2018 U.S. Fashion Industry Benchmarking Study Released

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The report can be downloaded from HERE

Key findings of this year’s study:

Business challenges facing U.S. fashion companies: Protectionism is the top challenge for the U.S. fashion industry in 2018. More companies worry about increases in production or sourcing cost, too. For the second year in a row, “protectionist trade policy agenda in the United States” ranks the top challenge for U.S. fashion companies in 2018.

Industry outlook: Despite concerns about trade policy and cost, executives are more confident about the five-year outlook for the U.S. fashion industry in 2018 than they were a year ago, although confidence has not fully recovered to the level seen in 2015 and 2016. In addition, 100 percent of respondents say they plan to hire more employees in the next five years, compared with 80-85 percent in previous studies; market analysts, data scientists, sustainability/compliance related specialists or managers, and supply chain specialists are expected to be the most in-demand.

U.S. fashion companies’ sourcing strategy: When it comes to sourcing, diversification is key for many companies.

  • Most respondents continue to maintain a diverse sourcing base, with 60.7 percent currently sourcing from 10+ different countries or regions, up from 57.6 percent in 2017.
  • Larger companies, in general, continue to be more diversified than smaller companies.
  • Reflecting the U.S. fashion industry’s growing global reach, respondents report sourcing from as many as 51 countries or regions in 2018, the same as in 2017. Asia as a whole continues to take the lead as the dominant sourcing region. Meanwhile, with the growing importance of speed-to-market and flexibility, the Western Hemisphere is becoming an indispensable sourcing base.
  • Keeping a relatively diverse sourcing base will remain a key element of U.S. fashion companies’ sourcing strategy. Nearly 80 percent of respondents plan to source from the same number of countries, or more countries, in the next two years. However, respondents are equally divided on whether to increase or decrease the number of suppliers they will work with.
  • China plus Vietnam plus Many” has become an ever more popular sourcing model among respondents. And this model is evolving as companies further diversify their China production. In particular, China now typically accounts for only 11-30 percent of companies’ total sourcing value or volume, compared with 30-50 percent in the past.
  • Although China’s position as the top sourcing destination is unshakable, companies are actively seeking alternatives to “Made in China.” This does not seem to be due to concerns about cost, but rather the worries about the escalating U.S.-China trade tensions.
  • Benefiting from the diversification away from China, Vietnam and Bangladesh are expected to play a bigger role as apparel suppliers for the U.S. market in the near future.

Rules of origin and the utilization of trade agreements for sourcing: Rules of origin, and exceptions to the rules of origin, significantly impact whether companies use free trade agreements (FTAs) and trade preference programs for sourcing.

  • While FTAs and trade preference programs remain largely underutilized by U.S. fashion companies, more companies are using NAFTA (65 percent), CAFTA-DR (58 percent) and AGOA (50 percent) than in the past two years.
  • Still, it’s concerning that companies often do not claim the duty-free benefits when sourcing from countries with FTAs or preference programs. Companies say this is primarily due to the strict rules of origin.
  • Exceptions to the “yarn-forward” rules of origin, including tariff preference levels (TPLs), commercial availability/short supply lists, and cumulation, are priorities for respondents; 48 percent say they currently use these mechanisms for sourcing. These exceptions provide critical flexibilities that make companies more likely to use FTAs and source from FTA regions.

NAFTA: U.S. fashion companies call for a further reduction of trade barriers and urge trade negotiators to “do no harm” to NAFTA, the most-utilized free trade agreement by respondents.

  • Respondents predominantly support initiatives to eliminate trade barriers of all kinds, from high tariffs to overcomplicated documentation requirements, to restrictive rules of origin in NAFTA and future free trade agreements.
  • More than half of respondents explicitly say NAFTA is important to their business—and they have grave concerns about the uncertain future of the agreement.

Sourcing in sustainable and socially compliant ways: Overall, U.S. fashion companies are making more commitments to sustainability and social responsibility.

  • 85 percent of respondents plan to allocate more resources for sustainability and social compliance in the next two years, in areas including providing training to suppliers and internal employees, adding more employees, and working more closely with third-party certification programs on sustainability and social compliance. However, the availability of operational budget remains the primary hurdle for companies that want to do more.
  • 100 percent of respondents map their supply chains (i.e., keep records of name, location, and function of suppliers), up from 90 percent in 2017. Over 80 percent of respondents track not only Tier 1 suppliers (i.e., factory where the final product is assembled), but also Tier 2 suppliers (i.e., subcontractors or major component suppliers, such as fabrics). However, it’s less common for companies to map Tier 3 (i.e., yarn spinners, finding and trimming suppliers) and Tier 4 suppliers (i.e., raw materials suppliers, such as cattle/pig hides, rubber, cotton, wool, goose down, minerals/metals and chemicals).
  • 100 percent of respondents audit their suppliers for issues including building safety, fire safety, and treatment of workers. The vast majority of respondents (96 percent) currently use third-party certification programs to audit, with both announced and unannounced audits.

The US Fashion Industry Benchmarking Study from 2014 to 2017 can be downloaded from HERE

How is China’s Garment Industry Dealing with Rising Labor Costs?

Please feel free to share your views on the following discussion questions based on the video:

China is no longer one of the cheapest places to produce garments. The minimum monthly wages in China have far exceeded those in Bangladesh, India and Cambodia:

  • How are Chinese garment factories coping with the challenges of rising labor cost?
  • Is adopting Taylor’s “scientific management”, i.e. asking skilled workers to do less skilled jobs in a more specialized production line, a smart idea?
  • What is your view on the growing difficulty of hiring and retaining young skilled workers for the garment industry in China?
  • Any other thoughts on the video?

Appendix: State of China’s Apparel Exports in 2015

According to the UNComtrade, China remains the world’s largest apparel exporter in 2015 (37.4% world share for knitted apparel, HS61 and 34.9% for woven apparel, HS62).

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62From 2011 to 2015, “Made in China” continues to acquire more market shares in some key apparel import markets in the world, including the United States and UK (i.e. China’s apparel exports to these markets grew at a faster rate than these countries’ apparel import growth from the world—bubbles in blue in the figures below). Nevertheless, in some other markets (bubbles in yellow in the figures below), notably Japan and Germany, China is losing market shares to other garment exporters such as Vietnam and Bangladesh.

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Outsoucing and “Made in USA” An Ongoing Debate

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The following questions are proposed by students enrolled in FASH455 Spring 2016. Please feel free to leave your comment and engage in our online discussion.

L.L Bean: A Business Model for “Made in USA”?

L.L. Bean has been a strong business for hundreds of years, yet recently their sales of Bean Boots have skyrocketed because they are now seen as trendy. Even though L.L. Bean’s orders and demand has gone up, they still somehow manage to have their products being handmade, sourced locally, and all in the US.

#1: Can L.L. Bean become a model for other businesses looking to manufacture in the US? How has L.L. Bean managed to keep this business model up for so many years and why have they not changed or decided to outsource? 

#2: Why doesn’t L.L Bean look into other American cities for manufacturing options so they do not lose productivity by being exclusively made in Maine?

#3: Do you think it would be beneficial for L.L. Bean to outsource to foreign companies for their manufacturing? Would there still be as high of a demand if these boots were manufactured abroad?

Outsourcing v.s. “Made in USA”

#4: It is said that one reason why American brands choose to offshore their manufacturing is because there isn’t as many cutting edge machines readily available in the States as in other countries. Is it realistic for the American manufacturing market to invest in these machines for domestic manufacturing? If so, how can America make sure to stay relevant with these technologies and not fall behind as we have currently?

#5: One aspect commonly mentioned throughout these readings was the lack of skilled labor in the US in the fashion industry. Is the decrease in skilled areas, such as shoemaking and needle trade, due to the increase in skilled labor overseas? Are these professions considered outdated for young Americans to be learning? How can we jumpstart a desire for young people to take up these skills once again?

#6: One major problem the US has been facing regarding keeping production domestic has been the lack of skilled workers to work in factories. Is the cost of providing training to interested workers too high? Should it be required that all fashion majors should take a sewing class? Where does the decision to train apparel workers begin?

#7: Many American manufacturers refrain from manufacturing in the United States because it is too expensive because more people are formally educated and are not willing to work for a low wage, but only 15% of respondents actually are working towards that. Is it realistic to reach out to homeless communities looking to get back onto their feet to see if they would work in factories? Would this help promote American manufacturing and decrease importing?

#8: In today’s fast paced fashion world, trends come and go rather quickly. The striking disadvantage of manufacturing overseas is the slow turnaround time which could be up to 3-5 months. By manufacturing domestically, turnaround can be as quick as 2 weeks. Why do the majority of fashion companies still choose to manufacture overseas when there is a possibility the trend could be over by time they reach store shelves (Thus, a lack in profit)? When will trend pressures become too much for overseas production?

#9: Is it even worth it to bring manufacturing back to America if it is not benefitting the workers and creating jobs? If manufacturing in the US is simply machine based, what is the point of doing so when it could be cheaper elsewhere and benefit countries that need the jobs?

[Discussion is closed for this post].

2014 World Textile Industry Labor Cost Comparison

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According to the latest Werner International Labor Cost Comparison Report, labor cost gaps remained huge among textile industries worldwide in 2014. Within the 40 countries covered by the report, labor cost in Switzerland ($51.36/hour), the highest, was 82 times higher than in Bangladesh and Pakistan ($0.62/hour), the lowest, in 2014. Overall, labor cost in Western European countries (such as Italy, France and Germany)+Japan remained the highest in the world, followed by (from high to low):

  • the United States
  • advanced economies in East Asia (South Korea and Taiwan)
  • Eastern European countries (such as Poland)
  • South American countries (such as Brazil and Peru) 
  • developing countries in East and Southeast Asia (such as Bangladesh and Pakistan).

[Note: The report does not cover African countries].

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On the other hand, consistent with statistics from other sources, Werner’s report also suggests remarkable labor cost increase in China, which is rapidly approaching the $3 per operator hour (up from $2.1 in 2011 and up from only 0.69 US$ in the year 2000). From 2000 to 2014, labor cost in the U.S. textile industry went up about 25 percent. However, in terms of absolute difference, China’s labor cost was still only 15 percent of the level in the United States in 2014. As noted by the publisher, the labor cost comparison report covers all primary textile industry sectors, consisting of spinning, weaving and dyeing & finishing. Cut & sewing operations are not part of these comparisons. Labor cost in the clothing industry is not covered by the report however.

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