Outlook 2019: Apparel Industry Issues in the Year Ahead is available
In January 2018, Just-Style consulted a panel of industry leaders and scholars in its Outlook 2018–Apparel Industry Issues in the Year Ahead management briefing. Below is my contribution to the report. All suggestions and comments are most welcome!
1. What do you see as the biggest challenges – and opportunities – facing the apparel industry in 2018, and why?
One of the biggest opportunities facing the apparel industry in 2018 could be the faster growth of the world economy. According to the International Monetary Fund (IMF), the global growth forecast for 2018 is expected to reach 3.7 percent, about 0.1 percent points higher than 2017 and 0.6 percent points higher than 2016. Notably, the upward economic growth will be broad-based, including the United States, the Euro area, Japan, China, emerging Europe and Russia. Hopefully, the improved growth of the world economy will translate into increased consumer demand for clothing in 2018.
Nevertheless, from the macroeconomic perspective, oversupply will remain a significant challenge facing the apparel industry in 2018. Data from the World Bank and the World Trade Organization (WTO) shows that, while the world population increased by 21.6 percent between 2000 and 2016, the value of clothing exports (inflation-adjusted) surged by 123.5 percent over the same period. Similarly, between 2000 and 2016, the total U.S. population increased by 14.5 percent and the GDP per capita increased by 22.2 percent, but the supply of apparel to the U.S. retail market surged by over 67.8 percent during the same time frame. The problem of oversupply is the root of many challenges faced by apparel companies today, from the intense market competition, pressure of controlling production and sourcing cost, struggling with excessive inventory and deep discounts to balancing sustainability and business growth.
2: What’s happening with sourcing? How is the sourcing landscape likely to shift in 2018, and what can apparel firms and their suppliers do to stay ahead?
The 2017 US Fashion Industry Benchmarking Study, which I conducted in collaboration with the US Fashion Industry Association (USFIA) earlier this year, provides some interesting insights into companies’ latest sourcing strategies and trends. Based on a survey of 34 executives at the leading U.S. fashion companies, we find that:
First, most surveyed companies continue to maintain a relatively diversified sourcing base, with 57.6 percent currently sourcing from 10+ different countries or regions, up from 51.8 percent last year. Larger companies, in general, continue to have a more diversified sourcing base than smaller companies. Further, around 54 percent of respondents expect their sourcing base will become more diversified in the next two years, up from 44 percent in 2016; over 60 percent of those expecting to diversify currently source from more than 10 different countries or regions already. Given the uncertainties in the market and the regulatory environment (such as the Trump Administration’s trade policy agenda), companies may use diversification to mitigate potential market risks and supply chain disruptions due to protectionism.
Second, although U.S. fashion companies continue to seek alternatives to “Made in China” actively, China’s position as top sourcing destination remains unshakable. Many respondents attribute China’s competitiveness to its enormous manufacturing capacity and overall supply chain efficiency. Meanwhile, it is interesting to note that the most common sourcing model is shifting from “China Plus Many” to “China Plus Vietnam Plus Many” (i.e. China typically accounts for 30-50 percent of total sourcing value or volume, 11-30 percent for Vietnam and less than 10 percent for other sourcing destinations). I think this sourcing model will likely to continue in 2018.
Third, social responsibility and sustainability continue to grow in importance in sourcing decisions. In the study, we find that nearly 90 percent of respondents give more weight to sustainability when choosing where to source now than in the past. Around 90 percent of respondents also say they map their supply chains, i.e., keeping records of name, location, and function of suppliers. Notably, more than half of respondents track not only Tier 1 suppliers, suppliers they contract with directly, but also Tier 2 suppliers, i.e., supplier’s suppliers. However, the result also suggests that a more diversified sourcing base makes it more difficult to monitor supply chains closely. Making the apparel supply chain more socially responsible, sustainable and transparent will continue to be a hot topic in 2018.
3: What should apparel firms and their suppliers be doing now if they want to remain competitive further into the future? What will separate the winners from the losers?
I assume many experts will suggest what apparel firms should change to stay competitive into the future. However, the question in my mind is what should companies keep doing regardless of the external business environment? First, I think companies should always strive to understand and impress consumers and control their supply chains. Despite the growing popularity of e-commerce and the adoption of transformative new technologies, the fundamental nature of apparel as a buyer-driven business will remain the same. Second, companies should always leverage their resources and stay “unique,” no matter it means offering differentiated products or value-added services, maintaining exclusive distribution channels or keeping the leadership position in a particular niche market. Third, apparel firms should always follow the principle of “comparative advantage” and smartly define the scope of their core business functions instead of trying to do everything. Additionally, winners will always be those companies that can take advantage of the mega-development trends of the industry and be willing to make long-term and visionary investments, both physical and intangible (such as human talents).
4: What keeps you awake at night? Is there anything else you think the apparel industry should be keeping a close eye on in the year ahead? Do you expect 2018 to be better than 2017, and why?
I think the apparel industry should keep a close eye on the following issues in 2018:
- The destiny of the North American Free Trade Agreement (NAFTA): The potential policy change to NAFTA means so much to the U.S. textile and apparel industry as well as suppliers in other parts of the world. Notably, through a regional textile and apparel supply chain facilitated by the agreement over the past 23 years, the NAFTA region has grown into the single largest export market for U.S. textile and apparel products as well as a major apparel sourcing base for U.S. fashion brands and retailers. In 2016, as much as half of U.S. textile and apparel exports went to the NAFTA region, totaling US$11billion, and U.S. apparel imports from Mexico and Canada exceeded US$3.9billion. Understandably, if NAFTA no longer exists, sweeping changes in the trade rules, such as import duties, could significantly affect the sourcing and manufacturing behaviors of U.S. textile and apparel companies and consequentially alter the current textile and apparel trade patterns in the NAFTA region. For example, Mexico’s focus on basic apparel items suggests that U.S. importers could quickly source from elsewhere if duty savings under NAFTA are eliminated.
- The possible reaching of the Regional Comprehensive Economic Partnership (RCEP): Even though RCEP is less well-known than the Trans-Pacific Partnership (TPP), we should not ignore the potential impact of the agreement on the future landscape of textile and apparel supply chain in the Asia-Pacific region. One recent study of mine shows that the RCEP will lead to a more integrated textile and apparel supply chain among its members but make it even harder for non-RCEP members to get involved in the regional T&A supply chain in the Asia-Pacific. This conclusion is backed by the latest data from the World Trade Organization (WTO): In 2016, around 91 percent of Asian countries’ textile imports came from other Asian countries, up from 86 percent in 2006. The more efficient regional supply chain as a result of RCEP will further help improve the price competitiveness of apparel made by “factory Asia” in the world marketplace. Particularly in the past few years, textile and apparel exports from Asia have already posted substantial pressures on the operation of the textile and apparel regional supply chain in the Western Hemisphere.
- Automation of apparel manufacturing and its impact on the job market: Recall my observations at the MAGIC this August, several vendors showcased their latest technologies which have the potential to automate the cut and sew process entirely or substantially reduce the labor inputs in garment making. The impact of automation on the future of jobs is not a new topic, but the apparel industry presents a unique situation. Globally, over 120 million people remain directly employed in the textile and apparel industries today, a good proportion of whom are females living in poor rural areas. According to the World Trade Organization (WTO), for quite a few low-income and lower-middle income countries such as Bangladesh, Gambia, Pakistan, Madagascar, Sri Lanka, and Cambodia, as much as over 70 percent of their total merchandise exports were textile and apparel products in 2016. Should these labor-intensive garment sewing jobs in the developing countries were replaced by machines, the social and economic impacts will be consequential. I think it is the time to start thinking about the possible scenarios and the appropriate policy responses.
FASH455 Global Apparel & Textile Trade and Sourcing 
1. What do you see as the biggest challenges – and opportunities – facing the apparel industry in 2018, and why?
In my opinion, one of the biggest challenges that the apparel industry will face in 2018 is ironically also an opportunity. This challenge and opportunity would be technology. Over the years, technology has only been getting more advanced and now it’s everywhere. I think it is a challenge for the apparel industry because a lot of stores have been struggling in previous years due to online shopping and some retailers, like Macy’s, Bebe, Payless, J.C. Penney, and Guess, have closed stores because of it. It is becoming harder to entice shoppers to come out of the house and into the store when they can just sit at home and the products get delivered right to their houses. It’s also ironic because some retailers have had to close stores yet their online sales are great. However, I believe that advancements in technology can also serve as an opportunity to revive some of these retailers’ brick and mortar stores. For example, Rebecca Minkoff has added virtual fitting rooms to her stores. Customers go into the fitting rooms and click through outfits and can see what looks best on them. This saves the customer time and the hassle of trying on multiple articles of clothing and taking garments on and off, becoming tired or overwhelmed. Many retailers have also adopted the idea of a mobile checkout. If all of the registers are being used, customers who are willing to pay with credit or debit cards can take their items to an associate on the sales floor and checkout through an iPad, eliminating customers having to wait in long lines.
great comments! you are not alone. Here is a comment from another panelist who shared the same view with you:”The main challenge – and the main opportunity at the same time – is to make the available technology work to take costs out of the supply chain. Many factors conspire to make the implementation of all the available technology in our industry very difficult, including a great amount of fragmentation into small units across supply chains and within industries, and a knowledge gap. Investments in machines, people and software do not combine well with purely transactional business relations. Nevertheless, we will see a growing number of positive examples of the implementation of technology in our industry in 2018, ranging from semi-automated factories to the internet of sewing machines to digital samples. In 2018 we will see the most successful implementation of technology carried out by very large or very small companies. For mid-sized firms, a strong local supporting infrastructure including industry associations, training centers, and research institutes can make a positive difference and can make it easier for them to make use of the existing technology too.”
2: What’s happening with sourcing? How is the sourcing landscape likely to shift in 2018, and what can apparel firms and their suppliers do to stay ahead?
While reading this section of the article, when it mentioned about how social responsibility and sustainability continue to grow in sourcing strategies and trends, I wanted to include my thoughts on this as well. As a fashion major learning about how sustainability is becoming a major and important part of the apparel and textile industry, I also agree that brands and companies who stick on this trend will be successful in years ahead. People these days are becoming more aware about our environment and what affects it, especially when it comes to manufacturing and sourcing products. Even as an avid shopper and consumer, I’ve noticed that more and more fashion brands are emphasizing sustainability, reusing and recycling their products. Take the brand Reformation for example. This company is based on their sustainable impact on fashion. Companies are making and producing their clothing with more sustainable fabrics, using less chemicals, and ensuring that what they are producing is costing the least amount of damage to our world, because that is simply what our generation is looking for in their purchases now. The newer and younger generations are demanding products to come from more ethical and environmental friendly sources so I believe that companies who are shifting their sourcing and apparel firms to more sustainable practices will be the winners in the future years to come.
RCEP is signed !
The PRC has identified for the world,the “gateway to enter PRC”, via ASEAN. As time passes,wage increases and the rise in cost of living,in urban agglomerations,will provide the impetus to outsource,and shift manufacturing,to ASEAN.Rising costs are a signal,of the obsolescence of the business model and technology – and the driver,to re-engineer the manufacturing value chain.dindooohindoo
This outsourcing to ASEAN,will soak up the entire manufacturing capacity of ASEAN,boosting profits and wages in ASEAN nations.Chinese can partake in this wealth creation,in the ASEAN nations,as under:
Lending to ASEAN companies by Chinese Banks like CCB etc.
VC and PE stakes in ASEAN companies,with exits on the HKEX or NYSE
JV with ASEAN companies
Hence,there will be a continuous pipeline of transfer of technology and products from PRC to ASEAN at a competitive cost,and with a stand-by financing fron Chinese Banks.
This will make the ASEAN people and the ASEAN governments DEPENDENT on PRC,and enable ASEAN to be partners in the PRC success story.Thereafter,excluding Nippon and South Korea,no other nation will ally with the Americans,
and might also,not allow their ports,to be used by the US Navy – as the financial and economic loss,will be
tangible and huge – with no ostensible strategic benefits,to the ASEAN nations.
RCEP has knitted the ASEAN into the PRC garment.
Meanwhile PRC companies can focus on AI,Robotics and Nano to drive up the manufacturing value chain – with
collaborations with EU companies and keep the Chinese skilled workers at the cutting edge of change.
Simultaneous with the above, the RCEP region (minus Nippon and Australia) can use the Yuan as the FX and
even conclude agreements with OPEC or Saudis,and other Break Bulk Raw Material supply nations,to settle all purchases in Yuan (for the RCEP,as trading block).
History,Geneaology,Providence,Culture and Geography,have destined PRC and ASEAN,to be an integrated block.
What place does India have,in the block ? Even Mencius would not feed a rabid dog – as,in due course of time,
you have to neuter it – which is a waste of time,cost and resources.
Nippon and Aussies bring in technical and management excellence (which India never had )
Pakistan HAS to be given a choice to join RCEP,on the thesis that any SEZ of PRC,or a ASEAN owned SEZ o/s ASEAN,
with an investment of,in excess of say,USD 35 Billion,can be DEEMED to be an EXTENSION,of the RCEP.
The Path for EU manufacturers is as clear,as the white sand on a black clay beach.German manufacturers
have to relocate to ASEAN,for manufacturing,and THEN export to PRC,else they will lose tarriff and non-tarriff
costs,of at least 5-10%.
For those who complain about manufacturing regulations in PRC,and the costly and complex legal systems in PRC,the solution is to make in ASEAN,and seek legal redressal in ASEAN – and further,export their output to PRC.This will also secure the EU manufacturers,who wish to secure their assets,in democracies”.dindooo hindoo
The inevitable crisis of AI,Nano and Robotics,will make most humans redundant,even in EU manufacturing.The least the EU can do,is to offshore production to ASEAN,to crash the costs for EU consumers – so that,if the EU has to feed 200 million people (after they are rendered redundant),they can be fed at the lowest cost.
Only a fool in the EU,would ally with India.India is a bankrupt nation,and for those who talk of the Indian Market – what portion of the Indian Market, has been tapped by EU and USA together – and how long has it taken ?
The Fools in the EU are right that INDIANS DO NOT POSE A THREAT to the EU market (if they form a trading block or treaty with India),as they are inefficient and inept.
Does the EU need an impotent,incompetent and inefficient partner,to navigate the future ? If there is a Russia-EU stand off or a gas choke,what strategic leverage,will the Indians have ?
If the EU is PROTECTING its markets and industry, from the Chinese invasion,and thus,forfeiting unrestricted access for EU exporters to the market of PRC – that is a disaster -as the current manufacturing in EU,will ,in any case, becone obsolete.