FASH455 Global Apparel & Textile Trade and Sourcing
Copyright© 2012-2026 Dr. Sheng Lu, Professor, Department of Fashion & Apparel Studies, University of Delaware
About the seminar: A look at apparel sourcing trends and the impact of trade policy decisions on a successful sourcing strategy.
Speakers:
About Senate Bill 62
Concerns about Senate Bill 62
According to the American Apparel and Footwear Association (AAFA), the California Garment Worker Protection Act “does not recognize that brands or buyers may have little to no control over how a particular garment factory employer manages their payroll or enterprise finances.” AAFA explains why this new law in actuality could punish good actors:
“Brand Good contracts with Manufacturer Y to manufacture their clothes, paying a good price, more than enough to pay required wages to Manufacturer Y’s employees. However, in an effort to generate more business, Manufacturer Y also takes a low-bid contract from Brand Bad, so low that both Manufacturer Y and Brand Bad know Manufacturer Y will not be able to pay required wages to its employees. Under this bill, Brand Good would be liable for any wage claims resulting from Manufacturer Y’s acceptance of a low-bid contract completely unrelated to its operations.
The legislation would make responsible brands like Brand Good legally liable to pay for wage claims resulting from Manufacturer Y’s and Brand Bad’s unlawful or irresponsible activity. SB 62 will not deter bad actors like Brand Bad from operating in California’s garment manufacturing industry. Instead, it will penalize responsible companies like Brand Good, even though Brand Good did the right thing. As a result, Brand Good, and other responsible brands, will no longer allow their branded garments to be manufactured in California out of fear that they will acquire additional liabilities over activities they don’t control.”
Further reading:
Discussion question:Based on the video and the readings, what is your view on the California Garment Worker Protection Act? What changes could it bring to the fashion apparel industry and why?
(Disclaimer: All posts on this site are for FASH455 educational and academic research purposes only, and they are nonpolitical and nonpartisan. No blog post intends to either favor or oppose any particular political party/public policy, nor shall be interpreted that way)
Panelists
As one breaking news, on 16 September 2021, China officially presented its application to join the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). While the approval of China’s membership in CPTPP remains a long shot and won’t happen anytime soon, the debate on the potential impact of China’s accession to the trade agreement already starts to heat up.
Like many other sectors, textile and apparel companies are on the alert. Notably, China plus current CPTPP members accounted for nearly half of the world’s textile and apparel exports in 2020. Many non-CPTPP countries are also critical stakeholders of China’s membership in the agreement. In particular, the Western Hemisphere textile and apparel supply chain, which involves the US textile industry, could face unrepresented challenges once China joins CPTPP.
First, once China joins CPTPP, the tariff cut could provide strong financial incentives for Mexico and Canada to use more Chinese textiles. China is already a leading textile supplier for many CPTPP members. In 2019, as much as 47.7% of CPTPP countries’ textile imports (i.e., yarns, fabrics, and accessories) came from China, far more than the United States (12.1%), the other leading textile exporter in the region.
Notably, thanks to the Western Hemisphere supply chain and the US-Mexico-Canada Trade Agreement (USMCA, previously NAFTA), the United States remains the largest textile supplier for Mexico (48.2%) and Canada (37.2%). Mexico and Canada also serve as the largest export market for US textile producers, accounting for as many as 46.4% of total US yarn and fabric exports in 2020.
However, US textile exporters face growing competition from China, offering more choices of textile products at a more competitive price (e.g., knitted fabrics and man-made fiber woven fabrics). From 2005 to 2019, US textile suppliers lost nearly 20 percentage points of market shares in Mexico and Canada, equivalent to what China gained in these two markets over the same period.
Further, China’s membership in CPTPP means its textile exports to Mexico and Canada could eventually enjoy duty-free market access. The significant tariff cut (e.g., from 9.8% to zero in Mexico) could make Chinese textiles even more price-competitive and less so for US products. This also means the US textile industry could lose its most critical export market in Mexico and Canada even if the Biden administration stays away from the agreement.
Second, if both China and the US become CPTPP members, the situation would be even worse for the US textile industry. In such a case, even the most restrictive rules of origin would NOT prevent Mexico and Canada from using more textiles from China and then export the finished garments to the US duty-free. Considering its heavy reliance on exporting to Mexico and Canada, this will be a devastating scenario for the US textile industry.
Even worse, the US textile exports to CAFTA-DR members, another critical export market, would drop significantly when China and the US became CPTPP members. Under the so-called Western-Hemisphere textile and apparel supply chain, how much textiles (i.e., yarns and fabrics) US exports to CAFTA-DR countries depends on how much garments CAFTA-DR members can export to the US. In comparison, US apparel imports from Asia mostly use Asian-made textiles. For example, as a developing country, Vietnam relies on imported yarns and fabrics for its apparel production. However, over 97% of Vietnam’s textile imports come from Asian countries, led by China (57.1%), South Korea, Taiwan, and Japan (about 25%), as opposed to less than 1% from the United States.
The US textile industry also deeply worries about Vietnam becoming a more competitive apparel exporter with the help of China under CPTPP. Notably, among the CPTPP members, Vietnam is already the second-largest apparel exporter to the United States, next only to China. Despite the high tariff rate, the value of US apparel imports from Vietnam increased by 131% between 2010 and 2020, much higher than 17% of the world average. Vietnam’s US apparel import market shares quickly increased from only 7.6% in 2010 to 16.6% in 2020 (and reached 19.3% in the first half of 2021). The lowered non-tariff and investment barriers provided by CPTPP could encourage more Chinese investments to come to Vietnam and further strengthen Vietnam’s competitiveness in apparel exports.
Understandably, when apparel exports from China and Vietnam became more price-competitive thanks to their CPTPP memberships, more sourcing orders could be moved away from CAFTA-DR countries, resulting in their declined demand for US textiles. Notably, a substantial portion of US apparel imports from CAFTA-DR countries focuses on relatively simple products like T-shirts, polo shirts, and trousers, which primarily compete on price. Losing both the USMCA and CAFTA-DR export markets, which currently account for nearly 70% of total US yarns and fabrics exports, could directly threaten the survival of the US textile industry.
by Sheng Lu
Related readings:
#1: Is the sole benefit of globalization helping us get cheaper products? How to convince US garment workers who lost their jobs because of increased import competition that they benefit from globalization also?
#2 How to explain the phenomenon that US apparel imports from China continue to rise despite the tariff war? Do you think the tariff war is a wrong strategy or a good strategy implemented at the wrong time given COVID?
#2: In the class, we mentioned that major driving forces of globalization include economic growth, lowered trade and investment barriers, and technology advancement. What will be the primary driving forces of globalization or deglobalization in the post-COVID world, and why?
#3: Based on the reading “U.S.-China Trade War Still Hurting Ohio Family-Owned Business,” what results of the US-China tariff war are expected and unexpected? What is your recommendation for the Biden administration regarding the Section 301 tariff exclusion process and why?
#4: We say textile and apparel is a global sector. How does the US-China tariff war affect textile and apparel producers and companies in other parts of the world? Why?
#5: From this week’s readings, why do we say textile and apparel trade and sourcing involve economic, social, and political factors and implications? Please provide 1-2 specific examples from the articles to support your viewpoints.
(Welcome to our online discussion. For students in FASH455, please address at least two questions and mention the question number (#) in your reply)
Micro factories typically refer to small-to-medium scale, highly automated, and technologically advanced manufacturing setups with a wide range of process capabilities.
Related reading: Do Companies Know How to Use Micro Factories for Sourcing Product?
According to the latest statistics released by the American Apparel and Footwear Association (AAFA):
Related reading: State of U.S. Textile and Apparel Manufacturing: Output, Employment, and Trade (Updated October 2021)
New data available: WTO Reports World Textiles and Clothing Trade in 2021
According to the World Trade Statistical Review 2021 report released by the World Trade Organization (WTO), the textiles and apparel trade patterns in 2020 include both continuities and new trends affected by the pandemic and companies’ evolving production and sourcing strategies in response to the shifting business environment.
Pattern #1: COVID-19 significantly affected the world textile and apparel trade volumes, resulting in substantial growth of textile exports and a declined demand for apparel.
Driven by increased personal protective equipment (PPE) production, global textile exports grew by 16.1% in 2020, reaching $353bn. In comparison, affected by lockdown measures, worsened economy, and consumers’ tighter budget for discretionary spending, global apparel export decreased by nearly 9% in 2020, totaling $448bn, the worst performance in decades. The apparel sector is not alone. The world merchandise trade in 2020 also suffered an unprecedented 8% drop from a year ago, with COVID-19 to blame.
Notably, as economic activities returned in the second half of 2020, the world clothing export quickly rebounded to around 95% of the pre-covid level by the end of 2020. That being said, the unexpected resurgence of COVID cases in summer 2021, especially the delta variant, caused new market uncertainties. Overall, the world textile and apparel trade recovery process from COVID-19 will differ from our experiences during the 2008 global financial crisis.
Pattern #2: COVID-19 did NOT shift the competitive landscape of the world textile exports; Meanwhile, textile exports from China and Vietnam gained new momentum during the pandemic.
China, the European Union (EU), and India remained the world’s three largest textile exporters in 2020. Together, these top three accounted for 65.8% of the world’s textile exports in 2020, similar to 66.9% before the pandemic (2018-2019).
Notably, China and Vietnam enjoyed a substantial increase in their textile exports in 2020, up 28.9% and 10.7% from a year ago, respectively. The complete textile and apparel supply chain and considerable production capability allow these two countries to switch clothing production to PPE manufacturing quickly. In particular, Vietnam exceeded South Korea and ranked the world’s sixth-largest textile exporter in 2020 ($10 bn of exports), the first time in history.
The United States dropped one place and ranked the world’s fifth-largest textile exporter in 2020 (was 4th from 2015 to 2019), accounting for 3.2% of the shares (was 4.4% in 2019). Production disruptions at the beginning of the pandemic and the shift toward PPE production for domestic consumption were the two primary contributing factors behind the decline in U.S. textile exports. Due to the regional trade patterns, around 67% of U.S. textile exports went to the Western Hemisphere in 2020, including 46% for members of the U.S.-Mexico-Canada Trade Agreement (USMCA) and another 17.2% for members of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR).
Pattern #3: Fashion companies’ efforts to diversify apparel sourcing from China somehow slowed during the pandemic.
China, the European Union, Vietnam, and Bangladesh unshakably remained the world’s four largest apparel exporters in 2020. Altogether, these top four accounted for 72.2% of the world market shares in 2020, higher than 71.4% in 2019.
Notably, while China steadily accounted for declining shares in the world’s total apparel exports since 2015, its market shares rebounded to 31.6% in 2020 from 30.7% in 2019. We can observe a similar pattern in Canada (up from 36.2% to 41.2%) and the EU (31.2% to 31.3%), two of the world’s leading apparel import markets. Even in the U.S. market, where Chinese goods face adverse impacts of the tariff war, the market shares of “Made in China” only marginally decreased from 30.8% in 2019 to 29.8% in 2020, compared with a more significant drop before the pandemic (i.e., fell from 34.4% 2018 to 30.8% in 2019).
Several factors could explain the resilience of China’s apparel exports: 1) fashion brands and retailers’ particular sourcing criteria match China’s competitiveness during the pandemic (e.g., flexibility, agility, and total landed sourcing cost). 2) China has one of the world’s most complete textile and apparel supply chains, allowing garment factories to access textile raw material and accessories locally. 3) Compared with many other apparel exporting countries, China suffered a shorter COVID lockdown period and resumed apparel production earlier and more quickly. Most Chinese textile and apparel factories started to reopen in April 2020, and they resumed an overall 90%-95% operational capacity rate by July 2020.
Nonetheless, fashion companies are NOT reversing their long-term strategies to reduce “China exposure” for apparel sourcing. On the contrary, non-economic factors, particularly the concerns about forced labor in China’s Xinjiang region, push most western fashion brands and retailers to develop apparel sourcing capacities beyond China. Meanwhile, no single country has yet and will likely become the “Next China” because of capacity limits. Instead, from 2015 to 2020, China’s lost market shares in the world apparel exports (around 7.8 percentage points) were picked up jointly by its competitors in Asia, including ASEAN members (up 4.4 percentage points), Bangladesh (up 1.3 percentage points), and Pakistan (up 0.3 percentage point). Such a trend is most likely to continue in the post-COVID world.
Pattern #4: Developed economies led textile PPE imports during the pandemic, whereas the developing countries imported fewer textiles as their apparel exports dropped.
On the one hand, the value of textile imports by developed economies, including EU members, the United States, Japan, and Canada, surged by more than 30 percent in 2020, driven mainly by their demand for PPE. The result also reveals the significant contribution of international trade in supporting the supply and distribution of textile PPE globally. On the other hand, the developing countries engaged in apparel production and export drove the import demand for textile raw materials like yarns and fabrics. However, most of these developing countries’ textile imports fell in 2020, corresponding to their decreased apparel exports during the pandemic.
Pattern #5: Despite COVID-19, the world apparel import market continues to diversify. The import demand increasingly comes from emerging economies with a booming middle class.
Affected by consumers’ purchasing power (often measured by GDP per capita) and the size of the population, the European Union, the United States, and Japan remained the world’s three largest apparel importers in 2020, a stable pattern that has lasted for decades. While these top three still absorbed 56.2% of the world’s apparel imports in 2020, it was a new record low in the past ten years (was 58.1% in 2019 and 61.5% in 2018), and much lower than 84% back in 2005.
Behind the numbers, it is not the case that consumers in the EU, the United States, and Japan necessarily purchase less clothing over the years. Instead, several emerging economies have become fast-growing apparel-consuming markets with robust import demand. For example, despite COVID-19, China’s apparel imports totaled $9.5bn in 2020, up 6.5% from 2019. From 2010 to 2020, China’s apparel imports enjoyed a nearly 15% annual growth, compared with only 0.56% of the traditional top three. Around 30% of China’s apparel imports today are luxury items made in the EU.
By Sheng Lu
Further reading: Lu, S. (2021). World textiles and apparel trade amidst a pandemic – statistical review 2021. Just-Style.
Appendix
The 2022 USFIA Fashion Industry Benchmarking Study is now available
The full report is available HERE
Key findings of this year’s report:
#1 COVID-19 continues to substantially affect U.S. fashion companies’ sourcing and business operations in 2021
#2 The surging sourcing costs are a significant concern to U.S. fashion companies in 2021.
#3 U.S. fashion companies’ sourcing strategies continue to envovle in response to the shifting business environment.
#4 U.S. fashion companies continue to reduce their China exposure. However, the debate on China’s future as a textile and apparel sourcing base heats up.
#5 With an improved industry look and the continued interest in reducing “China exposure,” U.S. fashion companies actively explore new sourcing opportunities.
#6 Sourcing from the Western Hemisphere is gaining new momentum
This year’s benchmarking study was based on a survey of executives at 31 leading U.S. fashion companies from April to June 2021. The study incorporates a balanced mix of respondents representing various types of businesses in the U.S. fashion industry. Approximately 54 percent of respondents are self-identified retailers, 46 percent self-identified brands, 69 percent self-identified importers/wholesalers. Around 65 percent of respondents report having more than 1,000 employees. Another 27 percent of respondents represent medium-sized companies with 101-999 employees.
In June 2021, the U.S. International Trade Commission (USITC) released the 2021 Economic Impact of Trade Agreements Implemented under Trade Authorities Procedures report. By using both qualitative and quantitative methods, USITC assessed the impact of trade agreements on U.S. industries, including workers, since 2016. Below are the key findings related to the textile and apparel sector:
First, free trade agreements enacted in the U.S. have had a small but positive effect on the U.S. economy and trade. As of January 1, 2021, the United States has 14 free trade agreements (FTAs) with 20 countries in force. In the year 2017 (the base year), they led to an estimated increase in U.S. real Gross Domestic Product (GDP) of $88.8 billion (0.5 percent), and in aggregate U.S. employment of 485,000 full-time equivalent (FTE) jobs (0.3 percent). Real wages increased by 0.3 percent. Further, U.S. exports increased by $37.4 billion (1.6 percent), and imports increased by $95.2 billion (3.4 percent) because of these FTAs.
Second, USITC estimates that U.S.-free trade agreements have expanded the U.S. textile industry but hurt U.S. domestic apparel production. Thanks to the North American Free Trade Agreement (NAFTA, now the U.S.-Mexico-Canada Trade Agreement, USMCA) and the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), the Western Hemisphere has become the single largest export market for U.S. textile producers. However, U.S. apparel manufacturers have to face intensified import competition.
Third, the textile and apparel-specific rules in U.S. free trade agreements are complicated and often hinder the usage of the trade agreements. As noted by USITC, the U.S. duty on imported textile and, especially, apparel goods are among the highest of all product categories. Despite the duty-saving incentives, only 12.1% of U.S. textile and apparel imports came in under FTAs in 2020, even lower than 16.7% in 2007 when fewer FTAs were in force.
The complexity of the textile and apparel-specific rules of origins (ROOs) is a significant cause of the low FTA utilization rate. As USITC noted, “No two FTAs using the tariff shift model contain the same ROOs for apparel goods…for some importers, the strict preference rules of origins (ROOs), along with the record-keeping and documentation requirements the rules entail, make the cost of compliance too great to take full advantage of the duty-free opportunities.” According to the annual USFIA fashion industry benchmarking study, the surveyed U.S. fashion companies consistently expressed the same concerns about the too restrictive ROOs in U.S. FTAs.
Related, the USITC report noted, “some U.S. domestic textile industry representatives state that the existing FTA rules follow a simple template designed to benefit upstream manufacturers in the textile and apparel supply chain.” Having to use more expensive domestic-made fibers and yarns reduces the price competitiveness of U.S. fabrics and home textiles in the export market.
Further, the USITC report explains the history of the “Short supply” and “Tariff-preference level, TPL” mechanisms in U.S. free trade agreements. However, the report does not provide an assessment of their trade impacts.
Trade statistics show that these exceptions to the restrictive “yarn-forward” rules of origin are critical for U.S. apparel sourcing from certain FTA partners. For example, more than 60% of U.S. apparel imports from Canada claimed duty-free benefits by using the TPL mechanism rather than complying with the USMCA/NAFTA “yarn-forward” rules in 2020. Around 8% of U.S. apparel imports from Mexico did the same. Likewise, in 2020, approximately 4% of U.S. apparel imports from CAFTA-DR members used the “short supply” mechanism, and the other 4% used the “cumulation” mechanism.
Speaker: Julia Hughes, President, United States Fashion Industry Association (USFIA)
Topics covered:
The event is part of the Apparel and Textile Sourcing 2021 S/S virtual seminar series
First, thanks to consumers’ resumed demand and a more optimistic outlook for the U.S. economy, U.S. apparel imports continue to rebound. However, uncertainties remain. On the one hand, mirroring retail sales patterns, the value of U.S. apparel imports in April 2021 went up by 66% from a year ago, a new record high since the pandemic. The absolute value of U.S. apparel imports so far in 2021 (January –April) also recovered to around 88% of the pre-Covid level (i.e., January to April 2019). However, the value of U.S. apparel imports in April 2021 was 11.2% lower than in March 2021 (seasonally adjusted), suggesting that the market environment is far from stable yet as the COVID situation in the U.S. and other parts of the world continue to evolve.
Second, data indicates that Asia as a whole remains the single largest sourcing base for U.S. fashion companies, stably accounting for around 72-75% of the import value. Studies show that two factors, in particular, contribute to Asia’s competitiveness as a preferred apparel sourcing base—price and flexibility & agility. Asia’s highly integrated regional supply chains and its vast production capacity shape its competitiveness in these two aspects.
However, the recent surge of COVID cases in India and its neighboring Southeast Asian countries has raised new worries about the potential sourcing risks and supply chain disruptions for U.S. fashion companies currently sourcing from there.
Third, as the direction of the US-China relations becomes ever more concerning, U.S. fashion companies seem to accelerate diversifying sourcing from China. Even China remains the top apparel supplier for the U.S. market, from January to April 2021, China’s market shares fell to 32.1% in quantity (was 36.6% in 2020) and 20.2% in value (was 23.7% in 2020). Also, the HHI index and market concentration ratios (CR3 and CR5) suggest that US fashion companies are increasingly moving their apparel sourcing orders from China to other Asian countries. For example, according to a leading U.S. fashion corporation in its latest annual report, “in response to the recent tariffs imposed by the current US administration, the Company has reduced the amount of goods being produced in China.”
Further, the latest data suggests that the concerns about the alleged forced labor in Xinjiang hurt China’s prospect as an apparel sourcing destination, BOTH for cotton and non-cotton items. Measured by value, only 11.9% of U.S. cotton apparel came from China in April 2021, a new record low since implementing the CBP WROs, which impose a regional ban on any cotton and cotton apparel made in the Xinjiang region. The latest data also suggests that China is quickly losing market shares for non-cotton textile and apparel items.
Fourth, U.S. apparel sourcing from CAFTA-DR members gains new momentum, reflecting the strong interest in sourcing more from the region from the business community and policymakers. For example, 17.5% of U.S. apparel imports came from the Western Hemisphere in 2021 (Jan-Apr), higher than 16.1% in 2020 and 17.1% before the pandemic. Notably, CAFTA-DR members’ market shares increased to 10.8% in 2021 (Jan-Apr) from 9.6% in 2020. The value of U.S. apparel imports from CAFTA-DR also enjoyed a 25.8% growth in 2021 (Jan-Apr) from a year ago, one of the highest among all sourcing destinations. The imports from El Salvador (up 29.2%), Honduras (up 28.0%), and Guatemala (27.0%) had grown particularly fast in 2021.
Meanwhile, U.S. apparel imports from USMCA members stayed stable overall. CAFTA-DR and USMCA members currently account for around 60% and 25% of U.S. apparel imports from the Western Hemisphere. They are also the single largest export market for U.S. textile products (around 70%). The Biden administration has signaled its strong interest in strengthening the western hemisphere textile and apparel supply chain by leveraging CAFTA-DR along with other trade policy tools.
by Sheng Lu
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:
By Emma Davis and Dr. Sheng Lu
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:
The study’s findings have several important implications:
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.
Witness: National Council of Textile Organizations (NCTO) President and CEO Kim Glas; The full testimony is available HERE
Note:
Berry Amendment: Under a provision of 1941 legislation known as the “Berry Amendment” , the Department of Defense (DOD) must buy clothing, fabrics, fibers, yarns, other made-up textiles, boots, and certain other items that are 100% US-made. Notably, the Berry Amendment mandates a much higher level of domestic content than the Buy American Act of 1933, which, in general, only requires 50% of the costs of a product to be manufactured in the United States. DOD spent around $1.6 billion on clothing, textiles, and footwear in FY2020 under the Berry Amendment. The items covered by the Berry Amendment have varied over the years. In the FY2017 NDAA (P.L. 114-328), Congress extended the Berry Amendment by requiring DOD to provide 100% U.S.-made running shoes for recruits entering basic training.
Biden’s “Buy America” policy:
Within the Western-Hemisphere (WH) textile and apparel supply chain, the United States serves as the leading textile supplier, whereas developing countries in North, Central, and South America (such as Mexico and countries in the Caribbean region) assemble imported textiles from the United States or elsewhere into apparel. The majority of clothing produced in the area is eventually exported to the United States or Canada.
WH countries still form a close supply chain partnership in textile and apparel production. For example, close to 70% of US textile exports went to WH members in 2020, a pattern that has stayed stable over the past decades (OTEXA, 2021). Meanwhile, the United States serves as the single largest export market for most apparel exporting countries in the WH For example, in 2019, close to 89% of apparel exports from CAFTA-DR and USMCA (NAFTA) members went to the US.
However, the WH textile and apparel supply chain is not without significant challenges. For example, CAFTA-DR and Mexico are increasingly using textiles inputs from outside the WH region, which weakens the US role as a dominant textile supplier. Notably, most of the market shares lost by US textile suppliers are fulfilled by Asian countries, including China and other members of the RCEP (Regional Comprehensive Economic Partnership). Theoretically, using cheaper textile inputs from Asia may help apparel producing countries in the WH improve the price competitiveness of their finished garments and diversify their export markets beyond the US.
Meanwhile, despite the apparent popularity of “near-sourcing”, no evidence suggests that US fashion brands and retailers are sourcing more from WH countries, including CAFTA-DR and USMCA (NAFTA) members. Neither the US-China trade war nor COVID-19 seems to have shifted the trends. Instead, close to 75%-80% of US apparel imports still come from Asian countries (OTEXA, 2021). Studies further show that a vast majority of US apparel imports from WH concentrate on a limited category of products, such as tops and bottoms, which is far from sufficient to meet retailers’ sourcing needs.
On the other hand, technical textiles and industrial textiles account for a growing share in the total US textile exports, and Asia is a particularly fast-growing market. However, there is few US free trade agreement with Asian countries, making it a disadvantage to promote “Made in the USA” products in these markets. It is debatable what should be the priority for the US textile and apparel trade policy: to continue to protect the exports of yarn and fabrics to the WH or open new export markets for technical and industrial textiles outside the WH region?
by Sheng Lu
Relate readings:
Speaker: Nicole Bivens Collinson, President, International Trade and Government Relations for Sandler, Travis and Rosenberg
Key findings:
The apparel sourcing formula is getting ever more sophisticated today. US fashion brands and retailers consider a wide range of factors when deciding where to source their products. The long list of sourcing factors includes #1 Capacity, #2 Price & tariff, #3 Stability, #4 Sustainability, and #5 Quality (see the table below).
When evaluating the world’s top 27 largest apparel supplying countries’ performance, no souring destination appears to be perfect. In general, fashion brands and retailers have many choices for sourcing destinations that can meet their demand for production capacity, price point, and quality. However, fashion companies face much more limited options when seeking an apparel sourcing destination with a stable financial and political environment and a strong sustainability record.
When we compare the trade volume and the performance against the five primary sourcing factors:
In conclusion, fashion companies’ sourcing decisions seem to be more complicated and subtle than what is often described in public.
By Emma Davis and Sheng Lu
Further reading: Emma Davis & Sheng Lu (2021). Which apparel sourcing factors matter the most?. Just-Style.
Key points:
First, U.S. apparel imports continue to rebound thanks to consumers’ robust demand. However, the speed of recovery slowed. Specifically, The value of U.S. apparel imports in November 2020 marginally went down by 0.3% from October 2020 (seasonally adjusted), compared with an 8.8% growth from Aug to September and a 4.6% growth from September to October (seasonally adjusted).
As of November 2020, the volume of U.S. apparel imports has recovered to around 85-90% of the pre-coronavirus level. This result echoes the trend of U.S. apparel retail sales (NAICS 4481), which also indicates a “V-shape” rebound since May 2020.
Data further shows that compared with the 2008 world financial crisis, Covid-19 has caused a more significant drop in the value of U.S. apparel imports. However, it seems the post-Covid recovery process has been more robust than the 2009 financial crisis. The Auto Regressive Integrated Moving Average (ARIMA) model forecasts that at the current speed of recovery, the value of U.S. apparel imports (seasonally adjusted) could start to enjoy a positive year over year (YoY) growth by February 2021 (or around 11 months after the outbreak of Covid-19 in March 2020). In comparison, when recovering from the 2008 world financial crisis, it took almost 15 months to turn the YoY growth rate from negative to positive).
With the new lockdown measures taken in response to the resurgence of the Covid cases, the outlook of US apparel imports remains uncertain. It should also be noted that the period from December to April usually is the light season for apparel imports.
Second, supporting the findings of some recent studies, data suggests that U.S. fashion brands and retailers continue to reduce their “China exposure” in 2020. For example, both the HHI index and market concentration ratios (CR3 and CR5) suggest that apparel sourcing orders are gradually moving from China to other Asian countries. Related, since August 2020, China’s market shares in total U.S. apparel imports have been sliding both in quantity and in value.
We should NOT ignore the impact of non-economic factors on China’s prospect as an apparel sourcing destination. For example, the reported forced labor issue related to Xinjiang, China, and a series of actions taken by the U.S. government (such as the CBP withhold release orders) have significantly affected U.S. cotton apparel imports from China. Measured by value, from January to November 2020, only 15.4% of U.S. cotton apparel came from China, compared with 22.2% in 2019 and 28% back in 2017. While China’s total textile and apparel exports to the US dropped by 32% in 2020 (Jan to Nov), China’s cotton textiles and cotton apparel exports to the US went down more sharply by 41.1% and 47.2%, respectively.
Third, despite Covid-19, Asia as a whole remains the single largest source of apparel for the U.S. market. Other than China, Vietnam (19.8% YTD in 2020 vs. 16.2% in 2019), ASEAN (32.6% YTD in 2020 and vs. 27.4% in 2019), Bangladesh (8.2% YTD in 2020 vs.7.1% in 2019), and Cambodia (4.4% YTD in 2020 vs. 3.2% in 2019) all gain additional market shares in 2020 (Jan to Nov) from a year ago.
Fourth, still, no clear evidence suggests that U.S. fashion brands and retailers have been giving more apparel sourcing orders to suppliers from the Western Hemisphere because of COVID-19 and the U.S.-China tariff war. In the first eleven months of 2020, 9.4% of U.S. apparel imports came from CAFTA-DR members (down from 10.3% in 2019) and 4.4% from USMCA members (down from 4.5% in 2019). The limited local textile production capacity and the high production cost are the two notable disadvantages of sourcing from the region.
by Sheng Lu
The panel discussion is part of the 2020 Virtual Apparel and Textile Sourcing Show. Topics covered by the session include:
First, U.S. apparel imports continue to rebound thanks to consumers’ robust demand. The value of U.S. apparel imports in September 2020 went up by 8.8% from August 2020 (seasonally adjusted), a new record high since March 2020 when COVID-19 broke out in the States. As of September 2020, the volume of U.S. apparel imports has recovered to around 84-85% of the pre-coronavirus level. This result echoes the trend of U.S. apparel retail sales (NAICS 4481), which also indicates a “V-shape” rebound since May 2020. As fashion brands and retailers typically build their inventory for holiday sales (such as back to school, Thanksgiving, and Christmas) from July to October, the upward trend of U.S. apparel imports hopefully will last for another 1-2 months.
Data also shows that compared with the 2008 world financial crisis, Covid-19 has caused a more significant drop in the value of U.S. apparel imports. However, it seems the post-Covid recovery process has been more robust than the 2008 financial crisis. Notably, the Auto Regressive Integrated Moving Average (ARIMA) model forecasts that at the current speed of recovery, the value of U.S. apparel imports (seasonally adjusted) could start to enjoy a positive year over year (YoY) growth by February 2021 (or around 11 months after the outbreak of Covid-19 in March 2020). In comparison, when recovering from the 2008 world financial crisis, it took almost 15 months to turn the YoY growth rate from negative to positive.
Second, still, no evidence suggests that U.S. fashion companies are giving up China as one of their essential apparel-sourcing bases. Notably, since May 2020, China had quickly regained its position as the top apparel supplier to the U.S. market. From June to September 2020, China’s market shares have stably stayed at around 27-28% in value and 40-42% in quantity.
According to the media, some sourcing orders are returning to China as China’s competitors in Asia are struggling with more limited production capacity, shortage of raw material and supply chain disruption caused by Covid-19.
That being said, trade data suggests that U.S. fashion companies continue to reduce their “China exposure” overall. For example, both the HHI index and the market concentration ratios (CR3–total market shares of top 3 suppliers and CR5–total market shares of top 5 suppliers) indicate that apparel sourcing orders are gradually moving from China to other Asian countries–it is interesting to see HHI, CR3 and CR5 all suggest a more diversified apparel sourcing base in 2020 (Jan-Sep) than in 2018 and 2019; however, the value of CR5 (exclude China) reached a new record high in 2020 (Jan-Sep).
Third, related to the point above, despite Covid-19, Asia as a whole remains the single largest source of apparel for the U.S. market. Other than China, Vietnam (20.0% YTD in 2020 vs. 16.2% in 2019), ASEAN (33.1% YTD in 2020 and vs. 27.4% in 2019), Bangladesh (8.4% YTD in 2020 vs.7.1% in 2019), and Cambodia (4.4% YTD in 2020 vs. 3.2% in 2019) all gain additional market shares in 2020 from a year ago.
Fourth, still, no clear evidence suggests that U.S. fashion brands and retailers have been giving more apparel sourcing orders to suppliers from the Western Hemisphere because of COVID-19 and the trade war. In the first nine months of 2020, only 9.1% of U.S. apparel imports came from CAFTA-DR members (down from 10.3% in 2019) and 4.4% from USMCA members (down from 4.5% in 2019). Confirming the trend, in the first nine months of 2020, the value of U.S. yarns and fabrics exports to USMCA and CAFTA-DR members also suffered a 26% decline from a year ago. The heavy reliance on textile supply from the U.S. (implying more vulnerability to the Covid-19 supply chain disruptions) and the price disadvantage could be among the major contributing factors.
Just an anecdote–according to some industry insiders, the booming of E-commerce during the pandemic may also possibly explain why “near sourcing” is not reflected in trade data despite its reported growing popularity. Specifically, US fashion retailers would:1) import products from Asia and stock them in the bonded warehouses in Mexico (note: bonded warehouse means dutiable goods may be stored, manipulated, or undergo manufacturing operations without payment of duty). 2) When US consumers place orders, the retailer will ship products directly from these bonded warehouses in Mexico to the final destination. Most importantly, retailers could take advantage of the US de minimis rule (i.e., goods valued at $800 or less could enter the U.S. duty-free one person one day) and avoid paying tariffs– even though these products are counted as imports from Asian countries that do not have a free trade agreement with the United States. In other words, these products are not officially treated as imports from Mexico even though they are shipped from bonded warehouse in Mexico.
by Sheng Lu
From findings of the 2020 USFIA Fashion Industry Benchmarking Study :
The surveyed U.S. fashion companies demonstrate more readiness and interest in using the US-Mexico-Canada Trade Agreement (USMCA) for apparel sourcing purposes in 2020 than a year ago:
For companies that were already using NAFTA for sourcing, the vast majority (77.8 percent) say they are “ready to achieve any USMCA benefits immediately,” up more than 31 percent from 2019.
Even for respondents who were not using NAFTA or sourcing from the region, about half of them this year say they may “consider North American sourcing in the future” and explore the USMCA benefits.
Nevertheless, when asked about the potential impact of USMCA on companies’ apparel sourcing practices, some respondents expressed concerns about the rules of origin changes. These worries seem to concentrate on denim products in particular. For example, one respondent says, “USMCA changes negatively affects our denim jeans sourcing particularly with the new pocketing rules of origin.” Another adds, “Denim pocketing ROO change is a concern but manageable.”
It also remains to be seen whether USMCA will boost “Made in the USA” fibers, yarns, and fabrics by limiting the use of non-USMCA textile inputs. For example, while the new agreement expands the Tariff Preference Level (TPL) for U.S. cotton/man-made fiber apparel exports to Canada (typically with a 100 percent utilization rate), these apparel products are NOT required to use U.S.-made yarns and fabrics.
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First, U.S. apparel imports continue to rebound thanks to consumers’ robust demand. The value of U.S. apparel imports in August 2020 went up by 7.6% from July 2020 (seasonally adjusted), a new record high since March 2020 when COVID-19 broke out in the States. As of August 2020, the volume of U.S. apparel imports has recovered to around 80% of the pre-coronavirus level. This result echoes the trend of U.S. apparel retail sales (NAICS 448), which also indicates a “V-shape” rebound since May 2020. As fashion brands and retailers typically build their inventory for holiday sales (such as back to school, Thanksgiving, and Christmas) from July to October, the upward trend of U.S. apparel imports hopefully will last for another 1-2 months.
Nevertheless, between January and August 2020, the value of U.S. apparel imports decreased by almost 30% year over year, which has been MUCH worse than the performance during the 2008-2009 global financial crisis (down 11.8%).
Second, no evidence suggests that U.S. fashion companies are giving up China as one of their essential apparel-sourcing bases. Notably, since May 2020, China had quickly regained its position as the top apparel supplier to the U.S. market. From June to August 2020, China’s market shares have stably stayed at around 27-28% in value and 40-42% in quantity.
Some industry sources show that “Made in China” enjoys two notable advantages that other apparel supplying countries cannot catch up in the short term. 1) unparalleled production capacity, meaning importers can source almost all products in any quantity from China vs. more limited production capacity (both in terms of variety and volume) in other alternative sourcing destinations. 2) China can mostly produce textile raw material locally vs. many apparel exporting countries still rely heavily on imported yarns and fabrics (supplied by China).
However, non-economic factors, particularly the reported Xinjiang forced labor issue, are complicating fashion companies’ sourcing decisions. Notably, US cotton apparel imports from China year-to-date (YTD) in 2020 (Jan to August) significantly decreased by 54% from a year ago, much higher than the 22% drop in US imports from the rest of the world. As a result, China’s market share in the US cotton apparel import market sharply declined from 22% in 2019 to only 15.1% in 2020 (Jan-Aug), a record low in the past ten years. This unusual trade pattern suggests that the concerns about social compliance risk are holding US fashion companies back from sourcing cotton apparel products from China. As the forced labor issue continues to evolve and become ever more sensitive and high profile, it is not unlikely that US fashion companies may substantially cut their China sourcing further, even if it is not a preferred choice economically.
Third, despite Covid-19, Asia as a whole remains the single largest source of apparel for the U.S. market. Other than China, Vietnam (20.2% YTD in 2020 vs. 16.2% in 2019), ASEAN (33.6% YTD in 2020 and vs. 27.4% in 2019), Bangladesh (8.6% YTD in 2020 vs.7.1% in 2019), and Cambodia (4.5% YTD in 2020 vs. 3.2% in 2019) all gain additional market shares in 2020 from a year ago.
Likewise, thanks to a highly integrated regional textile and apparel supply chain, Asian countries all together were able to maintain fairly stable market shares on the world stage over the past decade despite all market disruptions, from the financial crisis, trade war to the wage increase.
Fourth, still, no clear evidence suggests that U.S. fashion brands and retailers have been giving more apparel sourcing orders to suppliers from the Western Hemisphere because of COVID-19 and the trade war. In the first seven months of 2020, only 8.9% of U.S. apparel imports came from CAFTA-DR members (down from 10.3% in 2019) and 4.1% from USMCA members (down from 4.5% in 2019). Confirming the trend, in the first eight months of 2020, the value of U.S. yarns and fabrics exports to USMCA and CAFTA-DR members also suffered a 28.0% decline from a year ago. The heavy reliance on textile supply from the U.S. (implying more vulnerability to the Covid-19 supply chain disruptions) and the price disadvantage could be among the contributing factors.
Further, industry sources show that the apparel products U.S. fashion companies import from members of USMCA and CAFTA-DR predominantly are tops and bottoms. The lack of production capacity for other product categories significantly limits the growth potential of these countries playing the role as a leading sourcing base.
by Sheng Lu
The size of the U.S. textile and apparel industry has significantly shrunk over the past decades. However, U.S. textile manufacturing is gradually coming back. The output of U.S. textile manufacturing (measured by value added) totaled $18.79 billion in 2019, up 23.8% from 2009. In comparison, U.S. apparel manufacturing dropped to $9.5 billion in 2019, 4.4% lower than ten years ago (Bureau of Economic Analysis, 2020).
Meanwhile, COVID-19 has hit U.S. textile and apparel production significantly. Notably, the value of U.S. textile and apparel output decreased by as much as 21.4% and 14.9% in the second quarter of 2020, respectively, compared with a year ago. This result was worse than a 15% decrease during the 2008-2009 world financial crisis. Further, the decline in U.S. textile exports is an essential factor contributing to the significant drop in U.S. textile manufacturing. In the first seven months of 2020, the value of U.S. yarn and fabric exports went down by 31% and 19%, respectively, year over year (OTEXA, 2020).
Additionally, as the U.S. economy is turning more mature and sophisticated, the share of U.S. textile and apparel manufacturing in the U.S. Gross Domestic Product (GDP) dropped to only 0.13% in 2019 from 0.57% in 1998 (Bureau of Economic Analysis, 2020).
The U.S. textile and apparel manufacturing is also changing in nature. For example, textile products had accounted for over 66% of the total output of the U.S. textile and apparel industry as of 2019, up from 58% in 1998 (Bureau of Economic Analysis, 2020). Textiles and apparel “Made in the USA” are growing particularly fast in some emerging markets that are high-tech driven, such as medical textiles, protective clothing, specialty and industrial fabrics, and non-woven.
As production turns more automated, the U.S. textile and apparel manufacturing sector is NOT creating more jobs. Even before the pandemic, from January 2005 to January 2020, employment in the U.S. textile manufacturing (NAICS 313 and 314) and apparel manufacturing (NAICS 315) declined by 44.3% and 59.3%, respectively (Bureau of Labor Statistics, 2020). However, improved productivity (i.e., the value of output per employee) could be a critical factor behind the net job losses.
Data further shows that COVID19 has resulted in more than 83,700 job losses in the U.S. textile and apparel manufacturing sector between March-April 2020, of which around 80% have returned as of September 2020. Nevertheless, the downward trend in employment is not changing for the U.S. textile and apparel manufacturing sector.
Consistent with the theoretical prediction, U.S. remains a net textile exporter and a net apparel importer. In 2019, the U.S. enjoyed a $1,633million trade surplus in textiles and suffered an $80,637 million trade deficit in apparel (USITC, 2020). Notably, nearly 40% of textiles “Made in the USA” (NAICS 313 and 314) were sold overseas in 2019, up from only 15% in 2000 (OTEXA, 2020). On the other hand, because of the regional supply chain, close to 70% of U.S. textile and apparel export go to the western hemisphere, a pattern that stays stable over the past decade.
by Sheng Lu
Discussion questions:
Panelists:
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Jason Prescott founded JP Communications INC in 2005 and rapidly established TopTenWholesale.com and Manufacturer.com as the largest US-based B2B global trade network for manufacturers, retailers, department stores, discounters, importers, wholesalers, buyers and brands. A decade later, in 2016, he established the Apparel Textile Sourcing trade show platform with the China Chamber of Commerce for Import & Export of Textile & Apparel to connect the global B2B network of over 2 million with manufacturers around the globe via in-person events. By 2020, the ATS brand has created the fastest-growing trade shows in the industry producing annual events in Miami, Toronto, Montreal, Berlin and virtually.
Jason is active in search marketing models and technology and provides consulting and seminars in around the world for organizations looking to invest in the USA market. He is the author of two best-selling books, Wholesale 101 and Retail 101, published by McGraw Hill as well as articles on business and technology appearing in B2B Online, Omma, IMediaConnection, CEO Magazine, Entrepreneur Online, and been cited in Inc Magazine, Business Week and Forbes Online.
Kendall Keough is a recent graduate from the University of Delaware (UD) with a Master of Science in Fashion & Apparel Studies. She also graduated from the UD with a Bachelor’s Science in Fashion Merchandising & Honors in 2019. Kendall was a recipient of the 2018 YMA Fashion Scholarship Fund national case study competition. While studying at UD, she also held several leadership positions, including serving as the President of the Synergy Fashion Group between 2018 and 2019. Kendall is the author of several recent papers addressing the U.S. textile and apparel industry and related trade issues, including: Explore the export performance of textiles and apparel “Made in the USA”: A firm-level analysis. (Journal of the Textile Institute, 2020); US-Kenya trade deal – Here’s what the apparel industry wants (Just-Style, 2020); ‘Made in the USA’ textiles and apparel – Key production and export trends (Just-Style, 2020).
Kendall: What has motivated you to get involved in the apparel business, especially running the Apparel Textile Sourcing Trade (ATS) Shows, which has grown into one of the most popular and influential sourcing events today?
Jason: We started our company in 2005 w/ our flagship product – www.TopTenWholesale.com – which is a search engine for wholesale suppliers and products. In 2010 we acquired www.manufacturer.com – a sourcing platform to find global producers and manufacturers. It would be fair to say that never in our wildest imagination did we think we would be producing some of the world’s top sourcing trade fairs in the apparel and textile industry. I’d like to say it was a natural evolution but to be frank the opportunity came up over a cup of tea with a very good friend of mine, Mr. Chen Zhirong – Director for the China Chamber of Commerce for Import & Export of Textiles (CCCT) – in Dec 2015. What started from a cup of tea wound up growing into a trade show company that now produces events 4 cities, 3 countries and 2 continents (Miami, Toronto, Montreal, Berlin).
More than 200 of the world’s top producers of apparel, textiles, accessories, footwear, and personal protective equipment will exhibit virtually at Apparel Textile Sourcing trade shows this fall. Attendance is always free and the interactive event also specializes in seminars, sessions, workshops and panels from experts in the industries of sourcing, fashion, design and retail.
Kendall: COVID-19 is the single biggest challenge facing the textile and apparel industry today. From your observation, how has COVID-19 affected textile and apparel companies’ sourcing practices? What will be the medium to the long-term impact of COVID on textile and apparel sourcing?
Jason: The fallout from the pandemic – particularly in the textile and apparel industry – and how it impacts sourcing, has had such a far-reaching magnitude that it’s still very challenging to figure out how sourcing practices will be impacted. Over the long term, there is no question that this pandemic will speed up near-sourcing, on-shoring, digitization, and real-time production. The interim has resulted in massive layoffs, geo-political uncertainty and a turbulent political atmosphere that has rattled the cages of just about every sourcing director. The industry has seen purchase orders defaulted on, behavior in the supply chain that should not be tolerated, and a general lack of accountability. I also have no question that as we continue to emerge out of the pandemic there will be an advanced focus much more on the global revolution of sustainability, fair labor practices, plus a far-keener eye on the eco-systems in which the textile industry lives and breathes.
Kendall: There have been more heated debates on the future of China as an apparel sourcing base for US fashion companies, especially given the escalating U.S.-China trade war and the COVID-19. What is your view?
Jason: It should be noted that more than a billion dollars of trade in the textile sector in China was lost in export shipments to the USA during the first half of 2019 – primarily due to the trade war. The pandemic has since crippled exports of textile and apparel – in not just China – but also in every sourcing region on the planet. While many media outlets and others talk about the demise of China as a producer for textile and apparel that is just not the case. The Chinese have built an infrastructure, invested billions of dollars in the best technology, and have mastered the art of production over the last 3+ decades. We must not also forget that much of this infrastructure was built with trillions of dollars by the world’s leading brands, retailers, and governments. To bail on that would not be prudent. The Chinese are extremely adaptive and there is no question they have taken the time during the pandemic – and I should also note that they have emerged quicker than anyone else from the pandemic – to invest much more in technology, made-to-order, customization, and enhances on sustainable practices by utilizing more renewables.
Kendall: Many studies suggest that fashion companies continue to actively look for China’s alternatives. Do we have a “Next China” yet– Vietnam, Bangladesh, India, Ethiopia, or somewhere else?
Jason: No we do not have a next China yet. The production in many regions that have competent supply chains – like Vietnam – are full and at over-capacity. It should further be noted that a large portion in places like Vietnam are owned in partnerships thru the Chinese. Simply stated, many of the other regions such as Bangladesh, India, and the AGOA regions lack infrastructure and the decades of experience that the Chinese have.
Kendall: Some predict that near sourcing rather than global sourcing will become ever more popular as fashion companies are prioritizing speed to market and building a shorter supply chain. Why or why not do you think the shift to near sourcing or reshoring is happening?
Jason: This is correct. On-demand production, near-sourcing, and the evolution of digitization will of course lead to increased manufacturing domestically. Neither of these options are yet a solution for the high-volume production which is at the heart of the industry. I will agree that the continued emergence of micro-brands, and continually evolving shifts in consumer behavior which generally has resulted in ‘disloyalty’ to brands is another factor that makes on-shoring or near-shoring more attractive.
Kendall: Building a more sustainable and socially responsible textile and apparel supply chain is also growing in importance. From interacting with fashion brands and retailers, can you provide us with some updates in this area, such as companies’ best practices, issues they are working on, or the key challenges that remain?
Jason: The circularity of the industry encompassing the producer, the brand, logistics, and the consumer will continue to evolve in their social responsibilities and awareness of sustainable practices engaged in by the brand. There are great organizations out there like WRAP, TESTEX and Better Buying who are growing and have a much larger voice than what they have had in the past. Post-pandemic, I believe we will see social responsibility as one of the top priorities with so many millions of people displaces from COVID-19.
Kendall: For our students interested in pursuing a career in the textile and apparel industry, especially related to sourcing, do you have any suggestions?
Jason: The top suggestion I can offer is to pursue experience as you are actively engaged in your studies. One of the key elements I can advise of is to take the time and learn culture over language. Having a cultural understanding of the key regions where sourcing occurs will catapult your career and bring significant relationships to the table that you never thought you would have had before. Also, attend trade shows! Walking thru international apparel trade shows – like The Apparel Textile Sourcing – will help you immerse yourself with numerous different nationalities and personalities that you would otherwise never have the chance to meet. Jump on any opportunity you can to go abroad. Especially to regions in Asia and Latin America. Most importantly never forget that your credibility in life is everything and maintain the highest pedigree of integrity as possible.
-END-
The latest statistics from the Office of Textiles and Apparel (OTEXA) show that the patterns of U.S. apparel imports continue to involve because of COVID-19 and the escalating US-China tensions. Meanwhile, there appeared to be more potent signs of gradual economic recovery in the U.S. driven by consumers’ robust demand. Specifically:
While the value of U.S. apparel imports decreased by 32.0% in July 2020 from a year ago, the speed of the decline has significantly slowed (was down 60% and 42.8% year over year in May and June 2020, respectively). This result echoes the trend of U.S. apparel retail sales (NAICS 448), which indicates a “V-shape” rebound since May 2020. As fashion brands and retailers typically build their inventory for holiday sales (such as back to school, Thanksgiving, and Christmas) from July to October, the upward trend of U.S. apparel imports could continue in the next two to three months.
Nevertheless, between January and July 2020, the value of U.S. apparel imports decreased by 30.7% year over year, which has been much worse than the performance during the 2008-2009 global financial crisis (down 11.8%).
The latest trade statistics suggest that based on economic factors, U.S. fashion companies would like to continue to treat China as an essential apparel-sourcing base. As the first country hit by COVID-19, China’s apparel exports to the U.S. dropped by as much as 49.3% from January to July 2020 year over year. In February 2020, China’s market shares slipped to only 11%, and both in March and April 2020, U.S. fashion companies imported more apparel from Vietnam than from China. However, China had quickly regained its position as the top apparel supplier to the U.S., with a 26.3% market share in value and a 38.8% share in quantity in July 2020.
Different from the impact of the trade war, COVID-19 could benefit China as an apparel sourcing base as fashion companies have to “do more with fewer resources.” In general, China still enjoyed two notable advantages that other apparel supplying countries are unable to catch up in the short term. 1) unparalleled production capacity, meaning importers can source almost all products in any quantity from China vs. more limited production capacity (both in terms of variety and volume) in other alternative sourcing destinations. 2) China can mostly produce textile raw material locally vs. many apparel exporting countries still rely heavily on imported yarns and fabrics (supplied by China).
Contrary to common perceptions, apparel “Made in China” apparently are also becoming more price-competitive–the unit price slipped from $2.25/Square meters equivalent (SME) in 2019 to $1.88/SME in 2020 (January to July), or down more than 16.7% (compared with a 5.6% price drop of the world average). As of July 2020, the unit price of U.S. apparel import from China was only 65.7% of the world average, and around 25—35 percent lower than those imported from other Asian countries.
That being said, non-economic factors, from the deteriorating US-China relations to the reported Xinjiang forced labor issue, are increasingly complicating fashion companies’ sourcing decisions. Somehow as a warning sign, China’s market shares in the U.S. apparel import market slipped in both quantity and value terms in July 2020 compared with a month ago.
Despite Covid-19, Asia as a whole remains the single largest source of apparel for the U.S. market. Other than China, Vietnam (20.5% YTD in 2020 vs. 16.2% in 2019), ASEAN (34.3% YTD in 2020 and vs. 27.4% in 2019), Bangladesh (8.6% YTD in 2020 vs.7.1% in 2019), and Cambodia (4.5% YTD in 2020 vs. 3.2% in 2019) all gain additional market shares in 2020 from a year ago.
However, still, no clear evidence suggests that U.S. fashion brands and retailers have been giving more apparel sourcing orders to suppliers from the Western Hemisphere because of COVID-19 and the trade war. In the first seven months of 2020, only 8.8% of U.S. apparel imports came from CAFTA-DR members (down from 10.3% in 2019) and 4.1% from USMCA members (down from 4.5% in 2019). Confirming the trend, in the first seven months of 2020, the value of U.S. yarns and fabrics exports to USMCA and CAFTA-DR members also suffered a 28.9% decline from a year ago. The heavy reliance on textile supply from the U.S. (implying more vulnerability to the Covid-19 supply chain disruptions) and the price disadvantage could be among the contributing factors why near sourcing has been stagnant.
As a reflection of weak demand, the unit price of U.S. apparel imports was lower in the first six months of 2020. The price index declined from 104.7 in 2019 to 99.0 YTD (Jan to Jul) in 2020 (Year 2010 =100). The imports from Mexico (price index =86.4 YTD in 2020 vs. 112.1 in 2019) and China (price index = 69.7 YTD in 2020 vs. 83.5 in 2019) have seen the most notable price decrease so far.
by Sheng Lu
The 2021 USFIA Fashion Industry Benchmarking Study is Released
The full report is available HERE
Key findings of this year’s report:
Impact of COVID19 on Fashion Companies’ Businesses
The overwhelming majority of respondents report “economic and business impacts of the coronavirus (COVID-19)” as their top business challenge in 2020. The business difficulties caused by COVID-19 will not go away anytime soon, and U.S. fashion companies have to prepare for a medium to the long-term impact of the pandemic.
COVID-19 has caused severe supply chain disruptions to U.S. fashion companies. The disruptions come from multiple aspects, ranging from a labor shortage, shortages of textile raw materials, and a substantial cost increase in shipping and logistics.
COVID-19 has resulted in a widespread sales decline and order cancellation among U.S. fashion companies. Almost all respondents (96 percent) expect their companies’ sales revenue to decrease in 2020.
As sales drop and business operations are significantly disrupted, not surprisingly, all respondents (100 percent) say they more or less have postponed or canceled sourcing orders. Nearly half of self-identified retailers say the sourcing orders they canceled or postponed go beyond the 2nd quarter of 2020. Another 40 percent expect order cancellation and postponement could extend further to the fourth quarter of 2020 or even beyond. The order cancellation or postponement has affected vendors in China, Bangladesh, and India the most.
Impact of COVID-19 and US-China Trade War on Fashion Companies’ Sourcing
As high as 90 percent of respondents explicitly say, the U.S. Section 301 action against China has increased their company’s sourcing cost in 2020, up from 63 percent last year.
COVID-19 and the trade war are pushing U.S. fashion companies to reduce their “China exposure” further. While “China plus Vietnam plus Many” remains the most popular sourcing model among respondents, around 29 percent of respondents indicate that they source MORE from Vietnam than from China in 2020, up further from 25 percent in 2019.
As U.S. fashion companies are sourcing relatively less from China, they are moving orders mostly to China’s competitors in Asia. All respondents (100 percent) say they have “moved some sourcing orders from China to other Asian suppliers” this year, up from 77 percent in 2019.
However, no clear evidence suggests that U.S. fashion companies are sourcing more from the Western Hemisphere because of COVID-19 and the U.S.-China trade war.
Emerging Sourcing Trends
Sourcing diversification is slowing down, and more U.S. fashion companies are switching to consolidate their existing sourcing base. Close to half of the respondents say they plan to “source from the same number of countries, but work with fewer vendors,” up from 40 percent in last year’s survey.
China most likely will remain a critical sourcing base for U.S. fashion companies. However, non-economic factors could complicate companies’ sourcing decisions. Benefiting from U.S. fashion companies’ reduced sourcing from China, Vietnam and Bangladesh are expected to play a more significant role as primary apparel suppliers for the U.S. market.
Given the supply chain disruptions experienced during the pandemic, U.S. fashion companies are more actively exploring “Made in the USA” sourcing opportunities to improve agility and flexibility and reduce sourcing risks. Around 25 percent of respondents expect to somewhat increase sourcing locally from the U.S. in the next two years, which is the highest level since 2016.
US-Mexico-Canada Trade Agreement (USMCA)
For companies that were already using NAFTA for sourcing, the vast majority (77.8 percent) say they are “ready to achieve any USMCA benefits immediately,” up more than 31 percent from 2019. Even for respondents who were not using NAFTA or sourcing from the region, about half of them this year say they may “consider North American sourcing in the future” and explore the USMCA benefits. Some respondents expressed concerns about the rules of origin changes. These worries seem to concentrate on denim products in particular.
African Growth and Opportunity Act (AGOA)
Close to 37 percent of respondents say they have been sourcing MORE textile and apparel from sub-Saharan Africa (SSA) since the latest AGOA renewal in 2015, a substantial increase from 27 percent in the 2019 survey. More than 40 percent of respondents say AGOA and its “third-country fabric provision” are critical for their sourcing from the SSA region. More than 40 percent of respondents say AGOA and its “third-country fabric provision” are critical for their sourcing from the SSA region.
However, respondents still demonstrate a low level of interest in investing in the SSA region directly. Around 27 percent of respondents say the temporary nature of AGOA and the uncertainty associated with the future of the agreement have discouraged them.
With AGOA’s expiration date quickly approaching, the discussions on the future of the agreement and the prospect of sourcing from SSA begin to intensify. Among the various policy options to consider, “Renew AGOA for another ten years with no major change of its current provisions” and “Replace AGOA with a permanent free trade agreement that requires reciprocal tariff cut and continues to allow the third-country fabric provision” are the most preferred by respondents.
FASH455 Global Apparel & Textile Trade and Sourcing 