Let’s kick off with your background. What was your career path before becoming Chairman of Chainge Capital?

My career path really started back at Harvard Business School. I had a summer job between my first and second year of HBS at Timberland. Timberland had revenue of less than $10 million at the time, but it was my introduction to apparel and footwear. I later returned to Timberland a few years later as their first VP of marketing.  Timberland was something different at the time as a marketing oriented company in a sleepy industry. That time was very exciting as Timberland went from about $10 million to about $150 million in a short period of time.

From there, I went on to be CEO at three companies, but always ran into the same issues in inventory. So, from a career start in marketing, I ended up always bumping into what we now call supply chain. This was especially dramatic at a brand called G.H. Bass & Company, which was owned by PVH. I was confronted with closing seven factories. And that is an excruciating process, especially the last factory which was the largest by far and had 2,000 workers in Western Maine. I refused to do it.

The owners, PVH executives, said, "Okay, then you figure it out and make it work." The idea was how higher costs of U.S. production could be traded off successfully against alternatives in Puerto Rico and Brazil and China. And we began to understand the importance of not just quality and service, but also speed, and that all of those could be alternatives to cost requirements and margin standards.

I was further inspired by a professor at Harvard Business School who when I posed this question about evaluating production locations, said, "John, that really doesn't matter. You should be able to do 10 days of production anywhere in the world." In a world of long lead times, especially chasing lowest cost around the world, that was a dramatic statement then, and it's still a dramatic statement today, but it is the standard that I think is achievable.

Out of frustration, I actually opted out of the industry for a while and began work with one of the great global gurus of supply chain. That was Warren H. Hausman in Stanford’s department of management science and engineering. Stanford's role in transforming the electronics industry is well-known, but they're also influential in automobiles. So, we're looking at what lessons can be learned from those industries that might be inspirational or a pathway for the fashion industry.

We had an immersion in what might be considered an alternative model for the fashion industry- researching the untapped economics of the supply chain. Our standard was market value and capital. How could you unlock substantial capital in an industry that has low tech, low growth and low profit? Was that really possible?

Our conclusion is, YES, it is!  We began to script what that means in terms of process innovation, plus the role of decision support or data science and see if we could put those together into a new scenario. We called that framework the “Zara Gap” model. It's about the gap between Zara and the rest of the industry, explained as opportunity. Was that just a matter of margin and turn and maybe fashion sense, or is there something more fundamental to it?

We found that it's really how they managed to take risk out of a high risk business. If you could quantify risk aligned with process innovation, that was a great strategy going forward. It definitely was not a "be like Zara" analysis. It actually was for Zara. And they recognized themselves that the upside in the industry is as much theirs as anyone else's.

What is it that not only can be learned from them, but also what can they do to lead us into a more responsive, responsible industry?

You’ve alluded to the popular Business of Fashion op-ed that you wrote where you talk about how the fashion industry can pull lessons from Apple's operations. What were some of the main learnings of that piece?

The major learning is from outside the industry. This is a famously insular industry that likes to compare itself to the latest trendsetter, so then everybody follows that trendsetter. But the industry doesn't do so well from learning from outside.

The compelling question about Apple is that they have a very successful financial model, and a lot of it has to do with how tightly coupled they are with manufacturing and how they're able to take risk out of the electronics business.

Interestingly, electronics is actually getting closer and closer to a fashion business. The color of your iPhone, the features of the latest release, there's a lot of fashion or “short life cycle” characteristics. So, speed and flexibility versus simply low cost is an important part of the Apple equation, and it’s core to their financial model. It's why they have such a high valuation. It isn't just that they sell a lot; it's that they do it with such high forecast accuracy. The point is that they've tied manufacturing into a financial model, and it's created an extraordinary value for that company, so the lessons are quite clear.

In this op-ed, you also make the case that sustainability and profitability are one and the same. What are some of the pressures that exist today that have kept the industry relatively stagnant? Is it the insularity in mindset that you talked about, or are there other pressures?

Well, insularity and mindset are important words, and maybe words also defined as culture. The culture in the industry is focused on lowest cost and has chased lowest cost for certainly for 50 years, and some would argue for much longer. The evolution of the cotton trade has been a school for globalization. So, the obstacles are this sort of embedded cost culture, number one.

Secondly, it's an industry that has been able to operate with tremendous excess inventory, and that inventory competes for capital with demands for sustainability. And that's why inventory and sustainability are inseparable issues. You can't have inventory waste and a commitment to sustainability at any meaningful level unless you're able to take capital from one side and reallocate it to more productive use.

And the key to that breakthrough is in the upstream supply chain - another name for that is the first mile. So, instead of looking at the last mile where delivery service, convenience, price, and selling to the consumer is so important, we look instead at the first mile and what's the relationship between those two. Creating speed and flexibility further upstream at the first mile is a perspective that is actually hard to get across to the merchants, marketers, and media people of the fashion industry. 

One way to tackle that first mile question is through on-demand manufacturing. Is that the way you envision the fashion supply chain evolving?

The briefest answer is yes, that is the way forward. It’s what we call Shared Risk. If you can reduce risk across all tiers of the supply chain, then it's a much more collaborative approach to shared value. So, shared risk creates shared value. That's a very different scenario to the way most retailers operate, which is they are negotiating aggressively, some would say ruthlessly, for lowest price production and putting pressure on their supply chain partners to always deliver lowest price. And so, that relationship, which is very transactional, has to be evolved into something that is fairer with the same incentives on both sides.

What work needs to be done to set customer expectations of having things immediately, but also wanting their items created in an ethical and environmentally sustainable way? 

Well, I think it's now part of the brand story. It's part of the identity of the brand, and the narrative of how the product is made, how it's part of a partnership, how the brand takes responsibility for end to end impact, I think that that is now part of the brand experience.

The reason I'm excited about Katla's commitment is because they don't have to retro-fit an organization. Katla can build this into a new culture, which is more respectful of an end to end commitment to sustainability. There will be new incentives to build a closer relationship that embraces sustainability. And let's not forget that most of the impacts of sustainability are, in fact, upstream at the material, at the worker, at the production level.

It’s also a women's story. Women are 80% of purchasers in retail, especially in fashion and they're 80% of the makers of fashion. If you want to improve women's lives through a large industry, it's really fashion. It's where inclusion, advancement, participation are so important.

Turning to an investor perspective, ESG criteria are becoming increasingly important in investor decision-making not only in fashion, but across a variety of other industries. What are some of the metrics or factors that investors are increasingly looking at in assessing ESG performance?

Well, ESG is really non-financial measurements. And it is about the impact you're having. Now, over 50% of funds, and by funds, I mean large investor pools, pension funds, carry requirements for ESG measures. So, the idea that you can present the case and say that operating with commitment to zero inventory, zero waste, and fair practices that benefit our factory partners and workers and supplier communities, isn't just corporate social responsibility. That actually now is considered value creation.

So, ESG isn't meant to simply be a compliance requirement. IESG is now becoming part of the brand story. So, it actually creates a premium for brands like Katla. And I believe that the new ventures in fashion, such as Katla, will be able to make that case and accelerate faster than existing brands.