Category: Asia

Apparel Sourcing and Trade Outlook for 2026

Top challenges in 2026

I believe the global fashion apparel industry will continue to face two macro-level challenges in 2026. One is the relatively weak consumer demand for clothing amid sluggish economic growth and persistent inflationary pressures. For example, according to the International Monetary Fund’s (IMF) October 2025 forecast, global GDP growth in 2026 is expected to decrease from 3.2% in 2025 to 3.1% in 2026. Specifically, U.S. GDP growth will be around 2.1% (down from 2.8% in 2024), and growth in the EU could drop to 1.1% (down from 1.2% in 2025).

Likewise, several consulting firms forecast that clothing retail sales in key apparel import markets, including the United States and Western Europe, could be stagnant or even decline in 2026. Notably, while Gen Z (i.e., those born between 1997 and 2012) has increasingly become a key customer group for many fashion brands and retailers, analysis shows that this generation has turned more cautious about shopping for clothing, especially for new items. The tariff-driven price increases could further discourage these groups from buying new clothing in the new year ahead.

Meanwhile, the trade policy environment facing the global fashion apparel industry could remain highly uncertain in 2026. Notably, in addition to tariffs, several trade agreements could create new uncertainties for fashion companies when sourcing from affected regions. Specifically:

The U.S.-Mexico-Canada (USMCA) trade agreement will begin its formal six-year review process in 2026. Despite broad industry support for upholding the existing agreement and calls to “do no harm,” we cannot rule out the possibility that the Trump administration might seek significant renegotiation or even replace the USMCA with separate bilateral trade deals.

Likewise, the outlook for the African Growth and Opportunity Act (AGOA) and the Haiti HELP/HOPE program, both of which expired in September 2025, remained highly uncertain. Because both programs play a critical role in supporting U.S. apparel sourcing from Sub-Saharan Africa and Haiti, whether and under which conditions they are renewed will directly influence fashion companies’ sourcing decisions and the long-term competitiveness and investment prospects of these regions.

Furthermore, even with several “trade deals” reached between the US and major trading partners like the EU, Vietnam, Cambodia, and potentially China and India, their implementation and enforcement will warrant close attention. In particular, the meaning and definition of critical terms like “transshipment” in these “trade deals” remain largely unclear. However, the impact could be significant for apparel sourcing if the Trump administration ultimately decides to revisit or set new rules of origin in these agreements to reduce the “China content” in products imported into the United States. Notably, according to OECD’s newly released “trade in value-added database,” apparel exports from Asian countries, including Vietnam and Cambodia, commonly contain 20-30% of value created in China.

Key apparel sourcing trends to watch in 2026

First, trade and economic impacts of tariffs could become more visible and significant in 2026. In particular, almost all U.S. apparel imports will be subject to the higher tariffs in 2026, leaving fashion companies with fewer options to use existing inventory to mitigate the effects. Consequently, fashion companies will face increased pressure to control their sourcing costs and protect their profit margins.

Second, fashion companies will continue to leverage sourcing diversification to navigate market and trade policy uncertainties. For example, according to the 2025 Fashion Industry Benchmarking Study released by the U.S. Fashion Industry Association (USFIA), a record-high percentage of surveyed U.S. fashion brands and retailers (i.e., over 80%) reported sourcing from 10 or more countries. Nearly 60% of respondents plan to source from even more countries in 2026. In a recent study I conducted, some leading U.S. and EU fashion companies mentioned in their 2025 Q2 earnings call transcripts that they intentionally seek vendors with production capacity across multiple countries to achieve sourcing diversification and mitigate risks.

Third, in addition to seeking competitive sourcing costs, fashion companies will increasingly look for vendors that can offer speed to market, flexibility, and agility. As one leading fashion company noted, “increasing the speed” does not necessarily mean “nearshoring,” but also refers to vendors that can deliver products quickly and at scale. Meanwhile, fashion companies increasingly expect suppliers to accommodate last-minute order changes, accept low minimum order quantities (MOQs), arrange raw material sourcing, and offer other value-added services. This shows why, based on trade data, Asian suppliers overall are more competitive and have captured more market share in the U.S. and EU markets in 2025 than “near-shoring” suppliers.

Additionally, China and Asia’s role in apparel sourcing could continue to evolve in 2026. I recently attended an industry event featuring textile and apparel manufacturers in Southeast Asian countries (ASEAN) and China. A few observations from the event stood out to me.

  1.  While the tariff was a top concern for most U.S. fashion companies, the conference mainly focused on facilitating investment and creating a more integrated, resilient, and sustainable textile and apparel supply chain in Asia. In other words, Asia-based textile and apparel suppliers did not seem panicked by the tariffs, nor do they believe the tariffs fundamentally challenge their long-term growth trajectory or hurt their export competitiveness.
  2. The Asia-based textile and apparel industry is becoming ever more global, mature, and advanced. Consistent with recent trade data, Asia-based fashion brands today commonly conduct global sourcing. They are investing heavily in new sustainable textile materials and digital technologies. They remain the largest buyer of the most sophisticated textile machinery in the world. Therefore, it is reasonable to expect that Asian suppliers as a whole will continue to dominate textile and apparel production and export into 2026 with no near competitors. 
  3. China’s leadership and influence within the Asia-based textile and apparel supply chain are increasingly visible. At the conference, ASEAN-based textile and apparel associations see China as a vital partner and source of investment. Through China’s Belt and Road Initiative (BRI), collaboration is extending from trade and investment to education and skills training. Overall, industry sentiment toward China in ASEAN differs significantly from the “decoupling” and “reducing China exposure” narratives that are gaining traction in the United States.
  4. An interesting question that I took away from the conference was whether China truly worries about losing market share in the U.S. and other markets for final apparel products. Perhaps not. Chinese industry leaders appear confident because they know that many Asian garment-producing countries remain heavily dependent on Chinese textile inputs, and many garment factories are funded or owned by Chinese investors. Given these dynamics, it will be interesting to observe how China’s confidence and its broader leadership role in Asia’s regional textile and apparel supply chain will continue to grow in 2026.

Opportunities in 2026

In 2026, we may see a significant increase in AI use in apparel sourcing. For example, fashion companies could use new AI tools to help optimize inventory levels and logistics, identify and evaluate new suppliers, and improve operational efficiency. AI may also play a more crucial role in supporting efforts around supply chain mapping, traceability, and sustainability data collection. Overall, we could see a more digitalized and data-driven sourcing process in the new year ahead.

On the other hand, in 2026, fashion companies could benefit from investing in and exploring new business models that support designing, making, sourcing, and selling sustainable apparel products. For example, a recent study of mine found that, by stock keeping units (SKUs) count, the number of clothing items made with recycled textile fibers increased by about 24% from 2024 to 2025 (August to October) in the U.S. retail market. Similarly, clothing items made with “regenerative” textile fibers surged by nearly 90% over the same period. These figures represent consumers’ increasing demand and fashion companies’ growing business interest in offering these products. New sustainability legislation, such as the Extended Producer Responsibility (EPR) at the state, regional, or international levels, will also create new incentives and pressure for fashion companies to revisit many of their current business practices. That said, balancing the sustainability benefits with other key sourcing metrics, such as costs, quality, and traceability, for these sustainable apparel products, will require ongoing efforts and improvements by fashion companies and their supply chain partners in 2026.

by Sheng Lu

Interview with Modaes (Spain) about the Shifting Global Apparel Trade and Sourcing Patterns (November 2025)

Full interview in English HERE ; Spanish version HERE

Below is the interview summary

Q1. Since the pandemic, has the global fashion supply chain changed?

Key point: The pandemic taught fashion companies the importance of flexibility and agility in sourcing. Heavy reliance on China caused major disruptions during lockdowns, prompting companies to diversify their sourcing base and develop stronger supplier relationships to reduce various sourcing risks.

Q2. Is supply security now more important than price in sourcing decisions?

Key point: Security and sourcing are becoming more closely linked. Leading fashion companies understand that sourcing now requires balancing cost with other important factors such as flexibility, regulatory compliance, and risk management. New regulations related to sustainability demand increasingly detailed supply-chain documentation and transparency. Meanwhile, geopolitical tension between the U.S. and China further adds complexity to fashion companies’ sourcing decisions.

Q3. Are companies continuing to reduce the number of suppliers, and why?

Key point: Recent studies show that many fashion companies are diversifying sourcing beyond China, importing more from emerging supplying countries like Vietnam, Bangladesh, Indonesia, Cambodia, Pakistan, Egypt, and more. However, there are two divergent strategies: some brands expand their supplier base to spread risk and enhance capabilities in sustainable fibers, while others consolidate suppliers to strengthen partnerships with large vendors operating across multiple countries, many of which are still based in China.

Q4. Can the value chain function without China?

Key point: Not realistically. While China’s share of finished garment exports is declining, it still dominates in textiles raw materials. Even when apparel is made in other countries (like Vietnam and Cambodia), much of its fabric, investment, or ownership is Chinese. The newly released OECD data also show that about 30% of Southeast Asian apparel exports include Chinese content.

Q5. Which countries could take advantage of China’s declining role?

Key point: China’s dominance comes not only from its low costs but also from its capacity to produce almost any product category at large scale. To replicate this, companies need to use multiple sourcing locations — a “many-country model” instead of relying on just one. Therefore, diversification, rather than substitution, is the most practical approach. Firms seek to avoid over-dependence on any single country, especially given the volatility of tariffs and supply-chain disruptions.

Q6. Does “friendshoring” apply to fashion?

Key point: Politically appealing but impractical for apparel sourcing. The idea of friendshoring — trading only with “like-minded” nations — doesn’t fit with fashion’s global manufacturing system. Europe and the U.S. share values, but Europe lacks large-scale apparel production. Over 70% of U.S. apparel imports still come from Asia, where most countries are not formal U.S. allies. Therefore, political alignment cannot guide sourcing strategy in fashion; cost, capacity, and speed are more important.

Q7. Will geopolitics and the trade war reshape fashion sourcing in Europe or the U.S.?

Key point: Nearshoring remains a popular concept. European companies explore Eastern Europe and the Mediterranean; U.S. firms consider the Western Hemisphere and limited domestic production. Sustainability has emerged as the new opportunity for near-shoring. Fashion companies now aim to use more sustainable fibers in their clothing products. EU sustainability rules could also attract new investment to expand production in the EU. However, in general, small-sized firms need more resources and support to meet these high environmental standards, both to comply with the law and sustain their businesses.

Q8. Is de-globalizing production possible?

Key point: True de-globalization is unlikely. Instead, globalization is shifting toward greater transparency and accountability. Companies now need to track and report where products are made and how workers are treated, including the sourcing of raw materials. This encourages brands to work closely with their suppliers and promote stronger and strategic collaboration.

Q9. Are there enough incentives for production automation in fashion?

Key point: Yes — Automation provides a way to increase efficiency in high-wage countries like the U.S. With labor costs high and factories shrinking, machines and AI are being adopted to boost productivity and customization. Automation can also help cut down on overproduction — one of fashion’s major waste issues — by supporting made-to-order or small-batch manufacturing.

Q10. Why don’t we see full automation yet?

Key point: Cutting, sewing, and material handling today still require human labor, although factories increasingly use automated tools to boost productivity. Asian suppliers are upgrading equipment to handle smaller, faster orders. Automation is bringing back niche manufacturing (e.g., sock production in the U.S.) and supporting recycling efforts, such as sorting used garments. It helps lower minimum order quantities, matching production to uncertain consumer demand.

Q11. How can Europe maintain relevance amid the U.S.–China trade war?

Key point: Europe continues to be a key player in both textile and apparel manufacturing and consumption. Nearly half of the apparel in the EU is produced locally, often in high-wage countries like Italy, Germany, and France. Asian countries are looking for more market access to the EU because of higher tariffs imposed by the US (e.g., trade diversion). Europe also leads in sustainability and regulatory standards. Complying with EU rules often means meeting the highest global standards. Luxury branding (“Made in Italy/France”) remains highly influential, and the EU’s proactive trade agreements might even enable it to export textiles for processing in Asia, expanding supply chain integration.

Q12. Why hasn’t Africa become a viable textile hub yet?

Key point: Africa’s potential greatly relies on trade preferences like the African Growth and Opportunity Act (AGOA), which recently expired. Without duty-free U.S. access, U.S. companies are less likely to source there. However, the EU could help bridge the gap by forging partnerships for recycled textile materials and sustainable production. Regional collaboration could unlock Africa’s place in circular fashion supply chains.

For students in FASH455: Feel free to share your thoughts on any of the interview questions above. You may also challenge and debate any points raised in the interview and present your arguments.

Updated Impact of Increasing Tariffs on U.S. Fashion Companies’ Sourcing and Businesses

This study aims to examine the impacts of the Trump administration’s escalating tariffs on U.S. fashion companies’ apparel sourcing practices. Based on data availability, transcripts of the latest earnings calls from about 30 leading publicly traded U.S. fashion companies were collected. These earnings calls, held between August and October 2025, covered company performance in the second quarter of 2025 or later. A thematic analysis of the transcripts was conducted using MAXQDA.

Key findings:

First, U.S. fashion companies reported a more significant impact of the increasing tariffs on their financial performance as the tariff increase expands from China to other countries. Many companies regarded tariffs as one of their top-most pressing external challenges to profitability in 2025, especially in the second half and beyond.  For example:

  • G-III Apparel: “We expect the total incremental cost of tariffs to be approximately $155 million, up from the $135 million original estimate, and this is based on the latest tariff increases implemented for Vietnam, India and Indonesia, among others.”
  • American Eagle: “On tariffs, yes, we are providing the guidance here for the third and fourth quarter. About $20 million of impact from Q3. $40 million to $50 million in Q4. So that will pressure gross margin a bit.”
  • Hanesbrands: “When you think about tariffs and the impact on our business, first of all, we won’t be really experiencing that cost until Q4 because of the inventory that we have and the way cost flows off of our balance sheet.”
  • Victoria’s Secret: “Our projected net tariff impact of $100 million in 2025 is up $50 million versus our assumption embedded in our previous guidance. With approximately $10 million of net tariff impact already recognized in the first half of the year, our guidance assumes approximately $20 million of net tariff pressure in the third quarter with $70 million impact in Q4.”
  • Tapestry: “We are facing greater than previously expected profit headwinds from tariffs and duties, with the earlier-than-expected ending of de minimis exemptions being a meaningful factor. In aggregate, the total expected impact on profitability this year from tariffs is $160 million, representing approximately 230 basis points of margin headwind.”
  • Carter’s: “We’ve assessed the higher incremental tariffs, which have already been implemented, an additional 10% duty for all countries and higher incremental duties for products from China, Vietnam and Indonesia. Relative to a few months ago, we’re preparing for a world with higher and more permanent tariffs above the over $100 million in duties, which we have paid historically. Our estimate of the additional baseline tariffs is that it would represent a gross additional tariff amount between $125 million and $150 million on an annualized basis.”

Second, despite the higher tariff burdens, most U.S. fashion companies still try to avoid across-the-board price hikes due to concerns about losing consumers. Instead, most companies opt for selective price increases, value-based pricing, and closely monitor consumers’ price sensitivity. However, price increases could be more noticeable down the road. For example:

  • Oxford industries: “We’ve not done sort of an across-the-board approach to pricing. We’ve really looked at it on an item-by-item basis and balanced the need to protect our margins and try to recover some of the tariff impact with not wanting to get too far ahead of ourselves because that tariff number…as we get into spring ’26… And on average, that’s led to sort of low to mid-single digit or low mid-single-digit price increases…we’re just being very cautious about increasing the price too much before we really know where things are settled out.”
  • URBN: “our pricing strategy…is really to look at some gentle price increases where we feel like there’s the value that contributes to that. So making sure that we’re protecting some of the opening price points that the customer counts on and some programs that we know drive a lot of volume…Recognizing the value equation is really important to all of our consumers.”
  • TJX: “I think you’re gonna see a more of a little bit of a gradual increase in pricing as the tariffs come in…I don’t think you’ll see step all of a sudden Right. With the tariffs set,because I don’t wanna, I think, turn off customers immediately by seeing a dramatic price shift. So I think they might they might they might absorb it initially for a little bit, and eventually, they’ll get there.”
  • Columbia Sports: “We expect higher prices for many consumer goods will negatively impact consumer demand…In fall ’25, we’re working with our retail partner to deliver value to consumers and keep inventory and dealer margins healthy. As a result, we’re not making any significant price changes to our fall ’25 product line and expect to absorb much of the incremental tariff costs this year…Our goal is to offset higher tariffs over time through a combination of actions, including price increases, vendor negotiations, SG&A expense efficiencies and other mitigation tactics.”
  • Ralph Lauren: “The big unknown sitting here today is the price sensitivity and how the consumer reacts to the broader pricing environment and how sensitive that consumer is. And that’s what we’re watching very closely as we head into the second half.”
  • Ross stores: “Some of the India tariffs, especially if the 25 goes to 50…I think that you’ll see this go into next year, and I think we would expect to see price increases. And — but over time…we think it will reach equilibrium, and it will be business as usual.”
  • Burlington stores: “we are seeing that competitors are taking up retail prices. So far, though, I would say that those price increases have been quite selective and quite restrained…Part of it may just be the time lag between imports arriving in the country and those goods showing up in stores. But also my sense is that wholesalers and retailers have been reluctant to make decisions on raising prices until they know what the final tariff rates are going to be. Now it does feel like there is more clarity on this now than there was a couple of months ago. So it wouldn’t be surprising if retail prices were to go up across the industry in the back half of the year. Now of course, we know that our customer is very, very price sensitive.”
  • VF Corporation: “we have actions in place to mitigate the tariff impact through sourcing savings and pricing actions that will take effect later this year.”

Third, while U.S. fashion companies overall continue to reduce their apparel sourcing from China amid the current tariff and geopolitical tensions, some companies still regard China as a viable sourcing base given its many unique advantages, such as speed to market, production efficiency, and well-developed supply chain infrastructure. For example:

  • Carter’s Inc: “We’ve meaningfully reduced our exposure to China manufacturing over the last number of years. And now, as summarized here, our largest countries of origin are Vietnam, Cambodia, Bangladesh, and India.”
  • Abercrombie & Fitch: “Our approach and underlying principles for tariff mitigation remain unchanged, supported by a deep playbook and experience. We continue to expect China sourcing share in the U.S. will be in the low single digits for the year.”
  • Steve Madden: “Since the last call…We have moved certain production for fall back to China, where we felt it would be difficult to ensure on-time delivery, appropriate product quality and/or reasonable pricing in an alternative country. For fall 2025, we currently expect to source approximately 30% of our U.S. imports from China, down from 71% for the full year 2024..
  • Oxford industries: “With the recent tariff increases announced during the second quarter, including increased tariffs in countries like Vietnam and India that were included as part of our shift away from China, largely offset by the mitigation efforts we have undertaken, including accelerated inventory receipts and quickly shifting our sourcing network.”
  • American Eagle: “If you start with all the country of origin remixing…China where we know we were at a higher penetration coming into the year is mid-single digit now in a full year.”

Fourth, establishing a geographically diverse sourcing base continues to be a crucial strategy employed by U.S. fashion companies to mitigate tariff impacts and policy uncertainty. U.S. fashion companies are also intentionally adding speed, flexibility, and agility to their sourcing base and supply chain. However, given the complex sourcing factors fashion companies have to consider, plus the broad scope of “reciprocal tariffs, there is no clear winner. For example:

  • Kohl’s: “We have a diversified sourcing strategy from a country standpoint. We’re not heavily reliant on any one particular country, and we have the flexibility and agility to actually move production to other countries if necessary.”
  • PVH: “We work closely with an established network of global sourcing partners across more than 30 countries, and we continue to leverage our deep long-standingrelationships to further optimize our sourcing and production costs.”
  • American Eagle: “If you start with all the country of origin remixing…India is small for us. Rebalancing some things out of Vietnam.”
  • Steve Madden: “we were focused on moving a lot of product to Brazil. We’re going to have to wait and see what happens. I think that really goes not just for Brazil, but for a lot of the countries that we work with. So we’ve tried to create a more diversified sourcing footprint. And — but there’s obviously a lot of uncertainty still about where the ultimate tariff rates will land by country. And so we’re going to have to wait and see what happens and then react accordingly. That’s all we can do.”
  • Hanesbrands: “when you think about tariffs and the impact on our business…not only do you have the Q4 impact, but you have to think about those other offsets about meaningful U.S. content that we have in our products that are exempt from reciprocal, the good East-West balance that we have in our supply chain…”
  • Land’s End: “With regard to sourcing…we have been intentionally repositioning our sourcing network to better serve the business we are building leading to a more balanced supply chain that enables us to bring new solutions to customers with more speed and frequency throughout the year. For example, our licens epartners are becoming part of our sourcing network…By tapping into the full breadth of our sourcing matrix, we are able to swiftly and strategically reposition fabric and manufacturing as tariff conditions evolve.”

Fifth, as part of their tariff cost mitigation strategy, many U.S. fashion companies have been strategically but cautiously building preemptive stock, adopting a data-driven approach to optimize inventory, and simplifying product assortment. For example:

  • Levi’s: “And for Q4, we declared a dividend of 14¢ per share, which is up8% to prior year. We ended the quarter with reported inventory dollars up 12%, driven by purposeful investment ahead of the holiday and higher product cost than a year ago due to tariffs. In unit terms, inventory was up 8% versus last year. As of today (October 9, 2025), we have 70% of the product in the US needed for holiday.”
  • Ralph Lauren: “So we feel good about our inventory levels as we head into the fall season. So we ended Q1 (2025), as you know, with inventories up 18% versus Q1 of last year (2024)…if you think about sort of our Q2 revenue guide of up high single digits, relates to the strategic acceleration of largely core inventory receipts into the U.S. in Q1 during the tariff pause period…So if you back out that tariff-related strategic pull up, our inventory growth is actually a little behind our double-digit top line growth for Q1 and right in line with our expected high single-digit top line growth for next quarter, Q2. And…for the year to go, we expect inventories to moderate as we move throughout the fiscal year, and we plan on ending fiscal ’26 with levels generally in line with demand.”
  • PVH: “Inventory at quarter end (Q2, 2025) was up13% compared to Q2 last year (2024), including a 1% increase due to tariffs, and reflects a planned improvement compared to up 19% in Q1.”
  • Hanesbrands: “we’re leveraging advanced analytics with the use of AI to drive operational improvement around the globe, including inventory and assortment management as well as demand planning and forecasting.”
  • Tapestry: “We’re bringing more innovation to the assortment while we streamline our offering, reducing handbag styles by over 30% by fall, allowing us to stand behind our big ideas with clarity and intention.”

by Sheng Lu

Patterns of Global Textile and Apparel Trade Measured by Origin of Value Added (updated October 2025)

Textiles and apparel today are produced through a global supply chain. For clothing labeled as “Made in Vietnam,” it is likely that the textile raw materials, such as yarns, fabrics, and trims, are sourced from elsewhere.

According to the newly released 2025 OECD trade in value added estimation, as of 2022, a country’s apparel exports commonly contain value added created in another country due to the use of imported textile materials and other inputs. This is the case for exports from leading apparel exporting countries in Asia, such as Vietnam (44% foreign value added), ASEAN members (35% foreign value added), Cambodia (45% foreign value added), India (21% foreign value added), and Jordan (42% foreign value added). Other emerging apparel sourcing destinations in North, South, and Central America, as well as the EU, also used substantial imported inputs for their apparel exports, such as Mexico (27.3% foreign value added), Türkiye (23.9% foreign value added), and Egypt (19.7% foreign value added). [See detailed data here]

Notably, among the sixteen countries and regions examined, they mostly increased the use of non-domestic value added in textile and apparel exports between 2015 and 2022 (note: paired T-test result was statistically significant at the 99% confidence level). This suggests that co-production through regional or global supply chains, rather than 100% domestic production, has become a more prominent phenomenon in the textiles and apparel industry. [See detailed data here]

Furthermore, the value added from China appears to be increasing in the textile and apparel exports of many countries. Specifically, between 2015 and 2022, textile and apparel exports from several countries contained a higher percentage of value added from China, including not only Asian countries such as Vietnam (up 6 percentage points), ASEAN (up 4.1 percentage points) and Jordan (up 6.1 percentage points), but also those in other regions such as Egypt (up 3.3 percentage points), Mexico (up 1.7 percentage points), and South & Central America as a whole (up 4.7 percentage points). [See detailed data here] This result reflected China’s deliberate effort to expand its global economic presence through foreign direct investment, Belt and Road initiatives, and new trade agreements in recent years. 

The latest data from the World Trade Organization (WTO) also shows that while China’s market share in the world clothing exports fell to 29.6% in 2024—the lowest level since 2010—China’s market share in textile exports increased to 43.3% in 2024, up from 41.5% a year earlier. In other words, consistent with the stage of development theory, China’s role as a major textile supplier to other apparel-exporting countries continues to grow, despite a decline in its finished garment exports. [See detailed data here]

In comparison, while the United States remained an important contributor to the value added of textile and apparel exports from Mexico and Canada, its contribution slightly declined between 2015 and 2022 (i.e., from about 12%-14% to 11%). As the USMCA undergoes its mandated six-year review, it is critical to strengthen, rather than weaken, this North American co-production supply chain, which has a significant impact on the economic interests of the U.S. textile and apparel industry. This is particularly important given that supply chain collaboration between the U.S. and Asian or EU countries for textile and apparel production has been limited, with little indication of growth: According to OECD data, the U.S. value added in Asian and EU countries’ textile and apparel exports remained only around 1.5% [See detailed data here].

by Sheng Lu

(This post is not open for discussion due to its technical nature)

FASH455 Video Discussion: Vietnam Garment Factory Tour (updated: October 2025)

About the factory

  • The factory is a foreign direct investment (FDI) operation in central Vietnam specializing in ODM (Original Design Manufacturing) — producing ready-made designs that can be customized for private labels. Specific products include sportswear, casual wear, workwear, and uniforms.
  • The factory hires about 500 workers, and it aims to increase the size to 700-1000 workers, which was the pre-COVID level. The monthly pay averaged about $400.
  • The garment factory mainly exports to the U.S., Europe, and Brazil. The factory can do both full package sourcing (i.e., manages the entire production process, from procuring materials to manufacturing, quality control, and packaging—delivering finished goods ready for export) and CMT sourcing (i.e., cut make and trim–buyer provides the materials and designs, while the supplier only performs garment assembly, sewing, and finishing).
  • The factory mostly uses woven fabrics, and they are mainly sourced from China and Europe. Other sources include Taiwan, Thailand, and Malaysia. Some fabrics are Oeko-Tex certified, given the growing importance of using sustainable materials.
  • To meet the rules of origin requirements under free trade agreements (FTAs), such as the EU-Vietnam FTA, Vietnam is making efforts to enhance its local textile manufacturing capability.
  • To meet the clients’ needs, the factory has received several certifications related to social compliance and sustainability, including WRAP, BSCI, and ISO 9000.
  • Textile waste is partly sold or donated (e.g., blankets and jackets for local communities).

Discussion questions (for FASH455, please answer all of them):

  • How does the video help you understand the complexity of apparel sourcing?
  • Based on the video, what is your evaluation of the strengths of the factory as an apparel sourcing base for US fashion companies? Any specific area in which the factory can be improved?
  • If you have the chance to visit a garment factory, what would you focus on evaluating and why?

Additional reading: Vietnam overtakes China as US’s top apparel supplier (FDi intelligence, Financial Times, October 8, 2025)

Patterns of U.S. Apparel Imports (updated September 2025)

First, as a result of the IEEPA reciprocal tariff, the average tariff rate for U.S. apparel imports (HS Chapters 61 and 62) reached 26.4% in July 2025, marking a new high in decades (note: was 25.4% in June, 23.8% in May and 20.2% in April 2025), and a substantial increase from 14.7% in January 2025, prior to Trump’s second term. Even apparel imports from traditional U.S. free trade agreement partners, such as CAFTA-DR members, now have to be subject to about 10% applied tariffs. And apparel imports from Mexico still enjoyed a relatively low 1.6% tariff rate in July 2025. [Check the applied US apparel import tariff rate here]

Second, U.S. apparel imports fell in July 2025, negatively impacted by the hiking of tariffs and consumers’ growing hesitancy in clothing spending amid uncertainty about their household financial outlook. Specifically, U.S. apparel imports in July 2025 decreased by 3.0% in value and 5.2% in quantity from a year ago, indicating both an overall shrinking import demand and a more notable import price increase. [Check U.S. apparel import index here]

Statistics also show that after removing the seasonal factor, the average U.S. apparel import price went up by nearly 3% from April to July. This trend could become even worse in the coming months as more countries face even higher “reciprocal tariffs” starting from August 2025. However, the average U.S. apparel retail price has not significantly increased, likely because fashion companies fear losing sales at a time when consumers’ clothing spending is already weak. [Check the U.S. clothing retail price index here]

Third, continuing the trends from previous months, U.S. apparel imports from China again fell sharply in July 2025. Facing nearly 50% tariff rates—much higher than those applied to other sourcing countries—U.S. apparel imports from China decreased by 38.4% in value and 27.3% in quantity in July 2025 from a year ago. As a result, in value, China’s market share fell to just 15.6% in July 2025 (was 24.6% in July 2024), significantly lower than Vietnam’s 22.1% (was 19.1% in June 2024). In other words, it may signal a new era where China is no longer the top source of U.S. apparel imports. [Check market shares in U.S. apparel imports here]

Fourth, while Asia as a whole still dominates, trade data suggests more notable trends of sourcing diversification. In July 2025, about 72.9% of U.S. apparel imports came from China, far exceeding the Western Hemisphere (14.8%) and the rest of the world (12.4%). However, Asia’s market share in July 2025 was slightly lower than 74.7% a year ago, suggesting that more imports came from other regions. For example, at the country level, US apparel imports from several emerging Asian suppliers and those in the Middle East and Africa enjoyed fast growth, including Vietnam (up 12.5%), Cambodia (up 25.2%), Pakistan (up 14.7%), Jordan (up 21.6%), and Egypt (up 30.3%).

Meanwhile, U.S. apparel imports from India in July 2025 also increased by over 15%, although the newly imposed higher tariffs on India could alter the trend in the next few months.

Additionally, there is still no evidence that Trump’s tariff policy has meaningfully boosted nearshoring from the Western Hemisphere. On the contrary, in July 2025, U.S. apparel imports from Mexico grew by just 0.5%, despite the significant tariff advantage offered to USMCA-qualifying products. Similarly, imports from CAFTA-DR members decreased by 2.7%. The results revealed the adverse effects of uncertainty in the Trump administration’s tariff policy on encouraging long-term sourcing and investment commitment to the region.

(note: this post is not open for discussion)

By Sheng Lu

2025 August Sourcing at MAGIC Recap

The latest Sourcing at MAGIC, one of the largest and most influential fashion apparel trade shows in North America, was held from August 18 to 20, 2025 in Las Vegas. Drawing thousands of apparel manufacturers, textile raw material suppliers, brands, and retail buyers from over 30 countries around the globe, the event provides a unique opportunity to observe the latest U.S. apparel sourcing trends and market sentiment.

Aligned with the results of the 2025 Fashion Industry Benchmarking Study released by the United States Fashion Industry Association (USFIA), the hiking tariffs imposed by the Trump administration and ongoing policy uncertainty were among the top concerns for MAGIC attendees. One major tariff impact often heard at the MAGIC show was the growing inflationary pressure. It was a prevailing view among vendors, brands, and retailers that a price increase had begun and would become even more noticeable to U.S. consumers in the upcoming months. Some also argue that “tariff is no longer a sourcing problem,” but how brands and retailers should handle their “profit margin, product assortment, and pricing.”

Meanwhile, apparel suppliers care significantly about the additional “reciprocal tariff” rates they face compared to their key competitors. For instance, a jeans supplier from Pakistan said they were relieved to see more order inquiries come in, as their Indian competitors faced significantly higher tariff rates threatened by the Trump administration.

Still, nearly 600 exhibitors from China attended MAGIC, making it the largest delegation from any country. Two interesting phenomena revealed how Chinese suppliers try to stay competitive in today’s challenging business environment. One is to offer various value-added sourcing services beyond physical products.  For example, there was a dedicated session at this year’s MAGIC show that featured Chinese manufacturers that provide services such as drop shipping (i.e., when a customer places an order, the retail store never physically handles the product. Instead, the manufacturer is responsible for inventory, packing, and shipping), director to consumer (DTC) e-commerce and warehousing. Meanwhile, some Chinese vendors accept small orders (i.e., 6 pieces or less) or low minimum orders (i.e., 300 pieces) and promise a short lead time of 45 days. In comparison, the minimum order quantity (MOQ) required by suppliers in other Asian and Western Hemisphere countries typically exceeds thousands of pieces.

On the other hand, it is not uncommon to see that vendors from Bangladesh, Vietnam, Cambodia, or even Egypt and Ghana were actually owned by Chinese investors. Several Chinese factories purposefully highlight that they own factories across the world, from China and Southeast Asia to Africa. According to the USFIA benchmarking study, some U.S. fashion companies also prefer vendors with production capabilities in multiple countries to reduce sourcing risks.

As U.S. fashion companies continue to diversify their sourcing beyond the traditional top three—China, Vietnam, and Bangladesh—emerging destinations are increasingly optimistic about their U.S. export prospects. For instance, a supplier from Jordan noted that recent U.S. tariff hikes have boosted Jordan’s competitiveness, given the zero most-favored-nation (MFN) tariff under the U.S.-Jordan Free Trade Agreement and a 15% reciprocal tariff rate, which was lower than many Asian suppliers face.Jordanian suppliers speak highly of the capacity-building support from international organizations such as the International Trade Centre (ITC), particularly in areas like skills training and market intelligence.

Similar to Jordan, Egypt’s apparel exports can benefit from a zero most-favored-nation (MFN) tariff, provided they meet the rules of origin under the Qualifying Industrial Zones (QIZ) initiative. However, unlike Jordan, suppliers from Egypt tend to specialize in cotton and other natural-fiber–intensive apparel, leveraging their advantages in producing locally made, high-quality natural textile fibers.

Clothing made from preferred sustainable fibers, particularly those incorporating recycled textiles, has grown increasingly popular. Nearly every country represented at MAGIC, including developing nations in Asia and Africa, showcased such products.

It should be noted, however, that producing clothing with sustainable textile fibers requires suppliers to obtain certifications such as GOTS (Global Organic Textile Standard), Global Recycled Standard (GRS), and Better Cotton Initiative (BCI). Although these certifications add costs, most vendors view sustainability as an opportunity to enhance export competitiveness rather than a threat in the long term. Some also mentioned that buyers were often willing to pay a premium for products made with sustainable materials, providing a significant financial incentive.

On the other hand, achieving sustainable sourcing and production is becoming increasingly comprehensive, requiring continuous innovation in both technology and business models. For example, at the show, some vendors showcased apparel products that integrated multiple sustainability concepts, ranging from material development and eco-design to social responsibility and post-consumption solutions.

by Sheng Lu

2025 USFIA Fashion Industry Benchmarking Study Released

The full report is HERE.

Key findings of this year’s report:

#1 This year, the top business challenges facing U.S. fashion companies center on the Trump Administration’s escalating tariff policy and its wide-ranging impacts on companies’ sourcing and business operations.

  • 100 percent of respondents rated “Protectionist U.S. trade policies and related policy uncertainty, including the impact of the Trump tariffs” as one of their top business challenges in 2025. This included as much as 95 percent of respondents who ranked the issue among their top two concerns.
  • Respondents also expressed significant concerns about the wide-ranging effects of Trump’s tariff policy, including “Inflation and economic outlook in the U.S. economy” (80 percent), “Increasing production or sourcing cost” (nearly 50 percent), and “Protectionist trade policies and policy uncertainty in foreign countries, including retaliatory measures against the U.S.” (52 percent).
  • Over 70 percent of surveyed companies reported that the higher tariffs increased sourcing costs, squeezed profit margins, and led to higher consumer prices. Approximately half of the respondents reported a decline in sales, and 22 percent stated that they had to lay off employees due to increased tariffs.

#2 Maintaining a geographically diverse sourcing base has been one of the most popular strategies adopted by U.S. fashion companies to mitigate the impact of rising tariffs and policy uncertainty. 

  • This year, respondents reported sourcing apparel products from 46 countries, similar to the 48 countries reported in 2024 and an increase from 44 countries in 2023. At the firm level, approximately 60 percent of large companies with 1,000+ employees reported sourcing from ten or more countries in 2025, a notable increase from the 45–55 percent range reported in 2022 and 2023 surveys.
    • Amid escalating tariffs and rising policy uncertainty, Asia has become an ever more dominant apparel sourcing base for U.S. fashion companies in 2025. Respondents reported increased use of several Asia-based sourcing destinations other than China in 2025 compared to the previous year, including Vietnam (up from 90 percent to 100 percent), Cambodia (up from 75 percent to 94 percent), Bangladesh (up from 86 percent to 88 percent), Indonesia (up from 75 percent to 77 percent), and Sri Lanka (up from 39 percent to 53 percent).As part of their sourcing diversification strategy, U.S. fashion companies are also gradually increasing sourcing from emerging destinations in the Western Hemisphere and beyond, such as Jordan, Peru, and Colombia.
    • Most respondents intend to build a more geographically diverse sourcing base and broaden their vendor network over the next two years. Nearly 60 percent of respondents plan to source apparel from more countries, and another 40 percent plan to source from more suppliers or vendors. Reducing sourcing risk, especially to minimize the impact of rising tariffs and tariff uncertainty, is a key driver of companies’ sourcing diversification strategies

#3 U.S. fashion companies remain deeply concerned about the future of the U.S.-China relationship during Trump’s second term and intend to further “reduce China exposure” to mitigate sourcing risks.

  • While 100 percent of respondents reported sourcing from China this year, a record-high 60 percent of respondents reported sourcing fewer than 10% of their apparel products from China, up from 40 percent in 2024. Approximately 70 percent of respondents no longer used China as their top apparel supplier in 2025, representing a further increase from 60 percent in 2024 and significantly higher than the 25-30 percent range prior to the pandemic.
  • Despite the announcement of the reaching of a U.S.-China “trade deal” in May 2025, more than 80 percent of respondents plan to further reduce their apparel sourcing from China over the next two years through 2027, hitting a new record high. Many large-scale U.S. fashion companies are already limiting or plan to limit their apparel sourcing from China to a “low single-digit” percentage by 2026 or earlier, mainly due to concerns about the increasing geopolitical and trade policy risks associated with sourcing from the country.
  • Still, respondents rated China as highly economically competitive as an apparel sourcing base compared to many of its Asian competitors regarding vertical manufacturing capability, low minimum order quantity (MOQ) requirements, flexibility and agility, sourcing costs, and speed to market. However, non-economic factors, particularly the perceived extremely high risks of facing U.S. import restrictions, geopolitical tensions with the U.S., and concerns about forced labor, are driving U.S. fashion companies to continue their de-risking efforts.

#4 No evidence indicates that the Trump Administration’s tariff policy has successfully encouraged U.S. fashion companies to increase domestic sourcing of “Made in the USA” textile and apparel products or to expand sourcing from the Western Hemisphere.

  • Only about 44 percent of respondents explicitly say that they would expand sourcing from the Western Hemisphere, and even fewer respondents (17 percent) plan to source more textiles and apparel “Made in the USA” amid the tariff increase.
  • This year, fewer respondents reported sourcing apparel from Mexico and Canada (down from 60 percent in 2024 to 50 percent in 2025) and members of the Dominican Republic-Central America Free Trade Agreement, CAFTA-DR (down from 75 percent in 2024 to 64 percent in 2025).
  • About half of the respondents plan to expand apparel sourcing from Mexico and CAFTA-DR members over the next two years. Notably, nearly all of these companies also intend to increase sourcing from Asia, indicating that U.S. fashion companies view near-shoring from the Western Hemisphere as a complement, not a replacement, to their broader sourcing diversification strategy.
  • Respondents consider the most urgent capacity-building needs within CAFTA-DR lie in the production of textile raw materials (e.g., spandex) and accessories (e.g., zippers, threads, and buttons). Meanwhile, USMCA members are considered to have relatively stronger capacities in yarn and fabric production but face more pressing shortages in accessories.

#5 Respondents overall remain highly committed to sustainability, social responsibility, and compliance issues in the sourcing process.

  • This year, the top sustainability and compliance areas where respondents plan to allocate more resources include “Investing in technology to enhance supply chain traceability or isotopic testing” (53 percent), “Providing sustainability and social compliance training for internal employees” (50 percent) and “Providing sustainability and social compliance training for suppliers” (50 percent). 
  • As part of U.S. fashion companies’ sustainability efforts, all respondents (100 percent) report sourcing clothing made with “sustainable textile fibers” in 2025. Having 11–50% of apparel products containing various “sustainable textile fibers” is the most common (40 percent of respondents), followed by having 1–10% of the total sourcing value or volume(30 percent of respondents).
  • Moreover, most respondents (over 70 percent) plan to increase their use of various “sustainable fibers” in clothing over the next three years. This trend is especially strong for recycled materials, with 80 percent of respondents indicating they intend to increase their use.
  • The top three positions with the highest demand among respondents from 2025 through 2030 are “Environmental sustainability-related specialists or managers,” “Trade compliance specialists,” and “Data scientists”—more than 40 percent of respondents plan to increase hiring. There is also strong demand for “Textile raw material specialists” and “Sourcing specialists.”

#6 With the upcoming expiration of the trade preference program this September, respondents again underscore the importance of immediate renewal of the African Growth and Opportunity Act (AGOA) and extending the agreement for at least another ten years.

  • Due to the upcoming expiration of AGOA and uncertainty about its future, this year, respondents sourced from only six SSA and AGOA members (i.e., Kenya, Ethiopia, Ghana, Madagascar, Mauritius, and Tanzania), fewer than the seven countries in 2024.  And none of these countries were used by more than 20 percent of respondents.
  • Nearly 80 percent of respondents support “renewing AGOA for at least another ten years,” and no one opposes. This shows a consistent and wide base of support for AGOA among U.S. fashion companies.
  • More than 70 percent of respondents say that securing a long-term renewal of AGOA for at least ten years is essential for expanding apparel sourcing from the region. Similarly, another 60 percent of respondents believe that a long-term renewal of AGOA is necessary for U.S. fashion companies and their supply chain partners to commit to new investments in the region. 
  • Respondents warned that AGOA’s pending renewal has already begun to harm the region’s prospects as an apparel sourcing base. Approximately 30 percent of respondents explicitly stated that they had already reduced sourcing from AGOA members due to the uncertainty surrounding the agreement’s renewal.

About the study

Authored by Dr. Sheng Lu in collaboration with the United States Fashion Industry Association (USFIA), this year’s benchmarking study was based on a survey of executives from 25 leading U.S. fashion companies from April to June 2025. The study incorporated a balanced mix of respondents representing various businesses in the U.S. fashion industry. Approximately 85 percent of respondents were self-identified retailers, 60 percent were self-identified brands, and about 50 percent were importers/wholesalers.

The survey respondents included large U.S. fashion corporations and medium-sized companies. Around 90 percent of respondents reported having over 1,000 employees; the rest (10 percent) represented medium-sized companies with 100-999 employees.

Impacts of Trump’s Escalating Tariffs on Apparel Sourcing: U.S. Fashion Companies’ Perspective

Updated study available: Updated Impact of Increasing Tariffs on U.S. Fashion Companies’ Sourcing and Businesses (October 2025)

(Note: The figure above shows how frequently the term “tariff” was mentioned alongside other key issues in the earnings calls. A higher frequency indicates a more significant impact and a closer connection between tariffs and a specific theme.)

This study aims to examine the impacts of the Trump administration’s escalating tariffs on U.S. fashion companies’ apparel sourcing practices. Based on data availability, transcripts of the latest earnings calls from approximately 25 leading publicly traded U.S. fashion companies were collected. These earnings calls, held between mid-May and June 2025, covered company performance in the first quarter of 2025. A thematic analysis of the transcripts was conducted using MAXQDA.

Overall, the results indicate that the Trump administration’s escalating tariffs and policy uncertainties have financially hurt U.S. fashion companies and disrupted their apparel sourcing practices. To mitigate these impacts, most companies plan to further reduce their “China exposure,” maintain a geographically diversified sourcing base, and prioritize flexibility in sourcing and shipping. However, there is no clear evidence that the current policy environment has successfully incentivized U.S. companies to expand apparel sourcing from the Western Hemisphere, let alone commit to new long-term investments. Meanwhile, U.S. fashion companies have adopted a strategic pricing approach by not passing the entire cost increase to consumers through widespread retail price hikes.

A few key findings:

First, far from surprising, many leading U.S. fashion companies expressed concerns that the Trump administration’s escalating tariffs have resulted in higher sourcing costs and cut companies’ profit margins. For example:

  • Company G (specialty store): if current tariffs of 30% on most imports from China and 10% on most imports from other countries remain for the balance of the year, we estimate a gross incremental cost of approximately $250 million to $300 million.
  • Company O (a parent company of several leading apparel brands): We expect that gross margin will contract approximately 200 basis points for the year. This contraction includes $40 million in additional tariff costs.
  • Company V1 (underwear brand): gross tariff impact of approximately $120 million, which assumes 30% China tariffs and 10% non-China, with tariff mitigation of approximately $70 million for a net impact to fiscal year 2025 of approximately $50 million.

Second, with the hiking tariff rate on U.S. apparel imports from China and increasing strategic competition between the two countries, many leading U.S. fashion companies plan to reduce their apparel sourcing from China to a single-digit, if not move out of the country entirely. For example:

  • Company A1 (apparel brand): We’re on track to reduce our sourcing exposure to China to under 10% this year with fall and holiday season down to low single digits.
  • Company A2 (specialty store): For China specifically, we have worked for some time now to relocate the supply resources, and this year’s sourcing volume from China will be in the low single digits.
  • Company L (apparel brand): Less than 8% of our purchase order dollars last fiscal year were utilized on buys of China.
  • Company O (a parent company of several leading apparel brands): By the second half of 2026, we currently plan to be substantially out of China.
  • Company V2 (a parent company of several leading apparel brands): over the past several years we’ve strategically diversified our supply chain and proactively reduced our US finished goods sourced from China to less than 2%.
  • Company K2 (a parent company of several leading apparel brands): China for us is de minimis.

Third, maintaining a geographically diverse sourcing base remains a popular strategy for U.S. fashion companies to mitigate the impacts of increasing tariffs and ongoing policy uncertainties. Companies particularly intend to avoid “putting too many eggs in one basket” and limiting the reliance on any single supplying country. For example:

  • Company K1 (retailer): our talented and experienced global sourcing team has done an incredible job diversifying our countries of production to ensure that we are not overly reliant on any one country. Although tariffs remain a fluid and uncertain situation, the teams continue to work to reduce our exposure to high tariff countries by leveraging our diverse factory network to move production, adjusting orders based on pricing elasticity analysis.
  • Company G (specialty store): Most other countries represent less than 10%, Vietnam and Indonesia represented 27%, and 19% of our sourcing last year, respectively, and our goal is for no country to account for more than 25% by the end of 2026.
  • Company R (apparel brand): While tariffs will primarily impact our gross margins… we have a proven toolkit to manage cost inflation headwinds. This includes first, significant supply chain diversification…No single country accounts for more than 20% of our production volumes, with most countries representing a single-digit percentage.
  • Company U (retailer): The remaining third is strategically diversified across a number of other countries, each representing a low to mid-single-digit percentage. This deliberate diversification creates a well-balanced portfolio, reducing reliance on any single market and enhancing our ability to navigate geopolitical, costs and supply chain complexities from a position of strength.

Notably, while a limited few companies specifically mentioned the possibility of expanding sourcing from the Western Hemisphere amid the current business environment, most did not. For example:

  • Company L (apparel brand): We intentionally drove significant change in our supply chain as we accelerated production in the Western Hemisphere, giving us both speed and additional avenues to mitigate tariffs and provide resiliency.
  • Company G (specialty store): Diversification also means near-shoring as well as domestic investment.

Fourth, U.S. fashion companies have leveraged shipping timing, piled up inventory, and delayed or cancelled existing orders to mitigate the tariff impacts as much as possible. For example:

  • Company C (sportswear): For products that are impacted by the reciprocal tariffs, we are accelerating shipments to the extent possible in order to receive products during the 90-day tariff.
  • Company K1 (retailer): Inventory was up 1.7% compared to last year, driven by inventory strategies implemented to navigate the tariff pressure, including the pull forward of receipts and pack in holding seasonal inventory to be sold in the back half of the year.
  • Company B (off-price retailer): Our reserve inventory was 48% of our total inventory versus 40% of our inventory last year. In dollar terms, our reserve inventory was up 31% compared to last year, reflecting the great deals we were able to make to get ahead of tariffs.
  • Company M (retailer): With the recent announcement of these tariffs, we’ve renegotiated orders with suppliers, and we’ve canceled or delayed orders where the value proposition is just not where it needs to be.

It should be noted, however, that adjusting shipping and inventory could incur additional costs. For example:

  • Company V1 (underwear brand): More than half of the gross margin rate pressure in the quarter was due to a combination of elevated and expected airfreight rates, some tariff-related order adjustments…

Fifth, despite higher sourcing costs and increasing financial pressures, many U.S. fashion companies have avoided widespread price hikes but have implemented selective increases in less price-sensitive apparel categories. For example:

  • Company V1 (underwear brand): [price increase driven by higher tariffs] And so we are going to sort of play in the middle where we see value. So and it won’t be across all categories. As we think about our business, it’s really that strategic case by case, category by category look that we’re taking.
  • Company U (retailer): gently and sparingly raising some prices. Please note that any price increases will be very strategic, protecting opening price points and only targeting areas where we believe we could raise prices without affecting the overall customer experience.
  • Company A2 (specialty store): we are not planning broad-based ticket increases. As we’ve done season after season, our goal is to deliver high-quality product and align inventory and promotions with our customers’ value perception.
  • Company P (a parent company of several leading apparel brands): We will evaluate strategic discounts to mitigate the potential tariff impact. While we are focused on delivering price value for the consumer, we are also ready to take calibrated targeted pricing actions where we have pricing power.

by Sheng Lu

Additional reading: Tariffs Upend Fashion Sourcing and Disrupt Cash Flow Amid Widening Trade Gap (Sourcing Journal, June 27, 2025)

FASH455 Exclusive Interview with Matthias Knappe, Head of Fibres, Textiles and Clothing Unit, International Trade Centre

About the interview

Textile and apparel trade matters. Even today in the 21st century, apparel could still account for 80—90% of a developing country’s total merchandise export and play a critical role in promoting economic growth, poverty reduction, and gender equality. The interview explored several key topics:

  • Why textile & apparel trade matters for development in the 21st century
  • How ITC provides capacity building support and enhances the export competitiveness of garment exporters in developing countries
  • Sustainability movement’s impact on apparel sourcing and export competitiveness of developing countries
  • The promise and complexity of circularity in tackling used clothing challenges
  • Empowering women entrepreneurs through SheTrades
  • Skills and education needed to thrive in the global fashion apparel trade

About Matthias Knappe (speaker)

Matthias Knappe is the Head of Fibres, Textiles and Clothing Unit at the International Trade Centre (ITC), which is co-run by the World Trade Organization (WTO) and the United Nations (UN). Matthias has over 30 years of diversified professional experience in international trade and development. He has worked at the enterprise, institutional, and governmental levels. Matthias is leading ITC’s textile and apparel and light manufacturing unit. Over the last 20 years, he has been working with the T&C sector around the world to increase its export competitiveness. He designed and currently manages ITC’s Global Textiles and Clothing (GTEX) programme and various other fibre, apparel and light manufacturing projects. The Unit’s present portfolio includes projects in 15 countries.

About Emilie Delaye (moderator)

Emilie Delaye is a master’s student in Fashion and Apparel Studies at the University of Delaware, with a specific interest in supply chain, global sourcing, and sustainability. With a background in Entrepreneurship and Fashion Management, Emilie’s passion lies in improving the fashion industry through innovative problem-solving and collaboration. She has worked on projects exploring sourcing destinations and emerging sourcing trends, as well as collaborated with Macy’s on an initiative centered around Extended Producer Responsibility (EPR) regulations. Emilie’s work is driven by a commitment to fostering innovation and ethical practices in fashion, positioning her as a future leader in driving the industry toward greater sustainability and responsibility.

FASH455 Current Event Discussion: Ongoing Tariff War and Apparel Sourcing and Trade (Updated April 2025)

Video 1: Is U.S. Clothing Manufacturing at Risk? Tariffs and Competition Threaten Jobs (RT≠ Endorsement)
Video 2: Northern Virginia T-shirt brand faces challenges (RT≠ Endorsement)
Video 3: Tariffs could raise wedding dress prices for American brides (RT≠ Endorsement)
Video 4: Bangladeshi garment industry sweating on Trump tariffs (RT≠ Endorsement)
Video 5: Trump’s Tariff Twist: Can Pakistan’s Textiles Fill China’s Shoes? (RT≠ Endorsement)
Video 6: Tariffs: Europe’s textile sector holds its breath

Discussion questions (note: you may answer any of the following questions. However, you must watch all the videos above and use examples from the videos to support your viewpoints and arguments. For this learning activity, students are expected to form their own independent assessments of the topic.)

#1 Based on the videos, how do you expect the apparel sourcing strategy of US fashion companies to evolve in response to the tariff increase? For example, will companies continue to diversify sourcing, wait and see, or focus on expanding sourcing to countries or regions regarded as “safe havens”?

#2 Do you expect the higher tariffs on U.S. imports, including textiles and apparel, to benefit domestic “Made in the USA” production? Why or why not?

#3 As consumers, how do you perceive the impact of the tariffs on your shopping behavior and experiences? Have you noticed any changes, such as in price and product availability, while shopping for clothing recently? Feel free to share your observations.

#4 Are there any other notable impacts of the tariff increase on the global fashion apparel industry that we should be aware of? What additional questions do you have in mind about the tariff impacts?  

Patterns of U.S. Apparel Sourcing and Imports (updated April 2025)

The following analysis was based on the latest trade statistics from the Office of Textiles and Apparel (OTEXA) under the U.S. Department of Commerce.

First, the growth of U.S. apparel imports significantly slowed as fashion companies shifted from eagerly piling up stock to the wait-and-see mode. Specifically, in February 2025, U.S. apparel imports moderately went up 3.2% in value and 1.5% in quantity, much lower than the 18-19% increase seen in late 2024 and January 2025. The much-slowed growth confirmed that the earlier U.S. apparel import surge was largely driven by fashion companies’ worries about the upcoming tariff hikes rather than an actual increase in consumer demand.

Adding to the concern, U.S. consumer confidence fell sharply, which could lead to a steep drop in U.S. apparel imports ahead. For example, the Consumer Confidence Index dropped to a two-year low of 92.9 in March 2025, down from 100.1 the previous month (1985=100). Similarly, the Expectations Index—which measures consumers’ short-term outlook for income, business, and labor market conditions—plunged to 65.2, marking its lowest level in 12 years. With the announcement of reciprocal tariffs and the growing likelihood of an economic recession, U.S. consumer demand for clothing may decline significantly, potentially leading to the cancellation of many sourcing orders.

Second, apparel imports have become more expensive. Measured in dollars per square meters equivalent (SME), the unit price of U.S. apparel imports averaged $3.06/SME in the first two months of 2025, up from $3.03/SME a year ago (or a 1.3% increase). The unit price of U.S. apparel imports from many leading Asian countries rose at a notably higher rate, including China (up 2.9%), Vietnam (up 3.6%), and Bangladesh (up 2.6%), as well as those from Mexico (up 4.7%) and CAFTA-DR (up 0.6%). This result reflected the growing pressure of sourcing and production costs facing U.S. fashion companies and their suppliers, driven by rising labor costs and raw material prices among other factors. Indeed, if Trump’s reciprocal tariffs ultimately take effect, import prices could increase even more significantly.

Third, U.S. fashion companies’ sourcing diversification efforts appeared to slow amid rising uncertainty. In February 2025, Asian countries collectively accounted for 71.5% of the total value of U.S. apparel imports—unchanged from a year earlier. Similarly, in the first two months of 2025, the top five suppliers (China, Vietnam, Bangladesh, Cambodia, and India) made up 63.7% of total apparel imports by value, up from 59.7% during the same period in 2024. Even China’s market share remained largely stable at 18.4% in value and 32% in quantity, compared to a year ago.

These figures suggest that U.S. fashion companies somehow have become more hesitant to adjust their sourcing base in response to the universal tariffs imposed by the Trump administration, which target nearly all U.S. trading partners. As a result, U.S. fashion companies may find the sourcing diversification strategies no longer as effective as in the past in effectively mitigating their sourcing risks.

Meanwhile, data from the United Nations (UN Comtrade) show that Asian countries’ dependence on the U.S. market for apparel exports varied. In 2024, Vietnam, Sri Lanka, and ASEAN members exported about 40% of their apparel to the U.S., whereas the U.S. accounted for only about 20% of China’s and Bangladesh’s total apparel exports to the world. At the same time, the U.S. remained the single largest export market for Mexico and CAFTA-DR members, due to the integrated Western Hemisphere textile and apparel supply chain.

Fourth, no evidence shows that the current trading environment has benefited from near-shoring from the Western Hemisphere. On the contrary, measured in quantity, in February 2025, only 7.6% of U.S. apparel imports came from CAFTA-DR members, a notable drop from 9.6% a year ago. Similarly, Mexico accounted for 2.3% of U.S. apparel imports in February 2025, also lower than 2.4% a year earlier.

As a silver lining, the utilization rate of CAFTA-DR reached 81.1% in 2025 (January to February), much higher than 73.8% over the same period in 2024. About 75.3% of U.S. apparel imports from CAFTA-DR in 2025 (January to February) complied with the yarn-forward rules of origin compared to 67.4% a year ago. However, the use of “short-supply” remained low–only about 2.0% in 2025 so far.

by Dr. Sheng Lu

Related analysis: Lu, S. (2025). Patterns of U.S. Apparel Imports in 2024. Global Textile Academy, International Trade Centre, Geneva, Switzerland.

Apparel Import Tariff Rates around the World (updated March 2025)

Apparel products are often subject to high tariffs for various reasons. In developed countries such as the United States, apparel has long been considered an “import-sensitive” sector, with relatively high tariff rates imposed primarily to “protect” specific domestic interest groups with political influences.

However, as importers, not exporters, pay the tariffs, heavy import duties have been a significant concern for US fashion companies for decades. According to data from the US International Trade Commission (USITC), in 2024, apparel (HS chapters 61 and 62) accounted for about 2.5 percent of total US imports but contributed approximately 15.6 percent of total tariff duties. Likewise, US fashion companies paid $11.9 billion in tariffs on apparel imports in 2024, an increase from $11.6 billion in 2023. The average applied tariff rate for apparel items reached 14.6% in 2024, a notable increase from 13.7% before the imposition of Section 301 tariffs on Chinese products. Additionally, due to retail markups, every $1 in tariffs could result in a $1.50 to $2 increase in the final retail price.

Meanwhile, developing countries, especially those least developed, also often impose high tariffs on apparel—either to protect their nascent domestic industries from import competition or to generate government revenues. For example, in Africa, the apparel import tariff rate commonly exceeds 35% as of 2023 (the latest data available).

In February 2025, President Trump announced the imposition of a so-called “reciprocal tariff,” aiming to  “match” the tariff rates that other countries impose on US exports, thereby promoting “fairer trade practices.” However, the details of the “reciprocal tariff” idea remain highly uncertain.

In theory, if strict “tariff matching” is required on a product-by-product basis, US apparel imports from most leading sourcing destinations—particularly those in Asia without a free trade agreement with the US–would face a significant increase in tariffs. Similarly, beneficiary countries under the African Growth and Opportunity Act (AGOA) could face a similar issue, as AGOA is a trade preference program that does not provide duty-free market access for US products in Africa. If apparel exports from AGOA-member countries to the US were subjected to the same 35%+ tariff rates that US products currently face in their markets, it would be a devastating scenario.

By Sheng Lu

(note: this post is not open for comment/discussion)

Gap Inc.’s Evolving Apparel Sourcing Base: 2021-2024

Gap CEO talks tariff impacts (Feb 2025)

Established in 1969, Gap Inc. is a leading American clothing retailer that operates several prominent brands, including Old Navy, Gap, Banana Republic, and Athleta, catering to diverse consumer segments.

The following analysis is based on Gap Inc.’s publicly released factory list. Only factories identified as producing “apparel” products were included in the analysis.

First, like several other leading U.S. fashion companies, Gap Inc. maintained a geographically diverse global sourcing base but reduced the number of factories it sourced from between 2021 and 2024. Specifically, as of October 2024 (the latest data available), Gap Inc. sourced apparel from 24 countries, an increase from 21 countries as of March 2021. Gap Inc.’s apparel sourcing reached almost all continents, including Asia, the Americas, Europe, and Africa.

However, between March 2021 and October 2024, Gap Inc. decreased the number of apparel factories it contracts with from 548 to 502, a reduction of 46. Most of the cuts occurred in China (down 40 factories), Vietnam (down 32 factories), and Cambodia (down 8 factories).  This pattern aligned with the findings of other industry studies, which indicate that many U.S. fashion companies, particularly larger ones, are consolidating their vendor base to prioritize operational efficiency and strengthen the relationships with key vendors.

Second, Gap Inc. has significantly reduced its reliance on China and actively explored emerging sourcing destinations in the rest of Asia, Central America and beyond. According to Gap Inc.’s 2023 annual report (the latest available at the time of writing), its two largest vendors represented approximately 9 percent and 7 percent of the total dollar amount of the company’s purchases. In value terms, in 2023, approximately 29 percent of Gap Inc.’s products were sourced from Vietnam, followed by Indonesia (18 percent).

While China remained the largest source of U.S. apparel imports according to official trade statistics, China now plays a relatively minor role in supplying finished garments for Gap Inc. As of October 2024, the company sourced apparel from 36 factories in China, representing just 7.2 percent of its total apparel sourcing base, making China only the sixth-largest supplier after Vietnam, India, Indonesia, Bangladesh, and Sri Lanka. In an interview conducted in early 2025 (the video above), Gap Inc.’s CEO disclosed that less than 10 percent of the company’s products are sourced from China.

On the other hand, between March 2021 and October 2024, Gap Inc. expanded its sourcing network beyond the traditional top three (China, Vietnam, and Bangladesh), with significant growth in other parts of Asia and Central America, led by India (added 8 more factories) and Guatemala (added 9 more factories).  In 2022, Gap Inc. pledged to source around $150 million in apparel products each year from Central America by 2025.

Third, Gap Inc.’s apparel sourcing base varies by product category. For example, approximately 45% of the company’s contract factories producing denim and woven bottoms were located in Vietnam and Bangladesh, likely due to the availability of cotton and a relatively abundant low-cost labor force. In contrast, factories in Sri Lanka primarily manufactured intimates, performance wear, and swimwear (IPSS) for Gap Inc. Meanwhile, half of the company’s sweater factories were located in China, largely due to the complex manufacturing process and raw material requirements for these products. Additionally, India played a critical role as a sourcing base for Gap Inc.’s woven apparel.

Furthermore, Gap Inc.’s contract garment factories worldwide vary in size, reflecting the company’s diverse sourcing needs. Specifically, in Asia, garment factories in China are typically small or medium-sized, with fewer than 1,000 workers (94.3%). In contrast, nearly 80% of Gap Inc.’s contract garment factories in Bangladesh have more than 1,000 workers, with similar patterns observed in Vietnam (48.7%), India (50%), Indonesia (63.2%), and Pakistan (57.1%). This pattern aligns with other industry studies suggesting that U.S. fashion companies source apparel products from China primarily for orders with relatively small minimum order quantities (MOQs) and those requiring a great variety.

Meanwhile, most garment factories in Central American countries producing products for Gap Inc. have fewer than 1,000 workers, such as Guatemala (100%), Nicaragua (71%), Haiti (67%), and El Salvador (100%). A similar pattern is observed in other regions, such as Egypt (67%) and Turkey (82%). This result suggests that Gap Inc. may still need to rely on Asia to fulfill orders for large-volume items, as it takes time to expand production capacity in other regions.

by Sheng Lu

FASH455 Video Discussion: The State of Textiles and Apparel “Made in Asia” (Updated February 2025)

Video 1: Threads of Resilience: China’s textile manufacturing goes automated
Video 2: Asian factories struggling to keep young workers
Video 3: How Millions Of Jeans Get Recycled Into New Pairs in Pakistan
Video 4: Vietnam becomes second biggest garment exporter globally

Discussion questions:

#1 How are textiles and apparel “Made in Asia” changing their faces? What are the driving forces of these changes?

#2 How would you assess Asia’s competitiveness as a hub for textile and apparel production and sourcing in the next five years? Why? What relevant factors could come into play?

#3  Is there anything else in the videos that you find interesting, intriguing, thought-provoking, or debatable? Why?

(Note: Anyone is welcome to join the discussion. For students in FASH455, please address at least two of the questions above. Please mention the question number in your response, but there is no need to repeat the question.)

Outlook 2025–Key Issues to Shape Apparel Sourcing and Trade

In December 2024, Just-Style consulted a panel of industry experts and scholars in its Shape of apparel sourcing in 2025 briefing. Below is my contribution to the report. Welcome any comments and suggestions!

What’s next for apparel sourcing

Although the world economy is predicted to grow at a similar pace in 2025 from 2024, the slowing US and Chinese economies could impose new challenges to apparel sourcing, from weakened demand to intensified price competition.

Regarding the macroeconomic environment in 2025, which “sets the tone” for apparel sourcing, the International Monetary Fund (IMF) and the World Bank estimated that the world economy would grow by approximately 2.7-3.2 percent in 2025, with almost no change from the previous year. Similarly, the World Trade Organization (WTO) projected that world merchandise trade would increase by 3.3 percent in 2025, slightly higher than 2.6 percent in 2024.

Despite this incremental improvement, the world’s two largest economies–the US (with 2.2 percent GDP growth in 2025, down from 2.8 in 2024 and 2.9 in 2023) and China (with 4.5 percent GDP growth in 2025, down from 4.8 in 2024 and 5.2 in 2023) are expected to experience slower economic growth in the new year ahead. This slowdown means that apparel producers around the world, particularly those developing countries making large-volume basic items, will likely continue to struggle with a shortage of souring orders in 2025 due to overall weak import demand.

Even more concerning, as China grapples with declining domestic sales, the world clothing market could see an additional influx of low-cost Chinese products, especially through new e-commerce channels. Notably, less than half of China’s clothing production is exported, indicating its significant untapped export capacity. Furthermore, while China’s wage levels are higher than those in many other Asian apparel-producing countries, the unit price of U.S. apparel imports from China measured in dollar per square meter equivalent ($/SME) dropped by more than 21% between 2018 and 2024 (up to October). In contrast, U.S. apparel import prices from the rest of the world increased by 7.8% over the same period. Related to this, what is often overlooked is that even Shein, the “ultra-fast fashion” retailer known for its exceptionally competitive pricing, deliberately opted out of the vast Chinese market due to concerns about the intense price competition there. In other words, disregarding the new Trump tariff, 2025 could see an escalation of trade tensions targeting Chinese products in the US market and beyond.

Meanwhile, due to concerns about rising geopolitical tensions worldwide and trade policy uncertainty during Trump’s second term, fashion companies will likely continue to leverage sourcing diversification to mitigate risks. However, the “reducing China exposure” and sourcing diversification movement has yet to substantially benefit near-shoring or emerging sourcing destinations such as the Western Hemisphere and Sub-Saharan Africa (SSA). This result was mainly because fashion companies utilized China to source a wide range of various products, whereas Western Hemisphere and SSA suppliers can only produce a few basic categories.

For example, my latest studies show that in the first nine months of 2024, even excluding major platforms like Shein, Amazon, and Temu, US fashion companies sourced more than 60K Stock Keeping Units (SKUs) of clothing items from China. In comparison, India and Vietnam each supplied approximately 15K SKUs, Cambodia and Bangladesh each contributed 3,000 SKUs, Mexico provided only 2K SKUs, and CAFTA-DR and AGOA member countries supplied around 200 SKUs each. Therefore, even if fashion companies report sourcing from more countries, they are likely to stay sourcing from more Asian countries with closer export capacity and structure to China. Meanwhile, the total value or volume of trade may not fully capture the whole picture of sourcing diversification. This trend may persist in 2025, even with new tariff escalations.

Apparel industry challenges and opportunities

Today’s fashion business is highly global and relies heavily on the frequent movement of goods and services across borders. Thus, the uncertain and protectionist nature of U.S. trade policy during Trump’s second term could present significant challenges to the fashion industry in 2025. Of particular concern is that Trump’s new tariff actions would raise fashion companies’ sourcing costs, create additional inflationary pressure, reduce US consumers’ purchasing power on clothing, and trigger retaliatory trade measures from U.S. trading partners, ultimately hurting the U.S. economy. Notably, when the 7.5% Section 301 tariff was imposed on selected Chinese clothing products in 2018, the U.S. Consumer Price Index (CPI) growth was relatively low at 1.9%. However, imposing a 20% global tariff, a 60% tariff on Chinese products, and the existing 15%-30% regular tariff on clothing when the CPI is historically high is like “adding fuel to the fire.”

Besides tariffs, in 2025, if not sooner, U.S. fashion companies and many e-commerce suppliers worldwide will closely watch how Congress and the new Trump administration reform the de minimis rule, which currently exempts small-value shipments under $800 from tariffs and most customs procedures.  With Trump’s new tariffs looming, some argue that closing the de minimis “loophole” has become even more urgent, as it creates more financial incentives to use the rule to bypass the tariff increase. Meanwhile, proposals under consideration suggest removing textile and apparel products entirely from de minimis, a move that could be an “earthquake” for those fashion companies utilizing the rule heavily.

Trump’s approach and philosophy toward conventional trade agreements and trade preference programs in 2025 also deserve attention. During his first term, Trump launched a few bilateral trade negotiations, from the one with the United Kingdom and Japan to Kenya. Back then, Trump saw a bilateral agreement would give the U.S. more leverage for a better “deal.” Specifically related to apparel sourcing and trade, two flagship U.S. trade preference programs–the African Growth and Opportunity Act (AGOA) and the Haiti HOPE/HELP Act, will expire in September 2025. It remains uncertain whether the new Trump administration will support the early renewal of these two trade preference programs with minimal changes or prefer to renegotiate them and add new bilateral elements.

Additionally, even though the new Trump administration may not prioritize addressing climate change, it is an irreversible trend for fashion companies to allocate more resources to comply with upcoming or newly implemented sustainability and environmental-related legislation, whether from the EU or the US state level. Unlike in the past, when being more sustainable only meant adding operational costs or paying a “one-time fee,” today’s new generation of sustainability-focused regulations—such as Extended Producer Responsibility (EPR)—requires companies to shift their mindset and demonstrate continuous improvement. Interestingly, my recent study tracking apparel products’ sustainability claims shows that vague terms like “sustainable” and “eco-friendly” are gradually being replaced by more neutral, fact-based keywords such as “regenerative,” “textile waste,” and “low impact.”

Meanwhile, offering “sustainable” apparel products and those using “preferred sustainable fibers” could provide fashion companies new opportunities to diversify their sourcing base and expand their vendor networks. For example, studies show that in the U.S. market, China and many other Asian countries are not necessarily the top suppliers of clothing made with recycled materials. Instead, Europe and countries in the Western Hemisphere or even Africa present unique sourcing advantages and capacities due to the unique nature of such products. Therefore, in 2025, we can expect an ever-closer collaboration between design, product development, merchandising, sourcing, and legal teams within fashion companies, working together to meet the growing demand for sustainable apparel and ensure compliance with evolving regulations.

by Sheng Lu

New Study: Exploring India as an Apparel Sourcing Base for U.S. Fashion Companies

The full article is published in Just-Style and below is the summary:

India’s Textiles and Apparel Production

Data from the United Nations Industrial Development Organization (UNIDO) shows that India produced around $76.5 billion in textiles and $26.64 billion in wearing apparel in 2022. Although still smaller than China’s, this production scale has already surpassed that of most other Asian countries, including Vietnam. Behind these numbers were India’s over 4,000 ginning factories, 3,500 textile mills, and around 45 million workers directly employed by the textile and apparel sector.

India is one of the world’s largest textile fiber producers, including regular cotton, organic cotton, silk, polyester, and viscose. India also has more advanced local textile manufacturing capabilities than most other developing apparel-exporting Asian countries, allowing it to benefit from a vertically integrated local textile and apparel supply chain. A recent U.S. International Trade Commission (USITC) study noted that more than 90 percent of India’s textile raw materials needed for its apparel production can be sourced domestically. In comparison, as the World Trade Organization (WTO) global value chain analysis estimated, more than 64 percent of Vietnam’s apparel exports in 2022 contained foreign-made content (i.e., imported yarns and fabrics), 57 percent for Cambodia, 49 percent for Indonesia, and 33 percent for Bangladesh.

India’s Apparel Export

India remained a much smaller apparel exporter than China, Vietnam, and Bangladesh. According to the World Trade Organization (WTO), India exported about $15 billion in apparel in 2023, ranked the world’s sixth largestor 2.8 percent of the global total.  Similarly, in 2023, India accounted for 5.5 percent of U.S. apparel imports and 3.5 percent of the EU, showing its position as a significant supplier but not among the largest. However, unlike most other developing Asian countries, India exports less than half of its apparel output due to its massive domestic market with a population of 1.43 billion. This implies that India’s substantial untapped apparel export potential should not be ignored.

Why Sourcing from India?

Firstly, aligned with trade statistics, many U.S. fashion companies already source from India, although in a relatively small volume.  For example, the USFIA benchmarking survey respondents consistently ranked India as the 3rd or 4th most utilized apparel sourcing base from 2021 to 2024, after China and Vietnam. However, U.S. fashion companies typically place less than 10 percent of their total sourcing value or volume in India. The recent USITC study also raised concerns that India’s apparel factories were primarily small and medium-sized, which could limit their ability to fulfill large-volume sourcing orders.

Secondly, “Made in India” clothing is not necessarily cheap but could be perceived as “worth the value.” Notably, from January to October 2024, clothing labeled “Made in India” sold in the U.S. retail market was, on average, priced much higher than imports from Bangladesh and Vietnam, particularly in the mass market segment. Meanwhile, in the premium market segment, clothing “Made in India” was, on average, priced relatively lower than “Made in China,” such as dresses, tops, and bottoms. These results suggest that U.S. fashion companies do not typically consider India a preferred sourcing base for basic and price-sensitive items. Instead, India may be seen as a more cost-effective alternative to China for high-quality, value-added clothing.

Thirdly, India has been strengthening its competitiveness in export flexibility and agility, enabling its vendors to quickly adjust the delivery, volume, and product of the sourcing order upon customers’ requests. In the latest 2024 USFIA survey, respondents rated India’s sourcing flexibility and agility second only to China, surpassing Bangladesh, Cambodia, and Central American countries. Likewise, India was regarded as one of the few Asian countries that could fulfill apparel sourcing orders with relatively low “minimum order quantity (MOQ)” requirements.

One major factor contributing to India’s perceived advantages in sourcing flexibility and agility is its ability to produce a wide range of apparel products. For example, the Herfindahl-Hirschman Index (HHI) calculated using trade data at the 6-digit HS code level indicates that U.S. apparel imports from India cover more diverse product categories than most Asian countries.

Moreover, due to India’s position as one of the world’s leading cotton producers, in the first ten months of 2024, nearly 60 percent of U.S. apparel imports from India contained cotton fibers, including 13 percent using organic cotton. This percentage was much higher than imports from other Asian suppliers such as China and Vietnam. In comparison, over the same period, U.S. apparel imports from India appear less likely to contain man-made fibers like polyester, nylon, spandex, and recycled polyester. This fiber composition explains why India has yet to become a leading supplier of certain apparel product categories, like outerwear, which more commonly uses man-made fiber than cotton.

Additionally, in the first ten months of 2024, over 45 percent of India’s apparel newly introduced to the U.S. market targeted the luxury and premium segment, closely matching China’s nearly 50 percent and exceeding other Asian suppliers such as Vietnam (20 percent), Bangladesh (13 percent), Cambodia (5 percent), and Indonesia (18 percent). This result explains why U.S. fashion companies increasingly consider India a strategic alternative to sourcing from China, given the similarities in their product offerings.

Reflections

India’s large country size and population, the presence of an already highly integrated and sophisticated textile and apparel supply chain, and its ability to make a great variety of high-quality products suitable for various market segments position it well in the export competition. U.S. fashion companies’ eagerness to reduce sourcing from China due to rising geopolitical concerns and the limited sourcing capacity elsewhere created historical opportunities for India to expand its apparel exports to the U.S. market further.

Nevertheless, it remains a question mark whether India is fully committed to expanding labor-intensive apparel production and exports, given the country’s economy is moving toward more capital and technology-intensive sectors. Notably, in value, apparel only accounted for about 5.6 percent of India’s total merchandise exports in 2023, similar to China’s 5.3 percent but much lower than other lesser-developed Asian countries, including Vietnam (10 percent), Bangladesh (88 percent), and Cambodia (44 percent).

Moreover, while India is not a primary focus for compliance issues like forced labor, sourcing from the country still carries general social and environmental compliance risks similar to those in most developing countries (note: see the 2024 USITC report). It remains to be seen whether India’s textile and apparel mills are technically and financially prepared to meet more stringent social and environmental standards being adopted in the U.S. and can effectively compete in the growing market for “sustainable apparel.”

by Gabriella Giolli (Honors Marketing major & Fashion management minor, University of Delaware) and Sheng Lu

Interview with the National Committee on U.S.-China Relations: The Geopolitics of Fast Fashion–U.S.-China & the World

About the interview: Fashion is possible because of international trade. Each year, the global fashion industry generates more than $4 trillion USD and provides families with affordable clothing options. However, as fast fashion continues to grow, so does awareness of pressing issues such as labor standards and environmental sustainability. How are the United States and China involved in the global fashion industry? How can they collaborate on the issues facing the global fast fashion industry, from production to consumption?

Sheng Lu joins the National Committee to discuss how fast fashion is a global phenomenon and how the United States and China can address common areas of concern.

Learn more about the National Committee on U.S.-China Relations (NCUSCR)

New USITC Report: Apparel: Export Competitiveness of Certain Foreign Suppliers to the United States

The United States International Trade Commission (USITC) released its new fact-finding report examining the competitiveness of Bangladesh, Cambodia, India, Indonesia, and Pakistan as apparel suppliers to the United States. The study was conducted in 2024 based on input from secondary sources (e.g., trade statistics, public hearings, and desk studies) and fieldwork. Below are summaries of the key findings regarding apparel export competitiveness.

Factors that affect export competitiveness in the global apparel sector

One key issue the study explored is what factors affect a country’s apparel export competitiveness and how to become a preferred apparel sourcing base for U.S. fashion companies.

The studies suggest that four types of factors are most important (see the figure above). However, consistent with existing literature, the USITC report could not determine which factor is decisive in fashion companies’ apparel sourcing decisions. For example, the report found that:

  • “cost—the price buyers pay their suppliers—plays a key role in sourcing decisions, although opinions vary regarding the importance of cost relative to other factors.”
  • “Depending on the product, target consumer, and identity of a brand or buyer, apparel buyers will place varying degrees of importance on product differentiation factors such as quality, specialization, product mix, and full package offerings, which include design services, finishing, packaging, and logistics.”
  • “The emphasis on reliability has particularly grown in response to various recent disruptions to global apparel supply chains such as a global pandemic, geopolitical conflicts, and trade policy.”
  • “Although emerging research suggests that compliance programs concerning wages, social inclusion, and climate change mitigation may increase competitiveness, buyers and brands remain divided on the topic…the relative importance, or “weight,” of such compliance in sourcing decisions remains a topic of active study and discussion within the industry.”

Cost and export competitiveness

The USITC report highlighted the complex and nuanced relationship between “costs” and a country’s apparel export competitiveness. Several patterns are noteworthy:

  • Apparel is a buyer-driven industry, meaning “the global apparel supply chain gives buyers the power to negotiate based on price, which can push down prices and transfer greater costs to the supplier.”
  • The ability to produce textile raw materials locally can provide cost advantages in garment production—“Material inputs are widely recognized as the largest component in the cost of a final apparel product, and these prices are largely determined by the presence of a domestic textile industry or costs of importing textiles.”
  • It is difficult to compare wages across countries to measure labor competitiveness. In particular, low labor costs “do not reflect the true cost of doing business (e.g., via wage suppression)” in a country and “they can harm a country’s reputation for social compliance and negatively affect labor productivity.”

Buyer-supplier relationships in apparel sourcing

The USITC report revealed some positive developments in the buyer-supplier relationships involving U.S. fashion companies.

  • Fashion companies increasingly recognize the value of building long-term relationships with their vendors. Buyers emphasize that maintaining these relationships is a key factor in sourcing decisions, largely due to the cost and time involved in finding and establishing relationships with new suppliers.
  • Fashion companies’ efforts to improve supply chain transparency and traceability also need  “suppliers who will act in line with their brand’s values.”
  • Suppliers benefit from the long-term relationship, too. As the USITC report noted, some fashion companies guarantee suppliers a particular profit margin to ensure their continued operation. Additionally, some buyers gain a deep understanding of their suppliers’ cost structures, enabling them to calculate the costs of compliance with various standards and assist suppliers in reducing costs where possible.
  • Subcontracting is still regarded as necessary for the garment industry. As noted in the USITC report, apparel orders fluctuate seasonally, making it impractical for suppliers to hire additional permanent workers or invest in machinery for peak demand. To meet buyer expectations during busy periods, manufacturers often subcontract parts of orders and increase overtime or rely on temporary contract workers. This practice is seen as essential for ensuring a reliable supply of apparel.

Social and environmental responsibility and apparel sourcing

The USITC report acknowledged the growing importance of social and environmental compliance to a country’s apparel export competitiveness. However, the relationship remains complex.

  • The extent to which voluntary social and environmental responsibility programs and their associated auditing practices have influenced outcomes, especially regarding worker rights, remains unclear.
  • Suppliers report that the increased frequency of flooding and high temperatures due to climate change negatively affect their ability to meet labor and environmental standards.
  • Increased compliance with social and environmental standards raises supplier costs, negatively impacting their cost competitiveness. Many stakeholders note that while brands and consumers demand greater responsibility, this often does not come with a “price premium” for suppliers, who ultimately absorb these increased costs.

Note: The USITC report also evaluated the export competitiveness of each apparel-exporting country it examined, including their respective competitive advantages and issues to address.

New Study: PVH Corporation’s Evolving Apparel Sourcing Strategies (updated Septmeber 2024)

PVH Corporation (PVH), which owns well-known brands including Calvin Klein, Tommy Hilfiger, Van Heusen, Arrow, and Izod, is one of the largest US fashion companies with nearly $9.2 billion in sales revenues in 2022.

By leveraging PVH’s publically released factory lists, this article analyzes the company’s detailed sourcing strategies and changes from 2021 to 2022. Key findings:

Trend 1: PVH adopts a diverse apparel sourcing base and continues to work with more vendors. Specifically, in 2022, PVH sourced apparel from as many as 37 countries in Asia, Europe, America, the Middle East, and Africa, the same as in 2021. Despite not expanding the number of countries it sources from, PVH increased its total number of vendors from 503 in 2021 to 553 in 2022, highlighting the company’s ongoing commitment to diversifying its sourcing base.

Trend 2: Asia is PVH’s dominant sourcing base for finished garments and textile raw materials.

Specifically, about 56.2% of PVH’s apparel suppliers were Asia-based in 2022, followed by the EU (20.3%). Compared with a year ago, PVH even added twenty new Asia-based factories to its supplier list in 2022, suggesting no intention of reducing sourcing from the region. Moreover, From 2021 to 2022, as many as 83% of PVH’s raw material suppliers were Asia-based, far exceeding any other regions.

Trend 3: PVH’s China sourcing strategies are evolving and more complicated than simply “reducing China exposure.”

  • First, PVH continued to work with MORE Chinese factories. Specifically, between 2021 and 2022, PVH added 17 Chinese factories to its apparel supplier list, more than other countries. However, the expansion could be because of PVH’s growing sales in China.
  • Second, PVH’s garment factories in China are smaller than their peers in other Asian countries. For example, in 2022, most PVH’s contracted garment factories in top Asian supplying countries, such as Bangladesh (87.5%), Vietnam (63.3%), and Sri Lanka (65.3%), had more than 1,000 workers. In comparison, only 11.3% of PVH’s Chinese vendors had 1,000 workers, and more than 62.5% had fewer than 500 workers. The result suggests that PVH treats China as an apparel sourcing base for flexibility and agility, particularly those orders that may include a greater variety of products in relatively smaller quantities.
  • Further, PVH often priced apparel “Made in China” higher than those sourced from the rest of Asia.

Trend 4: PVH actively used “emerging” sourcing destinations outside Asia. Other than those top Asian suppliers, PVH’s apparel sourcing base includes several countries in America, the EU, and Africa that deserve more attention, including Portugal, Brazil, Tunisia, and Turkey. Overall, PVH sourced from these countries for various reasons, from serving local consumers, seeking sourcing flexibility, accessing raw materials, and lowering sourcing costs.

by Sheng Lu and Ally Botwinick

Further reading: Lu, Sheng & Botwinick, Ally (2023). US fashion companies’ evolving sourcing strategies – a PVH case study. Just-Style. Retrieved from https://www.just-style.com/features/us-fashion-companies-evolving-sourcing-strategies-a-pvh-case-study/

PVH’s market shares in the China apparel retail market

(discussion for this post is closed)

China’s Textile and Clothing Export: Latest Patterns and Trends (updated August 2024)

The newly released World Trade Organization statistics and data from the United Nations (UNComtrade) suggest several patterns of China’s textile and clothing exports.

Firstly, while China remained the world’s largest clothing exporter in 2023, rising geopolitical tensions and Western fashion companies’ ongoing de-risking efforts pose increasing challenges to its export outlook.

To some extent, 2023 wasn’t too bad for clothing “Made in China.” In value, China’s clothing exports totaled $164 billion, accounting for 31.6% of the world—unchanged from 2022. While China’s clothing exports decreased by 9.7 percent in 2023 compared to the previous year due to weaker market demand, this performance was better than most other top ten suppliers, including Bangladesh (down 16 percent), Vietnam (down 12 percent), India (down 13 percent), and Indonesia (down 17 percent).

However, China’s clothing exporters face significant challenges ahead. Despite maintaining its overall market share, China is losing momentum in nearly all key Western clothing markets, including the United States, the European Union, the UK, and Canada. This trend is primarily driven by perceived heightened sourcing risks associated with China, ranging from concerns over forced labor in the Xinjiang region to escalating geopolitical tensions involving the country.

For example, according to the 2024 Fashion Industry Benchmarking Study released by the US Fashion Industry Association (USFIA) in July, a record 43 percent of surveyed leading US fashion companies reported sourcing less than 10 percent of their apparel products from China in 2024, compared to only 18 percent in 2018. Likewise, nearly 60 percent of respondents no longer use China as their top apparel supplier in 2024, much higher than the 25-30 percent range before the pandemic. Additionally, nearly 80 percent of respondents plan to further reduce their apparel sourcing from China over the next two years through 2026, citing perceived high sourcing risks as the primary concern.

Secondly, China has been diversifying its clothing exports beyond traditional Western markets in response to the “de-risking” movement. For example, the US, EU, UK, and Canada combined accounted for 43-45 percent of China’s clothing exports in 2023, lower than over 50 percent in the past. In comparison, these four Western markets typically accounted for 70 to 90 percent of an Asian country’s clothing exports. Meanwhile, since 2021, Asian economies, especially members of the Regional Comprehensive Economic Partnership (RCEP) and Africa, have become more important export markets for China. Nevertheless, since RCEP members and those in Africa primarily consist of developing economies with ambitions to expand their own clothing production and exports, the long-term growth prospects for their demand for “Made in China” clothing remain uncertain.

Thirdly, China’s weakened economy could lead to an increased supply of low-cost Chinese clothing in the global market.

Despite being known as the world’s largest clothing exporter, between 2013 and 2022 (the latest available data), over 70%–80% of clothing produced in China was consumed domestically, with only about 20%–30% being exported. However, as China’s economic growth has slowed and consumer spending on clothing has stalled, more clothing made in China could enter the international market and intensify the price competition. Notably, between June 2023 and June 2024, the average unit price of US apparel imports from China decreased unusually by 7.6 percent, signaling that an increased supply of Chinese clothing began to suppress market prices. Likewise, it doesn’t seem reasonable that the unit price of U.S. apparel imports from China was 40% lower than that of imports from Bangladesh in the first half of 2024. Thus, the growing influx of cheap Chinese products raises the risk of market disruptions, potentially leading to additional trade tensions and restrictive measures against Chinese products.

Fourthly, there is an early sign that Asian countries have become more cautious about using Chinese yarns and fabrics. China remained a key supplier of textile raw materials to leading apparel-exporting countries in Asia. However, Asian countries appeared to be sourcing fewer yarns and fabrics from China in 2023, possibly due to the enforcement of anti-forced labor laws, such as the Uyghur Forced Labor Prevention Act (UFLPA), and the perceived risks associated with sourcing Chinese cotton. Instead, more Asian countries’ yarns and fabrics now came from regional suppliers other than China.

by Sheng Lu

Additional reading: China has turned inward to sell Xinjiang cotton after a trade ban. Will it be enough? (South China Morning Post, August 11, 2024).

Mega Trade Agreements in the Asia-Pacific Region and Textiles and Apparel Trade (Updated August 2024)

Speaker: Dr. Deborah Elms, Founder and Executive Director of the Asian Trade Centre and the President of the Asia Business Trade Association. The clip was part of the webinar “Asia’s Noodle Bowl Of Trade” (March 2023).

Background

The Asia-Pacific region includes several mega free trade agreements:

ASEAN (Association of Southeast Asian Nations) is a regional intergovernmental organization comprising ten countries in Southeast Asia (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam). In 2022, ASEAN members have a combined nominal GDP of $3.6 trillion and a population of 671.6 million.

CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) is a free trade agreement signed by 11 countries in the Asia-Pacific region, including Japan, Malaysia, Vietnam, Australia, Singapore, Brunei, New Zealand, Canada, Mexico, Peru, and Chile. The CPTPP covers a market of 495 million people with a combined GDP of $13.5 trillion in 2021. The United States was originally a participant in the Trans-Pacific Partnership (TPP) negotiations, but in January 2017, former US President Trump withdrew the US from the agreement. The Biden administration has indicated no interest in rejoining CPTPP. Additionally, China is actively seeking to join CPTPP (as of March 2024).

RCEP (Regional Comprehensive Economic Partnership) is a free trade agreement signed by 15 countries in the Asia-Pacific region, including China, Japan, South Korea, Australia, New Zealand, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam. In 2021, RCEP members collectively represented a market of 2.3 billion people with a combined GDP of $26.3 trillion. India was an RCEP member but withdrew from the agreement due to concerns about import competition with China.

IPEF (Indo-Pacific Economic Framework for Prosperity) is a US-led economic cooperation framework that aims to “link major economies and emerging ones to tackle 21st-century challenges and promote fair and resilient trade for years to come.” IPEF is NOT a traditional free trade agreement, and it does not address market access issues like tariff cuts. Instead, IPEF includes four pillars: trade, supply chains, clean economy, and fair economy. IPEF members in the Asia-Pacific region include the United States, Japan, Australia, New Zealand, South Korea, India, Fiji, Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. The IPEF is designed to be flexible, meaning that IPEF partners are not required to join all four pillars. For example, India chooses not to join the trade pillar of the framework. In 2021, IPEF countries collectively represented a market of 2.1 billion people with a combined GDP of $23.3 trillion. The potential economic impact of IPEF remains too early to tell.

Notably, ASEAN, CPTPP, RCEP, and IPEF members play significant roles in the world textile and apparel trade. Specifically:

ASEAN and RCEP members have established a highly integrated regional textile and apparel supply chain. For example, a substantial portion of ASEAN and RECP members’ textile imports came from within the region.

ASEAN and RCEP members’ supply chain connection with China has substantially strengthened over the past decade. In contrast, the US barely participated in Asia-based textile and apparel supply chains. For example, other than CPTPP, the US accounted for less than 2% of ASEAN, RCEP, and IPEF members’ textile imports in 2022.

ASEAN and RCEP members also hold significant market shares in the world textile and apparel exports (over 50%). Meanwhile, the US and EU are indispensable export markets for ASEAN and RCEP members.

Because of the inclusion of the United States, IPEF represented one of the world’s largest apparel import markets (i.e., 33.7% in 2021, measured in value). Similarly, in 2022, about 26% of US apparel imports came from current IPEF members. Should IPEF address market access issues, it could offer significant duty-saving opportunities for textile and apparel products.

Additionally, the UK’s membership in CPTPP may have a limited direct impact on the textile and apparel sector, at least in the short to medium terms. For example, current CPTPP members only accounted for about 6% of the UK’s apparel imports in 2022.

2024 USFIA Fashion Industry Benchmarking Study Released

The full report is HERE

Key findings of this year’s report:

#1 Respondents reported growing sourcing risks of various kinds in 2024, from navigating an uncertain U.S. economy, managing forced labor risks, and responding to shipping and supply chain disruptions to facing rising geopolitical tensions and trade protectionism.

  • Over half of the respondents ranked “Inflation and economic outlook in the U.S.” and “Managing the forced labor risks in the supply chain” as their top business challenges in 2024.
  • The issues of “Shipping delays and supply chain disruptions” and “Managing geopolitics and other political instability related to sourcing” have newly emerged among respondents’ top five concerns in 2024.
  • About 45 percent of respondents rated “Protectionist trade policy agenda in the United States” as a top five business challenge this year, a jump from only 15 percent in 2023.

#2 U.S. fashion companies leverage sourcing diversification to respond to the growing sourcing risks and market uncertainty in 2024.

  • Nearly 70 percent of large-sized companies with 1,000+ employees reported sourcing from ten or more countries, significantly higher than the 45-55 percent range in the past few years. It also has become more common for medium to small-sized companies with fewer than 1,000 employees to source apparel from six or more countries in 2024 than in the past.
  • Nearly 80 percent of respondents plan to source from the same number of countries or even more countries through 2026, aiming to mitigate sourcing risks more effectively. However, their approaches differ at the firm level—some U.S. fashion companies plan to work with fewer vendors, while others intend to source from more.

#3 Managing the risk of forced labor in the supply chain continues to be a top priority for U.S. fashion companies in 2024.

  • U.S. fashion companies have adopted a comprehensive approach to comply with UFLPA and mitigate forced labor risks. On average, each surveyed company has implemented approximately six distinct practices across various aspects of their business operations this year, up from an average of five in 2023.
  • More than 90 percent of respondents say they are “Making more efforts to map and understand our supply chain, including the sources of fibers and yarns contained in finished products.” Notably, nearly 90 percent of respondents report mapping their entire apparel supply chains from Tier 1 to Tier 3 in 2024, a significant increase from about 40 percent in the past few years.
  • More than 80 percent of respondents say they “intentionally reduce sourcing from high-risk countries” in response to the UFLPA’s implementation. Another 75 percent of respondents explicitly state that their company has “banned the use of Chinese cotton in the apparel products” they carry.
  • About 45 percent of respondents have been actively “exploring sourcing destinations beyond Asia to mitigate forced labor risks.” However, this year, fewer respondents (i.e., under 10 percent) plan to cut apparel sourcing from Asian countries other than China directly, implying a more targeted and balanced approach to mitigating risks and meeting sourcing needs.
  • Based on field experience, respondents call for greater transparency in U.S. Customs and Border Protection (CBP)’s UFLPA enforcement, specifically in shipment detention and release decisions and in targeted entities and commodities information. Respondents also suggested that CBP reduce repeated detentions, focus on “bad actors” only, clarify enforcement on recycled cotton, and continue to partner with U.S. fashion companies on UFLPA enforcement.

#4 U.S. fashion companies remain deeply concerned about the deteriorating U.S.-China bilateral relationship and plan to further “reduce China exposure” to mitigate risks.

  • A record 43 percent of respondents sourced less than 10 percent of their apparel products from China this year, compared to only 18 percent in 2018. Likewise, nearly 60 percent of respondents no longer use China as their top apparel supplier in 2024, much higher than the 25-30 percent range before the pandemic.
  • Respondents rated China as economically competitive as an apparel sourcing base compared to many of its Asian competitors regarding vertical manufacturing capability, relatively low minimum order quantity (MOQ) requirements, flexibility and agility, sourcing costs, and speed to market. However, non-economic factors, particularly the perceived high risks of forced labor and geopolitical tensions, are driving U.S. fashion companies to move sourcing out of China. This trend applies to surveyed U.S. fashion companies selling products in China.
  • Nearly 80 percent of respondents plan to reduce their apparel sourcing from China further over the next two years through 2026. Consistent with last year’s results, large-size U.S. fashion companies with 1,000+ employees currently sourcing more than 10 percent of their apparel products from China are among the most eager to “de-risk.”

#5 U.S. fashion companies are actively exploring new sourcing opportunities, with a particular focus on emerging destinations in Asia and the Western Hemisphere.

  • This year, more respondents reported sourcing from India (89 percent utilization rate) than from Bangladesh (86 percent utilization rate) for the first time since we began the survey. Also, nearly 60 percent of respondents plan to expand apparel sourcing from India over the next two years, exceeding the planned expansion from any other Asian country.
  • For the second year in a row, three non-Asian countries made it to the top ten most utilized apparel sourcing destination list in 2024, including Guatemala (ranked 7th), Mexico (ranked 7th), and Egypt (ranked 10th). All three countries also witnessed an improved utilization rate in 2024 compared to last year’s survey results.
  • This year, a new record 52 percent of respondents plan to expand apparel sourcing from members of the Dominican Republic-Central American Free Trade Agreement (CAFTA-DR), over the next two years, up from 40 percent in 2023. However, most U.S. fashion companies consider expanding near-shoring from the Western Hemisphere as part of their overall sourcing diversification strategy. For example, nearly ALL companies that plan to increase sourcing from CAFTA-DR over the next two years also plan to increase sourcing from Asia.
  • 75 percent of respondents identified the “lack of sufficient access to textile raw materials” as the main bottleneck preventing them from sourcing more apparel from CAFTA-DR members. Respondents say the local manufacturing capability for yarns and fabrics using fiber types other than cotton and polyester, such as spandex, nylon, viscose, rayon, and wool, was modest or low in the CAFTA-DR region, even when including the United States.
  • The U.S.-Mexico-Canada Trade Agreement (USMCA) entered into force on July 1, 2020, replacing the North American Free Trade Agreement (NAFTA). Within the context of expanding nearing-shoring from the Western Hemisphere, in 2024, about 65 percent of respondents reported sourcing from Mexico and Canada (or USMCA members), a noticeable increase from about 40 percent in 2019-2020. About 36 percent of respondents say their companies “expanded apparel sourcing from USMCA members because of the agreement.”

#6 Respondents underscore the importance of immediate renewal of AGOA before its expiration in September 2025 and extending the agreement for at least another ten years.

  • This year, respondents reported sourcing from seven AGOA members or countries in Sub-Saharan Africa (SSA), including Lesotho, Ethiopia (note: lost AGOA eligibility in 2022), Kenya, Madagascar, Mauritius, Tanzania, and Ghana, an increase from four countries in 2023, and six countries in 2022. Most respondents sourcing from AGOA in 2024 are typically large-scale U.S. fashion brands or retailers with 1,000+ employees. Generally, these companies treat AGOA as part of their extensive global sourcing network.
  • Over 86 percent of respondents support renewing AGOA for at least another ten years, and none object to the proposal. This reveals U.S. fashion companies’ strong support for the trade preference program and the non-controversial nature of continuing this agreement.
  • Over 70 percent of respondents say another 10-year renewal of AGOA is essential for their company to expand sourcing from the region.
  • About 30 percent of respondents reported that they had already held back sourcing from AGOA members due to the pending renewal of the agreement and associated policy uncertainty. This figure could increase to half of the respondents if AGOA is not renewed by the end of 2024.
  • Another 30 percent of respondents indicate that keeping the flexible rules of origin in AGOA, such as the “third country fabric provision” for least-developed members, is essential for their company to source from the region.

Other topics the report covered include:

  • 5-year outlook for the U.S. fashion industry, including companies’ hiring plan by key positions
  • The competitiveness of major apparel sourcing destinations in 2024 regarding sourcing cost, speed to market, flexibility & agility, minimum order quantity (MOQ), vertical integration and local textile manufacturing capability, social and environmental compliance risks and geopolitical risks (assessed by respondents)
  • Respondents’ detailed sourcing portfolio in 2024 for garments and textile materials (i.e., yarns, fabrics and accessories)
  • Respondents’ latest strategies to mitigate forced labor risks in the supply chain and fashion companies’ suggestions for CBP’s UFLPA enforcement based on field experience
  • U.S. fashion companies’ latest social responsibility and sustainability practices related to sourcing
  • U.S. fashion companies’ trade policy priorities in 2024

About the study

This year’s benchmarking study was based on a survey of executives from 30 leading U.S. fashion companies from April to June 2024. The study incorporated a balanced mix of respondents representing various businesses in the U.S. fashion industry. Approximately 80 percent of respondents were self-identified retailers, 60 percent were self-identified brands, 41 percent were importers/wholesalers, and 3 percent were manufacturers.

The survey respondents included large U.S. fashion corporations and medium-sized companies. Around 80 percent of respondents reported having over 1,000 employees; the rest (20 percent) represented medium-sized companies with 100-999 employees.

New Study: Is Sub-Saharan Africa Ready to Serve as an Alternative Apparel Sourcing Destination to Asia for U.S. Fashion Companies? A Product-Level Analysis

Full paper: Lu, S. (2024), “Is Sub-Saharan Africa ready to serve as an alternative apparel-sourcing destination to Asia for US Fashion companies? A product-level analysis“, Competitiveness Review, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/CR-03-2024-0041

Summary:

The prospect of Sub-Saharan Africa (SSA) as an apparel-sourcing base for U.S. fashion companies has been a growing heated debate. On the one hand, U.S. fashion companies, driven by increasing geopolitical concerns and other market factors, were eager to diversify apparel sourcing away from Asia. The SSA region was often regarded as one of the most popular alternative sourcing destinations thanks to its large population, relatively low labor costs, and shorter shipping distance to U.S. ports compared to most Asian. The African Growth and Opportunity Act (AGOA), a trade preference program enacted in 2000, in particular, allowed eligible apparel exports from SSA countries to enter the United States import duty-free, creating substantial financial incentives for U.S. fashion companies to source from the SSA region.

However, empirical trade data shows that U.S. apparel imports from SSA members have stagnated over the past decades without evident growth. Notably, with little change from 2010, SSA countries collectively accounted for only 1.8% of U.S. apparel imports in 2023, with no single SSA member achieving a market share of more than 1%. In contrast, over the same period, despite China’s declining market shares, the following five largest Asian suppliers—Vietnam, Bangladesh, India, Indonesia, and Cambodia—jointly accounted for 43.0% of U.S. apparel imports in 2023, a notable increase from 27.4% in 2010.

This study aims to evaluate SSA countries’ capacity to serve as an alternative apparel sourcing destination to Asian suppliers for US fashion companies. Specifically, the study examined the detailed product information of a total of 10,000 stock keeping units (SKUs) of clothing items sold in the U.S. retail market from January 2021 to December 2023. Half of these items were sourced from the six largest apparel-exporting countries in SSA: Lesotho, Kenya, Mauritius, Ethiopia, Madagascar, and Tanzania. Together, these countries accounted for over 96% of the value of U.S. apparel imports from the SSA region between 2021 and 2023. The remaining half came from China, Vietnam, Bangladesh, Cambodia, India, and Indonesia, the six largest Asian apparel exporters, which stably accounted for approximately 90% of U.S. apparel imports from Asia over the past decade.

Key findings:

First, the results revealed that U.S. fashion companies’ sourcing strategies for SSA countries appeared more subtle and complicated than simply treating the region as another low-cost sourcing destination, as suggested by previous studies. Instead, according to the results, U.S. fashion companies seemed to leverage SSA countries as suppliers of “niche products,” such as those relatively simple and basic apparel categories containing African cultural elements and targeting the luxury and premium market segment. Meanwhile, the demand for such products could be much smaller than regular apparel items sold in the value and mass market. This allows SSA countries to fulfill these smaller orders despite their limited production capacity, often family-owned or involving handmade processes.

Second, the study’s findings identified significant challenges for SSA countries serving as immediate alternatives to sourcing from Asia for U.S. fashion companies. While SSA countries could offer relatively low sourcing costs, the range of apparel products available for U.S. fashion companies to source from the SSA region remained significantly more limited than those from Asia. For example, results show that U.S. fashion companies preferred sourcing relatively basic and technologically simple categories like knitwear, T-shirts, and bottoms from SSA countries. However, imports from SSA countries offered more limited sizing and color choices and were less likely to include womenswear and relatively more sophisticated or specialized product categories such as outerwear and swimwear. As another example, U.S. apparel imports from SSA countries were primarily made of cotton and polyester, with less use of other fiber types, including nylon, rayon, viscose, wool, and those made from recycled textile materials (see table below).

Third, building on the previous point, the results call for new thinking on strengthening SSA countries’ genuine competitiveness as an apparel-sourcing destination. Over the past decades, trade preference programs such as AGOA have mainly focused on improving the price competitiveness of SSA countries’ apparel exports. However, as this study’s findings illustrate, AGOA and other trade preference programs seemed inadequate in assisting SSA countries in developing capacity beyond basic apparel categories and securing a sufficient variety of textile materials. As U.S. fashion companies have placed greater emphasis on factors beyond price in their sourcing decisions, such as flexibility, agility, sustainability, and vendors’ capability to make a wide variety of products, this could put SSA countries at even more significant disadvantages down the road to being considered alternatives to Asia for apparel sourcing.

The results also reminded us that AGOA’s liberal rules of origin, which allowed least-developed SSA countries to use textile materials from anywhere worldwide, cannot replace the crucial need to develop the local textile manufacturing capacity within the SSA region. Without a robust local textile manufacturing sector, SSA countries would encounter significant challenges in diversifying their product offerings to include more complex and versatile clothing categories, such as outerwear and women’s dresses. These categories typically require a wide variety of raw textile materials and accessories, making it highly impractical and inefficient to rely solely on imports for their supply.

On the other hand, the findings reveal the necessity of creating a stable and foreseeable business environment, such as the long-term renewal of AGOA, to attract more long-term investments in SSA. For example, investing in and strengthening SSA countries’ local supply of sustainable textile materials, such as recycled or organic fibers, could strategically enhance SSA countries’ competitiveness in meeting the increasing demand from U.S. fashion companies for sustainable apparel products.

Additional reading:

Patterns of US Apparel Imports in 2023 and Critical Sourcing Trends to Watch in 2024

The latest data from the Office of Textiles and Apparel (OTEXA) and the United States International Trade Commission (USITC) suggested several key patterns of US apparel imports in 2023.

First, affected by the macro economy, US apparel import volume in 2023 suffered the most significant decline since the pandemic. Specifically, US apparel imports decreased by 22% in quantity and value in 2023 compared to 2022, with none of the top ten suppliers experiencing positive growth.

Nevertheless, after several months of straight decline, US apparel imports finally bounced back in December 2023. Thanks to the holiday season and a gradual improvement of the US economy, seasonally adjusted US apparel imports in December 2023 were about 4.5% higher in quantity and 4.2% higher in value than the previous month. Highly consistent with trends, the US Consumer Confidence Index (CCI) increased from 67.2 in November to 76.4 in December (January 2019=100), suggesting US households turned more confident about their financial outlook and willing to spend. That being said, the latest January 2024 International Monetary Fund (IMF) forecasts still predicted the US GDP growth would slow down from 2.5% in 2023 to 2.1% in 2024. Thus, whether the US apparel import volume could continue to maintain growth after the holiday season remains a big question mark.

Second, while the pace of sourcing cost increases has slowed, the costs and financial pressure facing US fashion companies are far from over. Specifically, as of December 2023, the price index of US apparel imports stood at 106 (January 2019=100), almost no change from January 2023. However, two emerging trends are worth watching. One is the declining US apparel retail price index since August 2023, which means US fashion companies may have to sacrifice their profits to attract consumers to the store. The second trend is the surging shipping costs as a result of the recent Red Sea shipping crisis, which were not reflected in the December price data. According to J.P. Morgan, during the week of January 25, 2024, the container shipping rates from China to the US West Coast and East Coast saw a significant spike of around 140% and 120% from November 2023, respectively. Even worse, there is no sign that the Red Sea crisis will soon be solved. Therefore, 2024 could pose another year of financial challenges for many US fashion companies.

Third, diversification remained a pivotal trend in US fashion companies’ sourcing strategy in 2023. For example, the Herfindahl–Hirschman index (HHI), a commonly used measurement of market concentration, went down from 0.105 in 2022 to 0.101 in 2022, suggesting that US apparel imports came from even more diverse sources.

Notably, measured in value, only 71.6% of US apparel imports came from Asia in 2023, the lowest in five years. Highly consistent with the US Fashion Industry Association’s Benchmarking Survey results, OTEXA’s data reflected companies’ intention to diversify their sourcing away from Asia due to increasing geopolitical concerns, particularly the rising US-China strategic competition.

However, it should be noted that Asia’s reduced market share did not benefit “near-shoring” from the Western hemisphere much. For example, in 2023, approximately 14.6% of US apparel imports originated from USMCA and CAFTA-DR members, nearly the same as the 14.3% recorded in 2022. Instead, US apparel imports outside Asia and the Western Hemisphere jumped to 11.4% in 2023 from 9.8% a year ago. Some emerging EU and African suppliers, such as Turkey, Romania, Morocco, and Tunisia, performed relatively well in the US market in 2023, although their market shares remained small. We could highly expect the sourcing diversification strategy to continue in 2024 as many companies regard the strategy as the most effective to mitigate various market uncertainties and sourcing risks.

Fourth, US fashion companies continued reducing their China exposure as much as possible, but China will remain a key player in the game. On the one hand, about 20.0% of US apparel imports in value and 25.9% in quantity came from China in 2023, both hit a new low in the past decade. Recent studies also show that it became increasingly common for China to no longer be the largest source of apparel imports for many US fashion companies.

However, China remains highly competitive in terms of the variety of products it offers. For example, the export product diversification index, calculated based on trade data at the 6-digit HTS code level (Chapters 61 and 62), shows that few other countries can match China’s product variety. Likewise, product level data collected from industry sources indicates that China offered far more clothing styles (measured in Stock Keeping Units, SKUs) than its competitors in 2023. According to the results, rather than identifying 1-2 specific “next China,” US fashion companies appeared to leverage “category killers”—for example, utilizing Vietnam as a sourcing base for outerwear, underwear, and swimwear; India for dresses, and Bangladesh for large-volume basic knitwear items.

Related to this, another recent study found that the top five largest Asian suppliers next to China, including Vietnam, Bangladesh, Indonesia, India, and Cambodia, collectively can offer diverse product categories almost comparable to those from China in the US market.

Fifth, trade data reveals early signs that US fashion companies are gradually reducing sourcing cotton apparel products from Asia because of the implementation of the Uyghur Forced Labor Prevention Act (UFLPA). Notably, when concerns about cotton made by Xinjiang forced labor initially emerged in 2018, US fashion companies quickly shifted sourcing orders for cotton apparel (OTEXA code 31) from China to other Asian countries. However, UFLPA’s enforcement increasingly targets imports from Asian countries other than China due to the highly integrated regional textile and apparel supply chain and Asian countries’ heavy reliance on textile inputs from China. Consequently, Asia (excluding China) accounted for a declining share in the total imports of US cotton apparel in 2023.

Meanwhile, affected by UFLPA’s enforcement, only 11.8% of US cotton apparel imports came from China in 2023, marking a further decline from 13% in 2022 and reaching a new low for the past decade. China also deliberately decreased the percentage of cotton apparel in its total apparel exports to the US market, dropping from nearly 40% in 2017 to only 25% in 2023. In comparison, cotton apparel consistently represented about 45% of total US apparel imports during the same period.

Additionally, while there was no substantial increase in the volume of US apparel imports from CAFTA-DR members, as a silver lining, the utilization of the trade agreement improved. In 2023, about 19.2% of US apparel imports claimed duty-free benefits under US free trade agreements and trade preference programs, a notable increase from 17.7% in 2022. Most such imports came under CAFTA-DR (45.4%) and USMCA (19.7%).

Meanwhile, in the first 12 months of 2023 (latest OTEXA data), about 70.2% of US apparel imports came from CAFTA-DR members claimed the duty-free benefit, up from 66.6% the same period a year ago. Particularly, 65.4% of US apparel imports under CAFTA-DR complied with the yarn-forward rules of origin in 2023, a notable increase from 61.3% in 2022. Another 2.6% of imports utilized the agreement’s short supply mechanism, which also went up from 2.3% in 2022. The results could reflect an ever more integrated regional textile and apparel supply chain among CAFTA-DR members due to increasing investments made in the region in recent years. However, there is still much that needs to be done to effectively increase the volume of US apparel imports from the region.

by Sheng Lu

New Study: Importing Clothing Made from Recycled Textile Materials? A Study of Retailers’ Sourcing Strategies in Five European Countries

Full paper: Leah Marsh and Sheng Lu (2024). Importing clothing made from recycled textile materials? A study of retailers’ sourcing strategies in five European countries. Sustainability, 16(2), 825.

Summary & Key Findings:

With consumers’ growing awareness of the environmental impacts of clothing production and consumption, retailers in Europe (EU) have expressed a heightened interest in selling clothing using recycled textile materials (referred to as “recycled clothing” in this study). For example, fast fashion giants like H&M and Zara and luxury brands such as Hugo Boss have started carrying recycled clothing, aiming to integrate circularity into their product designs and business models.

In the study, we examined retailers’ sourcing strategies for clothing made from recycled textile materials in five European countries, including the United Kingdom (UK), Italy, France, Germany, and Spain. These five countries represent the EU’s largest clothing retail markets, consistently accounting for over 60% of the region’s total apparel sales.

Through an industry source using web crawling techniques and manual verification, 5,000 Stock Keeping Units (SKUs) of clothing items made from recycled textile materials were randomly selected and analyzed. These items were sold by retailers in the UK, Germany, Italy, France, and Spain between January 2021 and May 2023.

The results show that Firist, EU retailers sourced clothing using recycled textile materials from diverse sources, including over 40 developing and developed countries across Asia, America, Europe, and Africa. Second, other than assortment diversity (i.e., the number of color or sizing options for a clothing item), no statistical evidence shows that developing countries had advantages over developed ones regarding product sophistication, replenishment frequency, and pricing for recycled clothing in the five EU markets. Third, a supplying country’s geographic location statistically affects the type of recycled clothing EU retailers import. For example, retailers in the five EU countries typically adopt the following sourcing portfolio by region:

  • Asia: relatively sophisticated clothing items (e.g., dresses and outerwear) targeting the mass and value market.
  • America (North, South, and Central): relatively simple clothing categories (e.g., T-shirts and socks) targeting the mass and value market.
  • Europe: sophisticated clothing categories primarily for the luxury or premium market
  • Africa: relatively simple clothing categories targeting the premium market

The findings offered new insights into the business aspects of recycled clothing, particularly regarding its intricate supply chains and leading suppliers. The study’s results have several additional important implications.

First, while existing studies often suggest “local for local” textile recycling, the study’s findings revealed promising global sourcing opportunities for clothing using recycled textile materials. Particularly, leveraging a diverse sourcing base would allow EU retailers to take advantage of each supplying country’s unique production strength regarding product categories and assortment features and more efficiently balance various sourcing factors ranging from costs and flexibility to speed to market. Meanwhile, the study’s findings indicate that many countries worldwide have begun producing and exporting clothing using recycled textile materials, and the sourcing options and capacities will hopefully continue to grow.

Second, according to the study’s findings, unlike the patterns of making regular garments using virgin fiber, low-wage developing countries demonstrated no noticeable competitive edges over developed economies regarding producing and exporting clothing using recycled textile materials. Instead, developed economies, including many high-wage Western EU countries, emerged as top suppliers and leading sourcing destinations for recycled clothing. Thus, expanding clothing production using recycled textile materials presents an exciting economic opportunity with a promising future in developed countries, where many have plans to revitalize the domestic manufacturing sector and establish a sustainable circular economy.

Third, building on the previous point, the sustained commitment of fashion brands and retailers to carry more clothing made from recycled textile materials in their product assortment could hold significant implications for the future landscape of global apparel trade and sourcing patterns. For example, whereas apparel products are predominantly exported from developing to developed countries today, more trade flows could occur between developed economies in the future, attributed to their increasing production capacity and growing demand for clothing using recycled textile materials. Similarly, major apparel exporters in Asia, such as China and Bangladesh, might assume a less dominant role as a sourcing base for recycled clothing due to their insufficient infrastructure for efficiently sorting used clothing and generating high-quality recycled textile materials.

By Leah Marsh and Sheng Lu

Discussion questions proposed by FASH455:

#1 How might EU fashion companies’ sourcing strategies change as they increase carrying clothing made from recycled textile materials?

#2 Could the US emerge as a leading sourcing destination for clothing made from recycled textile materials? What are the potential advantages and disadvantages?

#3 Is expanding clothing made from recycled textile materials the right approach to achieve fashion sustainability? What is your thought?

Red Sea Attacks and the Global Textile and Apparel Trade (updated January 2024)

Impacts of the Red Sea Attacks on the Supply Chain

Impacts of the Red Sea attacks on the global textile and apparel trade: A summary from the media

US retailers/importers: 1) “40 percent of shipments from Asia go to the U.S. through the Panama Canal” and “with access to the Suez Canal also now limited, vessels carrying goods to the East Coast of America will now take longer to deliver their shipments.” 2) “Companies that depend on inventory supplies from Asia will be impacted…These include things like sneakers, apparel and consumer electronics from countries such as China. Companies may be forced to pay more to get their inventory delivered, the costs of which could be passed on to consumers pushing up prices.”

EU retailers/importers: 1) “the rates for shipping goods from Asia to northern Europe have “more than doubled” since the start of December 2023.” 2) some EU fashion companies say “the crisis has delayed stock deliveries “by three to four weeks” and increased delivery costs by 20%” 3) some fashion retailers are “keen to avoid flying stock from Asia to Europe due to the significant amounts of carbon emissions caused by air freight.” 4) many EU fashion brands and manufacturers “expressed concern that they will have to shoulder the financial burden of the delays.”

China producers/exporters: 1) “Customers involved in China-European trade now face additional costs and a delay of seven to 10 days in such cases” 2) “Some Chinese exporters are shifting to China-Europe Railway Express services to ensure timely delivery of their goods and avoid staggering operational costs if they navigate around the Cape of Good Hope. However, “Some rail freight platform companies have proposed price increases for their railway services to Europe.”

India producers/exporters: 1) “Exports to the US west coast are intact, shipments to Europe, North Africa, and the Middle East have been affected. India exports goods worth $110 billion to the three regions.” 2) “The cost of freight and insurance has risen due to ships being compelled to avoid the region and take a longer route around the Cape of Good Hope. 3) Shipments are being held back by exporters, because they are feeling a pinch of additional freight cost. “Containers could face delays of 12-14 days in their turnaround time, although there is no shortage of containers.”

Bangladesh producers/exporters: 1) “over 70 percent of Bangladesh’s export-laden containers, which are destined for the EU, US East Coast and Canada, cross the Red Sea.” “Meanwhile,  “8 to 10 percent of the country’s imports come through the route.” 2)Bangladeshi exporters and importers are having to pay higher freight charges to the US and Europe.” According to the Bangladesh Textile Mills Association (BTMA), the freight charge has already increased by $700 to $800 per container in case of import-laden vessels. The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) expects Bangladesh’s domestic garment suppliers “will have to ultimately bear the freight cost.”

Pakistan producers and exporters: Textile and apparel shipments are facing stress. On the one hand, Pakistani textile and apparel producers are “highly reliant on timely raw materials and machinery imports. Any disturbances in shipping schedules could lead to production slowdowns and increased costs for manufacturers.” Meanwhile, “There have been “delays in fulfilling orders due to higher lead times and freight charges.” “Exporters have been incurring losses as they were honoring orders when they had assumed freight charges of $750.” However, as of mid-January, “shipping companies have jacked up freight charges to around $1,800, a massive 140% hike.”

(Note: This blog post will be updated as new information becomes available. Industry professionals are welcome to leave comments and share insights.)

Outlook 2024–Key Issues to Shape Apparel Sourcing and Trade

In December 2023, Just-Style consulted a panel of industry experts and scholars in its Outlook 2024–what’s next for apparel sourcing briefing. Below is my contribution to the report. Welcome any comments and suggestions!

What’s next for apparel sourcing?

Apparel sourcing is never about abrupt changes. However, fashion companies’ sourcing practices, from their crucial sourcing factors and sourcing destinations to operational priorities, will gradually shift in 2024 in response to the evolving business environment.

First, besides conventional sourcing factors like costs, speed to market, and compliance, fashion companies will increasingly emphasize flexibility and agility in vendor selection. One driving factor is economic uncertainty. For example, according to leading international organizations such as the World Bank and the International Monetary Fund (IMF), the world economy will likely grow relatively slowly at around 2.6%-3% in 2024. However, it is not uncommon that the economy and consumers’ demand for clothing could perform much better than expected. This means companies need to be ready for all occasions. Likewise, geopolitical tensions, from the Russia-Ukraine war and the US-China decoupling to the military conflict in the Middle East, could cause severe supply chain disruptions anytime and anywhere. Thus, fashion companies need to rely on a more flexible and agile supply chain to address market uncertainties and mitigate unpredictable sourcing risks.

Secondly, it will be interesting to watch in 2024 to what extent fashion companies will further reduce their exposure to China. On the one hand, it is no surprise that fashion companies are reducing finished garments sourcing from China as much as possible. However, fashion brands and retailers also admit that it is difficult to find practical alternatives to China in the short to medium terms regarding raw textile materials and orders that require small runs and great variety. Meanwhile, investments from China are flowing into regions considered alternative sourcing destinations, such as the rest of Asia and Central America. These new investments could complicate the efforts to limit exposure to China and potentially strengthen, not weaken, China’s position in the apparel supply chains. And stakeholders’ viewpoints on “investments from China” appear even more subtle and complicated.

Third, regulations “behind the borders” could more significantly affect fashion companies’ sourcing practices in 2024, particularly in sustainability-related areas. While sustainability is already a buzzword, fashion companies must deal with increasingly complex legal requirements to achieve sustainability. Take textile recycling, for example. The enforcement of the Uyghur Forced Labor Prevention Act (UFLPA) on recycled cotton, the US Federal Trade Commission’s expanded Green Guides, the EU’s extended producer responsibility (EPR) program and its strategy for sustainable textiles, and many state-level legislations on textile waste (e.g., California Textile Recycling Legislation) may all affect companies’ production and sourcing practices for such products. Fashion companies’ sourcing, legal, and sustainability teams will need to work ever more closely to ensure “sustainable apparel” can be available to customers.

Apparel industry challenges and opportunities

In 2024, a slow-growing or stagnant world economy will persist as a significant challenge for fashion companies. Without sourcing orders from fashion brands and retailers, many small and medium-sized manufacturers in the developing world may struggle to survive, leaving garment workers in a precarious financial situation. China’s economic slowdown could worsen the situation as many developing countries increasingly treat China as an emerging export market. With shrinking domestic demand, more “Made in China” apparel could enter the international market and intensify the price competition. 

Another challenge is the rising geopolitical tensions and political instability in major apparel-producing countries. For example, while a broad base supports the early renewal of the African Growth and Opportunity Act (AGOA), which will expire in 2025, the reported human rights violations in some essential apparel exporting countries in the region could complicate the renewal process in US Congress. Likewise, even though the Biden administration is keen to encourage fashion companies to expand sourcing from Central America, political instability there, from Nicaragua to Haiti, makes fashion companies hesitant to make long-term sourcing commitments and investments. Furthermore, 2024 is the election year for many countries, from the US to Taiwan. We cannot rule out the possibility that unexpected incidents could trigger additional instability or even new conflict.

On the positive side, it is encouraging to see fashion companies continue to invest in new technologies to improve their operational efficiency in apparel sourcing. Digital product passports, 3D product design, PLM, blockchain, Generative AI, and various supply chain traceability tools are among the many technologies fashion companies actively explore. Fashion companies hope to leverage these tools to improve their supply chain transparency, strengthen relationships with key vendors, reduce textile waste, accelerate product development, and achieve financial returns.

It is also a critical time to rethink and reform fashion education. In addition to traditional curricula like apparel design and merchandising, we need more partnerships between the apparel industry and educational institutions to expose students to the real world. More direct engagement with Gen Z will also benefit fashion companies tremendously, allowing them to understand their future core customers and prepare qualified next-generation talents. 

by Sheng Lu

Exploring US Apparel Brands and Retailers’ Evolving Sourcing Strategies (December 2023)

The full article is here (Just-Style access required). Below are the key findings:

Based on a content analysis of the annual reports of about 30 largest US fashion brands and retailers from 2018 to 2023, this study aims to identify these companies’ most critical evolving sourcing practices, including their sourcing destination adjustment, primary sourcing factors, and emerging sourcing-related “hot topics.” The findings provide critical market intelligence, informing US fashion companies about their peers’ emerging sourcing trends and popular practices. The results show that:

First, maintaining a relatively diverse sourcing base remains common among US fashion companies. Results show that large-size companies today typically source from more than 20 countries. One critical factor behind fashion companies’ sourcing diversification strategies is that no single supplying country is “perfect,” given the increasingly complex sourcing factors. Sourcing diversification allows fashion companies to balance various sourcing factors. For example, according to company #19, “the (sourcing diversification) approach provides us with the greatest flexibility in identifying the appropriate manufacturers while considering quality, cost, timing of product delivery and other criteria.” On the other hand, sourcing diversification enables companies to adapt quickly to market uncertainties and enjoy supply chain flexibility and resilience.

Second, while US fashion companies are not necessarily leaving any particular countries they source from, many have substantially reduced the number of vendors they work with over the past few years. Specifically, out of the 30 fashion companies the study examined, over 60% explicitly mentioned they consolidated their sourcing base at the vendor level from 2017/2018 to 2022/2023, although the degree varied. For example:

  • Company #4, a leading sportswear brand, cut its contracted factories from 363 to 291 (or down 19.8%)
  • Company #6, which owns several jeans and sportswear brands, reduced its contracted factories from 1,000 to around 340 (or down 66%)
  • Company #9, a well-known specialty clothing store, cut its vendors from 800 to 250 (or down 68.8%)
  • Company #26, a specialty clothing store targeting the youth, cut its vendors from 150 to around 119 (or down 20.7%)
  • Company #28, a discount department store, cut its vendors from 3,100 to around 2,800 (or down 9.7%)

Associated with the trend of “country diversification and vendor consolidation,” US fashion companies are increasingly interested in working with “super vendors,” e.g., those with multiple country presence or vertical manufacturing capability. The use of “super vendor” can also be observed in fashion companies’ willingness to give more sourcing orders to their top suppliers. For example, Company #18, a casual and outdoor wear retailer, reduced its vendors from 200 in 2017/2018 to 110 in 2022/2023, but increased the cap of sourcing orders for its top 10 vendors from 40% to 47% over the same period.

Third, regarding the sourcing base, many US fashion companies have intentionally reduced their apparel sourcing from China, given the US-China tariff war, deteriorating bilateral relations, and the forced labor concerns with China’s Xinjiang region (XUAR). Specifically, more than one-third of the examined companies explicitly mentioned their strategy to reduce finished garments sourcing from China. Furthermore, several US fashion companies indicated their “reducing China exposure” strategy would continue, implying China’s market share in the US apparel import market could decrease further.

Nevertheless, even though fewer finished garments are coming from China, US fashion companies admit that China will continue to play a critical role as a textile raw material supplier as no immediate practical alternative is available. For example, Company #20, a specialty clothing chain focusing on trendy and fashionable items, says, “During fiscal 2022, we sourced most of our finished products with partners and suppliers outside the US and we continued to design and purchase fabrics globally, with most coming from China.”

Fourth, in line with trade statistics, US fashion companies consider other Asian suppliers, such as Vietnam, Bangladesh, Cambodia, and Indonesia, as their top choices as China’s alternatives. In comparison, few fashion companies explicitly mentioned moving their sourcing orders from China to Western Hemisphere countries or other regions.

Additionally, regarding emerging “hot topics” related to sourcing:

  • Geopolitics: the deteriorating US-China relations, escalated trade tensions expanded from tariffs to forced labor, and the potential trade disruptions have concerned US fashion companies significantly. Notably, US fashion companies regard sourcing from China as increasingly risky, with the implementation of the Uyghur Forced Labor Prevention Act (UFLPA) in June 2022. For example, according to Company 2, “The Uyghur Forced Labor Prevention Act and other similar legislation may lead to greater supply chain compliance costs and delays to us and to our vendors.”
  • Near-shoring: due to the decoupling and de-risking from the China movement, US fashion companies have begun actively exploring near-shoring sourcing opportunities in the Western Hemisphere, particularly from members of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR). For example, Company #1, the North American manufacturer, disclosed that “(our) Company relies on a number of preferential trade programs (…) including the Dominican Republic – Central America – United States Free Trade Agreement (CAFTA-DR (…) Collectively, these agreements strengthen US economic relations and expand trade with Central America, the Dominican Republic, and Haiti.”
  • Sustainability and social responsibility: It is noteworthy that aside from climate change and forced labor, which are typically addressed as risk factors, US fashion companies generally hold an optimistic and forward-looking perspective for sustainability, such as new technologies and endeavors toward more sustainable production and sourcing. Terms such as using preferred or recycled materials, supply chain transparency and traceability, and emerging sustainability technologies have been more frequently mentioned in companies’ annual or ESG reports. For example, Company #17 says, “Increase the usage of environmentally preferred materials to comprise 32.6% of the brand’s global materials footprint.” Company #2 adds, “Our goal is to use preferred materials in 100 percent of our products by 2030.” Company #9 states, “We collaborate with suppliers to increase the supply of preferred raw materials.”
  • Supply chain transparency: US fashion companies attach great importance to improving supply chain transparency and traceability. Compared to the past, fashion companies are more willing to invest in new technologies and digital tools, allowing them to map supply chains and achieve sustainability goals more effectively. Related to this, US fashion companies have actively engaged with industry associations and other industry communities outside the company to stay informed about sustainability trends and learn best practices.

By Emily Delaye and Sheng Lu

Note: Welcome to the webinar hosted by the US Fashion Industry Association (USFIA) on Friday, December 15, 2023 at 2:00pm EST, to hear Emily Delaye discuss the study in detail.

Understand the Evolving Production and Trade Patterns of Textiles and Apparel “Made in Asia”: Discussion Questions from Students in FASH455

Students in FASH455 have proposed the following discussion questions based on the videos about the state of textile and apparel in Asia. Everyone is welcome to join the online discussion. For FASH455 students, please address at least two questions and mention the question number (#) in your reply.

#1 We have seen all the improvements and “upgrading” Vietnam has made toward the fashion industry. What can the garment industry in other countries take away from Vietnam’s experiences?

#2 Is Asia’s highly integrated apparel supply chain unique to the region? Can the Western Hemisphere “copy” Asia’s model?

#3 How can Asia’s textile and apparel industry balance the growing demand for sustainability and the need to remain cost-competitive? What innovative strategies can be adopted to achieve this balance?

#4 As Asian textiles and apparel factories continue to improve their efficiency and expand product offers, will it be beneficial for the US to reach a trade agreement with Asian countries? Or do you believe such an agreement might contradict the goals we try to achieve from CAFTA-DR?

#5 Will Vietnam eventually become the next China, or could its labor shortages be a significant barrier preventing its textile and apparel industry from advancing to the next level?

#6 Should textile and garment factories in Asia make more efforts to appeal to the younger generation (e.g., Gen Z)? Or is automation the solution?

#7 To what extent do you think Asian apparel exporting countries (e.g., Bangladesh, Vietnam and Cambodia) will reduce their dependence on textile raw materials supply from China due to the Uyghur Forced Labor Prevention Act (UFLPA)? Or, instead, do you think Asian apparel-exporting countries other than China benefit from UFLPA?

#8 The video shows that Asian countries have begun to invest heavily in new production capacities for textile recycling. Do you believe the region will continue to dominate textile and apparel production in the era of fashion circularity? Or will the emergence of textile recycling shift the world textile and apparel trade patterns in the long run?