Tag: outlook

Apparel Sourcing and Trade Outlook for 2026

Top challenges in 2026

I believe the global fashion apparel industry will continue to face two macro-level challenges in 2026. One is the relatively weak consumer demand for clothing amid sluggish economic growth and persistent inflationary pressures. For example, according to the International Monetary Fund’s (IMF) October 2025 forecast, global GDP growth in 2026 is expected to decrease from 3.2% in 2025 to 3.1% in 2026. Specifically, U.S. GDP growth will be around 2.1% (down from 2.8% in 2024), and growth in the EU could drop to 1.1% (down from 1.2% in 2025).

Likewise, several consulting firms forecast that clothing retail sales in key apparel import markets, including the United States and Western Europe, could be stagnant or even decline in 2026. Notably, while Gen Z (i.e., those born between 1997 and 2012) has increasingly become a key customer group for many fashion brands and retailers, analysis shows that this generation has turned more cautious about shopping for clothing, especially for new items. The tariff-driven price increases could further discourage these groups from buying new clothing in the new year ahead.

Meanwhile, the trade policy environment facing the global fashion apparel industry could remain highly uncertain in 2026. Notably, in addition to tariffs, several trade agreements could create new uncertainties for fashion companies when sourcing from affected regions. Specifically:

The U.S.-Mexico-Canada (USMCA) trade agreement will begin its formal six-year review process in 2026. Despite broad industry support for upholding the existing agreement and calls to “do no harm,” we cannot rule out the possibility that the Trump administration might seek significant renegotiation or even replace the USMCA with separate bilateral trade deals.

Likewise, the outlook for the African Growth and Opportunity Act (AGOA) and the Haiti HELP/HOPE program, both of which expired in September 2025, remained highly uncertain. Because both programs play a critical role in supporting U.S. apparel sourcing from Sub-Saharan Africa and Haiti, whether and under which conditions they are renewed will directly influence fashion companies’ sourcing decisions and the long-term competitiveness and investment prospects of these regions.

Furthermore, even with several “trade deals” reached between the US and major trading partners like the EU, Vietnam, Cambodia, and potentially China and India, their implementation and enforcement will warrant close attention. In particular, the meaning and definition of critical terms like “transshipment” in these “trade deals” remain largely unclear. However, the impact could be significant for apparel sourcing if the Trump administration ultimately decides to revisit or set new rules of origin in these agreements to reduce the “China content” in products imported into the United States. Notably, according to OECD’s newly released “trade in value-added database,” apparel exports from Asian countries, including Vietnam and Cambodia, commonly contain 20-30% of value created in China.

Key apparel sourcing trends to watch in 2026

First, trade and economic impacts of tariffs could become more visible and significant in 2026. In particular, almost all U.S. apparel imports will be subject to the higher tariffs in 2026, leaving fashion companies with fewer options to use existing inventory to mitigate the effects. Consequently, fashion companies will face increased pressure to control their sourcing costs and protect their profit margins.

Second, fashion companies will continue to leverage sourcing diversification to navigate market and trade policy uncertainties. For example, according to the 2025 Fashion Industry Benchmarking Study released by the U.S. Fashion Industry Association (USFIA), a record-high percentage of surveyed U.S. fashion brands and retailers (i.e., over 80%) reported sourcing from 10 or more countries. Nearly 60% of respondents plan to source from even more countries in 2026. In a recent study I conducted, some leading U.S. and EU fashion companies mentioned in their 2025 Q2 earnings call transcripts that they intentionally seek vendors with production capacity across multiple countries to achieve sourcing diversification and mitigate risks.

Third, in addition to seeking competitive sourcing costs, fashion companies will increasingly look for vendors that can offer speed to market, flexibility, and agility. As one leading fashion company noted, “increasing the speed” does not necessarily mean “nearshoring,” but also refers to vendors that can deliver products quickly and at scale. Meanwhile, fashion companies increasingly expect suppliers to accommodate last-minute order changes, accept low minimum order quantities (MOQs), arrange raw material sourcing, and offer other value-added services. This shows why, based on trade data, Asian suppliers overall are more competitive and have captured more market share in the U.S. and EU markets in 2025 than “near-shoring” suppliers.

Additionally, China and Asia’s role in apparel sourcing could continue to evolve in 2026. I recently attended an industry event featuring textile and apparel manufacturers in Southeast Asian countries (ASEAN) and China. A few observations from the event stood out to me.

  1.  While the tariff was a top concern for most U.S. fashion companies, the conference mainly focused on facilitating investment and creating a more integrated, resilient, and sustainable textile and apparel supply chain in Asia. In other words, Asia-based textile and apparel suppliers did not seem panicked by the tariffs, nor do they believe the tariffs fundamentally challenge their long-term growth trajectory or hurt their export competitiveness.
  2. The Asia-based textile and apparel industry is becoming ever more global, mature, and advanced. Consistent with recent trade data, Asia-based fashion brands today commonly conduct global sourcing. They are investing heavily in new sustainable textile materials and digital technologies. They remain the largest buyer of the most sophisticated textile machinery in the world. Therefore, it is reasonable to expect that Asian suppliers as a whole will continue to dominate textile and apparel production and export into 2026 with no near competitors. 
  3. China’s leadership and influence within the Asia-based textile and apparel supply chain are increasingly visible. At the conference, ASEAN-based textile and apparel associations see China as a vital partner and source of investment. Through China’s Belt and Road Initiative (BRI), collaboration is extending from trade and investment to education and skills training. Overall, industry sentiment toward China in ASEAN differs significantly from the “decoupling” and “reducing China exposure” narratives that are gaining traction in the United States.
  4. An interesting question that I took away from the conference was whether China truly worries about losing market share in the U.S. and other markets for final apparel products. Perhaps not. Chinese industry leaders appear confident because they know that many Asian garment-producing countries remain heavily dependent on Chinese textile inputs, and many garment factories are funded or owned by Chinese investors. Given these dynamics, it will be interesting to observe how China’s confidence and its broader leadership role in Asia’s regional textile and apparel supply chain will continue to grow in 2026.

Opportunities in 2026

In 2026, we may see a significant increase in AI use in apparel sourcing. For example, fashion companies could use new AI tools to help optimize inventory levels and logistics, identify and evaluate new suppliers, and improve operational efficiency. AI may also play a more crucial role in supporting efforts around supply chain mapping, traceability, and sustainability data collection. Overall, we could see a more digitalized and data-driven sourcing process in the new year ahead.

On the other hand, in 2026, fashion companies could benefit from investing in and exploring new business models that support designing, making, sourcing, and selling sustainable apparel products. For example, a recent study of mine found that, by stock keeping units (SKUs) count, the number of clothing items made with recycled textile fibers increased by about 24% from 2024 to 2025 (August to October) in the U.S. retail market. Similarly, clothing items made with “regenerative” textile fibers surged by nearly 90% over the same period. These figures represent consumers’ increasing demand and fashion companies’ growing business interest in offering these products. New sustainability legislation, such as the Extended Producer Responsibility (EPR) at the state, regional, or international levels, will also create new incentives and pressure for fashion companies to revisit many of their current business practices. That said, balancing the sustainability benefits with other key sourcing metrics, such as costs, quality, and traceability, for these sustainable apparel products, will require ongoing efforts and improvements by fashion companies and their supply chain partners in 2026.

by Sheng Lu

Outlook 2024–Key Issues to Shape Apparel Sourcing and Trade

In December 2023, Just-Style consulted a panel of industry experts and scholars in its Outlook 2024–what’s next for apparel sourcing briefing. Below is my contribution to the report. Welcome any comments and suggestions!

What’s next for apparel sourcing?

Apparel sourcing is never about abrupt changes. However, fashion companies’ sourcing practices, from their crucial sourcing factors and sourcing destinations to operational priorities, will gradually shift in 2024 in response to the evolving business environment.

First, besides conventional sourcing factors like costs, speed to market, and compliance, fashion companies will increasingly emphasize flexibility and agility in vendor selection. One driving factor is economic uncertainty. For example, according to leading international organizations such as the World Bank and the International Monetary Fund (IMF), the world economy will likely grow relatively slowly at around 2.6%-3% in 2024. However, it is not uncommon that the economy and consumers’ demand for clothing could perform much better than expected. This means companies need to be ready for all occasions. Likewise, geopolitical tensions, from the Russia-Ukraine war and the US-China decoupling to the military conflict in the Middle East, could cause severe supply chain disruptions anytime and anywhere. Thus, fashion companies need to rely on a more flexible and agile supply chain to address market uncertainties and mitigate unpredictable sourcing risks.

Secondly, it will be interesting to watch in 2024 to what extent fashion companies will further reduce their exposure to China. On the one hand, it is no surprise that fashion companies are reducing finished garments sourcing from China as much as possible. However, fashion brands and retailers also admit that it is difficult to find practical alternatives to China in the short to medium terms regarding raw textile materials and orders that require small runs and great variety. Meanwhile, investments from China are flowing into regions considered alternative sourcing destinations, such as the rest of Asia and Central America. These new investments could complicate the efforts to limit exposure to China and potentially strengthen, not weaken, China’s position in the apparel supply chains. And stakeholders’ viewpoints on “investments from China” appear even more subtle and complicated.

Third, regulations “behind the borders” could more significantly affect fashion companies’ sourcing practices in 2024, particularly in sustainability-related areas. While sustainability is already a buzzword, fashion companies must deal with increasingly complex legal requirements to achieve sustainability. Take textile recycling, for example. The enforcement of the Uyghur Forced Labor Prevention Act (UFLPA) on recycled cotton, the US Federal Trade Commission’s expanded Green Guides, the EU’s extended producer responsibility (EPR) program and its strategy for sustainable textiles, and many state-level legislations on textile waste (e.g., California Textile Recycling Legislation) may all affect companies’ production and sourcing practices for such products. Fashion companies’ sourcing, legal, and sustainability teams will need to work ever more closely to ensure “sustainable apparel” can be available to customers.

Apparel industry challenges and opportunities

In 2024, a slow-growing or stagnant world economy will persist as a significant challenge for fashion companies. Without sourcing orders from fashion brands and retailers, many small and medium-sized manufacturers in the developing world may struggle to survive, leaving garment workers in a precarious financial situation. China’s economic slowdown could worsen the situation as many developing countries increasingly treat China as an emerging export market. With shrinking domestic demand, more “Made in China” apparel could enter the international market and intensify the price competition. 

Another challenge is the rising geopolitical tensions and political instability in major apparel-producing countries. For example, while a broad base supports the early renewal of the African Growth and Opportunity Act (AGOA), which will expire in 2025, the reported human rights violations in some essential apparel exporting countries in the region could complicate the renewal process in US Congress. Likewise, even though the Biden administration is keen to encourage fashion companies to expand sourcing from Central America, political instability there, from Nicaragua to Haiti, makes fashion companies hesitant to make long-term sourcing commitments and investments. Furthermore, 2024 is the election year for many countries, from the US to Taiwan. We cannot rule out the possibility that unexpected incidents could trigger additional instability or even new conflict.

On the positive side, it is encouraging to see fashion companies continue to invest in new technologies to improve their operational efficiency in apparel sourcing. Digital product passports, 3D product design, PLM, blockchain, Generative AI, and various supply chain traceability tools are among the many technologies fashion companies actively explore. Fashion companies hope to leverage these tools to improve their supply chain transparency, strengthen relationships with key vendors, reduce textile waste, accelerate product development, and achieve financial returns.

It is also a critical time to rethink and reform fashion education. In addition to traditional curricula like apparel design and merchandising, we need more partnerships between the apparel industry and educational institutions to expose students to the real world. More direct engagement with Gen Z will also benefit fashion companies tremendously, allowing them to understand their future core customers and prepare qualified next-generation talents. 

by Sheng Lu

Outlook 2023– Key Issues to Shape Apparel Sourcing and Trade

In December 2022, Just-Style consulted a panel of industry experts and scholars in its Outlook 2023–what’s next for apparel sourcing briefing. Below is my contribution to the report. All comments and suggestions are more than welcome!

2023 is likely another year full of challenges and opportunities for the global apparel industry.

First, the apparel industry may face a slowed world economy and weakened consumer demand in 2023. Apparel is a buyer-driven industry, meaning the sector’s volume of trade and production is highly sensitive to the macroeconomic environment. Amid hiking inflation, high energy costs, and retrenchment of global supply chains, leading international economic agencies, from the World Bank to the International Monetary Fund (IMF), unanimously predict a slowing economy worldwide in the new year. Likewise, the World Trade Organization (WTO) forecasts that the world merchandise trade will grow at around 1% in 2023, much lower than 3.5% in 2022. As estimated, the world apparel trade may marginally increase between 0.8% and 1.5% in the new year, the lowest since 2021. On the other hand, the falling demand may somewhat help reduce the rising sourcing cost pressure facing fashion companies in the new year.

Second, fashion brands and retailers will likely continue leveraging sourcing diversification and strengthening relationships with key vendors in response to the turbulent market environment. According to the 2022 fashion industry benchmarking study I conducted in collaboration with the US Fashion Industry Association (USFIA), nearly 40 percent of surveyed US fashion companies plan to “source from more countries and work with more suppliers” through 2024. Notably, “improving flexibility and reducing resourcing risks,” “reducing sourcing from China,” and “exploring near-sourcing opportunities” were among the top driving forces of fashion companies’ sourcing diversification strategies. Meanwhile, it is not common to see fashion companies optimize their supplier base and work with “fewer vendors.” For example, fashion companies increasingly prefer working with the so-called “super-vendors,” i.e., those suppliers with multiple-country manufacturing capability or can make textiles and apparel vertically, to achieve sourcing flexibility and agility. Hopefully, we could also see a more balanced supplier-importer relationship in the new year as more fashion companies recognize the value of “putting suppliers at the core.”

Third, improving sourcing sustainability and sourcing apparel products using sustainable textile materials will gain momentum in the new year. On the one hand, with growing expectations from stakeholders and pushed by new regulations, fashion companies will make additional efforts to develop a more sustainable, socially responsible, and transparent apparel supply chain. For example, more and more fashion brands and retailers have voluntarily begun releasing their supplier information to the public, such as factory names, locations, production functions, and compliance records. Also, new traceability technologies and closer collaboration with vendors enable fashion companies to understand their raw material suppliers much better than in the past. Notably, the rich supplier data will be new opportunities for fashion companies to optimize their existing supply chains and improve operational efficiency.

On the other hand, with consumers’ increasing interest in fashion sustainability and reducing the environmental impact of textile waste, fashion companies increasingly carry clothing made from recycled textile materials. My latest studies show that sourcing clothing made from recycled textile materials may help fashion companies achieve business benefits beyond the positive environmental impacts. For example, given the unique supply chain composition and production requirements, China appeared to play a less dominant role as a supplier of clothing made from recycled textile materials. Instead, in the US retail market, a substantial portion of such products was “Made in the USA” or came from emerging sourcing destinations in America (e.g., El Salvador, Nicaragua) and Africa (e.g., Tunisia and Morocco). In other words, sourcing clothing made from recycled textile materials could help fashion companies with several goals they have been trying to achieve, such as reducing dependence on sourcing from China, expanding near sourcing, and diversifying their sourcing base. Related, we are likely to see more public dialogue regarding how trade policy tools, such as preferential tariffs, may support fashion companies’ efforts to source more clothing using recycled or other eco-friendly textile materials.

Additionally, the debates on fashion companies’ China sourcing strategy and how to meaningfully expand near-sourcing could intensify in 2023. Regarding China, fashion companies’ top concerns and related public policy debates next year may include:

  • How to fully comply with the Uyghur Forced Labor Prevention Act (UFLPA) and reduce the forced labor risks in the supply chain?
  • What to do with Section 301 tariff actions against imports from China, including the tariff exclusion process?
  • How to reduce “China exposure” further in sourcing, especially regarding textile raw materials?
  • How should fashion companies respond and mitigate the business impacts of China’s shifting COVID policy and a new wave of COVID surge?
  • What contingency plan will be should the geopolitical tensions in the Asia-Pacific region directly affect shipping from the region?

Meanwhile, driven by various economic and non-economic factors, fashion companies will likely further explore ways to “bring the supply chain closer to home” in 2023. However, the near-shoring discussion will become ever more technical and detailed. For example, to expand near-shoring from the Western Hemisphere, more attention will be given to the impact of existing free trade agreements and their specific mechanisms (e.g., short supply in CAFTA-DR) on fashion companies’ sourcing practices. Even though we may not see many conventional free trade agreements newly launched, 2023 will be another busy year for textile and apparel trade policy deliberation, especially behind the scene and on exciting new topics.

By Sheng Lu

Discussion question: As we approach the middle of the year, why do you agree or disagree with any predictions in the outlook? Please share your thoughts.

Outlook 2021– Key Issues to Shape Apparel Sourcing

In January 2021, Just-Style consulted a panel of industry leaders and scholars in its Outlook 2021–Key Issues to Shape Apparel Sourcing Management Briefing. Below is my contribution to the report. All comments and suggestions are more than welcome!

What do you see as the biggest challenges – and opportunities – facing the apparel industry in 2021?

I see COVID-19 and market uncertainties caused by the contentious US-China relations as the two most significant challenges facing the apparel industry in 2021.

The difficulties imposed by COVID-19 on fashion businesses are twofold. First, with the resurgence of COVID cases worldwide, when and how quickly apparel consumption can rebound to the pre-COVID level remain hard to tell, particularly in leading consumption markets, including the United States and Europe. As the apparel business is buyer-driven, the industry’s full recovery is impossible without a strong return of consumers’ demand. Numerous studies also show that switching to making and selling PPE won’t be sufficient to make up for losses from regular businesses for most fashion companies.

Second, COVID-19 will also continue to post tremendous pressures on the supply side. In the 2020 Fashion Industry Benchmarking Study, which I conducted in collaboration with the US Fashion Industry Association (USFIA), the surveyed sourcing executives reported severe supply chain disruption during the pandemic. These disruptions come from multiple aspects, ranging from a labor shortage, a lack of textile raw materials, and a substantial cost increase in shipping and logistics. Even more concerning, many small and medium-sized (SME) vendors, particularly in the developing countries, are near the tipping point of bankruptcy after months of struggle with the order cancellation, mandatory lockdown measures, and a lack of financial support.  The post-covid recovery of the apparel business relies on a capable, stable, and efficient textile and apparel supply chain, in which these SME vendors play a critical role.

In 2021, fashion companies also have to continue to deal with the ramifications of contentious US-China relations. On the one hand, the chance is slim that the punitive tariffs imposed on Chinese products, which affect most textiles and apparel, will soon go away. On the other hand, we cannot rule out the possibility that the US-China commercial relationship will deteriorate further in 2021, as more sensitive, complicated, and structural issues began to get involved, such as national security, forced labor, and human rights. Compared with President Trump’s unilateral trade actions, the new Biden administration may adopt a multilateral approach to pressure China. However, it also means more countries could be “dragged into” the US-China trade tensions, making it even more challenging for fashion companies to mitigate the trade war’s supply chain impacts.

Meanwhile, I see digitalization as a big opportunity for the apparel industry, not only in 2021 but also in the years to come. Fashion brands and retailers will increasingly find digitalization ubiquitous to their businesses—like air and electricity. In 2021, I expect fashion companies will make more efforts to creatively use digital technologies to interact with consumers, make transactions, develop products, and improve consumers’ online shopping experiences. Thanks to the adoption of digital tools, apparel companies may also find new opportunities to improve sustainability, better understand their customers through leveraging data science, and develop a more agile and nimble supply chain. 

What’s happening with supply chains? How is the sourcing landscape likely to shift in 2021, and what can apparel firms and their suppliers do to stay ahead, remain competitive and build resilience for the future?

Apparel companies’ sourcing and supply chain strategies will continue to evolve in response to consumers’ shifting demand, COVID-19, and the new policy environment. Several trends are worth watching in 2021:

First, fashion companies’ sourcing bases at the country level will stay relatively stable in 2021 overall. For example, although it sounds a little contradictory, fashion companies will continue to treat China as an essential sourcing base and reduce their “China exposure” further, a process that has started years before the tariff war. Most apparel sourcing orders left China will go to China’s competitors in Asia, such as Vietnam, Bangladesh, and Cambodia. This also means that Asia, as a whole, will remain the single largest source of apparel imports, particularly for US and Asia-based fashion companies. In comparison, still, “near-sourcing” is NOT likely to happen on a large scale, mainly because “near-sourcing” requires enormous new investments to rebuild the supply chain, and most fashion companies do not have the resources to do so during the pandemic. 

Second, sourcing diversification is slowing down at the firm level, and more apparel companies are switching to consolidate their existing sourcing base. For example, as the 2020 USFIA benchmarking study found, close to half of the respondents say they plan to “source from the same number of countries, but work with fewer vendors” through 2022. Another 20 percent of respondents say they would “source from fewer countries and work with fewer vendors.” The results are understandable– competition in the apparel industry is becoming supply chain-based. Building a strategic partnership with high-quality vendors will play an ever more critical role in supporting fashion brands and retailers’ efforts to achieve speed to market, flexibility and agility, sourcing cost control, and low compliance risk. Thus, apparel companies find it more urgent and rewarding to consolidate the existing sourcing base and resources and strengthen their key vendors’ relations.

Third, apparel sourcing executives still need to keep a close watch on trade policy in 2021. However, we may see fewer news headlines about trade and more “behind the door” advocacy and diplomacy. Specifically:

  • US Section 301 actions: While the punitive tariffs on Chinese goods may not go away anytime soon, there could be a fight over whether the new Biden administration should continue granting certain companies exclusions from those tariffs. Further, in October 2020, the Trump Administration launched two new Section 301 investigations on Vietnam regarding its import and use of timber and reported “undervaluation currency.” The case is pending, but the stakes are high for fashion companies —Vietnam is often treated as the best alternative to sourcing from China and already accounting for nearly 20% of total US apparel imports.
  • The US-China relationship: We all know the relationship is at its low-point, but the fact is many US fashion companies still treat China as one of their most promising markets to explore. China continues to expand its role in the Asia-based textile and apparel supply chain also. In a nutshell, more than ever, apparel executives need to care about what is going on in geopolitics. Hopefully, “tough times can breed positive outcomes.”
  • CPTPP and RCEP: With the reaching of the Regional Comprehensive Economic Partnership (RCEP) in November 2020, there are growing calls for the new Biden administration to consider rejoining the Trans-Pacific Partnership (TPP) in some format to showcase the US presence in the Asia-Pacific region. To make the situation even more complicated, China has openly expressed its interest in joining the Comprehensive Progressive Agreement of the Trans-Pacific Partnership (CPTPP), commonly known as “the TPP without the US.” 2021 will be a critical time window for all stakeholders, including the apparel sector, to debate various trade policy options that could shape the future trade architecture in the Asia-Pacific region.
  • Brexit: Brexit will enter a new phase in 2021 as the transition period ends on 31 December 2020. On the positive side, we have a playbook to follow—the UK has announced its new tariff schedules for various scenarios, which provide critical market predictability. We might also see the reaching of a new US-UK free trade agreement in the first half of the year, which will be exciting news for the apparel sector, particularly those in the luxury segment. However, as the US Trade Promotion Authority (TPA) is set to expire in July 2021, when and how soon such an agreement will enter into force will be another story. By no means trade policy in 2021 will go boring.

by Sheng Lu

Outlook 2019: Apparel Industry Issues in the Year Ahead

In January 2019, Just-Style consulted a panel of industry leaders and scholars in its Outlook 2019–Apparel Industry Issues in the Year Ahead management briefing. Below is my contribution to the report. Any comments and suggestions are more than welcome!

1: What do you see as the biggest challenges – and opportunities – facing the apparel industry in 2019, and why?

In my view, uncertainty will remain the single biggest challenge facing the apparel industry in 2019, ranging from a more volatile global economy, the unpredictable outlook of the U.S.-China trade talks to the various possible scenarios of Brexit. While uncertainty creates exciting new research opportunities for scholars like me, it could be a big headache for companies seeking a foreseeable market environment to guide their future business plan and investments. 

Meanwhile, the increasing digitalization of the apparel supply chain based on big-data tools and artificial intelligence (AI) technologies means a huge opportunity for fashion companies. Indeed, the apparel industry is quickly changing in nature—becoming ever more globalized, supply-chain based, technology-intensive and data-driven. Take talent recruitment as an example. In the 2018 US Fashion Industry Benchmarking Study, which I conducted in collaboration with the US Fashion Industry Association (USFIA), as much as 68 percent of surveyed leading U.S. fashion brands and apparel retailers say they plan to increase hiring of data scientists in the next five years. Googling “apparel industry” together with terms such as “big data” and “data science” also returns much more results than in the past. It is hopeful that the advancement of digital technologies and the smarter use of data will enable apparel companies to overcome market uncertainties better and improve many aspects of their businesses such as speed to market, operational efficiency and even sustainability.

2: What’s happening with sourcing? How is the sourcing landscape likely to shift in 2019, and what can apparel firms and their suppliers do to stay ahead?

Based on my research, I have three observations regarding apparel companies’ sourcing trends and the overall sourcing landscape in 2019:

First, apparel companies overall will continue to maintain a diverse sourcing base. For example, in a recent study, we examined the detailed sourcing portfolios of the 50 largest U.S.-based apparel companies ranked by the Apparel Magazine. Notably, on average these companies sourced from over 20 different countries or regions using more than 200 vendors in 2017. Similarly, in the 2018 US Fashion Industry Benchmarking Study, which I conducted in collaboration with the US Fashion Industry Association (USFIA), we also found companies with more than 1,000 employees typically source from more than ten different countries and regions. Since no sourcing destination is perfect, maintaining a relatively diverse sourcing base allows apparel companies to strike a balance among various sourcing factors ranging from cost, speed, flexibility, to risk management.

Second, while 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. According to our study, some apparel companies have been strategically reducing the number of sourcing facilities with the purpose of ensuring closer collaborations with their suppliers on social and environmental compliance issues. Some other companies are consolidating their sourcing base within certain regions to improve efficiency and maximize productivity in the supply chain. Related to this trend, it is interesting to note that approximately half of the 50 largest U.S. apparel companies report allocating more sourcing orders to their largest vendor in 2017 than three years ago.

Third, nearshoring or onshoring will become more visible. Take “Made in the USA” apparel for example. According to the 2018 U.S. Fashion Industry Benchmarking Study, 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. In a recent study, we find that 94 out of the total 348 retailers (or 27 percent) sold “Made in the USA” apparel in the U.S. market between December 2017 and November 2018. These “Made in the USA” apparel items, in general, focus on fashion-oriented women’s wear, particularly in the categories of bottoms (such as skirts, jeans, and trousers), dresses, all-in-ones (such as playsuits and dungarees), swimwear and suits-sets. The advantage of proximity to the market, which makes speedy replenishment for in-season items possible, also allows retailers to price “Made in the USA” apparel substantially higher than imported ones and avoid offering deep discounts. Looking ahead, thanks to automation technology and consumers’ increasing demand for speed to market, I think nearshoring or onshoring, including ”Made in the USA” apparel, will continue to have its unique role to play in fashion brands and retailers’ merchandising and sourcing strategies.

3: What should apparel firms and their suppliers be doing now if they want to remain competitive further into the future? What will separate the winners from the losers?

2019 will be a year to test apparel companies’ resources, particularly in the sourcing area. For example, winners will be those companies that have built a sophisticated but nimble global sourcing network that can handle market uncertainties effectively. Likewise, companies that understand and leverage the evolving “rules of the game”, such as the apparel-specific rules of origin and tariff phase-out schedules of existing or newly-reached free trade agreements, will be able to control sourcing cost better and achieve higher profit margins. Given the heavy involvement of trade policy in apparel sourcing this year, companies with solid government relations should also enjoy unique competitive advantages. 

On the other hand, as apparel business is changing in nature, to stay competitive, apparel companies need to start investing the future. This includes but not limited to exploring new sourcing destinations, studying the changing consumer demographics, recruiting new talents with expertise in emerging areas, and adopting new technologies fitting for the digital age. 

4: What keeps you awake at night? Is there anything else you think the apparel industry should be keeping a close eye on in the year ahead? Do you expect 2019 to be better than 2018, and why?

Two things are at the top of my watchlist:

First, what is the future of China as an apparel sourcing base? While external factors such as the U.S.-China tariff war have attracted most of the public attention, the genuine evolution of China’s textile and apparel industry is something even more critical to watch in the long run. From my observation, China is playing an increasingly important role as a textile supplier for apparel-exporting countries in Asia. For example, measured by value, 47 percent of Bangladesh’s textile imports came from China in 2017, up from 39 percent in 2005. Similar trends are seen in Cambodia (up from 30 percent to 65 percent), Vietnam (up from 23 percent to 50 percent), Pakistan (up from 32 percent to 71 percent), Malaysia (up from 25 percent to 54 percent), Indonesia (up from 28 percent to 46 percent), Philippines (up from 19 percent to 41 percent) and Sri Lanka (up from 15 percent to 39 percent) over the same time frame. A key question in my mind is how quickly China’s textile and apparel industry will continue to evolve and upgrade by following the paths of most other advanced economies in history.

Second, how will the implementation of several newly-reached free trade agreements (FTAs) affect the big landscape of apparel sourcing and the existing regional apparel supply chains? For example:

  • The newly-reached U.S.-Mexico-Canada Free Trade Agreement (USMCA or commonly called NAFTA2.0) includes several interesting changes to the textile and apparel specific rules of origin provisions, such as the adjustment of the tariff-preference level (TPL) mechanism. Whether these changes will boost textile and apparel production in the Western-Hemisphere and attract more sourcing from the region will be something interesting to watch.
  • The implementation of the Comprehensive and Progressive Agreement of the Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA) will allow Vietnam to get access to nearly 40% of the world apparel import market (i.e., EU + Japan) duty-free. However, restrained by the country’s relatively small population, the apparel industry is increasingly facing the challenge of competing for labor with other export-oriented sectors in Vietnam. Realistically, what is the growth potential of apparel “Made in Vietnam” after the implementation of CPTPP and EVFTA?
  • In 2017, close to 80% of Asian countries’ textile imports came from other Asian countries, up from around 70% in the 2000s. Similarly, in 2017, 85.6% of Asian countries’ apparel imports also came from within the region. The negotiation of the Regional Comprehensive and Economic Partnership (RCEP) is likely to conclude in 2019, whose membership includes member states of the Association of Southeast Asian Nations (ASEAN) and other six economies in the Asia-Pacific region (Australia, China, India, Japan, South Korea and New Zealand). Will RCEP result in an ever more integrated Asia-based textile and apparel supply chain and make the Asia region even more competitive as an apparel sourcing destination?  

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Outlook 2017: Apparel Industry Issues in the Year Ahead

outlook

In January 2017, Just-Style consulted a panel of industry leaders and scholars in its Outlook 2017–Apparel Industry Issues in the Year Ahead management briefing. Below is my contribution to the report. Welcome for any suggestions and comments.

1: What do you see as the biggest challenges – and opportunities – facing the apparel industry in 2017, and why?

I see the uncertainty in the global economy will pose one of the biggest challenges facing the apparel industry in 2017. Apparel business is buyer-driven. A great number of studies have suggested that economic growth is by far the most effective and reliable predictive factor for apparel consumption. Unfortunately, it seems apparel companies have to deal with another year of economic volatility and weak demand in 2017. For example, according to the latest International Monetary Fund (IMF) forecast released in October 2016, global economic growth in 2017 is projected to only recover to 3.4 percent from 3.1 percent in 2016. There is no particular excitement among major apparel consumption markets either: outlook of the U.S. economy in 2017 is complicated by the strong U.S dollar, the Federal Reserve’s monetary policy as well as the uncertain trade and tax policy to be adopted by the new Trump administration; Economic growth in the EU region next year will continue to be hindered by the unknown fallout from UK’s referendum on leaving the EU, pervasive geopolitical uncertainties, high unemployment rates and the rising protectionist tendencies; Japan’s economic growth is projected to be as low as 1.0 percent in 2017 according to the Organization for Economic Co-operation and Development (OECD); And China’s economic growth in 2017 could slow again to 6.5 percent, which would be the slowest pace in more than 25 years. Reflecting the trend, we might see a stagnant growth or even a decline of global textile and apparel trade in 2017 as well.

Nevertheless, companies’ continuous investments on technology and innovation will create exciting new opportunities for the apparel industry. Particularly, growing areas in the apparel industry such as 3D printing, wearable technology, digital prototyping and e-commerce have made many “non-traditional” players now interested in fashion, including technology giants like Google and Apple. I think we can expect the apparel industry to become even more modern and high-tech driven in the years to come. The changing nature of the apparel industry will also increase demand for talents from an ever more diversified educational background, such as engineering, physical therapy and business analytics.

2: What’s happening with sourcing? How is the sourcing landscape likely to shift in 2017, and what strategies can help apparel firms and their suppliers to stay ahead?

One observation from me is that textile and apparel (T&A) supply chain is becoming more regional-based. For example, data from the World Trade Organization (WTO) shows that 91.4 percent of textiles imported by Asian countries in 2015 came from other Asian countries, up from 86.6 percent in 2008. This suggests that Asian countries togetherare building a more integrated T&A supply chain. Likewise, in 2015 close to 90 percent of apparel exported by North, South and Central American countries went to the United States and Canada and 81 percent of apparel exported by EU countries went to other EU countries too. To be noted, all of these three major T&A supply chains are facilitated by respective free trade agreements in the region such as the North American Free Trade Agreement (NAFTA), ASEAN–China Free Trade Area (ACFTA) and of course the common market enjoyed by the EU members. On the other hand, fashion brands and apparel retailers often use the Western-Hemisphere supply chain and EU-based supply chain as a supplement to the Asia-based supply chain for more fashion-oriented or time-sensitive items. I think such a dual-track sourcing strategy will continue in 2017.

Related, I think supply chain management will play a growing important role helping apparel companies control sourcing cost, improve speed to market and better meet consumers’ demand in 2017. An interesting phenomenon revealed by the 2016 U.S. Fashion Industry Benchmarking Study released by the U.S. Fashion Industry Association is that around 30 percent of respondents say they plan to consolidate rather than diversify their sourcing base in the next 2 years. As one respondent commented, “(Our) focus right now is really finding efficiencies and maximizing productivity in the supply chain. While we won’t necessarily move out of any countries, we are consolidating the base within regions.”

Last but not least, I think in 2017 apparel companies will continue to give more weight to sustainability and social responsibility in their sourcing decisions. Building a more transparent and sustainable supply chain is an irreversible trend in the apparel industry. 

3: What should apparel firms be doing now if they want to remain competitive into the future? What will separate the winners from the losers?

To remain competitive into the future, apparel companies need to be prepared to change and be willing to try something new. Indeed, revolution is coming for the apparel industry, including the way products are made and sourced (example: 3D printing and various digital manufacturing tools), how consumers shop (example: the see-now-buy-now trend) and where and how to sell (example: the booming e-commerce and omni-channel retailing). In the past, small and medium sized companies (SME) were regarded more vulnerable than big players in the apparel industry for business survival.  However, nowadays, without embracing the spirit of innovation and entrepreneurship, even large companies can quickly become “dinosaurs” and find their business struggling. 

4: What keeps you awake at night? Is there anything else you think the apparel industry should be keeping a close eye on in the year ahead? Do you expect 2017 to be better than 2016, and why?

One thing that keeps me awake at night as a professor is what needs to be changed or updated in our curriculum to better prepare our students for the needs of the apparel industry. Fashion programs like us directly prepare future professionals for the fashion apparel industry. This also means we are not immune to the big shift in the industry either. For example, our course offerings currently include textile science, product development, merchandising, branding and sourcing and trade. But in addition to these conventional topics, what else should be added to the curriculum? What new skill setsor knowledge points will be highly expected by the apparel industry for our students in the future? Personally I think talent training is a critical area that the apparel industry and our fashion educational programs can and should form closer partnership. And the outcomes will be mutual beneficial too.

Trade policy is another area that keeps me awake at night. Trade policy matters for the apparel industry because it affects the quantity, price and availability of products in the market. Specifically, in 2017 I will be watching closely about the following trade agendas: 1) the WTO Trade Facilitation Agreement (TFA), which is nearing entering into force. TFA aims to make customs and border procedures easier, speed up the passage of goods between countries and lower cost of trade.

2) negotiation of the Regional Comprehensive Economic Partnership (RCEP). In 2015, the sixteen RCEP members altogether exported $369 billion worth of textile and apparel (50% of world share) and imported $124 billion (34% of world share). Since the Trans-Pacific Partnership (TPP) won’t be implemented anytime soon, RCEP has the potential to influence and reshape the T&A supply chain in the Asia-Pacific region.

3) a possible revision of the North American Free Trade Agreement (NAFTA). NAFTA is a critical factor facilitating and maintaining the Western-Hemisphere textile and apparel supply chain. A recent study of mine shows that ending the NAFTA would significantly hurt apparel manufacturing in Mexico and textile manufacturing in the United States, largely because apparel “Made in Mexico” today often contains yarns and fabrics “Made in USA”.

4) Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Partnership (T-TIP). Although many people think these two agreements are dead, I disagree. TPP and T-TIP are NOT conventional free trade agreements (FTAs) that deal with tariffs and non-tariff barriers only. Just like why we need traffic rules, TPP and T-TIP address our needs to update international trade regulations on 21st century trade agendas such as digital trade, state-owned enterprises, labor and environmental standards, small and medium sized enterprises and trade related investment. On the other hand, both TPP and T-TIP still have a solid and broad supporting base, which includes the fashion apparel industry. If trade politics is why TPP and T-TIP are in trouble, for the same reason, we should expect a reversal of the fate of these two agreements when time arrives. Plus, we should never underestimate the creativity and wisdom of trade policymakers.

Sheng Lu