual factories” connecting 2,500 jewellery makers across Nairobi who completed just-in-time production runs of 50,000 units per month. She then created a fashion brand to complement this effective production model.
Such decentralised production processes have low overhead costs, allowing artisans to retain an unprecedented 25-35 per cent of final revenue. For CMH makers this can mean consistent work, a four-fold increase in average income within the first three months and the ability to get paid directly via mobile wallets. This novel technology demonstrates a greater opportunity for the CMH sector at scale.
Opportunity 2: Access to Online Wholesale Markets
Retail buyers are increasingly sourcing mostly factory-made product through virtual trade shows and a proliferation of online wholesale platforms. High minimum order quantities however, lead to endless cycles and increasing pressure on price and margin, which have become major drivers for buyers, a challenge I had experienced while working in the retail sector. CMH makers offers such flexibility, yet the sector has lacked access to international markets and online channels that present them as viable to mainstream buyers.
Wholesale B2B platforms featuring modern handmade products with compelling provenance stories, support a direct, equitable and transparent value chain connecting buyer and maker. Platform solutions dedicated to take small batch producers mainstream address challenges now visible across the consumption landscape by enabling buyers to choose from a wider variety of unique products from ethical, sustainably-minded brands.
Opportunity 3: Financing Solutions
More recently, we have seen the rise of brands driven by social impact and new direct-to-consumer models that are often enabled by technology and increased digital connectivity. The previous e-commerce business of PBP co-founder Hedvig Alexander showed that once there is demand for new CMH products, innovative financing solutions for producers are needed to bridge the gap between upfront material and labour costs and traditional buyer payment terms.
Financing platforms customised to CMH workers can help overcome these challenges. Platforms centred on cash advances can deliver more flexible payment terms. They can also help makers manage cash flow and build credit ratings and new forms of collateral.
Sectors such as fair-trade coffee, chocolate and spice have already benefited from such blended financing models, which use private, public and philanthropic lending to maintain cash flow while driving impact and sustainability. Unlike the commodities that dominate the agri-food sector, CMH products have, to date, not been a focus of attention for financial institutions that remain ill-equipped to serve the distributed nature of the sector with its variable demand cycles and irregular capital expenses.