Outlook 2021– Key Issues to Shape Apparel Sourcing

In January 2021, Just-Style consulted a panel of industry leaders and scholars in its Outlook 2021–Key Issues to Shape Apparel Sourcing Management Briefing. Below is my contribution to the report. All comments and suggestions are more than welcome!

What do you see as the biggest challenges – and opportunities – facing the apparel industry in 2021?

I see COVID-19 and market uncertainties caused by the contentious US-China relations as the two most significant challenges facing the apparel industry in 2021.

The difficulties imposed by COVID-19 on fashion businesses are twofold. First, with the resurgence of COVID cases worldwide, when and how quickly apparel consumption can rebound to the pre-COVID level remain hard to tell, particularly in leading consumption markets, including the United States and Europe. As the apparel business is buyer-driven, the industry’s full recovery is impossible without a strong return of consumers’ demand. Numerous studies also show that switching to making and selling PPE won’t be sufficient to make up for losses from regular businesses for most fashion companies.

Second, COVID-19 will also continue to post tremendous pressures on the supply side. In the 2020 Fashion Industry Benchmarking Study, which I conducted in collaboration with the US Fashion Industry Association (USFIA), the surveyed sourcing executives reported severe supply chain disruption during the pandemic. These disruptions come from multiple aspects, ranging from a labor shortage, a lack of textile raw materials, and a substantial cost increase in shipping and logistics. Even more concerning, many small and medium-sized (SME) vendors, particularly in the developing countries, are near the tipping point of bankruptcy after months of struggle with the order cancellation, mandatory lockdown measures, and a lack of financial support.  The post-covid recovery of the apparel business relies on a capable, stable, and efficient textile and apparel supply chain, in which these SME vendors play a critical role.

In 2021, fashion companies also have to continue to deal with the ramifications of contentious US-China relations. On the one hand, the chance is slim that the punitive tariffs imposed on Chinese products, which affect most textiles and apparel, will soon go away. On the other hand, we cannot rule out the possibility that the US-China commercial relationship will deteriorate further in 2021, as more sensitive, complicated, and structural issues began to get involved, such as national security, forced labor, and human rights. Compared with President Trump’s unilateral trade actions, the new Biden administration may adopt a multilateral approach to pressure China. However, it also means more countries could be “dragged into” the US-China trade tensions, making it even more challenging for fashion companies to mitigate the trade war’s supply chain impacts.

Meanwhile, I see digitalization as a big opportunity for the apparel industry, not only in 2021 but also in the years to come. Fashion brands and retailers will increasingly find digitalization ubiquitous to their businesses—like air and electricity. In 2021, I expect fashion companies will make more efforts to creatively use digital technologies to interact with consumers, make transactions, develop products, and improve consumers’ online shopping experiences. Thanks to the adoption of digital tools, apparel companies may also find new opportunities to improve sustainability, better understand their customers through leveraging data science, and develop a more agile and nimble supply chain. 

What’s happening with supply chains? How is the sourcing landscape likely to shift in 2021, and what can apparel firms and their suppliers do to stay ahead, remain competitive and build resilience for the future?

Apparel companies’ sourcing and supply chain strategies will continue to evolve in response to consumers’ shifting demand, COVID-19, and the new policy environment. Several trends are worth watching in 2021:

First, fashion companies’ sourcing bases at the country level will stay relatively stable in 2021 overall. For example, although it sounds a little contradictory, fashion companies will continue to treat China as an essential sourcing base and reduce their “China exposure” further, a process that has started years before the tariff war. Most apparel sourcing orders left China will go to China’s competitors in Asia, such as Vietnam, Bangladesh, and Cambodia. This also means that Asia, as a whole, will remain the single largest source of apparel imports, particularly for US and Asia-based fashion companies. In comparison, still, “near-sourcing” is NOT likely to happen on a large scale, mainly because “near-sourcing” requires enormous new investments to rebuild the supply chain, and most fashion companies do not have the resources to do so during the pandemic. 

Second, sourcing diversification is slowing down at the firm level, and more apparel companies are switching to consolidate their existing sourcing base. For example, as the 2020 USFIA benchmarking study found, close to half of the respondents say they plan to “source from the same number of countries, but work with fewer vendors” through 2022. Another 20 percent of respondents say they would “source from fewer countries and work with fewer vendors.” The results are understandable– competition in the apparel industry is becoming supply chain-based. Building a strategic partnership with high-quality vendors will play an ever more critical role in supporting fashion brands and retailers’ efforts to achieve speed to market, flexibility and agility, sourcing cost control, and low compliance risk. Thus, apparel companies find it more urgent and rewarding to consolidate the existing sourcing base and resources and strengthen their key vendors’ relations.

Third, apparel sourcing executives still need to keep a close watch on trade policy in 2021. However, we may see fewer news headlines about trade and more “behind the door” advocacy and diplomacy. Specifically:

  • US Section 301 actions: While the punitive tariffs on Chinese goods may not go away anytime soon, there could be a fight over whether the new Biden administration should continue granting certain companies exclusions from those tariffs. Further, in October 2020, the Trump Administration launched two new Section 301 investigations on Vietnam regarding its import and use of timber and reported “undervaluation currency.” The case is pending, but the stakes are high for fashion companies —Vietnam is often treated as the best alternative to sourcing from China and already accounting for nearly 20% of total US apparel imports.
  • The US-China relationship: We all know the relationship is at its low-point, but the fact is many US fashion companies still treat China as one of their most promising markets to explore. China continues to expand its role in the Asia-based textile and apparel supply chain also. In a nutshell, more than ever, apparel executives need to care about what is going on in geopolitics. Hopefully, “tough times can breed positive outcomes.”
  • CPTPP and RCEP: With the reaching of the Regional Comprehensive Economic Partnership (RCEP) in November 2020, there are growing calls for the new Biden administration to consider rejoining the Trans-Pacific Partnership (TPP) in some format to showcase the US presence in the Asia-Pacific region. To make the situation even more complicated, China has openly expressed its interest in joining the Comprehensive Progressive Agreement of the Trans-Pacific Partnership (CPTPP), commonly known as “the TPP without the US.” 2021 will be a critical time window for all stakeholders, including the apparel sector, to debate various trade policy options that could shape the future trade architecture in the Asia-Pacific region.
  • Brexit: Brexit will enter a new phase in 2021 as the transition period ends on 31 December 2020. On the positive side, we have a playbook to follow—the UK has announced its new tariff schedules for various scenarios, which provide critical market predictability. We might also see the reaching of a new US-UK free trade agreement in the first half of the year, which will be exciting news for the apparel sector, particularly those in the luxury segment. However, as the US Trade Promotion Authority (TPA) is set to expire in July 2021, when and how soon such an agreement will enter into force will be another story. By no means trade policy in 2021 will go boring.

by Sheng Lu

Author: Sheng Lu

Professor @ University of Delaware

10 thoughts on “Outlook 2021– Key Issues to Shape Apparel Sourcing”

  1. This post is really interesting as it reminds us that the industry is mainly consumer driven. With the impacts of Covid-19 on the buying power of the general American, we’re definitely looking at an issue with supply and demand in the industry’s future. However, as stated in this post, the influx of technology we’re planning to see in 2021 will hopefully bring back some new interest to struggling brands and companies in the marketplace. By implementing new technology to the digital market, hopefully consumers will be more interested in returning to their old buying habits pre Covid-19 thus repairing one important sector of the industry.

    1. great thought! One industry executive who also participated in this project made a very interesting point: “For clothing, Covid has chased away the shops that were never going to make it. But customers who switched to buying clothes online aren’t going to stay online once Covid’s gone. They weren’t shopping online for the previous 25 years, and they’re a lot less likely to try it again once they’ve got real shops to go to.” It echos your point that “consumers will be more interested in returning to their old buying habits pre Covid-19”

      Does it mean fashion companies should hold back their investment in digital technologies?

    2. I really enjoyed reading this post! As soon as COVID hit the US it was clear to many that the relationship between the US and China when it comes to trade and the supply chain in the apparel industry would be disrupted. I agree with you that our relationship with China has weakened, but this is not the only reason that the apparel industry is facing issues during this current pandemic. Hopefully, new technology that we will see in the future can help to rebound the apparel industry after the great loss that they have suffered. Ultimately it is up to the consumers to increase their buying habits in order to bring back the growth of the apparel industry. In order to entice buyers to purchase more clothing during a time when people are leaving home less, I believe that companies need to move their marketing towards that at home lifestyle. I also agree with your point on needing to watch out for how trade policies can be developed or change over the next few years as we come into a new president here in the US and also watch how other countries have to make up for the COVID after math.

  2. This post was really helpful in bringing to light the major relevant contenders to the dramatic shifts that we’re bound to see in 2021 and possibly the next couple of years. With how unpredictable COVID is, there’s no telling how retailers will manage to bounce back, and in what kind of time frame. I was really interested to read about what the apparel sourcing changes are most likely going to look like. When I had first started learning about globalization and the global supply chain, I had originally thought that we would start seeing a big shift in nearshoring. I thought this because I read about how the famous European fast-fashion company, ZARA, was able to navigate the pandemic with fewer repercussions thanks to their geographically close supply chain. So many companies suffered due to the fragility of their long supply chains that were very susceptible to being dislocated as soon as the pandemic hit. In a perfect world, nearshoring would prove beneficial in many aspects for many companies, but I never considered thinking about how expensive that would be not to mention that companies are also coming from a shorthand of resources because of the pandemic. Therefore, it makes sense to see more companies consolidating their existing supply chains in order to stay in the game.
    I’m also excited to see what direction trade policy is taken in due to the change in presidents. Especially coming from opposite parties, I think that the effects of trade policy changes will be interesting to watch in this fragile economic and political climate especially. With the apparel sector being so heavily reliant on China’s imports it’ll be interesting to see if and how the relationship will hold up throughout the year 2021. If more countries are “dragged” into the trade war that the US has going on with China, I’m curious to observe how that’ll affect supply chains and the evolution of the retail-supplier relationship.

    1. Excellent comment and great thought! I agree with you totally that “near sourcing” continues to gain popularity. I think there are legitimate commercial reasons—because of higher risk of supply chain disruption, why not let’s shorten the shipping route and bring more manufacturing nearby. Meanwhile, the narrative shaped by politicians may also play a role—why not let’s strengthen domestic manufacturing during the pandemic and create more jobs locally.
      However, data suggests that near sourcing from the Western Hemisphere is NOT happening on a large scale for US fashion brands and retailers (for example: https://shenglufashion.files.wordpress.com/2021/01/5.jpg).

      Notably, the limited local textile production capacity and the high production cost are the two notable disadvantages of sourcing from countries like Mexico and those in Central America. We will specifically compare sourcing from Western Hemisphere vs. sourcing from Asia in our next two weeks’ study.

      That being said, I think near sourcing will be part of US fashion companies’ total sourcing portfolio.

  3. I really liked reading this post because it highlights everything currently going on not, only within the fashion industry, but the world. You highlighted a really good point about how the apparel industry’s return depends upon consumers’ demands. This makes us think about the future of the apparel industry after the pandemic, and makes us realize that we desperately need a strong demand from the consumers’ side of shopping. Contrary, the suppliers’ end of the industry is struggling. I like how you talked about all of the aspects that have been affected on this side of the industry due to COVID, and what it will take in order for the suppliers’ to come back successfully. As consumers, it is really important for us to all be aware of these struggles. In reference to the sourcing for 2021, I really appreciate how are you highlighted the three most important aspects of this. It is quite hopeful to know that sourcing within the fashion industry is predicted to stay somewhat stable throughout this year. It gives us something to look forward to and hope will be accurate to its prediction. I also like how you explained that competition within the industry is supply chain-based. The elaboration on this matter really made it clear that this is why the sourcing diversification is going to slow down this year. Lastly, I really appreciate how you broke down the trade policies that need to be watched this year. It is super relevant to the industry and current state of the world, and think we should all be made aware of these problems. Overall, I thoroughly enjoyed reading this blog post!

  4. I noticed you mentioned that many apparel companies are diving deeper into the use of technology and finding creative, new methods of designing and manufacturing apparel especially when it comes to sustainability. That being said, I wanted to point out a brand that I think is doing this particularly well. The company is called Gravicky Labs and they’ve found a way to collect and convert carbon emissions into useable ink for fabric. Gravicky has branded this product “Air-Ink” and it has proven to reduce carbon footprint by 50-150 percent while also being “just as safe” as other inks on the market and long-term less expensive. As of right now, Air-Ink only comes in black, but I’m curious to see how this brand evolves over the years and if other technology might be able to draw on pollution to manufacture more renewable resources. Likewise, I’m hopeful that brands within the fashion industry might partner with Gravicky Labs to make their clothing from now on because currently, Air-Ink is merely a resource but not its own line of clothing.

    I’m also curious: do you think there’s an inevitable solution to solve the trade-war whereupon a compromise at least is initiated in order to alleviate tensions? Is the trade-war a result of one country’s stubbornness to comply with the other? If other countries get “dragged into” the debacle as you suggested what would be the repercussions and thus the impact on the consumer? Additionally, which countries might side with the US, and which do you think would side with China? Further, would there be a period in which goods weren’t being produced at all thereby yielding an irrevocable depletion of supply? In order to avoid that sort of “rock-bottom” would countries on the same side end up working together to do all of their T&A manufacturing without sourcing from the opposing countries anymore?

    1. Thank you for sharing about Gravicky Labs! Very impressive!
      And excellent questions about the trade war. Two quick points to share—first, somehow, there is no “good” or “bad” trade policy, but who are the winners and losers. For example, we will soon take a detailed look at how US fashion brands and retailers and US textile manufacturers are fighting against the rules of origin in the NAFTA renegotiation. Likewise, as the readings in Week 1 suggest, the US-China trade war involves many stakeholders with competing interests, also.

      Second, different from many other trade frictions in history, the US-China trade war involves complicated and sensitive non-economic factors. For example, for years, US asks China to stop its “unfair trade practices” such as providing illegal subsidies to state-owned enterprises, forcing foreign companies to transfer technology, using forced labor, and failed to protect intellectual property rights. However, China literally denied all these allegations. In the Trump administration, the tariff action was used as a leverage to “force” China to come to the negotiation table. Understandably, the Biden administration will not “waste” such influence without gaining something in return from China. (further reading: https://www.wsj.com/articles/trumps-trade-war-will-be-left-for-biden-to-win-11609682580)

      Additionally, Asia is the largest source of apparel and a strategically growing consumption market for many US fashion brands and retailers. Like it or not, US fashion companies have to keep a close watch on what is going on in the region.

  5. It will surely be interesting to see where the future of the fashion industry. With the effect of the pandemic on physical stores, there has been a drastic shift in the way that consumers shop for apparel, and other goods. In terms of production and sourcing, it have become evident that with the pandemic and the tensions with China, that the US has faced many complications. However, “nearby” sourcing still doesn’t present itself as the best alternative to the US supply chain due to higher costs. Asia also remains the largest region of production for many American companies, meaning that it is crucial to maintain a steady relationship with key suppliers. How will a change in leadership effect the tensions faced with asian countries and manufacturers?

    1. Indeed, there have been many speculations about Biden’s trade policy, including the new administration’s approach to China. One topic I would keep a close watch is the xinjiang cotton issue (https://www.businessoffashion.com/articles/sustainability/what-the-latest-clampdown-on-xinjiang-cotton-means-for-fashion). 1) it will affect apparel sourcing significantly; 2) very high profile and continue to gain momentum; 3) it involves both economic and complicated non-economic factors; 4) it involves many parties (government, industry representatives, civil society, workers, consumers…)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s