2018 U.S. Fashion Industry Benchmarking Study Released

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The report can be downloaded from HERE

Key findings of this year’s study:

Business challenges facing U.S. fashion companies: Protectionism is the top challenge for the U.S. fashion industry in 2018. More companies worry about increases in production or sourcing cost, too. For the second year in a row, “protectionist trade policy agenda in the United States” ranks the top challenge for U.S. fashion companies in 2018.

Industry outlook: Despite concerns about trade policy and cost, executives are more confident about the five-year outlook for the U.S. fashion industry in 2018 than they were a year ago, although confidence has not fully recovered to the level seen in 2015 and 2016. In addition, 100 percent of respondents say they plan to hire more employees in the next five years, compared with 80-85 percent in previous studies; market analysts, data scientists, sustainability/compliance related specialists or managers, and supply chain specialists are expected to be the most in-demand.

U.S. fashion companies’ sourcing strategy: When it comes to sourcing, diversification is key for many companies.

  • Most respondents continue to maintain a diverse sourcing base, with 60.7 percent currently sourcing from 10+ different countries or regions, up from 57.6 percent in 2017.
  • Larger companies, in general, continue to be more diversified than smaller companies.
  • Reflecting the U.S. fashion industry’s growing global reach, respondents report sourcing from as many as 51 countries or regions in 2018, the same as in 2017. Asia as a whole continues to take the lead as the dominant sourcing region. Meanwhile, with the growing importance of speed-to-market and flexibility, the Western Hemisphere is becoming an indispensable sourcing base.
  • Keeping a relatively diverse sourcing base will remain a key element of U.S. fashion companies’ sourcing strategy. Nearly 80 percent of respondents plan to source from the same number of countries, or more countries, in the next two years. However, respondents are equally divided on whether to increase or decrease the number of suppliers they will work with.
  • China plus Vietnam plus Many” has become an ever more popular sourcing model among respondents. And this model is evolving as companies further diversify their China production. In particular, China now typically accounts for only 11-30 percent of companies’ total sourcing value or volume, compared with 30-50 percent in the past.
  • Although China’s position as the top sourcing destination is unshakable, companies are actively seeking alternatives to “Made in China.” This does not seem to be due to concerns about cost, but rather the worries about the escalating U.S.-China trade tensions.
  • Benefiting from the diversification away from China, Vietnam and Bangladesh are expected to play a bigger role as apparel suppliers for the U.S. market in the near future.

Rules of origin and the utilization of trade agreements for sourcing: Rules of origin, and exceptions to the rules of origin, significantly impact whether companies use free trade agreements (FTAs) and trade preference programs for sourcing.

  • While FTAs and trade preference programs remain largely underutilized by U.S. fashion companies, more companies are using NAFTA (65 percent), CAFTA-DR (58 percent) and AGOA (50 percent) than in the past two years.
  • Still, it’s concerning that companies often do not claim the duty-free benefits when sourcing from countries with FTAs or preference programs. Companies say this is primarily due to the strict rules of origin.
  • Exceptions to the “yarn-forward” rules of origin, including tariff preference levels (TPLs), commercial availability/short supply lists, and cumulation, are priorities for respondents; 48 percent say they currently use these mechanisms for sourcing. These exceptions provide critical flexibilities that make companies more likely to use FTAs and source from FTA regions.

NAFTA: U.S. fashion companies call for a further reduction of trade barriers and urge trade negotiators to “do no harm” to NAFTA, the most-utilized free trade agreement by respondents.

  • Respondents predominantly support initiatives to eliminate trade barriers of all kinds, from high tariffs to overcomplicated documentation requirements, to restrictive rules of origin in NAFTA and future free trade agreements.
  • More than half of respondents explicitly say NAFTA is important to their business—and they have grave concerns about the uncertain future of the agreement.

Sourcing in sustainable and socially compliant ways: Overall, U.S. fashion companies are making more commitments to sustainability and social responsibility.

  • 85 percent of respondents plan to allocate more resources for sustainability and social compliance in the next two years, in areas including providing training to suppliers and internal employees, adding more employees, and working more closely with third-party certification programs on sustainability and social compliance. However, the availability of operational budget remains the primary hurdle for companies that want to do more.
  • 100 percent of respondents map their supply chains (i.e., keep records of name, location, and function of suppliers), up from 90 percent in 2017. Over 80 percent of respondents track not only Tier 1 suppliers (i.e., factory where the final product is assembled), but also Tier 2 suppliers (i.e., subcontractors or major component suppliers, such as fabrics). However, it’s less common for companies to map Tier 3 (i.e., yarn spinners, finding and trimming suppliers) and Tier 4 suppliers (i.e., raw materials suppliers, such as cattle/pig hides, rubber, cotton, wool, goose down, minerals/metals and chemicals).
  • 100 percent of respondents audit their suppliers for issues including building safety, fire safety, and treatment of workers. The vast majority of respondents (96 percent) currently use third-party certification programs to audit, with both announced and unannounced audits.

The US Fashion Industry Benchmarking Study from 2014 to 2017 can be downloaded from HERE

USITC Report: AGOA and the Third-country Fabric Provisions Critical for U.S. Apparel Sourcing from sub-Saharan Africa

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A newly released report by the U.S. International Trade Commission (USITC) suggests that the African Growth Opportunity Act (AGOA) and the third-country fabric provision are critical for U.S. Apparel Sourcing from sub-Saharan Africa (SSA). Specifically:

U.S. apparel imports from SSA grew faster than the world average. During 2010–16, U.S. apparel imports from SSA enjoyed a compound annual growth rate (CAGR) of 4.5 percent (compared with 2.1 percent CAGR of all countries), from $795.2 million in 2010 to over $1.0 billion in 2016. However, SSA overall remained a small apparel supplier to the U.S. market, accounting for only 1.2 percent of the market shares in 2016 (lower than 2.7 percent in 2004, but higher than 1.1 percent in 2010).

U.S. apparel imports from SSA remain uneven across countries. Kenya, Lesotho, Mauritius, and Madagascar accounted for over 90 percent of all apparel imports from SSA in 2016. Ethiopia and Tanzania experienced the fastest growth rates during the period—63.8 percent and 33.3 percent, respectively

The duty-free preferences awarded under AGOA and the liberal rules of origin available for apparel under the “third-country fabric provision”* are the key competitive advantages of SSA serving as apparel sourcing destination for U.S. companies. Due to limited yarn and fabric production in SSA, the third-country fabric provision remained critical for SSA exports of apparel to receive duty-free entrance to the United States. Notably, nearly all (97.3 percent) U.S. imports of apparel from SSA countries entered under AGOA, and of these imports, virtually all (96 percent) used the third-country fabric provision in 2016.

Further, the USITC report used Madagascar as an example to illustrate the significance of AGOA and the third-country fabric provision in particular to SSA countries’ apparel exports to the United States. As noted by USITC:

  • Madagascar were evidenced by the sharp decline in its apparel exports to the U.S. after the country lost its AGOA eligibility in 2009. Without duty-free access to the United States, the average duty rate for U.S. imports of apparel from Madagascar rose to 19.6 percent, and apparel exports to the United States from Madagascar fell from over $211 million in 2009 to only $40 million in 2011.
  • Madagascar’s AGOA benefits were reinstated in 2014, and in 2016, U.S. apparel imports from Madagascar bounced back to one-half of the 2009 level.

The USITC report also argues that the long-term renewal of AGOA and the third-country fabric provision was critical to instilling confidence in U.S. firms deciding to invest in or source from SSA countries. The report says that “because apparel production lead times are generally 6 to 9 months, U.S. apparel companies that source from the region import basic cut-and-sew garments that can be ordered months in advance and have steady U.S. demand, such as five-pocket denim jeans, uniform tops and bottoms, and T-shirts. This long lead time on orders makes long-term AGOA renewal particularly important to the apparel industry.”

Additionally, the USITC report believes that China’s declining competitiveness as an apparel producer (caused by its increasing labor cost) benefited the second- and third-largest suppliers to the United States, Vietnam and Bangladesh, but also helped smaller suppliers in SSA.

Last but not the least, the USITC report suggests that Kenya, Madagascar, and Ethiopia may have the most potential for apparel export growth in the future. However, the report doesn’t think apparel exports from South Africa will grow much because the country does not qualify for third-country fabric provisions under AGOA. Similarly, USITC believes that should SSA countries like Tanzania lose their AGOA benefits, due largely to its recent import ban on used clothing, the United States will likely see significant decreases in apparel imports from these countries too.

*About the African Growth and Opportunity Act (AGOA)

The African Growth and Opportunity Act (AGOA) is a non-reciprocal trade agreement enacted in 2000 that provides duty-free treatment to US imports of certain products from eligible sub-Saharan African (SSA) countries. AGOA intends to promote market-led economic growth and development in SSA and deepen US trade and investment ties with the region.

Because apparel production plays a dominant role in many SSA countries’ economic development, apparel has become one of the top exports for many SSA countries under AGOA. Particularly, the “third country fabric provision” under AGOA allows US apparel imports from certain SSA countries to be qualified for duty free treatment even if the apparel use yarns and fabrics produced by non-AGOA countries/regions (such as China, South Korea and Taiwan). This special rule is deemed as critical because most SSA countries still have no capacity in producing capital and technology intensive textile products.

On 29 June 2015, the Obama Administration signed a new bill to extend the AGOA (including the third country fabric provision) for another ten years (until 30 September 2025). The new law simplifies the AGOA rules of origin; gives the president the ability to withdraw, suspend or limit benefits (rather than just terminate eligibility) if designated AGOA countries do not comply with the eligibility criteria; adds notification and reporting requirements; and improves transparency and participation in the AGOA review process.

In 2016, US apparel imports from the AGOA region totaled US$260m, of which US$255m were under the agreement (or 98% utilisation rate).

About the “Third-Country Fabric” provision under AGOA

This is a “Special Rule” for lesser-developed SSA countries (LDCs) under AGOA. According to the rule, these SSA LDCs can enjoy duty-free and quota-free access to the U.S. market for apparel made from fabric originating anywhere in the world. In comparison, the regular AGOA rules of origin more restrictively require that apparel qualify for duty-free treatment must meet one of the following conditions:

  • apparel made of U.S. yarns and fabrics;
  • apparel made of SSA (regional) yarns and fabrics, subject to a cap;
  • apparel made in a designated lesser-developed country of third-country yarns and fabrics (also subject to a cap);
  • apparel made of yarns and fabrics not produced in commercial quantities in the United States;
  • textile or textile articles originating entirely in one or more lesser-developed beneficiary SSA countries;
  • certain cashmere and merino wool sweaters; and
  • hand-loomed/handmade/or folklore articles and ethnic printed fabrics

State of the EU Textile and Apparel Industry (Updated April 2018)

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EU region as a whole remains a leading producer of both textile and apparel. The value of EU’s T&A production totaled EUR141.2bn in 2016 (Statistical Classification of Economic Activities or NACE, sectors C13, and C14), which was divided almost equally between textile manufacturing (EUR75.8bn) and apparel manufacturing (EUR65.4bn).

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Regarding textile production, Southern and Western EU where most developed EU members are located such as Germany, France, and Italy, accounted for nearly 80% of EU’s textile manufacturing in 2016. Further, of EU countries’ total textile output, the share of non-woven and other technical textile products (NACE sectors C1395 and C1396) has increased from 18% in 2008 to 21% in 2015, which reflects the structural change of the sector.

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Apparel manufacturing in EU includes two primary categories: one is the medium-priced products for consumption in the mass market, which are produced primarily by developing countries in Eastern and Southern Europe, such as Poland, Hungary, and Romania, where cheap labor is relatively abundant. The other category is the high-end luxury apparel produced by developed Western EU countries, such as Italy, UK, France, and Germany.

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It is also interesting to note that in Western EU countries, labor only accounted for 22.8% of the total apparel production cost in 2016, which was substantially lower than 30.1% back in 2006. This change suggests that apparel manufacturing is becoming capital and technology-intensive in some developed Western EU countries because of increased investment in automation technology.

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Because of their relatively high GDP per capita and size of the population, UK, Germany, France, Italy, and Spain altogether account for around 60% of total apparel retail sales in EU.

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Intra-region trade is an important feature of EU’s textile and apparel industry. Despite the increasing pressure from cost-competitive Asian suppliers, statistics from the World Trade Organization (WTO) show that of EU region’s total US$89bn textile imports in 2016, as much as 64.1% (or US$57bn) were in the category of intra-region trade. Similarly, of EU countries’ total US$198bn apparel imports in 2016, as much as 55.6% (or US$110bn) also came from other EU members. In comparison, close to 97% of apparel consumed in the United States are imported in 2016, of which more than 75% come from Asia.

Data source: Eurostat (2018); WTO (2018)

by Sheng Lu

Resources for Learning about Cotton: FASH455 Exclusive Interview with Shannon Brady, CottonWorks™ Student Ambassador

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The picture above: Shannon Brady, Junior, UD Fashion Merchandising Major (Fourth one from the left in the front row) visited Cotton Inc together with other Cotton Student Ambassadors.

Question: What is the CottonWorks™ Ambassador program about and what is your role as an ambassador?

The CottonWorks™ ambassador program is a program where students in fashion and apparel related majors get to promote CottonWorks™ on their college campuses. Ambassadors are charged with helping faculty and students understand the resources available through CottonWorks™ as well as promote this resource through social media. This semester there are twelve ambassadors (including myself) from 12 different schools across the country.

My role as an ambassador is to raise awareness about CottonWorks™ on campus as it is a new program here at the University of Delaware. In January of this year, I had the opportunity to visit the Cotton Incorporated Headquarters in Cary, North Carolina. I, along with other CottonWorks™ ambassadors participated in an all-day CottonWorks™ training as well as a tour of the production facilities at Cotton Incorporated. I got to see everything from raw cotton to state-of-the-art laser finished denim. It was a unique experience and such a cool way to see the material I learned about in class come to life. 

Question: Cotton Incorporated recently launched a new CottonWorksTMprogram to help industry professionals and emerging professionals (like our FASH students) know more about cotton. Can you give us an overview of the program, particularly the learning resources related to the sourcing of cotton products?

CottonWorks™ is a free website where students and professionals can access a multitude of resources about cotton and the fashion and apparel industry.  The site offers many learning resources. Detailed guides are offered on topics such as sourcing and manufacturing, retail and marketing, fabric and technology, fashion and trend, and sustainability. These topics really apply to the fashion curriculum at UD. Additionally, the site offers a mobile-friendly textile encyclopedia where students can look up any textile related word anytime, anywhere.

However, the site offers more than just learning resources. CottonWorks™ is a great supplemental learning tool, but the site also offers emerging professionals ways to get engaged with their industry. Free webinars and workshops are offered through the website and are a great way to engage with industry professionals and learn about the issues pressing the industry right now. Their next webinar is on Tuesday 24 April 2018 registration is open on the CottonWorks™ website, and the topic of discussion is Cotton’s Biodegradability in Aquatic Environments.

Particularly regarding learning resources on sourcing cotton products, the sources and manufacturing topic on the website offers dozens of guides all kinds of cotton products, ranging from denim to cotton nonwovens.

Last but not the least, the Executive Cotton Update and Monthly Economic Letter, both posted every month at cottonworks.com/news are great resources for students and industry professionals interested in knowing what is happening in the U.S. and world cotton industry.

Question: Developing a sustainable supply chain is critical for the textile and apparel industry. So how is cotton related to sustainability? What are the facts important to know?

Cotton Incorporated is committed to being at the forefront of cotton sustainability, and the CottonWorks™ site offers many resources on how cotton is related to sustainability, including guides on responsible cotton production and manufacturing because sustainability happens throughout the lifecycle of cotton.

Cotton is a natural fiber, unlike some manmade fibers such as polyester it can biodegrade. If you log on to CottonWorks™ website you can view a recap of their webinar last month that went in depth about cotton’s biodegradability in soil and septic environments.

Additionally, CottonWorks™ has information on campaigns such as Cotton LEADS™ and Blue Jeans Go Green™ to promote the sustainability of cotton. Cotton LEADS™ is a joint program with Australia and the United States that supports a reliable and responsible cotton supply chain through five core principles of sustainability, use of best practices and traceability in the supply chain. Blue Jeans Go Green™ initiative collects denim sent to landfills and recycles it in partnership with Bonded Logic Inc. You can learn more about both these initiatives on the CottonWorks™ site at cottonworks.com/topics/sustainability.

Question: What are the opportunities for our FASH and UD students to get involved with CottonWorks™ and learn more about cotton?

Students can get started today! By registering for a free account on cottonworks.com, they have access to all of the amazing resources I touched on and many more. Additionally, they can follow @cotton_works on Instagram and Twitter to learn more about cotton and get cotton inspiration for their projects. 

I will also be hosting a tabling event where students can learn more about these resources, talk to me, and win free food and prizes on Thursday 19 April 2018 in Perkins! There will be more tabling events in the future that I will be posting about in my social media as well.

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Regional Textile and Apparel Supply Chains–Questions from FASH455

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NAFTA and Textile and Apparel Rules of Origin

#1 How do rules of origin (RoO) and free trade agreement (FTA) regulations affect speed to market in apparel sourcing? Do countries who are part of an FTA find it to be easier to get to market in a shorter amount of time if they are working with other FTA members? Or could RoO slow down the production process because producers have to be more careful about compliance with the complicated RoO?

#2 Why or why not the “yarn forward” rules of origin remains an effective way to promote textile and apparel production in the Western-Hemisphere?  What other options are available to improve the competitiveness of the Western-Hemisphere textile and apparel supply chain?

#3 What would happen to the Western-Hemisphere textile and apparel supply chain should NAFTA no longer exist?

#4 Should NAFTA be responsible for the loss of US apparel manufacturing jobs? Any hard evidence?

#5 If you were U.S. trade negotiators, what would you do with TPL in NAFTA given the competing views from the U.S. textile industry and U.S. fashion brands and retailers?

The Outlook of “Factory-Asia”

#6 From the perspective of the U.S. textile and apparel industry, is it a good idea for the United States to reach free trade agreement (FTA) with Asian countries? If so, what countries should be included in the new FTA? If not, why?

#7 How can U.S. companies get involved in the Asia-based textile and apparel supply chain?

#8 Why or why not is the “Flying geese model” unique to Asia? Can the model be replicated in America too?

(Welcome to join our online discussion. Please mention the question number in your reply)

State of the U.S. Textile and Apparel Industry and Companies’ Sourcing Strategy—Discussion Questions from FASH455

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#1 How is international trade associated with the prosperity of the U.S. textile and apparel industry today?

#2 Can trade policy bring textile and apparel manufacturing back to the United States? If so, how?

#3 The Trump Administration has decided to impose additional import tariffs to protect U.S. steel and aluminum production in the name of “national security.” Should U.S. textile mills and apparel manufacturers ask for similar trade protection too? Why or why not?

#4 The U.S. textile industry seems to be doing quite well— since 2009 its total value of output has risen 11%. However, why do you think the apparel factories in Los Angeles are struggling?

#5 Most U.S. apparel companies have already shifted their businesses to non-manufacturing activities such as design, branding, sourcing and retailing. Is it still meaningful to give so much attention to apparel manufacturing in the U.S.?

#6 According to the readings, the increasing minimum wage is a critical factor behind the closure of many garment factories in LA. Does it imply that we have to choose between paying garment workers poorly and keeping the factory open?

#7 Assume you are a sourcing manager for a major US fashion brand, how would you rank the following regarding importance when determining a sourcing destination: Speed to Market, Sourcing Cost, Risk of Compliance?  Why would you rank them as such?

#8 Why do you think U.S. fashion brands and apparel retailers are sticking with sourcing from China, when there are less expensive products in other countries, such as Bangladesh and Vietnam?

#9 According to the study, some apparel retailers source from more than 10 or even 20 different countries or regions. What are the benefits of adopting such a diversified sourcing base? Is it necessary?

(Welcome to our online discussion. Please mention the question # in your reply)