Global Value Chain for Apparel Sold at Target
A global view in mind means more career opportunities: except material production and cut and sew, other well-paid jobs in the apparel value chain stay in the United States.
Source: Moongate Association (2017). Analyzing the Value Chain for Apparel Designed in the United States and Manufactured Overseas
Trade Issues Facing the U.S. Apparel and Retail Industry
- Steve Lamar, Executive VP at the American and Apparel Footwear Association (AAFA)
- Jon Gold, VP of Supply Chain and Customs Policy at the National Retail Federation (NRF)
- Robert Antoshak (Host), Managing Director at Olah Inc.
- Renegotiation of the North American Free Trade Agreement (NAFTA)
- Trump’s trade policy agenda
- What’s going on in the retail market?
- Technology and the future of apparel supply chain
- US labeling requirements and a return of Made-in-USA
Latest Trends in the US Apparel Industry (update: January 2015)
Latest statistics released by the American Apparel and Footwear Association (AAFA) indicate several trends in the U.S. apparel industry:
- First, the retail market is gradually recovering. According to AAFA, on average, every American spent $907 on clothing (or purchased 64 garments) in 2013. Although this figure is still less than the one before the 2008 financial crisis, it is the highest level since 2012.
- Second, “Made in USA” is growing but US consumers still rely on imports. Data from AAFA shows that US apparel production increased 6.2 percent from 2012 to 2013, accounting for 2.55% share of U.S. apparel market. However, nearly 98% of apparel consumed in the US were still imports in 2013.
- Third, China remains the top apparel supplier to the United States. Despite the concerns about the rising production cost in China, latest data from OTEXA shows that, in 2014 (January to November) China still accounted for 42.5% of US apparel imports in terms of quantity and 39.1% in terms of value–almost the highest level in history. These two numbers were 41.7% and 39.9% a year earlier. On the other hand, Vietnam’s market share has reached 9.3% (by value) and 10.7% (by quantity) in 2014 (January to November), about ¼ of China’s exports to the United States.
- Fourth, job market reflects continuous shift of the apparel industry. According to AAFA, among the total 2.8 million workers directly employed by the US apparel industry in 2013, only 5% were in the manufacturing sector, 5% were in the wholesaling sector and as many as 90% were working for retailers. However, within the apparel retail sector, total employment by the department stores is quickly shrinking—dropped 7.6 percent from 2012 to 2013 and cumulatively 21.3 percent from 1998 to 2013. At the same time, specialty clothing stores and sporting goods stores are hiring more people: 13.8% and 64.5% increase of employment from 1998 to 2013 respectively. The contrasting employment trend reflects the changing nature of the U.S. apparel retail market and the channels through which U.S. consumers purchase clothing.
- Fifth, US consumers are paying higher taxes on imported clothing. Calculated by AAFA, while the overall U.S. imports were only charged by a 1.4% tariff rate, the effective duty rate on all apparel imports rose to 13.6% in 2013. The higher effective duty rate may be caused by the fact that less apparel were imported utilizing free trade agreement or trade preference programs.
Appendix: Facts on the US Apparel Market in 2012
Data Source: http://www.statista.com/
China Apparel Retail Market (updated in December 2014)
According to Fung Group’s latest China apparel market report:
1. China’s apparel retail market remains strong despite slower growth. China’s apparel retail sales reached 1,141billion RMB (or $187 billion USD) in 2013, rose by 11.6 percent from 2012. On average, each urban household in China spent 1,902 RMB (or $306USD) on clothing in 2013, accounting for 10.6 percent of their total annual expenditure. [note: in the US, clothing accounts for around 3 percent of household annual expenditure]. It is estimated that China will replace the United States and become the world’s largest apparel retail market in 2017.
2. Women’s wear is the largest contributor to China’s total apparel sales. A survey of 100 major retailers in China shows that women’s wear accounted for 32.7 percent of their clothing sales from 2012 to 2013. However, women’s wear is a highly fragmented and competitive market in China. For example, the top ten brands altogether only accounted for 21.43 percent of market share in 2013.
3. Children’s wear and sportswear are the two growing areas in China’s apparel market. Specifically, retail sales of children’s wear in China reached 6.3 billion RMB (or $1 billion USD) in 2013, registered growth of 12.7 percent. Because Chinese government has relaxed its “one-child policy”, China is estimated to add 1-2 million extra kids over the next few years, suggesting further market expansion possibility. Thanks to Chinese consumers’ increasing interest in sports and outdoor activities, sales of sportswear enjoyed 35 percent growth from 2012 to 2013. Functional products with fashionable designs are the key to win the market. While international brands (such as Nike and Adidas) are mainly concentrated in tier 1 and tier 2 cities, domestic brands are still dominating the lower-tier cities where more growth potential is involved.
4. Department stores and specialty stores remained the main channels for apparel distribution in China, accounting for 36.3 percent and 29.7 percent of market share respectively in 2013. Specifically, department store remains the main channel for mid to high-end apparel sales in China, although specialty stores are increasingly preferred by apparel brand owners. As a common business practice in China, apparel brand owners manage their self-operated specialty stores in key cities while leaving other locations to franchisees as distributors. On the other hand, hypermarkets and supermarkets are popular retailing channels for lower-priced apparel, many of which are with poor brand recognition or unbranded.
5. Online retailing is the fastest growing retail channel in China for apparel. According to one source, the total online apparel transaction value in China reached 434.9 billion RMB (or $36.2 billion USD) in 2013, increased by 42.6 percent from 2012. Similar as the emerging of “omni-channel retailing” in the US, apparel companies operating in China are making more efforts to explore“O2O” (online and offline integration). It shall be noted that more and more overseas apparel brands see e-commerce as a strategic means to reach Chinese consumers. For example, even luxury brands such as Burberry and Hugo Boss have opened online store through a B2C platform (like Tmall) in China.
Some additional personal thoughts:
- Western apparel brands and retailers shall realize that China is a highly fragmented market with diverse market characteristics from region to region (for example, tier 1 v.s. tier 3 &4; urban v.s. rural; north v.s. south).
- Chinese consumers are getting more and more sophisticated, yet price is still a key factor to win this market.
- Given the size and sophistication of China’s apparel market, western apparel brands and retailers may consider building an independent China operation system (from design to distribution). Also, successful business models at home market may not work in China at all.
Study Compares Shopping Habits of Luxury Consumers in New York and Shanghai
An interesting study was recently conducted by ContactLab, a UK based consulting agency, which compared shopping habits of luxury consumers (clothing, shoes and fashion accessories) in New York and Shanghai, the fashion hub of the United States and China respectively.
The study was conducted based on a survey of 922 respondents in New York and 975 respondents in Shanghai aged between 25 and 54 years old. According to the study:
- the Chinese market, seen from Shanghai, confirms its standing as a market offering enormous opportunities to companies that produce high-end products
- in the last 12 months four out of five individuals in Shanghai have bought at least one luxury item, spending on average around $1,000 (in New York around $500) on their last purchase
- one out of three users in New York (35%) as well as in Shanghai (31%) chooses to be kept informed through email communications sent by brands
- two different consumption profiles emerge: fashion buying in China is closely linked to the display of one’s own spending capacity, while the New York consumers show greater affection for brand
A separate study released by the Fung Group in late 2013 suggests that foreign players largely dominate China’s luxury apparel market.