COVID-19 and US Apparel Imports: Key Trends (Updated: September 2021)

First, the shipping crisis and new wave of COVID cases start to affect US apparel imports negatively. While US consumers’ demand for clothing overall remains strong, for the second month in a row, the value of US apparel imports (seasonally adjusted) in July 2021 decreased by 5.5% from a month ago and down 9.7% from May to June. The absolute value of US apparel imports year to date (YTD) in 2021 (January—July) was 25.3% higher than in 2020 and around 87% of the pre-COVID level (benchmark: January-July, 2019). However, the year-over-year growth in July 2021 was only 15.4%, compared with 60.0% in May 2021 and 29.1% in June 2021. Overall, the results remind us that the market environment is far from stable yet as the COVID situation in the US and other parts of the world continues to evolve.

Second, Asian countries lost market shares as some leading apparel supplying countries, including Vietnam and Bangladesh, struggled with new COVID lockdowns. While Asia as a whole remains the single largest apparel sourcing base for US companies, Asian countries’ market shares fell from 74.2% in 2020 to 71.3% in July 2021, the lowest since 2010.  The new COVID lockdowns in Vietnam and Bangladesh, the No. 2 and No. 3 top suppliers for the US market, post significant challenges to US fashion companies trying to build inventory for the upcoming holiday season. Notably, US companies source many high-volume products from these two countries, and there is a lack of alternative sourcing destinations in the short run.

Third, US companies continue to treat China as an essential sourcing base during the current challenging time. However, there is no clear sign that companies are reversing their long-term strategy of reducing “China exposure.”  China stays the largest supplier for the US market in July 2021, accounting for 41.3% of total US apparel imports in quantity and 26.0% in value. The export product diversification index also suggests that China supplied the most variety of products to the US market. US apparel imports from Bangladesh, Mexico, and CAFTA-DR members are more concentrated on specific product categories. In other words, should China were under lockdowns, the negative impacts on US companies’ inventory management could be even worse.

Nevertheless, the HHI index and market concentration ratios (CR3 and CR5) calculated based on the latest data suggest that US fashion companies continue to move their apparel sourcing orders from China to other Asian countries overall.  For example, only 14.7% of US cotton apparel imports came from China in 2021 (January—July), a new record low in the past ten years. Further, as US apparel imports from China typically peak from June to September because of seasonal factors, China’s market shares are likely to drop in the next few months. Additionally, the fundamental concerns about sourcing from China are NOT gone. On the contrary, new US actions against alleged forced labor in Xinjiang are likely in the coming months and affect imports from China beyond cotton products.

Fourth, US apparel sourcing from the Western Hemisphere, especially CAFTA-DR members, gains new momentum. Specifically, 18.1% of US apparel imports came from the Western Hemisphere YTD in 2021 (January-July), higher than 16.1% in 2020 and 17.1% before the pandemic. Notably, CAFTA-DR members’ market shares increased to 11.2% in 2021 (January to July) from 9.6% in 2020. The value of US apparel imports from CAFTA-DR also enjoyed a 58.4% growth in 2021 (January—July) from a year ago, one of the highest among all sourcing destinations. The imports from El Salvador (up 75.2%), Honduras (up 74.6%), Dominican Republic (45.1%), and Guatemala (40.6%) had grown particularly fast so far in 2021.

Meanwhile, US apparel imports from USMCA members stayed stable (i.e., no significant change in market shares). CAFTA-DR and USMCA members currently account for around 60% and 25% of US apparel imports from the Western Hemisphere. They are also the single largest export market for US textile products (about 70%).

Fifth, US apparel imports start to see a notable price increase. While an across-the-board price increase was not a big concern at the beginning of 2021, the increase has become more noticeable since June 2021. For example, of the top 20 US apparel imports (HS chapters 61-62) at the 6-digit HS code level based on import value, the price of thirteen products increased from May to June 2021. The price increase at the country level is even more significant. From May to July 2021, the average unit price of US apparel imports from leading sources all went up substantially, including China (7%), Vietnam (13%), Bangladesh (13.9%), and India (15.6%).

As almost everything is becoming more expensive, from raw material, shipping to labor, the August and September trade data (to be released in October and November) could suggest an even more significant price increase.

by Sheng Lu

Global Container Shipping Crisis amid COVID-19

Discussion question: How has the container shipping crisis affected the fashion apparel industry? While shopping for clothing, do you observe any market trends related to the shipping crisis (e.g., retail price and product availability)? Why or why not do you think the container shipping crisis will go away anytime soon?

2021 USFIA Fashion Industry Benchmarking Study Released

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

  • Recovery is happening: Most respondents expect their business to grow in 2021. Around 76 percent foresee their sourcing value or volume to increase from 2020. Around 60 percent of respondents expect a full recovery of their sourcing value or volume to the pre-COVID level by 2022.
  • Uncertainties remain: Still, 27 percent find it hard to tell when a full recovery will happen. About 20 percent of respondents still expect 2021 to be a very challenging year financially.
  • U.S. fashion companies’ worries about COVID still concentrate on the supply side, including driving up production and sourcing costs and causing shipping delays and supply chain disruptions. U.S. fashion companies’ COVID response strategies include strengthening relationships with key vendors, emphasizing sourcing agility and flexibility, and leveraging digital technologies. In comparison, few respondents canceled sourcing orders this year.

#2 The surging sourcing costs are a significant concern to U.S. fashion companies in 2021.

  • As many as 97 percent of respondents anticipate the sourcing cost to increase further this year, including 37 percent expect a “substantial increase” from 2020.
  • Respondents say almost EVERYTHING becomes more expensive in 2021. Notably, more than 70 percent of respondents expect the “shipping and logistics cost,” “cost of textile raw material (e.g., yarns and fabrics),” “cost of sourcing as a result of currency value and exchange rate changes,” and “labor cost” to go up.

#3 U.S. fashion companies’ sourcing strategies continue to envovle in response to the shifting business environment.

  • Asia’s position as the dominant apparel sourcing base for U.S. fashion companies remains unshakeable.
  • China plus Vietnam plus Many” remains the most popular sourcing model among respondents. However, the two countries combined now typically account for 20-40 percent of a U.S. fashion company’s total sourcing value or volume, down from 40-60 percent in the past few years.
  • Asia is U.S. fashion companies’ dominant sourcing base for textile intermediaries. “China plus at least 1-2 additional Asian countries” is the most popular textile raw material sourcing practice among respondents.
  • As U.S. fashion companies prioritize strengthening their relationship with key vendors during the pandemic, respondents report an overall less diversified sourcing base than in the past few years.

#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.

  • Most U.S. fashion companies still plan to source from China in short to medium terms. While 63 percent of respondents plan to decrease sourcing from China further over the next two years, it is a notable decrease from 70 percent in 2020 and 83 percent in 2019.
  • Most respondents still see China as a competitive and balanced sourcing base from a business perspective. Few other sourcing countries can match China’s flexibility and agility, production capacity, speed to market, and sourcing cost. As China’s role in the textile and apparel supply chain goes far beyond garment production and continues to expand, it becomes ever more challenging to find China’s alternatives.
  • Non-economic factors, particularly the allegations of forced labor in China’s Xinjiang Uygur Autonomous Region (XUAR), significantly hurt China’s long-term prospect as a preferred sourcing base by U.S. fashion companies. China also suffered the most significant drop in its labor and compliance rating this year.

#5 With an improved industry look and the continued interest in reducing “China exposure,” U.S. fashion companies actively explore new sourcing opportunities.

  • Vietnam remains a hot sourcing destination. However, respondents turn more conservative this year about Vietnam’s growth potential due to rising cost concerns and trade uncertainties caused by the Section 301 investigation.
  • U.S. fashion companies are interested in sourcing more from Bangladesh over the next two years. Respondents say apparel “Made in Bangladesh” enjoys a prominent price advantage over many other Asian suppliers. However, the competition among Bangladeshi suppliers could intensify as U.S. fashion companies plan to “work with fewer vendors in the country.”
  • Respondents are also interested in sourcing more from Sub-Saharan Africa by leveraging the African Growth and Opportunity Act (AGOA). Respondents also demonstrate a growing interest in investing more in AGOA members directly. “Replace AGOA with a permanent free trade agreement that requires reciprocal tariff cuts and continues to allow the “third-country fabric provision” is respondents’ most preferred policy option after AGOA expires in 2025.

#6 Sourcing from the Western Hemisphere is gaining new momentum

  • Overall, U.S. fashion companies’ growing interest in the Western Hemisphere is more about diversifying sourcing away from China and Asia than moving the production back to the region (i.e., reshoring or near-shoring).
  • Respondents say CAFTA-DR’s “short supply” and “cumulation” mechanisms provide critical flexibility that allow U.S. fashion companies to continue to source from its members. However, despite the “yarn-forward” rules of origin, only 15 percent of respondents sourcing apparel from CAFTA-DR members say they “purposefully use U.S.-made fabrics” to enjoy the agreement’s duty-free benefits.
  • Respondents suggest that encouraging more apparel sourcing from the Western Hemisphere requires three significant improvements: 1) make the products more price competitive; 2) strengthen the region’s fabric and textile raw material production capacity; 3) make rules of origin less restrictive in relevant U.S. trade agreements.

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.

Apparel Sourcing and Trade: Washington Trade Policy Perspectives

Speaker: Julia Hughes, President, United States Fashion Industry Association (USFIA)

Topics covered:

  • US fashion companies’ latest sourcing trends and sourcing strategies during COVID-19
  • 2021 US textile and apparel trade policy (e.g., China section 301 and product exclusion extensions, and WROs against forced labor)
  • Biden administration’s trade policy agenda (e.g., worker-centered trade policy, climate change, retaliation against DST, GSP, MTB and TPA renewal, potential trade sanctions against Myanmar, promote domestic PPE production, and new FTA negotiation)   

The event is part of the Apparel and Textile Sourcing 2021 S/S virtual seminar series