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.