Category: Supply chain management

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.

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)

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.

FASH455 Video Discussion: The Global Journey of a Sneaker

Discussion questions [Please address at least two questions in your comment]

#1: Based on the video and our class discussion, what would be the advantages and disadvantages for Nike to make Converse shoes leveraging a global supply chain?

#2: Assume you are an experienced U.S. shoe worker. What arguments would you present to Nike’s sourcing executives to produce Converse in the United States?

#3: In your opinion, are protective tariffs worth the economic and foreign policy consequences? Why or why not?

#4: The “hidden costs” of global trade (e.g., emissions, labor conditions) are often obscured from consumers. How can brands like Converse address these “hidden costs” while maintaining market competitiveness? What specific policies or regulatory measures should governments implement to promote responsible sourcing and enhance supply chain transparency?

[Discussion is closed]

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

Merchandising and Sourcing: FASH455 Exclusive Interview with Natalie Kaucic, Global Merchant for Dockers at Levi Strauss & Co.

About Natalie Kaucic

Natalie Kaucic is a Merchandising professional currently in the role of Global Merchant for Dockers Men’s Tops at Levi Strauss & Co. She graduated from the University of Delaware in 2019 with a Fashion Merchandising Degree and Business Admin minor. During her studies, she was awarded the Fashion Scholarship Fund scholarship, studied at John Cabot in Rome, participated in the Disney College Program, and was a leader for the Delaware Diplomats. Natalie’s research on the global market for sustainable apparel was published in Just-style, a leading fashion industry trade publication. Post university, Natalie started as an assistant at Minted as a Merchandiser, where she worked in the Wedding category and faced the adverse challenges of the wedding industry during COVID-19. Levi’s was her next endeavor where she started as an assistant, and has since been promoted to run the Dockers Men’s Tops Category for the Globe.

Disclaimer: The comments and opinions expressed below are solely my own and do not reflect the views or opinions of any company.

Sheng: What are your primary job responsibilities as a global merchant? What does a typical day or week look like for you? Which part of the job do you find most exciting? Were there any aspects of the position that surprised you after you started?

Natalie: My primary responsibility is to create a brand-right and consumer-focused product assortment. Under the covers, this looks like a vast variety of tasks that I do on a seasonal basis. I regularly listen and work with regional merchandising to understand their regional specific needs, collaborate with design on new product ideas and fabrics, and meet with product development to work on new fabric innovations and product costing. Every week looks dramatically different for me in my work. Sometimes, I’m heads down in assortment strategy; other weeks, I work on creating templates and calendars for process improvement.

What I find most exciting is seeing the product in person. Most Dockers Tops are not sold domestically, so it’s really fun to see a product you worked on in the wild! I am also grateful to be able to manage an assistant. Seeing things click for her and watching her succeed is incredibly motivating.

What surprised me the most was the number of different teams I work with, including planning, regional merchants, product development, marketing, styling, design, garment/fit development, copy, IT, analytics, sales, business operations, and e-commerce. Learning what everyone does and who to go to was the most significant learning curve and the biggest shock coming into my role.

Sheng: Based on your observation and experience, how do the merchandising, product development, and sourcing teams collaborate in a fashion apparel company? Could you explain their respective responsibilities and how they support one another?

Natalie: In my role, I have more direct contact with our product development team than the sourcing team. I work very closely with product development as they are the team that helps produce our product. They manage fabric & garment development, costing negotiations, and innovation development/testing. They also work through some more micro-sourcing strategies, for example, moving the production from one factory to another to get better duty rates. As a hypothetical example, we sell a poplin shirt primarily in Europe. Pretend we produce the shirt in India at a cost of $10/each. However, shipping it to Europe incurs a 40% import duty, bringing the cost of goods sold (COGS) to $14. If we could produce the shirt in Mexico, where the duty rate to Europe is only 5%, even if the production cost is higher—say $12—the overall cost to Europe would still be lower. There are endless complexities to this that I’m sure you will learn more from FASH455—topics like free trade agreements, yarn forward rules of origin, etc.

Sheng: Fashion companies need to balance various factors such as cost, quality, speed to market, and compliance risks when deciding where to source their apparel products. Could you share your experiences and reflections on managing these challenges in the real world?

Natalie: Below is an example of natural fibers and the cost challenge with cotton-forward apparel products.

Currently, linen is in high demand, but there isn’t enough crop to meet industry needs—it’s a classic case of supply and demand. Not only does this drive up costs (COGS), but it also complicates the process of securing raw materials. It’s easy to overlook that the apparel industry is fundamentally tied to agriculture, making it vulnerable to factors like bad weather, natural disasters, and inaccurate demand forecasting. These challenges force us to make critical decisions. With rising garment costs, should the company absorb the expense to keep prices steady for consumers? Our product development team might ask if we need to pre-book fibers to lock in pricing—when is the right time to do that, and how much should we purchase?

This isn’t a new challenge. For example, cotton, our primary raw material for clothing, fluctuates in price like oil, making agility in sourcing essential!

Sheng: Studies show that consumers want to see more “sustainable apparel products” in stores. How are fashion companies responding to this demand? What opportunities and challenges does this trend present for fashion companies’ business operations, especially in merchandising, supply chain, and sourcing?

Natalie: This is such a complicated question. I think about this often as I am personally really passionate about this topic!

In my day-to-day work, I focus on sustainable fibers, as the fabric content of a garment is something I can directly influence. Working on a global scale, I collaborate with regions worldwide, each of which—along with their retailers—has different values regarding sustainable products. Europe, for instance, is relatively ahead of the US in sustainability and often requires a certain percentage of sustainable fibers (e.g., organic cotton, recycled cotton) in our products. In Europe, items using 100% organic cotton hold significant value and can command a higher price in stores such as Galeries Lafayette or Zalando. However, not all retailers and consumers globally share the same commitment to sustainability. In some cases, we may need to use synthetics for functional purposes, such as in activewear. In those instances, we prioritize using recycled polyester or nylon to meet our sustainability goals. Regardless of the consumer or price point, our goal is to integrate sustainability at every level and for every product.

One challenge I find particularly interesting is working with “recycled cotton.” As you may know, recycling cotton typically involves breaking down the fibers, which shortens and weakens them. Because of this, there’s usually a limit to how much recycled cotton can be used before fabric quality is affected. That’s why you often see recycled cotton blended with virgin cotton in the same garment. However, newer recycling methods that aim to preserve the staple length are emerging, offering hope for improvements as the technology becomes more mature and accessible.

Ultimately, heavy consumption, regardless of the fabric being recycled or organic, isn’t truly sustainable. The focus should be on choosing pieces you love and investing in items that are made to last.

Sheng: Are there any other major trends in the fashion industry that we should closely monitor in the next 1-3 years?

Natalie: In the next 1-3 years, I’m eager to see what AI-driven tools will be introduced to assist merchants in making smarter, data-backed decisions. In merchandising, we are constantly trying to predict the future. A lot of research and data analysis go into decision making,  but also a big handful of going with your gut. Will AI be able to help us find trends in the past that can better help us make decisions for the future?

It’s not exactly a trend, but I’m really curious about the future of fast fashion giants over the next decade. With growing interest in sustainability and new regulations emerging from Europe, will we eventually see a decline in these dominant players, or will demand for fast, cheap apparel always persist?

Sheng: Last but not least, is there anything you learned from FASH455 or other FASH courses that you find particularly relevant and helpful in your career? What advice would you offer current students preparing for a career in the fashion apparel industry?

Natalie: I felt really prepared coming out of the FASH program for my corporate job. I picked this degree, as I’m sure many have because it combined the necessary key concepts of a business degree with the skills and knowledge to build a career in apparel. I think the classes I reference the most in my day-to-day life are product development classes, textile classes, and apparel buying. As a merchant, I need to be able to talk about fabric types with designers, cost engineering with product developers, and financial metrics with planners. FASH455 was one of my favorite classes because sourcing, trade, geopolitics, and policy constantly pull the strings behind the scenes in the apparel sector. FASH455 gives you insight into how these factors create ripples in the apparel sector.

When it comes to advice, it’s tried and true: network! Talk to teachers, reach out to alumni, sign up for the UD Job Shadow Program, and talk to the career center. There are so many services to take advantage of while at UD. Other than networking, I would highly recommend steering the subjects of your papers to companies and topics you are interested in. I worked on a few reports about Levi Strauss & Co., which confirmed it as a target company for me and helped me succeed in the interview process.

Lastly, be flexible! You might come in, as I did, thinking you want to be a buyer, only to realize it’s not the best fit. Or, you could start with greeting cards and stationery merchandising and pivot to apparel. Or even move out of apparel entirely! Nothing is set in stone, and that’s both the most stressful yet reassuring lesson I’ve learned since graduating.

–The End–

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 Report: Reimagining the Apparel Value Chain amid Volatility

The new study released by Mckinsey & Co. was based on a survey of chief procurement officers (CPOs) from “apparel companies that collectively spend about $110 billion annually on sourcing” and follow-up in-depth interviews with 25 CPOs conducted in late 2023. Key findings:

#1 Fashion companies face increasingly challenging sourcing scenarios complicated by “ongoing supply disruptions caused by shifting demand, material price volatility, geopolitics, global trade issues, rising competition, and regulatory changes.” Compared to many other sectors, the apparel supply chain is particularly volatile, and disruptions can have amplified ripple effects throughout the supply chain. For example, an 11% decline in yarn exports could lead to a 30% drop in the production utilization rate of fabric mills.

#2 Fashion companies further prioritized “end-to-end” process efficiency in response to the shifting sourcing environment. For example, nearly 70 percent of respondents expect to “improve sourcing cost in the near term,” they plan to “improve efficiency across all facets of sourcing, including lower product costs, reduced sourcing expenses, and accelerated go-to-market processes.” Other practices to control sourcing costs include “using analytics to examine product cost breakdowns and identifying opportunities to improve fabric unit costs and material consumption,” “using digital platforms and data-driven insights to inform sourcing decisions and collaborating with suppliers to pinpoint cost savings opportunities.”

#3 Strengthening relationships with key suppliers remains critical. About 71 percent of surveyed brands consider “consolidating the supplier base” a medium to high priority for their strategy in the next five years. Surveyed fashion companies also indicate that deeper relationships, including “long-term volume commitments, shared strategic three- to five-year plans, and collaboration partnerships,” accounted for 43 percent of their total apparel supplier base in 2023, up from 26 percent in 2019. In comparison, suppliers based on “transactional relationships” only accounted for 3% of the total in 2023, a substantial decrease from 22% in 2019.

As the report noted, building strategic partnerships with core suppliers and “innovative niche suppliers” based on trust and transparency “resulted in a more robust, resilient, and agile supplier base” for fashion companies. More importantly, deeper importer-supplier partnerships extend beyond cost-saving measures but increasingly emphasize “sustained value creation.”

#4 Fashion companies continue to diversify their sourcing base geographically and pursue nearshoring to “improve speed, cost, and agility.” Specifically, between 2019 and 2023, respondents reduced their sourcing value from China (down from 30% to 22%) and sourced more from South Asia (up from 23% to 34%). At the country level, more than 40 percent of respondents plan to further increase sourcing from Bangladesh, India, and Vietnam. That being said, the report found that nearshoring remains “flat” in sourcing value in the US (about 17%) and in the EU (about 25%) from 2019 to 2023.

#5 To expand apparel nearshoring, several bottlenecks remain to be solved: 1) lower labor productivity in the region resulting in higher “total landed costs,” 2) challenges with yarn and fabric availability, and 3) the supplier bases in nearshoring countries can manufacture a more limited array of products.

The report also noted that “both local suppliers and Asian companies with a presence in Central America and Mexico have invested in improving their productivity and building local capacity for making yarns and fabrics,” which is helpful in addressing the challenges.

#6 Sustainability will continue to affect fashion companies’ sourcing decisions. For example, 80 percent of respondents said that “environmental, social, and governance certifications; transparency and traceability; and sustainable material usage have become prerequisites in supplier selection.” Fashion companies commonly used scorecards (92 percent) and third-party audits (78 percent) to ensure suppliers’ compliance with sustainability requirements. There is also an increasing need for data transparency on sustainability. However, “data is important, but organizations must understand how to use it to create value.”

Further, 86 percent and 70 percent of respondents said they would use recycled polyester and recycled cotton in their apparel products over the next five years.

#7 Digital innovation will deepen further in the sourcing and product development area. Popular tools include 3D modeling and digital sampling, Fabric libraries, and Product Lifecycle Management (PLM) system. However, prioritizing process redesign, data quality enhancement, and the integration of systems are essential to enable efficient operations. For example, one company developed a single material ID library with more than 30,000 materials from approximately 300 suppliers, allowing the company to aggregate more than 6,000 cost sheets in less than a minute.

US Fashion Companies’ Evolving Sourcing Strategies and the Future of the US Textile and Apparel Industry: Discussion Questions from FASH455

Students in FASH455 have proposed the following discussion questions based on the readings about the US textile and apparel industry and fashion companies’ sourcing strategies. 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 As a developed country, should the US prioritize further strengthening highly capital-intensive yarn manufacturing, or should we rebuild a vertically integrated textiles and apparel supply chain (e.g., yarns, fabrics, and garments) at home? What is your recommendation, and why?

#2 In FASH455, we discussed how the US textile industry has experienced a decline in employment despite increasing production volumes, largely due to advancements in technology. However, why is import competition often cited in the media as the single largest threat to the US textile industry?

#3 While studies show that US fashion companies are reducing “China exposure,” measured in quantity, China still accounted for 36.1% of US apparel imports in 2023, even higher than 34.7% in 2022. How can we explain this phenomenon? What factors have made US fashion companies hesitant to move away from China?

#4 How will US fashion companies’ growing interest in carrying more sustainable textiles and apparel affect their sourcing destinations and supply chains? Will developing countries with cheap labor and/or developed countries with the right capital and technology be the winners in the sustainability movement? Please provide your thoughts.

#5 Will the growing demand for supply chain transparency and traceability reduce the incentives or add additional burdens for fashion companies to diversify their supply chain further? What are the benefits of pursuing sourcing diversification other than mitigating the potential sourcing risks?

#6 What is your vision for the use of AI in apparel sourcing? What key sourcing and supply chain problems facing fashion brands and retailers can AI potentially solve?

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

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?

FASH455 Exclusive Interview with Beth Hughes, Vice President of the American Apparel and Footwear Association (AAFA), about US apparel sourcing from Central America

About Beth Hughes

Beth Hughes serves as the Vice President of the American Apparel and Footwear Association (AAFA), responsible for supporting the association’s efforts on international trade and customs issues. Beth oversees AAFA’s Trade Policy Committee, as well as AAFA’s Customs Group. Beth is also the spokesperson of the Coalition for Economic Partnership in the Americas (CEPA), a group of prominent American companies, and manufacturers committed to advancing regional trade and employment opportunities in the Western Hemisphere.

Before joining AAFA, Beth served for six years as senior director of international affairs at the International Dairy Foods Association. Beth earned a Bachelor of Arts degree in political science at George Washington University and received a Master of Arts in international affairs from Florida State University.

The interview was conducted by Leah Marsh, a graduate student in the Department of Fashion and Apparel Studies at the University of Delaware. Leah’s research focused on​​ exploring EU retailers’ sourcing strategies for clothing made from recycled textile materials and fashion companies’ supply chain and sourcing strategies.

The interview is part of the 2023 Cotton in the Curriculum program, supported by Cotton Incorporated, to develop open educational resources (OER) for global apparel sourcing classes.

FASH455 Exclusive Interview with Julia Hughes, President of the United States Fashion Industry Association about the Latest US Apparel Sourcing Trends

About Julia K. Hughes

Julia K. Hughes is President of the United States Fashion Industry Association (USFIA), which represents brands, retailers, importers, and wholesalers based in the United States and doing business globally. She represents the industry in front of the U.S. government as well as international governments and stakeholders, explaining how fashion companies create high quality jobs in the United States and economic opportunities around the world.

An expert on textile and apparel trade issues, Julie has testified before Congress and the Executive Branch. She frequently speaks at international conferences including the China & Asia Textile Forum, Fashion Institute of Technology (FIT), Harvard University’s Bangladesh Development Conference, MAGIC, Prime Source Forum, Vietnam Textile Summit, and others.

Julie served as the first President and is one of the founders of the Washington Chapter of Women in International Trade (WIIT) and is one of the founders of the WIIT Charitable Trust. She also was the first President of the Organization of Women in International Trade (OWIT).  In 1992, she received the Outstanding Woman in International Trade award and in 2008, the WIIT Lifetime Achievement Award. She also is a member of the International Women’s Forum.

Julia has an M.A. in International Studies from the Johns Hopkins School of Advanced International Studies and a B.S. in Foreign Service from Georgetown University.

The interview was conducted by Leah Marsh, a graduate student in the Department of Fashion and Apparel Studies at the University of Delaware. Leah’s research focused on​​ exploring EU retailers’ sourcing strategies for clothing made from recycled textile materials and fashion companies’ supply chain and sourcing strategies.

The interview is part of the 2023 Cotton in the Curriculum program, supported by Cotton Incorporated, to develop open educational resources (OER) for global apparel sourcing classes.

Video Discussion: The Global Travels of a T-shirt

For FASH455 students: Please share your reflections on the video. For example, how does the video illustrate the global nature of the textile and apparel industry today? How can we understand the impact of globalization on the many stakeholders involved in the textile and apparel supply chains? Do the textile and apparel trade patterns described in the video support or challenge the trade theories we discussed in class? According to the video, what are the debates and controversies related to apparel sourcing and trade? What is your view and proposed solutions?   

Primark’s Global Sourcing for Apparel (Updated September 2023)

Primark’s sourcing strategies

According to Primark, it does not own any factories but sources all apparel products from contracted factories. Any contracted factory that manufactures products for Primark must meet internationally recognized standards before receiving the first sourcing order.

As of October 2022, Primark sourced from 883 contracted factories in 26 countries (note: it was a slight decline from 928 contracted factories in 28 countries as of May 2021). Of these factories, 85.5 percent were Asia-based because of the region’s massive production capacity and a balanced offer of various sourcing factors, from cost, speed to market, and flexibility to compliance risks.

Like many other EU-based fashion companies, near-shoring from within the EU was another critical feature of Primark’s sourcing strategies. About 14 percent of Primark’s contracted garment factories were EU-based (including Turkey).

Measured by the number of workers, Primark’s Asian factories were larger than their counterparts in other parts of the world. For example, while Primark’s factories in Pakistan and Bangladesh typically have more than 2,500+ workers, its factories in Western EU countries like the UK, Germany, Italy, and France, on average, only have 64-200 workers. This pattern suggests that Primark mainly uses Asian factories to fulfill volume sourcing orders, and its EU factories mainly produce replenishment or more time-sensitive fashionable items.

Meanwhile, similar to the case of other retailers like PVH, Primark’s contracted garment factories in China were smaller than their peers in the rest of Asia. For instance, while over 90% of Primark’s garment factories in Bangladesh employ more than 1,000 workers, around 43% of their contracted factories in China have fewer than 100 workers. This pattern suggests Primark could use China as an apparel sourcing base primarily for orders requiring greater flexibility and agility and those involving a wider variety of products but in smaller quantities.

Further, reflecting the unique role of the garment industry in creating economic opportunities for women, females account for more than half of the workforce in most garment factories that make apparel for Primark. The percentage was exceptionally high in developing countries like Tunisia (94%), Morocco (91%), Pakistan (69%), Sri Lanka (69%), Myanmar (64%), India (62%), and Vietnam (59%).

According to Primark (as of September 2023), its Ethical Trade and Environmental Sustainability team comprises over 120 specialists based in key sourcing countries. The team conducts around 3,000 supplier audits a year to monitor compliance (i.e., fair pay, safety, and healthy working conditions.) Additionally, Primark says its factories were in line with the company’s environmental code of conduct, and the company “donated any unsold merchandise to the Newlife Foundation in Europe and KIDS/Fashion Delivers in the US.

by Sheng Lu

Discussion questions:

What are the unique aspects of Primark’s apparel sourcing strategies? What role does sourcing play in supporting Primark’s business success? Any questions or suggestions for Primark regarding its sourcing practices?

Progress and Challenges in Apparel Supply Chain Traceability: A Case Study on ASKET

ASKET is a prominent online retailer based in Sweden that commits to complete supply chain transparency. Based on analyzing nearly 40 unique products and their detailed supply chain information posted on ASKET’s website as of May 2023, the article aims to shed light on the company’s supply chain traceability progress and the remaining challenges it faces.

First, while ASKET achieved full traceability for Tier 1 suppliers, tracking Tier 2 and Tier 3 suppliers was more difficult. For example, compared with its perfect traceability score for Tier 1 suppliers (i.e., garment factories), ASKET’s average traceability for Tier 2 Milling factories (i.e., yarn and fabric producers) was at around 97%, and the score fell to only 77% for trims suppliers in Tier 3.

As one critical contributing factor to the phenomenon, Tier 2 and Tier 3 suppliers had far more players than Tier 1, which presented a more significant challenge in obtaining detailed information about all the factories involved. For example, ASKET’s garment cutting and sewing operations predominantly occurred within a single facility. In contrast, making yarns, fabrics, and trims EACH usually involve multiple facilities in different parts of the world.

Second, a comprehensive understanding of the sub-supply chains associated with apparel components is pivotal in enhancing a fashion company’s overall traceability. Notably, the apparel supply chain is far more complicated than the commonly known four stages—fiber, yarn, fabric, and garment manufacturing. Rather, apparel components like yarns, fabrics, sewing threads, buttons, and zippers have complex and intricate sub-supply chains. For instance, for ASKET’s shirts or polo shirts:

  • Cotton was “farmed in New Mexico, Arizona, California and Texas, USA, ginned in Anqing, China.”
  • Yarn was “spun and twisted in Hyderabad, India,” and “dyed in Varese, Italy.”
  • Fabric was “woven in Letohrad, Czech Republic, dyed and finished in Prato, Italy.”
  • Sewing thread was “produced in Breisgau, Germany, wound and packed in St. Maria de Palautordera, Spain”
  • Button was produced in Saccolongon, Italy, with corozo farmed in Manabi, Ecuador.

Third, using recycled textile materials in apparel products could make it trickier to map the supply chain.

  • ASKET reported no problem tracking recycled textile materials derived from natural fibers, especially recycled wool products.
  • ASKET’s capability of tracing recycled man-made fiber textiles yielded mixed results. For example, ASKET was still investigating the Tier 3 raw material suppliers for one fabric made with “100% pre-consumer recycled nylon.” Likewise, for one body fabric derived from “plastic waste collected from Spanish Mediterranean and French Atlantic oceans and coastlines,” pinpointing the precise origin of the raw fiber posed a challenge.

Fourth, ASKET’s data shows that using recycled textiles in apparel products could incur higher transportation costs. For example, the average transportation cost for an ASKET garment using recycled textiles would reach $5 per unit (or 6.3% of the total production costs), much higher than regular clothing using non-recycled materials ($1 per unit or 3% of the total production). However, on average, making a garment using recycled textile materials could involve fewer facilities(e.g., 9 vs. 12). This result suggests that the higher transportation cost associated with clothing made from recycled textiles may not be attributed to a longer supply chain but rather to a more tedious and expensive recycled fiber collection process.

Additionally, ASKET’s data indicates a strong correlation between its retail price and sourcing costs. Specifically, ASKET’s applied a gross margin% ranging from 71%–81%. This implies that a $2 increase in sourcing costs could potentially lead to a retail price increase of $10-$20. Thus, controlling and managing sourcing costs will always be a priority for a fashion company.

By Sheng Lu

Further reading: Lu, Sheng (2023). How Asket is achieving apparel supply chain traceability. Just-Style.

Online event: Achieve More Sustainable and Socially Responsible Apparel Sourcing in the Post-Covid World: Fashion Companies’ Perspectives

Registration (Free)

February 14, 2023 (Tuesday), 12:00pm—1:00pm EST

Panelists:

  • Julia Hughes, President, United States Fashion Industry Association (USFIA)
  • Laurie Rando, Senior Director of Sustainable Products & Human Rights, Macy’s Inc.
  • Dr. Sheng Lu, Associate Professor of Fashion and Apparel Studies, University of Delaware

About the session:

This event, hosted by the United States Fashion Industry Association, is an official side session of the 2023 OECD Forum on Due Diligence in the Garment and Footwear Sector.

The session intends to facilitate constructive dialogue regarding the latest progress, challenges, and opportunities for achieving more sustainable and socially responsible apparel sourcing in the Post-COVID world. The session will offer a unique opportunity to hear directly from leading fashion brands and retailers regarding 1) fashion companies’ latest sourcing practices against the evolving business environment and their impacts on due diligence; 2) fashion companies’ new efforts and innovative projects to achieve more sustainable and socially responsible apparel sourcing; 3) opportunities and challenges to further improve sustainability and social responsibility in apparel sourcing in the post-COVID world. In addition, the session will be highly relevant and informative to all stakeholders in the fashion apparel business community, civil society, international organizations, academia, and policymakers.

Outlook 2023– Key Issues to Shape Apparel Sourcing and Trade

In December 2022, Just-Style consulted a panel of industry experts and scholars in its Outlook 2023–what’s next for apparel sourcing briefing. Below is my contribution to the report. All comments and suggestions are more than welcome!

2023 is likely another year full of challenges and opportunities for the global apparel industry.

First, the apparel industry may face a slowed world economy and weakened consumer demand in 2023. Apparel is a buyer-driven industry, meaning the sector’s volume of trade and production is highly sensitive to the macroeconomic environment. Amid hiking inflation, high energy costs, and retrenchment of global supply chains, leading international economic agencies, from the World Bank to the International Monetary Fund (IMF), unanimously predict a slowing economy worldwide in the new year. Likewise, the World Trade Organization (WTO) forecasts that the world merchandise trade will grow at around 1% in 2023, much lower than 3.5% in 2022. As estimated, the world apparel trade may marginally increase between 0.8% and 1.5% in the new year, the lowest since 2021. On the other hand, the falling demand may somewhat help reduce the rising sourcing cost pressure facing fashion companies in the new year.

Second, fashion brands and retailers will likely continue leveraging sourcing diversification and strengthening relationships with key vendors in response to the turbulent market environment. According to the 2022 fashion industry benchmarking study I conducted in collaboration with the US Fashion Industry Association (USFIA), nearly 40 percent of surveyed US fashion companies plan to “source from more countries and work with more suppliers” through 2024. Notably, “improving flexibility and reducing resourcing risks,” “reducing sourcing from China,” and “exploring near-sourcing opportunities” were among the top driving forces of fashion companies’ sourcing diversification strategies. Meanwhile, it is not common to see fashion companies optimize their supplier base and work with “fewer vendors.” For example, fashion companies increasingly prefer working with the so-called “super-vendors,” i.e., those suppliers with multiple-country manufacturing capability or can make textiles and apparel vertically, to achieve sourcing flexibility and agility. Hopefully, we could also see a more balanced supplier-importer relationship in the new year as more fashion companies recognize the value of “putting suppliers at the core.”

Third, improving sourcing sustainability and sourcing apparel products using sustainable textile materials will gain momentum in the new year. On the one hand, with growing expectations from stakeholders and pushed by new regulations, fashion companies will make additional efforts to develop a more sustainable, socially responsible, and transparent apparel supply chain. For example, more and more fashion brands and retailers have voluntarily begun releasing their supplier information to the public, such as factory names, locations, production functions, and compliance records. Also, new traceability technologies and closer collaboration with vendors enable fashion companies to understand their raw material suppliers much better than in the past. Notably, the rich supplier data will be new opportunities for fashion companies to optimize their existing supply chains and improve operational efficiency.

On the other hand, with consumers’ increasing interest in fashion sustainability and reducing the environmental impact of textile waste, fashion companies increasingly carry clothing made from recycled textile materials. My latest studies show that sourcing clothing made from recycled textile materials may help fashion companies achieve business benefits beyond the positive environmental impacts. For example, given the unique supply chain composition and production requirements, China appeared to play a less dominant role as a supplier of clothing made from recycled textile materials. Instead, in the US retail market, a substantial portion of such products was “Made in the USA” or came from emerging sourcing destinations in America (e.g., El Salvador, Nicaragua) and Africa (e.g., Tunisia and Morocco). In other words, sourcing clothing made from recycled textile materials could help fashion companies with several goals they have been trying to achieve, such as reducing dependence on sourcing from China, expanding near sourcing, and diversifying their sourcing base. Related, we are likely to see more public dialogue regarding how trade policy tools, such as preferential tariffs, may support fashion companies’ efforts to source more clothing using recycled or other eco-friendly textile materials.

Additionally, the debates on fashion companies’ China sourcing strategy and how to meaningfully expand near-sourcing could intensify in 2023. Regarding China, fashion companies’ top concerns and related public policy debates next year may include:

  • How to fully comply with the Uyghur Forced Labor Prevention Act (UFLPA) and reduce the forced labor risks in the supply chain?
  • What to do with Section 301 tariff actions against imports from China, including the tariff exclusion process?
  • How to reduce “China exposure” further in sourcing, especially regarding textile raw materials?
  • How should fashion companies respond and mitigate the business impacts of China’s shifting COVID policy and a new wave of COVID surge?
  • What contingency plan will be should the geopolitical tensions in the Asia-Pacific region directly affect shipping from the region?

Meanwhile, driven by various economic and non-economic factors, fashion companies will likely further explore ways to “bring the supply chain closer to home” in 2023. However, the near-shoring discussion will become ever more technical and detailed. For example, to expand near-shoring from the Western Hemisphere, more attention will be given to the impact of existing free trade agreements and their specific mechanisms (e.g., short supply in CAFTA-DR) on fashion companies’ sourcing practices. Even though we may not see many conventional free trade agreements newly launched, 2023 will be another busy year for textile and apparel trade policy deliberation, especially behind the scene and on exciting new topics.

By Sheng Lu

Discussion question: As we approach the middle of the year, why do you agree or disagree with any predictions in the outlook? Please share your thoughts.

2022 USFIA Fashion Industry Benchmarking Study Released

[The 2023 USFIA Benchmarking Study is now available]

Report release webinar (July 18, 2022)

The full report is available HERE

Key findings of this year’s report:

U.S. fashion companies report significant challenges coming from the macro-economy in 2022, particularly inflation and rising cost pressures. However, most respondents still feel optimistic about the next five years.

  • Respondents rated “increasing production or sourcing costs” and “inflation and outlook of the U.S. economy” as their 1st and 3rd top business challenges in 2022.
  • As a new record, 100 percent of respondents expect their sourcing costs to increase in 2022, including nearly 40 percent expecting a substantial cost increase from a year ago. Further, almost everything has become more expensive this year, from textile raw materials, shipping, and labor to the costs associated with compliance with trade regulations.
  • Over 90 percent of respondents expect their sourcing value or volume to grow in 2022, but more modest than last year.
  • Despite the short-term challenges, most respondents (77 percent) feel optimistic or somewhat optimistic about the next five years. Reflecting companies’ confidence in their businesses, nearly ALL respondents (97 percent) plan to increase hiring over the next five years.

U.S. fashion companies adopt a more diverse sourcing base in response to supply chain disruptions and the need to mitigate growing sourcing risks.

  • Asia remains the dominant sourcing base for U.S. fashion companies—eight of the top ten most utilized sourcing destinations are Asia-based, led by China, Vietnam, Bangladesh, and India.
  • More than half of respondents (53 percent) report sourcing apparel from over ten countries in 2022, compared with only 37 percent in 2021.
  • Reducing “China exposure” is one crucial driver of U.S. fashion companies’ sourcing diversification strategy. One-third of respondents report sourcing less than 10% of their apparel products from China this year. In addition, a new record of 50 percent of respondents sources MORE from Vietnam than China in 2022.
  • Nearly 40 percent of respondents plan to “source from more countries and work with more suppliers” over the next two years, up from only 17 percent last year.

Managing the risk of forced labor in the supply chain is a top priority for U.S. fashion companies in 2022, especially with the new implementation of the Uyghur Forced Labor Prevention Act (UFLPA).

  • Over 95 percent of respondents expect UFLPA’s implementation to affect their company’s sourcing. Notably, more than 85 percent of respondents plan to cut their cotton-apparel imports from China, and another 45 percent to further reduce non-cotton apparel imports from the country.
  • Most respondents (over 92 percent) do NOT plan to reduce apparel sourcing from Asian countries other than China. However, nearly 60 percent of respondents also would “explore new sourcing destinations outside Asia” in response to UFLPA.
  • Mapping and understanding the supply chain is a critical strategy adopted by U.S. fashion companies to address the forced labor risks in the supply chain. Almost all respondents currently track Tier 1 and 2 suppliers. With the help of new traceability technologies, 53 percent of respondents have started tracking Tier 3 suppliers this year (i.e., those manufacturing yarn, threads, and trimmings), a substantial increase from 25-36 percent in the past.

There is considerable new excitement about increasing apparel sourcing from members of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR). Respondents also call for more textile raw sourcing flexibility to encourage apparel sourcing from the CAFTA-DR region.

  • CAFTA-DR plays a more significant role as a sourcing base. About 20 percent of respondents place more than 10% of their sourcing orders from the region, doubling from 2021. 
  • Over the next two years, more than 60 percent of respondents plan to increase apparel sourcing from CAFTA-DR members as part of their sourcing diversification strategy.
  • CAFTA-DR is critical in promoting U.S. apparel sourcing from the region. Around 80 percent of respondents took advantage of the agreement’s duty-free benefits when sourcing apparel from the region this year, up from 50—60 percent in the past.
  • Respondents say the exceptions to the “yarn-forward” rules of origin, such as the “short supply” and “cumulation” mechanisms, provide essential flexibility that encourages more apparel sourcing from CAFTA-DR members.
  • Respondents say improving textile raw material supply is critical to encouraging more U.S. apparel sourcing from CAFTA-DR members. Particularly, “allowing more flexibility in souring fabrics from outside CAFTA-DR” and “improving yarn production capacity and variety within CAFTA-DR” are the top two priorities.

U.S. fashion companies strongly support another ten-year renewal of the African Growth and Opportunity Act (AGOA). Meanwhile, Ethiopia’s loss of AGOA eligibility discourages U.S. apparel sourcing from the ENTIRE AGOA region.

  • As much as 75 percent of respondents say another ten-year AGOA renewal will encourage more apparel sourcing from the region and making investment commitments.
  • However, despite the tariff benefits and the liberal rules of origin, respondents express explicit concerns about the region’s lack of competitiveness in speed to market, political instability, and having an integrated regional supply chain.
  • Ethiopia’s loss of AGOA benefits had a notable negative impact on sourcing from the country AND the entire AGOA region. Notably, no respondent plans to move sourcing orders from Ethiopia to other AGOA beneficiaries.

Panel Discussion: Building Resilience & Value in Fashion’s Supply Chain

Panelists:

  • Amanda Martin, Senior Vice President, Chief Supply Chain Officer, Neiman Marcus Group
  • Kathleen Talbot, Chief Sustainability Officer & VP Operations, Reformation

Event summary by Mariel Abano (FASH455 student, Spring 2022)

COVID-19 and other external shocks such as the Ukraine-Russia war shifted the fashion supply chain from its conventional low-cost model. In response to the changes, brands and companies focus on flexibility, strengthening their relationships with suppliers, and sustainability.

Regarding the pandemic’s impacts on the apparel supply chain, fashion brands need to be more future-oriented to better prepare for unexpected market shocks that may come up in the fluctuating world. Flexibility within their merchandising teams allowed Neiman Marcus to pivot during the pandemic and market differently within the context of the pandemic. The company explored new ways to connect with its consumers via digital platforms as many physical stores closed. However, fashion companies need to be flexible enough to respond to the increasing demand from its growing e-commerce platform. This is not always easy to happen.

Likewise, Reformation tries its best to predict demand, build supply chain capacity, and manage lead time during COVID-19. Their manufacturing chains within the U.S. and vertical integration helped them respond quickly to supply chain disruptions. As a result, the company pivoted quickly to athleisure even though its brand is typically known for its event-wear dresses.

Meanwhile, when evaluating their supply chain, Amanda Martin explains that Neiman Marcus prioritizes labor, speed, and cost. With this, there is a balance between investment of capital and resources and mitigating costs like surging fuel prices.

The relationship with vendors also matters during the pandemic. For example, Neiman Marcus’s relationships with its vendors built over the years allowed the company to move more quickly from ocean to air shipping during the pandemic. In the discussion, Amanda Martin explained why the relationship between retailers/brands and manufacturers needs to help both sides grow and benefit. Likewise, Reformation also focuses on people and their relationships with their suppliers during the pandemic. Kathleen Talbot emphasizes that brand-supplier relationships are evolving. Fostering two-way conversations is key to moving away from the previous model that prioritized the needs and wants of the brand over the manufacturer.

Sustainability is NOT ignored during the pandemic. For example, fashion companies increasingly use technology and process management to take accountability for supply chains and improve traceability. In terms of environmental impact, there are more applications within sourcing emphasizing recycled and renewable materials. For example, Reformation recently launched a new circularity initiative that focuses on extending a product’s lifetime and then recycling that back into the system. When creating new styles, the company started from sustainable fibers. Further, they hope to shift transportation from air to other means to minimize their carbon footprint.

[discussion is closed]

Barcelona Fashion Summit 2022 Exclusive Interview: Apparel Sourcing, Trade, and Globalization

Outlook 2022– Key Issues to Shape Apparel Sourcing and Trade

In December 2021, Just-Style consulted a panel of industry leaders and scholars in its Outlook 2022–what’s next for apparel sourcing briefing. Below is my contribution to the report. All comments and suggestions are more than welcome!

What next for apparel sourcing?

As “COVID sets the agenda” and the trajectory of several critical market and non-market forces hard to predict (for example, global inflation, and geopolitics), fashion companies may still have to deal with a highly volatile and uncertain market environment in 2022. That being said, it is still hopeful that fashion companies’ toughest sourcing challenges in 2021 will start to gradually ease at some point in the new year, including the hiking shipping costs, COVID-related lockdowns, and supply chain disruptions.

In response to the “new normal,” fashion companies may find several sourcing strategies essential:

One is to maintain a relatively diverse apparel sourcing base. The latest trade data suggests that US, EU, and Japan-based fashion companies have been steadily sourcing from a more diverse group of countries since 2018, and such a trend continues during the pandemic. Echoing the pattern, in the latest annual benchmarking study I conducted in collaboration with the United States Fashion Industry Association (USFIA), we find that “China plus Vietnam plus many” remains the most popular sourcing model among respondents. This strategy means China and Vietnam combined now typically account for 20-40 percent of a fashion company’s total sourcing value or volume, a notable down from 40-60 percent in the past few years. Fashion companies diversify their sourcing away from “China plus Vietnam” to avoid placing “all eggs in one basket” and mitigate various sourcing risks. In addition, more than 85 percent of surveyed fashion companies say they will actively explore new sourcing opportunities through 2023, particularly those that could serve as alternatives to sourcing from China.

The second strategy is to strengthen the relationship with key vendors further. As apparel is a buyer-driven industry, fashion brands and retailers fully understand the importance of catering to consumers’ needs. However, the supply chain disruptions caused by COVID-19 remind fashion companies that building a close and partner-based relationship with capable suppliers also matters. For example, working with vendors that have a presence in multiple countries (or known as “super-vendors”) offers fashion companies a critical competitive edge to achieve more flexibility and agility in sourcing. Sourcing from vendors with a vertical manufacturing capability also allows fashion companies to be more resilient toward supply chain disruptions like the shortage of textile raw materials, a significant problem during the pandemic.

Further, we could see fashion companies pay even closer attention to textile raw material sourcing in the year ahead. On the one hand, given the growing concerns about various social and environmental compliance issues like forced labor, fashion brands and retailers are making more significant efforts to better understand their entire supply chain. For example, in addition to tracking who made the clothing or the fabrics (i.e., tier 1 & 2 suppliers), more companies have begun to release information about the sources of their fibers, yarns, threads, and trimmings (i.e., tier 3 & tier 4 suppliers). On the other hand, many fashion brands and retailers intend to diversify their textile material sourcing from Asia, particularly China, against the current business environment. Compared with cutting and sewing garments, much fewer countries can make textiles locally, and it takes time to build textile production capacity. Thus, fashion companies interested in taking more control of their textile raw material sourcing need to take concrete actions such as shifting their sourcing model and making long-term investments intentionally.

Apparel industry challenges and opportunities

One key issue we need to watch closely is the US-China relations. China currently remains the single largest source of apparel globally, with no near alternative. China also plays an increasingly significant role as a textile supplier for many leading apparel exporting countries in Asia. However, as the US-China relations become more concerning and confrontational, we could anticipate new trade restrictions targeting Chinese products and products from any sources that contain components made in China. Notably, with strong bipartisan support, President Biden signed into law the Uyghur Forced Labor Prevention Act on December 23, 2021. The new law is a game-changer! Depending on the detailed implementation guideline to be developed by the Customs and Border Protection (CBP), US fashion companies may find it not operationally viable to source many textiles and apparel products from China. In response, China may retaliate against well-known western fashion brands, disrupting their sales expansion in the growing Chinese consumer market. Further, as China faces many daunting domestic economic and political challenges, a legitimate question for fashion companies to think about is what an unstable China means for their sourcing from the Asia-Pacific region and what the contingency plan will be.

Another critical issue to watch is the regional textile and apparel supply chains and related free trade agreements. While apparel is a global sector, apparel trade remains largely regional-based, i.e., countries import and export products with partners in the same region. Data shows that from 2019 to 2020, around 80% of Asian countries’ textile and apparel imports came from within Asia and about 50% for EU countries. Over the same period, over 87% of Western Hemisphere (WH) countries’ textile and apparel exports went to other WH countries and about 75% for EU countries.

Notably, the reaching and implementation of new free trade agreements will continue to alter and shape new regional textile and apparel supply chains in 2022 and beyond. For example, the world’s largest free trade agreement, the Regional Comprehensive Economic Partnership (RCEP), officially entered into force on January 1, 2022. The tariff reduction and the very liberal rules of origin in the agreement could strengthen Japan, South Korea, and China as the primary textile suppliers for the Asia-based regional supply chain and enlarge the role of ASEAN as the leading apparel producer. RCEP could also accelerate other trade agreements in the Asia-Pacific region, such as the China-South Korea-Japan Free Trade Agreement currently under negotiation.

As one of RCEP’s ripple effects, we can highly anticipate the Biden administration to announce its new Indo-pacific economic framework soon to counterbalance China’s influences in the region. The Biden administration also intends to leverage trade programs such as the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) to boost textile and apparel production, trade, and investment in the Western Hemisphere and address the root causes of migration. These trade initiatives will be highly relevant to fashion companies that could use the opportunity to expand near sourcing, take advantage of import duty-saving benefits and explore new supply chains. 

Additionally, fashion companies need to be more vigilant toward political instability in their major sourcing destinations. We have already seen quite a turmoil recently, from Myanmar’s military coup, Ethiopia’s loss of the African Growth and Opportunity Act (AGOA) benefits, concerns about Haiti and Nicaragua’s human rights, and the alleged forced labor in China’s Xinjiang region. Whereas fashion brands and retailers have limited or no impact on changing a country’s broader human rights situation, the reputational risks could be very high. Having a dedicated trade compliance team monitoring the geopolitical situation routinely and ensuring full compliance with various government regulations will become mainstream among fashion companies.

And indeed, sustainability, due diligence, recycling, digitalization, and data analytics will remain buzzwords for the apparel industry in the year ahead.

by Sheng Lu

Regional Comprehensive Economic Partnership (RCEP) and Textiles and Apparel (Updated November 2021)

What is RCEP?

The Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement between ten member states of the Association of Southeast Asian Nations (ASEAN)* and five other large economies in the Asia-Pacific region (China, Japan, South Korea, New Zealand, and Australia). RCEP was reached on November 15, 2020, after nearly eight years of tough negotiation. (Note: ASEAN members include Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. India was an original RCEP member but decided to quit in late 2019 due to concerns about competing with Chinese products, including textiles and apparel.)

So far, RCEP is the world’s largest trading bloc. As of 2019, RCEP members accounted for nearly 26.2% of world GDP, 29.5% of world merchandise exports, and 25.9% of world merchandise imports.

As of November 1, 2021, Lao, Burnei, Cambodia, Singapore and Thailand (ASEAN members), as well as China, Japan, New Zealand and Australia have ratified the agreement. This has met the minimum criteria for RCEP to enter into force (i.e., six members, including at least three ASEAN members and three non-ASEAN members).

As announced by Australia on November 2, 2021, RCEP will enter into force on January 1, 2022

Why RCEP matters to the textile and apparel industry?

RCEP matters significantly for the textile and apparel (T&A) sector. According to statistics from the United Nations, in 2019, the fifteen RCEP members altogether exported US$374 billion worth of T&A (or 50% of the world share) and imported US$139 billion (or 20% of the world share).

In particular, RCEP members serve as critical apparel-sourcing bases for many US and EU fashion brands. For example, in 2019, close to 60% of US apparel imports came from RCEP members, up from 45% in 2005. Likewise, in 2019, 32% of EU apparel imports also came from RCEP members, up from 28.1% in 2005.

Notably, RCEP members have been developing and forming a regional textile and apparel supply chain. More economically advanced RCEP members (such as Japan, South Korea, and China) supply textile raw materials to the less economically developed countries in the region within this regional supply chain. Based on relatively lower wages, the less developed countries typically undertake the most labor-intensive processes of apparel manufacturing and then export finished apparel to major consumption markets worldwide.

As a reflection of an ever more integrated regional supply chain, in 2019, as much as 72.8% of RCEP members’ textile imports came from other RCEP members, a substantial increase from only 57.6% in 2005. Nearly 40% of RCEP members’ textile exports also went to other RCEP members in 2019, up from 31.9% in 2005.

What are the key provisions in RCEP related to textiles and apparel?

First, RCEP members have committed to reducing the tariff rates to zero for most textile and apparel traded between RCEP members on day one after the agreement enters into force. That being said, the detailed tariff phaseout schedule for textile and apparel products under RCEP is very complicated. Each RCEP member sets their own tariff phaseout schedule, which can last more than 20 years (for example, 34 years for South Korea and 21 years for Japan.) Also, different from U.S. or EU-based free trade agreements, the RCEP phaseout schedule is country-specific. For example, South Korea sets different tariff phaseout schedules for textile and apparel products from ASEAN, China, Australia, Japan, and New Zealand. Japan’s tariff cut for apparel products is more generous toward ASEAN members and less so for China and South Korea (see the graph above). Companies interested in taking advantage of the duty-free benefits under RCEP need to study the “rules of the game” in detail.

Second, in general, RCEP adopts very liberal rules of origin for apparel products. It only requires that all non-originating materials used in the production of the good have undergone a tariff shift at the 2-digit HS code level (say a change from any chapters from chapters 50-60 to chapter 61). In other words, RCEP members are allowed to source yarns and fabrics from anywhere in the world, and the finished garments will still qualify for duty-free benefits.  Most garment factories in RCEP member countries can immediately enjoy the RCEP benefits without adjusting their current supply chains.

What are the potential economic impacts of RCEP on the textile and apparel sector?

On the one hand, the implementation of RCEP is likely to further strengthen the regional textile and apparel supply chain among RCEP members. Particularly, RCEP will likely strengthen Japan, South Korea, and China as the primary textile suppliers for the regional T&A supply chain. Meanwhile, RCEP will also enlarge the role of ASEAN as the leading apparel producer in the region.

On the other hand, as a trading bloc, RCEP could make it even harder for non-RCEP members to get involved in the regional textile and apparel supply chain formed by RCEP members. Because an entire regional textile and apparel supply chain already exists among RCEP members, plus the factor of speed to market, few incentives are out there for RCEP members to partner with suppliers from outside the region in textile and apparel production. The tariff elimination under the RCEP will put textile and apparel producers that are not members of the agreement at a more significant disadvantage in the competition. Not surprisingly, according to a recent study, measured by value, only around 21.5% of RCEP members’ textile imports will come from outside the area after the implementation of the agreement, down from the base-year level of 29.9% in 2015.

Further, the reaching of RCEP could accelerate the negotiation of other trade agreements in the Asia-Pacific region, such as the China-South Korea-Japan Free Trade Agreement. We might also see growing pressures on the Biden administration to join the Comprehensive and Progressive Agreement of the Trans-Pacific Partnership (CPTPP) to strengthen the US economic ties with countries in the Asia-Pacific region. The economic competition between the United States and China in the area could also intensify as the combined effects of RCEP and CPTPP begin to shape new supply chains and test the impacts of the two countries on the regional trade patterns.

By Sheng Lu

Further reading

Exclusive Interview with FIBRE2FASHION about the Latest World Textile and Apparel Trade Patterns (October 2021)

The full interview is available HERE

Selected interview questions

The virus is here to stay. What steps the companies must take to mitigate its impact?

Sheng: Earlier this year, I, together with the US Fashion Industry Association, surveyed about 30 leading US fashion brands and retailers to understand COVID-19’s impact on their sourcing practices. Respondents emphasized two major strategies they adopted in response to the current market environment. One is to strengthen the relationship with key vendors, and the other is to improve flexibility and agility in sourcing. These two strategies are also highly connected. As one respondent told us “We’re adjusting our sourcing model mix (direct vs. indirect) & establishing stronger strategic supplier relationships across entire matrix continue to build flexibility and dual sourcing options.” Many respondents, especially those large-scale fashion brands and retailers, also say they plan to reduce the number of vendors in the next few years to improve operational efficiency and obtain greater leverage in sourcing.

Which are the countries benefitting out of the US-China tariff war and why?

Sheng: The trade war benefits nobody, period. Today, textiles and apparel are produced through a highly integrated supply chain, meaning the US-China tariff war could increase everyone’s production and sourcing costs. Back in 2018, when the tariff war initially started, the unit price of US apparel imports from Vietnam, Bangladesh, and India all experienced a notable increase. Whereas companies tried to switch their sourcing orders, the production capacity was limited outside China.  Meanwhile, China plays an increasingly significant role as a leading textile supplier for many apparel exporting countries in Asia. Despite the trade war, removing China from the textile and apparel supply chain is impossible and unrealistic.

How do you compare the African and Asian markets when it comes to sourcing and manufacturing? Which are the advantages both offer?

Sheng: Asia as a whole remains the world’s dominant textile and apparel sourcing base. According to statistics from the United Nations (i.e., UNComtrade), Asian countries as a whole contributed about 65% of the world’s total textile and apparel exports in 2020. In the same year, Asian countries altogether imported around 31% of the world’s textiles and 19% of apparel. Asian countries have also established a highly efficient and integrated regional supply chain by leveraging regional free trade agreements or arrangements. For example, as much as 85% of Asian countries’ textile imports came from other Asian countries in 2019, a substantial increase from only 70% in the 2000s. With the recent reaching of several mega free trade agreements among countries in the Asia-Pacific region, such as the Regional Comprehensive Economic Partnership (RCEP), the pattern of “Made in Asia for Asia” is likely to strengthen further.

In comparison, only about 1% of the world’s apparel imports come from Africa today. And this percentage has barely changed over the past decades. Many western fashion brands and retailers have expressed interest in expanding more apparel sourcing from Africa. However, the tricky part is that these fashion companies are hesitant to invest directly in Africa, without which it is highly challenging to expand African countries’ production and export capacity. Political instability is another primary concern that discourages more investment and sourcing from Africa. For example, because of the recent political turmoil, Ethiopia, one of Africa’s leading apparel sourcing bases, could be suspended for its eligibility for the African Growth and Opportunity Act (AGOA). Without AGOA’s critical support, Ethiopia’s apparel exports to the US market could see a detrimental decline. On the other hand, while these trade preference programs are crucial in supporting Africa’s apparel exports, they haven’t effectively solved the structural issues hindering the long-term development of the textile and apparel industry in the region. More work needs to be done to help African apparel producers improve their genuine export competitiveness.

Another issue is Brexit. Is that having any significant impact on the sourcing scenario of the world or is it just limited to the European nations?

Sheng: Despite Brexit, the trade and business ties between the UK and the rest of the EU for textile and apparel products continue to strengthen. Thanks to the regional supply chain, EU countries remain a critical source of apparel imports for UK fashion brands and apparel retailers. Nearly 35% of the UK’s apparel imports came from the EU region in 2019, a record high since 2010. Meanwhile, the EU region also is the single largest export market for UK fashion companies—about 79% of the UK’s apparel exports went to the EU region in 2019 before the pandemic.

However, trade statistics in the short run may not fully illustrate the impacts of Brexit. For example, some recent studies suggest that Brexit has increased fashion companies’ logistics costs, delayed customs clearance, and made talent-hiring more inconvenient. Meanwhile, Brexit provides more freedom and flexibility for the UK to reach trade deals based on its national interests. For example, the UK recently submitted its application to join the Comprehensive Progressive Agreement of the Trans-Pacific Partnership (CPTPP). The UK is also negotiating a bilateral trade agreement with the United States. The reaching of these new trade agreements, particularly with non-EU countries, could significantly promote the UK’s luxury apparel exports and help the UK diversity its source of imports.

How do you think the power shortages happening across Europe, China, and other nations, are going to impact the apparel supply chains?

Sheng: One of my primary concerns is that the new power shortage could exacerbate inflation further and result in a more severe price hike throughout the entire textile and apparel supply chain. When Chinese factories are forced to cease production because of power shortage, the impact could be far worse than recent COVID-related lockdowns in Vietnam and Bangladesh. As mentioned earlier, more than half of many leading Asian apparel exporting countries’ textile supplies come from China today. Also, no country can still compete with China in terms of the variety of apparel products to offer. In other words, for many western fashion brands and retailers, their stores and shelves could look more empty (i.e., having less variety of products to sell) because of China’s power shortage problem.

2021 Apparel Textile Sourcing Trade Show Educational Seminar: Trade Policy & Sourcing (Sep 2021)

Panelists

  • Julie Hughes, President, United States Fashion Industry Association
  • Rich Harper, Director of Government Affairs, Outdoor Industry Association
  • Dr. Sheng Lu, Associate Professor, Fashion and Apparel Studies, University of Delaware
  • Discussion: Top US trade policy issues in 2021 (beginning-37 min)
  • Presentation: Latest US apparel sourcing trends (38 min—55 min)

How COVID-19 has shifted US apparel companies’ sourcing strategies?

The article is available HERE (need Just-Style subscription)

Key findings

First, more US apparel companies prioritize consolidating their existing sourcing base than diversification during the pandemic. Nearly half of the top 30 US apparel companies we examined explicitly say they either sourced from fewer countries or worked with fewer vendors in 2020 than 2017-2019 before the pandemic. In comparison, only about one-third of respondents say they were sourcing from more countries in 2020 than two years.

Second, the desire to form a closer relationship with key vendors and ensure social and environmental compliance are the two primary factors behind US apparel companies’ consolidation strategy. In a time of uncertainty like the pandemic, apparel companies are leaning more heavily on suppliers that have proven reliable, capable, and flexible. Working closely with the suppliers and building an efficient and trust-based supply chain also play a central role in US fashion companies’ COVID-mitigation strategies. Meanwhile, with social and environmental compliance becoming increasingly crucial in apparel sourcing today, companies are cutting ties with vendors that are not adhering to government mandates and proprietary codes of conduct. Notably, US apparel companies’ higher expectations for sustainability as well as social and environmental compliance may have resulted in a smaller pool of qualified suppliers.

Third, the desire to steer away from China and reduce sourcing risks are the two main drivers behind US fashion companies’ recent sourcing diversification strategy. US apparel companies mostly moved their sourcing orders from China to China’s competitors in Asia instead of expanding “near-sourcing. On the other hand, it is not uncommon to see US apparel companies keep a relatively diverse sourcing base to control various sourcing risks in the current business setting.

Fourth, the content analysis further reveals that US fashion brands and retailers commit to sourcing and supply chain innovation in response to COVID-19 and the new business environment. Some specific sourcing strategies are noteworthy:

  • Work with “super vendors,” i.e., vertically integrated suppliers that can execute multiple steps in the supply chain or those with production facilities in numerous countries.
  • Optimize supply chain process to improve speed to market.
  • Adjust fabric and textile raw material sourcing base, although the specific strategies vary from company to company.

By Emma Davis and Dr. Sheng Lu

The State of Apparel Supply Chain Transparency: A Case Study on VF Corporation

With the public’s increasing demand, fashion companies are making more significant efforts to improve their apparel supply chains’ transparency, i.e., mapping where the product is made and knowing suppliers’ compliance with social and environmental regulations.

Recently, VF Corporation, one of the most historical and largest US apparel corporations, released the entire supply chain of its 20 popular apparel items, such as Authentic Chino Stretch, Men’s Merino Long Sleeve Crewe, and Women’s Down Sierra Parka. VF Corporation used more than 300 factories worldwide to make these apparel items and related textile raw materials.

We conducted a statistical analysis (Multivariate analysis of variance, MANOVA) of these factories, aiming to evaluate the state of VF Corporation’s apparel supply chain transparency, including its strengths and areas that can be improved further. The findings of this study will fulfill a critical research gap and significantly enhance our understanding of the nature of today’s apparel supply chain and the opportunities and challenges to improve its transparency.

The results show that VF Corporation’s suppliers in different segments of the apparel supply chain had different transparency performances overall:

  • While more than 92% of tier 1 & 2 suppliers shared their environmental or social compliance information with VF Corporation, less than 60% of VF Corporation’s tier 3 & 4 suppliers did so (note: statistically significant).
  • A higher percentage of VF Corporation’s tier 2 & 3 suppliers (i.e., mills making fabrics, yarns, or accessories) received environmental compliance-related certification than tier 1 suppliers (i.e., garment factories) (note: statistically significant).
  • Meanwhile, VF Corporation’s tier 1 suppliers were more active in pursuing social compliance-related certification than suppliers in other levels (note: statistically significant)
  • However, no evidence suggests that whether from a developed or developing country will statistically affect a vendor’s transparency performance.

The study’s findings have several important implications:

  • First, more work can be done to strengthen fashion companies’ transparency of tier 3 & 4 suppliers (i.e., textile mills making yarns and fibers). Despite the significant efforts to know their garment factories (i.e., tier 1 suppliers), fashion companies like VF Corporation still have limited knowledge about vendors upper in the supply chain. Notably, even VF Corporation doesn’t have much leverage to request environmental and social compliance-related information from these vendors. According to VF Corporation, often “Supplier was unresponsive to VF’s request for information.”
  • Second, the results suggest that vendors at different supply chain levels have their respective transparency priorities. However, it is debatable whether tier 1 & 2 suppliers also need to care about environmental and sustainability-related compliance, and if tier 3 & 4 suppliers should be more transparent about their social compliance record. The growing concerns about forced labor involved in cotton production (i.e., tier 4 suppliers) make the debate even more relevant.
  • Additionally, different from the public perception and previous studies, the findings call for equal treatment of suppliers from developed and developing countries when vetting their environmental and social compliance-related transparency.

Because this case study looked at VF Corporation only, future research can continue to investigate other fashion companies’ supply chain transparency based on data availability. It will also be meaningful to hear directly from tier 3 & 4 suppliers to understand their perception about improving the apparel supply chain’s transparency and related opportunities and challenges.

by Sheng Lu and Lora Merryman

Note: The study will be presented at the 2021 International Textile and Apparel Association (ITAA) Annual Conference in November.

Regional Supply Chain Remains a Key Feature of World Textile and Apparel Trade

While textile and apparel is well-known as a global sector, the latest statistics show that world textile and apparel trade patterns remain largely regional-based. Three particular regional textile and apparel trade flows are critical to watch:

First, Asian countries are increasingly sourcing textile raw material from within the region. As much as 85% of Asian countries’ textile imports came from other Asian countries in 2019, a substantial increase from only 70% in the 2000s. This result reflects the formation of an ever more integrated regional textile and apparel supply chain in Asia. However, as Asian countries become more economically integrated, textile and apparel producers in other parts of the world could find it more challenging to get involved in the region. With the recent reaching of several mega free trade agreements among countries in the Asia-Pacific region, such as the Regional Comprehensive Economic Partnership (RCEP), the pattern of “Made in Asia for Asia” is likely to strengthen further.

Second, the EU intra-region trade pattern for textile and apparel stays relatively strong and stable. Intra-region trade refers to trade flows between EU members. Statistics show that 54.6% of EU(27) members’ textile imports and 37.4% of their apparel imports came from within the EU(27) region in 2019. This pattern only slightly changed over the past decade. In other words, despite the reported increasing competition from Asian suppliers, many of which even enjoy duty-free market access to the EU market (such as through the EU Everything But Arms program), a substantial share of apparel sold in the EU markets are still locally made.

EU consumers’ preferences for “slow fashion” (i.e., purchasing less but for more durable products with higher quality) may contribute to the stable EU intra-region trade pattern. Many EU consumers also see textile and apparel as cultural products and do NOT shop simply for the price. This explains why Western EU countries such as Italy, Germany, and France rank the top apparel producers and exporters in the EU region despite their high wage and production costs.

Third, the Western Hemisphere (WH) supply chain faces significant challenges despite the seemingly growing popularity of “near-sourcing.” On the one hand, textile and apparel exporters in the Western-Hemisphere still rely heavily on the regional market. In 2019, respectively, as much as 79% of textiles and 86% of apparel exports from countries in the Western Hemisphere went to the same region. 

However, on the other hand, the Western-Hemisphere supply chain is facing increasing competition from Asian suppliers. For example, in 2019, only 22% of North, South, and Central American countries’ textile imports and 15% of their apparel imports came from within the Western Hemisphere, a new record low in ten years. Similarly, in the first eleven months of 2020, only 15.7% of US apparel imports came from the Western Hemisphere, down from 17.1% in 2019 before the pandemic. The limited local textile production capacity and the high production cost are the two notable factors that discourage US fashion brands and retailers from committing to more “near-sourcing” from the Western Hemisphere.

In comparison, Asian countries supplied a new record high of 62.2% of textiles and 75% apparel to countries in the Western Hemisphere in 2019, up from 49.1% and 71.1% ten years ago. This trend suggests that as the competitiveness of “Factory Asia” continues to improve, even regional trade agreements (such as USMCA and CAFTA-DR) and their restrictive “yarn-forward” rules of origin have limits to protect the Western Hemisphere supply chain.

In comparison, Asian countries supplied a new record high of 62.2% of textiles and 75% apparel to countries in the Western Hemisphere in 2019, up from 49.1% and 71.1% ten years ago. This trend suggests that as the competitiveness of “Factory Asia” continues to improve, even regional trade agreements (such as USMCA and CAFTA-DR) and their restrictive “yarn-forward” rules of origin have limits to protect the Western Hemisphere supply chain.

Additionally, many say that the reaching of RCEP creates new pressure for the new Biden administration to consider joining the CPTPP and strengthening economic ties with countries in the Asia-Pacific region. Notably, several USMCA and CAFTA-DR members, such as Mexico, also have RCEP or CPTPP membership. Apparel producers in these Western Hemisphere countries may find it more rewarding to access the cheaper textile raw material from Asia through CPTPP or RCEP rather than claiming the duty-saving benefits for finished garments under USMCA or CAFTA-DR. Like it or not, the Biden administration’s inaction will also have consequences. 

by Sheng Lu

Further reading: Lu, Sheng. (2021). Regional supply chains still shape textile and apparel trade. Just-Style