The full report is available HERE
Key findings of this year’s report:
U.S. fashion companies report significant challenges coming from the macro-economy in 2022, particularly inflation and rising cost pressures. However, most respondents still feel optimistic about the next five years.
- Respondents rated “increasing production or sourcing costs” and “inflation and outlook of the U.S. economy” as their 1st and 3rd top business challenges in 2022.
- As a new record, 100 percent of respondents expect their sourcing costs to increase in 2022, including nearly 40 percent expecting a substantial cost increase from a year ago. Further, almost everything has become more expensive this year, from textile raw materials, shipping, and labor to the costs associated with compliance with trade regulations.
- Over 90 percent of respondents expect their sourcing value or volume to grow in 2022, but more modest than last year.
- Despite the short-term challenges, most respondents (77 percent) feel optimistic or somewhat optimistic about the next five years. Reflecting companies’ confidence in their businesses, nearly ALL respondents (97 percent) plan to increase hiring over the next five years.
U.S. fashion companies adopt a more diverse sourcing base in response to supply chain disruptions and the need to mitigate growing sourcing risks.
- Asia remains the dominant sourcing base for U.S. fashion companies—eight of the top ten most utilized sourcing destinations are Asia-based, led by China, Vietnam, Bangladesh, and India.
- More than half of respondents (53 percent) report sourcing apparel from over ten countries in 2022, compared with only 37 percent in 2021.
- Reducing “China exposure” is one crucial driver of U.S. fashion companies’ sourcing diversification strategy. One-third of respondents report sourcing less than 10% of their apparel products from China this year. In addition, a new record of 50 percent of respondents sources MORE from Vietnam than China in 2022.
- Nearly 40 percent of respondents plan to “source from more countries and work with more suppliers” over the next two years, up from only 17 percent last year.
Managing the risk of forced labor in the supply chain is a top priority for U.S. fashion companies in 2022, especially with the new implementation of the Uyghur Forced Labor Prevention Act (UFLPA).
- Over 95 percent of respondents expect UFLPA’s implementation to affect their company’s sourcing. Notably, more than 85 percent of respondents plan to cut their cotton-apparel imports from China, and another 45 percent to further reduce non-cotton apparel imports from the country.
- Most respondents (over 92 percent) do NOT plan to reduce apparel sourcing from Asian countries other than China. However, nearly 60 percent of respondents also would “explore new sourcing destinations outside Asia” in response to UFLPA.
- Mapping and understanding the supply chain is a critical strategy adopted by U.S. fashion companies to address the forced labor risks in the supply chain. Almost all respondents currently track Tier 1 and 2 suppliers. With the help of new traceability technologies, 53 percent of respondents have started tracking Tier 3 suppliers this year (i.e., those manufacturing yarn, threads, and trimmings), a substantial increase from 25-36 percent in the past.
There is considerable new excitement about increasing apparel sourcing from members of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR). Respondents also call for more textile raw sourcing flexibility to encourage apparel sourcing from the CAFTA-DR region.
- CAFTA-DR plays a more significant role as a sourcing base. About 20 percent of respondents place more than 10% of their sourcing orders from the region, doubling from 2021.
- Over the next two years, more than 60 percent of respondents plan to increase apparel sourcing from CAFTA-DR members as part of their sourcing diversification strategy.
- CAFTA-DR is critical in promoting U.S. apparel sourcing from the region. Around 80 percent of respondents took advantage of the agreement’s duty-free benefits when sourcing apparel from the region this year, up from 50—60 percent in the past.
- Respondents say the exceptions to the “yarn-forward” rules of origin, such as the “short supply” and “cumulation” mechanisms, provide essential flexibility that encourages more apparel sourcing from CAFTA-DR members.
- Respondents say improving textile raw material supply is critical to encouraging more U.S. apparel sourcing from CAFTA-DR members. Particularly, “allowing more flexibility in souring fabrics from outside CAFTA-DR” and “improving yarn production capacity and variety within CAFTA-DR” are the top two priorities.
U.S. fashion companies strongly support another ten-year renewal of the African Growth and Opportunity Act (AGOA). Meanwhile, Ethiopia’s loss of AGOA eligibility discourages U.S. apparel sourcing from the ENTIRE AGOA region.
- As much as 75 percent of respondents say another ten-year AGOA renewal will encourage more apparel sourcing from the region and making investment commitments.
- However, despite the tariff benefits and the liberal rules of origin, respondents express explicit concerns about the region’s lack of competitiveness in speed to market, political instability, and having an integrated regional supply chain.
- Ethiopia’s loss of AGOA benefits had a notable negative impact on sourcing from the country AND the entire AGOA region. Notably, no respondent plans to move sourcing orders from Ethiopia to other AGOA beneficiaries.