First, U.S. fashion brands and retailers are sourcing less from China, particularly in quantity. Notably, the number of “Made in China” apparel newly launched to the market had significantly dropped from 26,758 SKUs in the first quarter of 2018 to only 8,352 SKUs in the first quarter of 2019 . Nevertheless, consistent with the macro-level trade statistics, China remains the single largest apparel supplier to the U.S. retail market.
Second, apparel “Made in China” are becoming more expensive in the U.S. retail market, yet remain price-competitive overall. Notably, apparel “Made in Vietnam” is becoming more expensive in the U.S. retail market too—an indication that as more production is moving from China to Vietnam, apparel producers and exporters in Vietnam are facing growing cost pressures.
Third, U.S. fashion retailers are shifting what apparel products they source from China. U.S. apparel retailers have been sourcing less lower value-added basic fashion items (such as tops, and underwear), but more sophisticated and higher value-added apparel categories (such as dresses and outerwear) from China since 2018. The shifting product structure could also be a factor that contributed to the rising average retail price of “Made in China” in the U.S. market.
On the other hand, U.S. retailers adopt a very different product assortment strategy for apparel sourced from China versus other regions of the world. There seems to be much fewer alternative sourcing destinations for more sophisticated product categories, such as accessories and outerwear. Somehow ironically, moving to source more sophisticated and higher value-added products from China could make U.S. fashion brands and retailers even MORE vulnerable to the tariff war because of fewer alternative sourcing destinations.
In conclusion, the results imply that China will remain a critical sourcing destination for U.S. fashion brands and retailers in the near future, regardless of the scenario of the U.S.-China tariff war. Meanwhile, we should expect U.S. fashion companies continue to adjust their sourcing strategy for apparel “Made in China” in response to the escalation of the tariff war.
This article tries to evaluate the potential impact of the U.S.-China tariff war on the U.S. textile and apparel (T&A) industry, including manufacturing and related trade activities.
The quantitative evaluation conducted is based on the Global Trade Analysis Project (GTAP) model. Data came from the latest GTAP9 database, which covers trade, employment and production in 57 sectors in 140 countries. In correspondence to the recent development of the U.S.-China tariff war, the analysis focuses on the following three scenarios:
Scenario 1: 10% punitive tariff + base year tariff rate in 2017 applied to products traded between the U.S. and China, except textiles and apparel
Scenario 2: 10% punitive tariff + base year tariff rate in 2017 applied to products traded between the U.S. and China, including textiles and apparel
Scenario 3: 25% punitive tariff + base year tariff rate in 2017 applied to products traded between the U.S. and China, including textiles and apparel
Three findings are of note:
First, the tariff war with China will increase the market price for T&A in the United States and consequentially incentivize more production of T&A “Made in the USA.” As shown in Figure 1, the annual U.S. T&A production will increase when the punitive tariff is imposed on textile and apparel imports from China. The most significant increase will happen in scenario 3 (textile output expands by US$8,829 million and apparel output expands by US$6,044 million) when a 25 percent punitive tariff is imposed and the market price of T&A in the U.S. also correspondingly goes up by nearly 1.5% compared with the base year level in 2017.
Second, the tariff war with China will hurt U.S. textile exports. The results show that the tariff war will increase the production cost of “Made in the USA,” and result in a decline of U.S. textile exports due to reduced price competitiveness. This is the case even in scenario 1 when the tariff war does not target T&A directly, but nevertheless, raises the price of intermediaries for producing textiles in the United States. The results further show that the annual U.S. textile exports will suffer the most significant decline in scenario 3 (down US$1,136 million), especially to China and other Asian countries where U.S. textile products are facing intense competition from local suppliers. In comparison, U.S. textile exports to the Western Hemisphere will suffer a loss as well in the tariff war, but to a much less extent due to the strong supply-chain relationship with the region.
Third, the trade diversion effect of the tariff war will bring in more apparel imports to the U.S. market from Asian suppliers other than China. As shown in the figure above, when the punitive tariff imposed on textile and apparel products, the value of U.S. apparel imports from China will decline ranging from US$4,573 million (10 percent punitive tariff imposed) to US$8,858 million (25 percent punitive tariff imposed) annually compared with the base year level in 2017. This result reflects U.S. apparel importers and retailers’ mounting concerns about sourcing cost in the setting of the tariff war. However, apparently, the tariff war will do little to help U.S. domestic apparel manufacturers reduce the competitive pressure with imports. Particularly, in scenario 3, U.S. apparel imports from suppliers other than China will increase as much as US$10,400 million, worsening the U.S. trade deficit in the apparel sector further.
#1 Do you think it is a good move for companies to embrace
the “China plus Vietnam plus Many” sourcing strategy, especially
after learning about the working conditions in developing countries such as
Bangladesh? Do you think this could backfire on companies?
#2 Why or why not do you think sourcing from Asia will
become less attractive relative to sourcing from the Western Hemisphere due to the
increasing importance of “speed to market” in U.S. fashion apparel companies’ sourcing
#3 As sustainability becomes more prevalent throughout the
fashion industry, will there be a way to lower costs, while still creating
garments that are better for the environment, and have transparency with consumers
about factory conditions? Why?
#4 According to the article, “more and more well paid
and high quality jobs in the US fashion industry will depend on international
trade and the global value chain.” How do you feel about the quality of
the US fashion industry depending so heavily on factors outside of the US? Do
you see this changing in the future, and if so explain how.
#5 Most U.S. apparel companies have already shifted their
businesses to non-manufacturing activities such as design, branding, sourcing
and retailing. Is it still meaningful to give so much attention to apparel
manufacturing in the U.S.?
#6 When purchasing your garments from either online stores
or brick-and-mortar stores, do you look to see what country your goods are produced
in and on a scale from 1 to 10 with 1 being the least important 10 being the most
important, how significant is it to you to know where your goods are coming
from and how much of a factor does that play into your buying decision?
#7 If it is predicted that more US fashion companies’
sourcing could be from nearshore due to automation technology, what would
happen if they technology was implemented in a place where there were lower
labor costs (for the people operating the machines)? Would the US continue to
use nearby manufacturers or would they resort to wherever is cheaper?
#8 Do you think “made in the USA” apparel is truly telling the whole story of the supply chain? Do you think that it is truly more ethical? Or do you think it is just a way for retailers to charge more for apparel? If producing products in the U.S. is much more expensive than importing products from other countries, how are companies such as Walmart able to sell products with labels that say “Made in U.S.A”?
[For FASH455: 1) Please mention the question number in your comments; 2) Please address at least TWO questions in your comments]
While the majority of apparel consumed in the United States come from overseas, “Made in the USA” is growing in popularity. According to the 2018 U.S. Fashion Industry Benchmarking Study released by the U.S. Fashion Industry Association (USFIA) in July 2018, around 46 percent of surveyed U.S. fashion brands and apparel retailers report currently sourcing “Made in the USA” products, even though local sourcing typically only account for less than 10 percent of these companies’ total sourcing value or volume. Likewise, the State of Fashion 2019 report published by Business of Fashion (BOF) and McKinsey & Company in November also forecasts that over 20 percent of U.S. fashion companies’ sourcing volume could be from nearshore by 2025, thanks to automation technology and consumers’ increasing demand for speed to market.
However, the detailed practice of the “Made in the USA” apparel sourcing strategy–including who is sourcing, what products are sourced, and what the typical price range of these products remain largely unknown.
To answer these questions, we recently analyzed the pricing, product assortment and inventory information of over 90,000 fashion retailers and 300,000,000 fashion apparel products at the Stock-Keeping Unit (SKU) level based on EDITED, a big data and business analytics tool developed for the fashion industry. For the research purpose, we selected apparel products newly launched to the U.S. market in the past twelve months (i.e., between 1 December 2017 and 30 November 2018) with “Made in the USA” explicitly mentioned in the product description. Below are the key findings:
First, “Made in the USA”
apparel overall are treated as a niche product in U.S. fashion brands and
retailers’ sourcing portfolio.
the 12 months we examined (1 December 2017-30 November 2018), 94 out of the
total 348 retailers (or 27 percent) sold “Made in the USA” apparel in the U.S.
market. The top 10 sellers list includes BOTH retailers that focus on the value
market such as Walmart and relatively high-end department stores such as
Bloomingdale and Saks Fifth Avenue. However, even for these top sellers, “Made
in the USA” apparel accounted for less than 8 percent of their total product
offers on average.
Second, U.S. fashion brands and retailers are most
likely to source“Made in the
USA” apparel for relatively fashion-oriented items, particularly bottoms (such
as skirts, jeans, and trousers), dresses, all-in-ones (such as playsuits and
dungarees), swimwear and suits-sets.
edge for these product categories in the retail market, in general, increasingly depends on unique designs, high
product quality, and speed to market,
which makes sourcing from the United States commercially beneficial. In comparison, imported products are more concentrated
on basic fashion items often competing on price in the U.S. retail market,
including tops (such as T-shirt and polo shirt), underwear, and nightwear.
It is also interesting to note that
“Made in the USA” apparel were predominately women’s wear (92 percent), whereas imported
clothing adopted a more balanced gender combination (63 percent women’s wear
and 37 percent men’s wear). Because the fashion trends for women’s wear usually
are shorter-lived and harder to predict, this result once again indicates that seeking
quick response and shorter lead time for stylish and trendy items could be an
important incentive for local sourcing by U.S. fashion brands and retailers.
Third, consistent with the common perception,
“Made in the USA” apparel overall are pricier than imported ones in the U.S.
Taking the U.S.
apparel retail market as a whole, close to 40 percent of “Made in the USA” offering
in the past 12 months targeted the premium or luxury market, compared with only
20 percent of imported products. In
contrast, as few as 18 percent of “Made in the USA” offering were in the value
market, which, however, accounted for approximately 60 percent of all imported apparel
sold in the U.S. market. In totality, it
seems U.S. fashion brands and retailers are purposefully targeting “Made in the
USA” apparel for less price-sensitive segments of the market to balance the
high domestic production cost.
On the other hand, when examining
U.S. fashion brands and retailers’ pricing strategy at the product level, “Made
in the USA” clothing was still priced much higher than imported ones for almost
all major apparel categories, except hosiery. Notably, in the past 12 months, the
average unit retail price of “Made in the USA” clothing was 99.2 percent higher
than imported ones in the value and mass market and 36.0 percent higher in the
premium and luxury market. This interesting phenomenon supports the arguments that
U.S. consumers somehow are willing to pay a premium price for products with the
“Made in the USA” label.
Additionally, during the past 12
months, around 46.3 percent of “Made in the USA” apparel were sold at a
discount compared with more than 54.6 percent of imported ones. The advantage
of proximity to the market, which makes speedy replenishment for in-season items
possible, is an important factor behind the more successful control of
markdowns for “Made in the USA” products. For example, data shows that U.S.
fashion brands and retailers replenished approximately 12.7 percent of their “Made
in the USA” offering in the past 12 months but only 2.8 percent of imported
In conclusion, the findings of this study concur with the view that “Made in the USA” apparel are still relevant today. Meanwhile, it does not seem to be the case that “Made in the USA” apparel and imported ones are necessarily competing with each other in the U.S. retail market. With apparel sourcing increasingly requiring striking a balance among various factors ranging from cost, flexibility, compliance to speed to market, it is hopeful that “Made in the USA” apparel will continue to have its unique role to play in U.S. fashion brands and retailers’ merchandising and sourcing strategies.
To better understand companies’ latest sourcing practices, we recently examined the detailed sourcing portfolios of the 50 largest U.S.-based apparel companies ranked by the Apparel Magazine. Specifically, we conducted a content analysis of each company’s publicly released annual reports and their financial statements from 2014 to 2017 (the latest information available), with a focus on the following two research questions: 1) How have the sourcing strategies of U.S. apparel companies evolved? 2) How have the evolving sourcing strategies affected companies’ financial performance? Here are the key findings:
apparel companies overall adopt a diverse sourcing base. Among the 50
companies we examined, on average they sourced from over 20 different countries
or regions using more than 200 vendors in 2017. These results echo the findings
of the 2018 U.S. Fashion Industry Benchmarking Study released by the U.S.
Fashion Industry Association (USFIA) in July. Based on a survey of nearly 30
executives from leading U.S. fashion brands and apparel retailers, the study
also found companies with more than 1,000 employees typically source from more
than ten different countries and regions. Also, larger companies, in general,
adopt a more diverse sourcing base than smaller ones.
Second, while U.S.
apparel companies are actively seeking new sourcing bases, many of them are
reducing either the number of countries they source from or the number of
vendors they work with. Specifically, among the top 50 U.S. apparel
companies examined, around 28 percent increased the number of countries or
regions they use as sourcing bases between 2014 and 2017. However, over the
same period, 52 percent chose to consolidate their existing sources base, but
on a small scale. Likewise, among the top 50 U.S. apparel companies examined,
approximately half reduced the number of vendors they use between 2014 and
2017, compared with 33 percent that chose to source from more vendors.
Third, for risk
control purposes, most U.S. apparel companies avoid relying too much on any
single vendor; however, some companies have begun to allocate more sourcing
orders to its largest vendors. The top 50 U.S. apparel companies we
examined on average assigned no more than 10 percent of their total sourcing
value or volumes to any single vendor in 2017. This practice suggests that
minimizing supply chain risks is a critical consideration of U.S. apparel
companies’ sourcing strategy. Nevertheless, between 2014 and 2017, around 45
percent of apparel companies we examined raised the cap slightly.
Fourth, regarding the financial implications of the adjustment of sourcing strategies, companies that diversified their sourcing bases between 2014 and 2017, in general, were able to reduce sourcing cost and improve gross margin. In comparison, U.S. apparel companies we examined that consolidated their sourcing base between 2014 and 2017 suffered a slight decline in their gross margin percentage.
On the other hand, however, there was no clear pattern between a company’s choice of sourcing strategy and their net profit margin. While multiple factors could come into play, one possible explanation for the results is that that either diversifying or considering the sourcing base would incur additional management cost for the company.
First, Canada is one of the largest and fastest growing apparel import markets in the world. Data from the UN Comtrade show that the value of Canada’s apparel imports totaled $10.7bn in 2017, which ranked the fifth in the world, only after the European Union (EU), the United States, Japan, and Hong Kong.
Second, the Asian region as a whole is the dominant apparel supplier for Canada. Measured in value, as much as 80.9 percent of Canada’s apparel imports in 2017 came from Asia. Specifically, China (40.6 percent), Bangladesh (11.1 percent), Cambodia (8.1 percent) and Vietnam (7.7 percent) were the top individual supplier for Canada in 2017, and all of them are located in Asia. Meanwhile, Canadian apparel companies are gradually diversifying their sourcing base: the Herfindahl Index (HHI), a commonly adopted measure of market concentration, declined from 0.3 in 2010 to 0.19 in 2017.
Third, the NAFTA-region remains an important apparel-sourcing base for Canada, but its overall influence is in decline. Measured in value, the United States and Mexico were the 6th and 9th top apparel supplier for Canada in 2017 respectively. However, facing the competition from Asia, the United States and Mexico combined accounted for only 6.4 percent of Canada’s apparel imports in 2017, a significant drop from 9.8 percent back in 2007.
Fourth, free trade agreements and trade preference programs provide duty-saving opportunities for apparel sourcing in Canada. In 2017, Canada applied an average tariff rate of 17.1 percent on imports of knitted apparel (HS Chapter 61) and 15.9 percent on woven apparel (HS chapter 62). As of August 2018, Canada has 17 free trade agreements (FTAs) and trade preference programs (TPAs) in force, offering preferential or duty-free market access to Canada. Traditionally, a substantial portion of Canada’s FTA partners come from the Western Hemisphere, such as Chile, Costa Rica, Colombia, Peru, Honduras, and Panama. However, in recent years, Canada has been actively negotiating and reaching new FTAs with countries in Asia (such as South Korea, India, and Japan) and Europe (including the European Union and Ukraine).
Compared with the United States, in general, Canada adopts more liberal rules of origin (RoO) for apparel products. Quite a few Canada FTAs allow companies to source yarns or even fabrics from anywhere in the world – with the finished products still enjoying duty-free treatment when exported to Canada.