FASH455 Global Apparel & Textile Trade and Sourcing
Copyright© 2012-2023 Dr. Sheng Lu, Associate Professor, Department of Fashion & Apparel Studies, University of Delaware
Discussion questions:
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
Related readings
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.
First, affected by the surge of COVID cases and consumers’ slowed spending, the value of U.S. apparel imports decreased by 15.7% in December 2020, the worst performance since September 2020. Specifically, the value of U.S. apparel imports in December 2020 shrank by 6.4% from November 2020 (seasonally adjusted), compared with an 8.8% growth from Aug to September, a 4.6% growth from September to October (seasonally adjusted), and a slight 0.3% decline from October to November (seasonally adjusted).
The substantial drop of U.S. apparel imports in December 2020 also altered the recovery trajectory. Overall, the outlook of US apparel imports in 2021 is hopeful but remains far from uncertain.
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. Measured by value, only 23.7% of U.S. apparel imports came from China in 2020, a new record low in the past ten years (was 29.7% in 2019 and 33% in 2018).
However, China’s apparel exports to the US lost more market shares from 2018-2019 than 2019-2020–it seems the impact of the trade war is more significant than the COVID.
The latest data confirms the concerns that some non-economic factors negatively affect 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, only 15.4% of U.S. cotton apparel came from China in 2020, compared with 22.2% in 2019 and 28% back in 2017. While China’s total textile and apparel exports to the US dropped by 30.7% in 2020, China’s cotton textiles and cotton apparel exports to the US went down more sharply by nearly 40%.
Third, despite Covid-19, Asia as a whole remains the single largest source of apparel for the U.S. market. Other than China, Vietnam (19.6% in 2020 vs. 16.2% in 2019), ASEAN (32.3% in 2020 and vs. 27.4% in 2019), Bangladesh (8.2% in 2020 vs.7.1% in 2019), and Cambodia (4.4% in 2020 vs. 3.2% in 2019) all gain additional market shares in 2020 from a year ago.
Fourth, due to seasonal factors, around 21% of U.S. apparel imports came from the Western Hemisphere in December 2020. Notably, to fulfill consumers’ last-minute holiday orders, which require faster speed to market, U.S. fashion companies typically do relatively more near-sourcing from September to December. In comparison, U.S. fashion companies place more sourcing orders with Asian suppliers from June to late September/early October.
However, 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 2020, 9.6% 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).
by Sheng Lu
“Hugo Boss’s sourcing strategies are relatively different from fashion brands and retailers in the US. Hugo Boss’s self-owned production facilities are all located in Europe, and they follow the general trend of Eastern Europe being responsible for mass production items and Western Europe being responsible for more of the fine craftsmanship/made-to-measure items. Hugo Boss’s production distribution, which is 53% in Europe, 40% occurs in Asia, 6% in Africa, and 1% in the Americas, is much more diverse than the production distribution of the United States’ T&A industry, which heavily relies on Asian suppliers. It is indicative of a strong regional supply chain in Europe, and because the regional supply chain in the Americas is not as strong due to complicated trade agreements and lack of production capacity, many fashion brands and retailers heavily depend on overseas production from Asian countries. “
“I think that EU’s sourcing strategies are different from the U.S.’s sourcing strategy in the sense that it is kept within Europe. In the U.S., they are currently trying to bring the sourcing supply chain back to the Western Hemisphere, but it is very difficult for fashion brands to concede when sourcing is cheaper in Asia, and there is not enough labor who are trained for the work that they need. Over at the EU, with everything kept within the organization, it is a lot easier to find factories within different countries without reducing GDP since it is kept within the organization.”
“I think that one of the biggest differences between EU and US fashion brand’s sourcing strategies is the fact that there is a much higher luxury or high-end apparel market in the EU. Since they produce mostly luxury apparel products, they naturally place a lot more emphasis on the quality of their products being made rather than the quantity and speed of production. Since the US is more fast-fashion heavy, we do a lot more outsourcing of production so retailer’s are able to produce as many clothes as possible within a short period of time at a very low cost which is simply not achievable in many US clothing factories.”
“Hugo Boss pays close attention to where they are sourcing from and where each of their products should be made within their 4 production facilities. This stuck out to me because I don’t know how many US fashion brands have their own production facilities. I know a lot of brands outsource to countries like China and Bangladesh to factories who are also making clothing for many different brands.”
“EU has developed countries as well as developing countries, unlike the US. Western EU countries like Italy, France, UK and Germany are developed and focus more so on textile production. Whereas developing countries in the EU like Poland and Hungary focus more heavily on apparel manufacturing. In addition, unlike the US, the developed countries in EU also produce apparel exports, of high level, luxury goods.”
“It seems that in the EU the main focus is quality and social standards for these fashion brands and production. In the US, promoting local economic growth seems to be more of the focus of the free trade agreements. Sourcing for HUGO BOSS at least has strategically chosen factories where they can ensure quality checks and know how to conditions are. In the US, outside of the region, it seems that there are a lot of brands who do not know their secondary producers…”
“As the EU is more focused on production in high end markets than is the US, they (EU fashion companies) source more high-end quality fabrics. Progress has been made through technological advances, as the HUGO BOSS group developed the “smart factory” to further improve the quality of their fabrics and recognize any potential flaws before production. This stood out to me as a major difference, considering the US focuses on producing more fast-fashion goods and prioritizes high productivity overall quality garments. Also, they are more careful in their selection of suppliers and strive to build more long-term relationships with their suppliers. In comparision, most US fashion companies just try to produce as cheap and fast as possible through a short-term transctional-based importer-vendor relationship.”
“I think the sourcing strategies are similar to the U.S. in the fact that they source from various countries, creating this sense of “Made in the World.” However, there are differences as well. HUGO BOSS uses their own production facilities in addition to sourcing from other countries which is something we do not see often in the US. In fact, most brands and retailers in the US do not have their own production facilities or vertical supply chain, but instead source from overseas. Additionally, HUGO BOSS carefully selects their suppliers and immediately focus on social responsibility. US sourcing strategies seem to emphsis more on finding a factory with the lowest labor costs. EU brands and retailers, on the other hand, test their suppliers with test orders before selecting them as a supplier for the brand, and immediately develop social responsibility practices, such as trainings and building relationships. In the US, brands and retailers tend to focus on social responsibility in response to bad press and typically do so by a top-down approach.”
“The sourcing strategy in the Europe cares more about social impact. Retailers and brands there promote and educate their suppliers to be sustainable and take over their social responsibility. Another one is the European fashion retailers and brands are more likely to locate their product facilities within the Europe. Since the Europe does have a relatively stable and complete supply chain, the retailers and brands are able to saving transportation cost and expand the lead time. Third, the technology becomes an important factors for retailers and brands to consider. They are attempting to utilize technology to enhance the performance and their production process. “
“Hugo Boss strives to be the most desirable fashion and lifestyle brand in the premium sector. This shows in their emphasis on design, comfort, fit, and durability, as well as being mindful of their social and environmental impacts. They maintain long term relationships with a careful selection of suppliers, demand social compliance, and stay up to date with their “smart factory” aka AIs to speed up production and quality. They also source heavily from Asia, but also developed countries such as Italy and Germany. These values and practices are manifested in American brands, however, I believe we aren’t as extensive with sourcing from developed countries (such as Italy). From what I have learned thus far, it seems we source from countries close by and/or developing, but not so much mingling with luxury known countries, such as France or Italy (and if we do, the prices are expensive, and American customers don’t want to pay higher prices). We (US), too, source heavily from Asia, because it is cheap, and still focus internally on our own country when it comes to being more competitive in technological advancements. American and EU consumers alike value transparency in the clothing brands they buy from, and American brands are mindful of this, too. I would say we are more alike than different.”
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Related readings
The latest statistics from the Office of Textiles and Apparel (OTEXA) show that the negative impact of COVID-19 on U.S. apparel imports deepened further in April 2020. Specifically:
2. As the first country took a hit by COVID-19, China’s apparel exports to the United States continue to deteriorate—its value decreased by a new record of 59.0% in April 2020 compared with a year ago (and -46.4% drop year to date). This result is also worse than the official Chinese statistics, which reported an overall 22% drop in China’s apparel exports in the first four months of 2020).
3. For the second month in a row, Vietnam surpassed China and ranked the top apparel supplier to the U.S. market in April 2020. China’s market shares in the U.S. apparel import market remained as low as 18.2% in April 2020 (was 30% in 2019), although it slightly recovered from only 11% in March 2020. With U.S.-China relations at a new low, there have been more intensified discussions on how to move the entire textile and apparel supply chain out of China and diversify apparel sourcing from the Asia region as a whole. However, as China itself has grown into one of the world’s largest apparel consumption markets, there is little doubt that China will remain a critical player for apparel sourcing, especially for the “China for China” business model.
4. Continuing the trend emerged in recent years, China’s lost market shares have been picked up mostly by other Asian suppliers, particularly Vietnam (19.7% YTD in 2020 vs. 16.2% in 2019) and Bangladesh (9.8% YTD in 2020 vs.7.1% in 2019). However, no clear evidence has suggested that U.S. fashion brands and retailers are giving more apparel sourcing orders to suppliers from the Western Hemisphere. In the first four months of 2020, still only 9.4% of U.S. apparel imports came from CAFTA-DR members (down from 10.3% in 2019) and 4.1% from NAFTA members (down from 4.5% in 2019).
5. As a reflection of weak demand, the unit price of U.S. apparel imports was lower in the first four months of 2020 (price index =102.1) compared with 2019 (price index =104.7). Imports from China have seen the most notable price decrease so far (price index =71.5 YTD in 2020 vs. 83.5 in 2019).
by Dr. Sheng Lu
The study was conducted based on a survey of 116 sourcing executives from fashion retailers and brands predominantly in North America and Western Europe between April 14 and April 22, 2020.
Key findings:
First, the fashion industry’s sourcing operations have been hit hard by COVID-19
Second, regarding fashion companies’ immediate response to COVID-19:
Third, fashion brands and retailers are taking measures to support critical supplier base:
Fourth, fashion companies are thinking about the “next normal” for apparel sourcing:
Fifth, regarding fashion companies’ adjustment of sourcing destinations:
Key findings:
Summarized by Meera Kripalu (Honors student, Marketing and Fashion Merchandising double majors).
The latest statistics from the Office of Textiles and Apparel (OTEXA) show that the negative impact of COVID-19 on U.S. apparel imports deepened in March 2020. Specifically:
The discussion is closed for this post.
The full article is available HERE
Key findings:
First, mirroring the trend of aggregate market demand, the value of UK’s apparel imports has only grown marginally over the past decade. Specifically, between 2010 and 2018, the compound annual growth rate of UK’s apparel imports was close to zero, which was notably lower than 1.4% of the world average, the United States (1.9%), Japan (1.5%) and even the European Union as a whole (1.1%).
Second, UK’s fashion brands and retailers are gradually reducing imports from China and diversifying their sourcing base. Similar to other leading apparel import markets in the world, China was the largest apparel-sourcing destination for UK fashion companies, followed by Bangladesh, which enjoys duty-free access to the UK under EU’s Everything But Arms (EBA) program. Because of geographic proximity and the duty-free benefits under the Customs Union with the EU, Turkey was the third-largest apparel supplier to the UK.
Affected by a mix of factors ranging from the increasing cost pressures, intensified competition to serve the needs of speed-to-market better, the market shares of “Made in China” in the UK apparel import market had dropped significantly from its peak of 37.2% in 2010 to a record low of 21.4% in 2018. However, no single country has emerged to become the “next China” in the UK market. Notably, while China’s market shares decreased by 6.3 percentage points between 2015 and 2018, the next top 4 suppliers altogether were only able to gain 0.7 percentage points of additional market shares over the same period.
Third, despite Brexit, the trade and business ties between the UK and the rest of the EU for textile and apparel products are strengthening. Thanks to the regional supply chain, EU countries as a whole remain a critical source of apparel imports for UK fashion brands and apparel retailers. More than 33% of the UK’s apparel imports came from the EU region in 2018, a record high since 2010. On the other hand, the EU region also is the single largest export market for UK fashion companies.
Fourth, the potential impacts of no-deal Brexit on UK fashion companies’ sourcing cost seem to be modest:
About the authors: Victoria Langro is an Honors student at the University of Delaware; and Dr. Sheng Lu is an Associate Professor in Fashion and Apparel Studies at the University of Delaware.
FASH455 Global Apparel & Textile Trade and Sourcing 