Coats is a global leader in growing markets and well positioned to take advantage of global socio-economic trends and specific factors affecting the environment in which we operate.
What markets do we serve?
Apparel and Footwear (A&F)
Coats is the global market leader in supplying premium thread to the A&F industries, and are estimated to be more than twice the size of our nearest thread competitor. The global market for thread is estimated to be c.$4 billion and while thread represents only 1-2% of the cost of a typical garment, it is recognised to be a critical component in the overall garment performance and efficiency of the production process. We are one of the few global players of a key supply chain component in the $1.5 trillion global apparel and c.$350 billion footwear industries which are projected to grow at low single digits in the medium term. We also provide software solutions to our customers which help drive speed, productivity, efficiency, and savings in their operations.
We are global experts in the design and supply of high technology, high performance technical threads and yarn used in a range of industries which include personal protection, transportation, household and recreation, telecoms and energy, and other industrial end uses. We estimate the addressable market (i.e. into which we currently or could realistically serve in the near term) is c.$3.5 billion in size, of which c.$2.5 billion is in relation to high technology end uses (e.g. personal protection, telecoms and energy, and transportation), and as a result a market share of around 10%. We anticipate upper single digit medium term organic percentage growth in this area, with growth weighted towards higher technology end uses.
Trends that are impacting our businesses:
1. Speed to market
The rise of fast fashion, which has dramatically reduced the time between catwalk to high street, and consumers demanding more than just the traditional two season cycle has put tremendous pressure on the full garment supply chain. Not only do all participants need to act faster to respond to shorter lead times, they need to act smarter, focusing on productivity.
Our unrivalled global footprint means we are uniquely placed, across the entire component supply chain, to manufacture and distribute consistently high quality products to service retailers’ multi-location sourcing strategies. We also have the industry leading digital tools such as our web-based service Coats Colour Express, the fastest thread sampling service in the world.
Trend #1: Our response in the year
Continued development and refinement of our customer facing digital tools – online payment facilities rolled out to 14 markets, 94% customer adoption.
Our new geographic cluster structure and back office support functions put in place through Connecting for Growth make us more agile and nimble as an organisation and enable us to respond to our customer needs in a quick and coordinated way on a global basis.
We have initiated pilot programmes within certain factories to retrofit sensors to our existing machines to stream data and drive insights into our production processes.
2. Innovative uses of threads, yarns and fabrics
Consumers are demanding more innovative products in every area of their lives and as a result new thread based application end uses continue to be identified. We are at the forefront of innovating smart thread and yarns to enhance the functionality or performance of many products in multiple end markets. This is a core competency in our Performance Materials business in which we have developed and grown sales in many new products such as flame retardant threads used in protective wear, and water swellable threads that protect fibre optic cables and composites that deliver high performance, light-weight solutions in industries such as oil and gas (e.g. deep water pipes) and automotive.
In addition in A&F, we continue to partner closely with global brands to help support their ambitious innovation agendas. We listen to their requirements and work with them to develop the required solutions. As a global market leader, with unrivalled customer connections and a history of delivering excellent customer service and solutions, we are at the forefront of the industry in working to develop these innovation solutions.
Trend #2: Our response in the year
All three of our Innovation Hubs are now open, which span the globe and reduce innovation lead times for our customers. Our innovation ecosystem is now largely in place, which provide customers with a dedicated capacity for us to develop their new product solutions. These are driving incremental new product sales; $16 million in 2019.
We have seen increased commercial interest from the automotive industry in the year in our innovative carbon composite solution – this provides a lightweight, low waste, steel replacement solution.
3. Operating sustainably, increasing compliance and ethical standards
The global apparel and footwear market is coming under increased pressure to become more sustainable, which means requiring improvements from their supply chains. We are continuing to maintain our leadership position as a major component supplier by pursuing a strategy with ambitious targets related to a broad set of Environmental, Social and Governance (ESG) issues.
As a result, a growing share of consumers, shareholders, authorities, brands / retailers and manufacturers are demanding more sustainable products and becoming increasingly focused on operating in a compliant and ethical way. Entire supply chains are coming under pressure not just to conform to local requirements but also to higher international standards as well – be these environmental, labour or sourcing.
Increasingly shareholders seek to protect the long term viability of their businesses and investments and ESG standards are being used by current and potential investors as a critical part of their assessment criteria. These challenges present both a need for driving change at scale but also an opportunity for long term value creation. This goes to the heart of Coats’ values and standards. Our sustainability programme is integrated with our business strategy and helps us build and maintain both our reputation and our relationships with key stakeholders.
Specifically in relation to climate change we treat this as an emerging risk which means that it is considered at Board level and we will be developing our mitigation approaches during 2020. For more information in relation to our response to the climate change risk please see our separate Sustainability Report.
Trend #3: Our response in the year
During the year we undertook a strategic review of our sustainability activities, building on our long-standing leading credentials and commitments in this area, and launched the ‘Pioneering a sustainable future’ programme; this is based around our five key priority areas and aligned to clear targets to be achieved by 2022.
We also hosted a dedicated investor event on ESG related matters at the London Stock Exchange in June. This highlighted the commercial benefits of our leading sustainability credentials, as well as our fundamental belief that operating ethically is the right way to do business.
Our 100% post-consumer recycled thread, Epic EcoVerde, saw significant interest and traction in the market place during the year, especially with brands who are aligned to our ambitious sustainability targets.
4. Growth of the urban middle class in Asia
Globally, the A&F thread market is expected to grow by low single digits percentage over the medium term, but this is projected to be higher in Asia. In 2018 retail sales in North America and Western Europe for the first time accounted for less than 50% of all global sales. Not only will Asian consumers demand more garments in the future, but more affluent consumers will demand higher-end garments, so we expect that regional sales from our many factories in Asia will increase over time.
Demand for Performance Materials threads and yarns is increasing due to the pace of urbanisation (for example, the rollout of fibre optic cable networks) and economic growth, which means consumers purchase more products which require high performance materials (for example, leisure goods, automotive and personal protection).
Trend #4: Our response in the year
Our China Innovation Hub was opened, which focuses on A&F product solutions.
We have further invested in incremental capacity in select Asia markets to reflect the increased production demand in those territories.
Asia domestic sales whilst currently relatively small to the Group, grew by 8% in the year, which included a number of key customer wins.
5. Increasing adoption of digital services
Digital solutions and services are playing an ever-increasing role in everyday life and this is replicated in the industries in which we operate, giving us a market leading online proposition. Together with our Coats Digital software solutions business, we are applying digital technology and services proactively for the benefit of both our internal operations and as a service offering for our customers.
Our customer facing E-commerce platform has now seen adoption reach 86% (proportion of thread orders) and 94% (customer adoption) by the end of 2019. This is a crucial platform for us to engage with our customers online to deliver speed, convenience, transparency and efficiency and we continue to improve customer experience through further digitisation of the order to cash process.
We have been at the forefront of digital innovation by component suppliers to the global garment industry for several years now. Our Coats Colour Express service is the fastest thread sampling service in the world and Opti Express is a revolutionary zip sampling service. We are continuing to enhance the services of our online sales organisation to manage sales to smaller customers. Our Online Business teams provide high levels of service and technical support to customers, as well as enabling customers to place, monitor and pay for their orders using our market leading e-commerce platform.
Trend #5: Our response in the year
We have rebranded our software solutions business under the Coats Digital umbrella brand name, which provides a wide array of productivity / planning / efficiency software solutions for our customers.
Twine Solutions launch of the protype digital thread printing system in June 2019, at ITMA (Barcelona). Unique water-free printing technology received with significant positive interest in marketplace.
Continued progression of our Digital Advisory Council, reporting directly to the Board, provides latest insights and developments in technology and its impact / opportunity for Coats.