Tag: sourcing diversification

Updated Impact of Increasing Tariffs on U.S. Fashion Companies’ Sourcing and Businesses

This study aims to examine the impacts of the Trump administration’s escalating tariffs on U.S. fashion companies’ apparel sourcing practices. Based on data availability, transcripts of the latest earnings calls from about 30 leading publicly traded U.S. fashion companies were collected. These earnings calls, held between August and October 2025, covered company performance in the second quarter of 2025 or later. A thematic analysis of the transcripts was conducted using MAXQDA.

Key findings:

First, U.S. fashion companies reported a more significant impact of the increasing tariffs on their financial performance as the tariff increase expands from China to other countries. Many companies regarded tariffs as one of their top-most pressing external challenges to profitability in 2025, especially in the second half and beyond.  For example:

  • G-III Apparel: “We expect the total incremental cost of tariffs to be approximately $155 million, up from the $135 million original estimate, and this is based on the latest tariff increases implemented for Vietnam, India and Indonesia, among others.”
  • American Eagle: “On tariffs, yes, we are providing the guidance here for the third and fourth quarter. About $20 million of impact from Q3. $40 million to $50 million in Q4. So that will pressure gross margin a bit.”
  • Hanesbrands: “When you think about tariffs and the impact on our business, first of all, we won’t be really experiencing that cost until Q4 because of the inventory that we have and the way cost flows off of our balance sheet.”
  • Victoria’s Secret: “Our projected net tariff impact of $100 million in 2025 is up $50 million versus our assumption embedded in our previous guidance. With approximately $10 million of net tariff impact already recognized in the first half of the year, our guidance assumes approximately $20 million of net tariff pressure in the third quarter with $70 million impact in Q4.”
  • Tapestry: “We are facing greater than previously expected profit headwinds from tariffs and duties, with the earlier-than-expected ending of de minimis exemptions being a meaningful factor. In aggregate, the total expected impact on profitability this year from tariffs is $160 million, representing approximately 230 basis points of margin headwind.”
  • Carter’s: “We’ve assessed the higher incremental tariffs, which have already been implemented, an additional 10% duty for all countries and higher incremental duties for products from China, Vietnam and Indonesia. Relative to a few months ago, we’re preparing for a world with higher and more permanent tariffs above the over $100 million in duties, which we have paid historically. Our estimate of the additional baseline tariffs is that it would represent a gross additional tariff amount between $125 million and $150 million on an annualized basis.”

Second, despite the higher tariff burdens, most U.S. fashion companies still try to avoid across-the-board price hikes due to concerns about losing consumers. Instead, most companies opt for selective price increases, value-based pricing, and closely monitor consumers’ price sensitivity. However, price increases could be more noticeable down the road. For example:

  • Oxford industries: “We’ve not done sort of an across-the-board approach to pricing. We’ve really looked at it on an item-by-item basis and balanced the need to protect our margins and try to recover some of the tariff impact with not wanting to get too far ahead of ourselves because that tariff number…as we get into spring ’26… And on average, that’s led to sort of low to mid-single digit or low mid-single-digit price increases…we’re just being very cautious about increasing the price too much before we really know where things are settled out.”
  • URBN: “our pricing strategy…is really to look at some gentle price increases where we feel like there’s the value that contributes to that. So making sure that we’re protecting some of the opening price points that the customer counts on and some programs that we know drive a lot of volume…Recognizing the value equation is really important to all of our consumers.”
  • TJX: “I think you’re gonna see a more of a little bit of a gradual increase in pricing as the tariffs come in…I don’t think you’ll see step all of a sudden Right. With the tariffs set,because I don’t wanna, I think, turn off customers immediately by seeing a dramatic price shift. So I think they might they might they might absorb it initially for a little bit, and eventually, they’ll get there.”
  • Columbia Sports: “We expect higher prices for many consumer goods will negatively impact consumer demand…In fall ’25, we’re working with our retail partner to deliver value to consumers and keep inventory and dealer margins healthy. As a result, we’re not making any significant price changes to our fall ’25 product line and expect to absorb much of the incremental tariff costs this year…Our goal is to offset higher tariffs over time through a combination of actions, including price increases, vendor negotiations, SG&A expense efficiencies and other mitigation tactics.”
  • Ralph Lauren: “The big unknown sitting here today is the price sensitivity and how the consumer reacts to the broader pricing environment and how sensitive that consumer is. And that’s what we’re watching very closely as we head into the second half.”
  • Ross stores: “Some of the India tariffs, especially if the 25 goes to 50…I think that you’ll see this go into next year, and I think we would expect to see price increases. And — but over time…we think it will reach equilibrium, and it will be business as usual.”
  • Burlington stores: “we are seeing that competitors are taking up retail prices. So far, though, I would say that those price increases have been quite selective and quite restrained…Part of it may just be the time lag between imports arriving in the country and those goods showing up in stores. But also my sense is that wholesalers and retailers have been reluctant to make decisions on raising prices until they know what the final tariff rates are going to be. Now it does feel like there is more clarity on this now than there was a couple of months ago. So it wouldn’t be surprising if retail prices were to go up across the industry in the back half of the year. Now of course, we know that our customer is very, very price sensitive.”
  • VF Corporation: “we have actions in place to mitigate the tariff impact through sourcing savings and pricing actions that will take effect later this year.”

Third, while U.S. fashion companies overall continue to reduce their apparel sourcing from China amid the current tariff and geopolitical tensions, some companies still regard China as a viable sourcing base given its many unique advantages, such as speed to market, production efficiency, and well-developed supply chain infrastructure. For example:

  • Carter’s Inc: “We’ve meaningfully reduced our exposure to China manufacturing over the last number of years. And now, as summarized here, our largest countries of origin are Vietnam, Cambodia, Bangladesh, and India.”
  • Abercrombie & Fitch: “Our approach and underlying principles for tariff mitigation remain unchanged, supported by a deep playbook and experience. We continue to expect China sourcing share in the U.S. will be in the low single digits for the year.”
  • Steve Madden: “Since the last call…We have moved certain production for fall back to China, where we felt it would be difficult to ensure on-time delivery, appropriate product quality and/or reasonable pricing in an alternative country. For fall 2025, we currently expect to source approximately 30% of our U.S. imports from China, down from 71% for the full year 2024..
  • Oxford industries: “With the recent tariff increases announced during the second quarter, including increased tariffs in countries like Vietnam and India that were included as part of our shift away from China, largely offset by the mitigation efforts we have undertaken, including accelerated inventory receipts and quickly shifting our sourcing network.”
  • American Eagle: “If you start with all the country of origin remixing…China where we know we were at a higher penetration coming into the year is mid-single digit now in a full year.”

Fourth, establishing a geographically diverse sourcing base continues to be a crucial strategy employed by U.S. fashion companies to mitigate tariff impacts and policy uncertainty. U.S. fashion companies are also intentionally adding speed, flexibility, and agility to their sourcing base and supply chain. However, given the complex sourcing factors fashion companies have to consider, plus the broad scope of “reciprocal tariffs, there is no clear winner. For example:

  • Kohl’s: “We have a diversified sourcing strategy from a country standpoint. We’re not heavily reliant on any one particular country, and we have the flexibility and agility to actually move production to other countries if necessary.”
  • PVH: “We work closely with an established network of global sourcing partners across more than 30 countries, and we continue to leverage our deep long-standingrelationships to further optimize our sourcing and production costs.”
  • American Eagle: “If you start with all the country of origin remixing…India is small for us. Rebalancing some things out of Vietnam.”
  • Steve Madden: “we were focused on moving a lot of product to Brazil. We’re going to have to wait and see what happens. I think that really goes not just for Brazil, but for a lot of the countries that we work with. So we’ve tried to create a more diversified sourcing footprint. And — but there’s obviously a lot of uncertainty still about where the ultimate tariff rates will land by country. And so we’re going to have to wait and see what happens and then react accordingly. That’s all we can do.”
  • Hanesbrands: “when you think about tariffs and the impact on our business…not only do you have the Q4 impact, but you have to think about those other offsets about meaningful U.S. content that we have in our products that are exempt from reciprocal, the good East-West balance that we have in our supply chain…”
  • Land’s End: “With regard to sourcing…we have been intentionally repositioning our sourcing network to better serve the business we are building leading to a more balanced supply chain that enables us to bring new solutions to customers with more speed and frequency throughout the year. For example, our licens epartners are becoming part of our sourcing network…By tapping into the full breadth of our sourcing matrix, we are able to swiftly and strategically reposition fabric and manufacturing as tariff conditions evolve.”

Fifth, as part of their tariff cost mitigation strategy, many U.S. fashion companies have been strategically but cautiously building preemptive stock, adopting a data-driven approach to optimize inventory, and simplifying product assortment. For example:

  • Levi’s: “And for Q4, we declared a dividend of 14¢ per share, which is up8% to prior year. We ended the quarter with reported inventory dollars up 12%, driven by purposeful investment ahead of the holiday and higher product cost than a year ago due to tariffs. In unit terms, inventory was up 8% versus last year. As of today (October 9, 2025), we have 70% of the product in the US needed for holiday.”
  • Ralph Lauren: “So we feel good about our inventory levels as we head into the fall season. So we ended Q1 (2025), as you know, with inventories up 18% versus Q1 of last year (2024)…if you think about sort of our Q2 revenue guide of up high single digits, relates to the strategic acceleration of largely core inventory receipts into the U.S. in Q1 during the tariff pause period…So if you back out that tariff-related strategic pull up, our inventory growth is actually a little behind our double-digit top line growth for Q1 and right in line with our expected high single-digit top line growth for next quarter, Q2. And…for the year to go, we expect inventories to moderate as we move throughout the fiscal year, and we plan on ending fiscal ’26 with levels generally in line with demand.”
  • PVH: “Inventory at quarter end (Q2, 2025) was up13% compared to Q2 last year (2024), including a 1% increase due to tariffs, and reflects a planned improvement compared to up 19% in Q1.”
  • Hanesbrands: “we’re leveraging advanced analytics with the use of AI to drive operational improvement around the globe, including inventory and assortment management as well as demand planning and forecasting.”
  • Tapestry: “We’re bringing more innovation to the assortment while we streamline our offering, reducing handbag styles by over 30% by fall, allowing us to stand behind our big ideas with clarity and intention.”

by Sheng Lu

Impacts of Trump’s Escalating Tariffs on Apparel Sourcing: U.S. Fashion Companies’ Perspective

Updated study available: Updated Impact of Increasing Tariffs on U.S. Fashion Companies’ Sourcing and Businesses (October 2025)

(Note: The figure above shows how frequently the term “tariff” was mentioned alongside other key issues in the earnings calls. A higher frequency indicates a more significant impact and a closer connection between tariffs and a specific theme.)

This study aims to examine the impacts of the Trump administration’s escalating tariffs on U.S. fashion companies’ apparel sourcing practices. Based on data availability, transcripts of the latest earnings calls from approximately 25 leading publicly traded U.S. fashion companies were collected. These earnings calls, held between mid-May and June 2025, covered company performance in the first quarter of 2025. A thematic analysis of the transcripts was conducted using MAXQDA.

Overall, the results indicate that the Trump administration’s escalating tariffs and policy uncertainties have financially hurt U.S. fashion companies and disrupted their apparel sourcing practices. To mitigate these impacts, most companies plan to further reduce their “China exposure,” maintain a geographically diversified sourcing base, and prioritize flexibility in sourcing and shipping. However, there is no clear evidence that the current policy environment has successfully incentivized U.S. companies to expand apparel sourcing from the Western Hemisphere, let alone commit to new long-term investments. Meanwhile, U.S. fashion companies have adopted a strategic pricing approach by not passing the entire cost increase to consumers through widespread retail price hikes.

A few key findings:

First, far from surprising, many leading U.S. fashion companies expressed concerns that the Trump administration’s escalating tariffs have resulted in higher sourcing costs and cut companies’ profit margins. For example:

  • Company G (specialty store): if current tariffs of 30% on most imports from China and 10% on most imports from other countries remain for the balance of the year, we estimate a gross incremental cost of approximately $250 million to $300 million.
  • Company O (a parent company of several leading apparel brands): We expect that gross margin will contract approximately 200 basis points for the year. This contraction includes $40 million in additional tariff costs.
  • Company V1 (underwear brand): gross tariff impact of approximately $120 million, which assumes 30% China tariffs and 10% non-China, with tariff mitigation of approximately $70 million for a net impact to fiscal year 2025 of approximately $50 million.

Second, with the hiking tariff rate on U.S. apparel imports from China and increasing strategic competition between the two countries, many leading U.S. fashion companies plan to reduce their apparel sourcing from China to a single-digit, if not move out of the country entirely. For example:

  • Company A1 (apparel brand): We’re on track to reduce our sourcing exposure to China to under 10% this year with fall and holiday season down to low single digits.
  • Company A2 (specialty store): For China specifically, we have worked for some time now to relocate the supply resources, and this year’s sourcing volume from China will be in the low single digits.
  • Company L (apparel brand): Less than 8% of our purchase order dollars last fiscal year were utilized on buys of China.
  • Company O (a parent company of several leading apparel brands): By the second half of 2026, we currently plan to be substantially out of China.
  • Company V2 (a parent company of several leading apparel brands): over the past several years we’ve strategically diversified our supply chain and proactively reduced our US finished goods sourced from China to less than 2%.
  • Company K2 (a parent company of several leading apparel brands): China for us is de minimis.

Third, maintaining a geographically diverse sourcing base remains a popular strategy for U.S. fashion companies to mitigate the impacts of increasing tariffs and ongoing policy uncertainties. Companies particularly intend to avoid “putting too many eggs in one basket” and limiting the reliance on any single supplying country. For example:

  • Company K1 (retailer): our talented and experienced global sourcing team has done an incredible job diversifying our countries of production to ensure that we are not overly reliant on any one country. Although tariffs remain a fluid and uncertain situation, the teams continue to work to reduce our exposure to high tariff countries by leveraging our diverse factory network to move production, adjusting orders based on pricing elasticity analysis.
  • Company G (specialty store): Most other countries represent less than 10%, Vietnam and Indonesia represented 27%, and 19% of our sourcing last year, respectively, and our goal is for no country to account for more than 25% by the end of 2026.
  • Company R (apparel brand): While tariffs will primarily impact our gross margins… we have a proven toolkit to manage cost inflation headwinds. This includes first, significant supply chain diversification…No single country accounts for more than 20% of our production volumes, with most countries representing a single-digit percentage.
  • Company U (retailer): The remaining third is strategically diversified across a number of other countries, each representing a low to mid-single-digit percentage. This deliberate diversification creates a well-balanced portfolio, reducing reliance on any single market and enhancing our ability to navigate geopolitical, costs and supply chain complexities from a position of strength.

Notably, while a limited few companies specifically mentioned the possibility of expanding sourcing from the Western Hemisphere amid the current business environment, most did not. For example:

  • Company L (apparel brand): We intentionally drove significant change in our supply chain as we accelerated production in the Western Hemisphere, giving us both speed and additional avenues to mitigate tariffs and provide resiliency.
  • Company G (specialty store): Diversification also means near-shoring as well as domestic investment.

Fourth, U.S. fashion companies have leveraged shipping timing, piled up inventory, and delayed or cancelled existing orders to mitigate the tariff impacts as much as possible. For example:

  • Company C (sportswear): For products that are impacted by the reciprocal tariffs, we are accelerating shipments to the extent possible in order to receive products during the 90-day tariff.
  • Company K1 (retailer): Inventory was up 1.7% compared to last year, driven by inventory strategies implemented to navigate the tariff pressure, including the pull forward of receipts and pack in holding seasonal inventory to be sold in the back half of the year.
  • Company B (off-price retailer): Our reserve inventory was 48% of our total inventory versus 40% of our inventory last year. In dollar terms, our reserve inventory was up 31% compared to last year, reflecting the great deals we were able to make to get ahead of tariffs.
  • Company M (retailer): With the recent announcement of these tariffs, we’ve renegotiated orders with suppliers, and we’ve canceled or delayed orders where the value proposition is just not where it needs to be.

It should be noted, however, that adjusting shipping and inventory could incur additional costs. For example:

  • Company V1 (underwear brand): More than half of the gross margin rate pressure in the quarter was due to a combination of elevated and expected airfreight rates, some tariff-related order adjustments…

Fifth, despite higher sourcing costs and increasing financial pressures, many U.S. fashion companies have avoided widespread price hikes but have implemented selective increases in less price-sensitive apparel categories. For example:

  • Company V1 (underwear brand): [price increase driven by higher tariffs] And so we are going to sort of play in the middle where we see value. So and it won’t be across all categories. As we think about our business, it’s really that strategic case by case, category by category look that we’re taking.
  • Company U (retailer): gently and sparingly raising some prices. Please note that any price increases will be very strategic, protecting opening price points and only targeting areas where we believe we could raise prices without affecting the overall customer experience.
  • Company A2 (specialty store): we are not planning broad-based ticket increases. As we’ve done season after season, our goal is to deliver high-quality product and align inventory and promotions with our customers’ value perception.
  • Company P (a parent company of several leading apparel brands): We will evaluate strategic discounts to mitigate the potential tariff impact. While we are focused on delivering price value for the consumer, we are also ready to take calibrated targeted pricing actions where we have pricing power.

by Sheng Lu

Additional reading: Tariffs Upend Fashion Sourcing and Disrupt Cash Flow Amid Widening Trade Gap (Sourcing Journal, June 27, 2025)

Gap Inc.’s Evolving Apparel Sourcing Base: 2021-2024

Gap CEO talks tariff impacts (Feb 2025)

Established in 1969, Gap Inc. is a leading American clothing retailer that operates several prominent brands, including Old Navy, Gap, Banana Republic, and Athleta, catering to diverse consumer segments.

The following analysis is based on Gap Inc.’s publicly released factory list. Only factories identified as producing “apparel” products were included in the analysis.

First, like several other leading U.S. fashion companies, Gap Inc. maintained a geographically diverse global sourcing base but reduced the number of factories it sourced from between 2021 and 2024. Specifically, as of October 2024 (the latest data available), Gap Inc. sourced apparel from 24 countries, an increase from 21 countries as of March 2021. Gap Inc.’s apparel sourcing reached almost all continents, including Asia, the Americas, Europe, and Africa.

However, between March 2021 and October 2024, Gap Inc. decreased the number of apparel factories it contracts with from 548 to 502, a reduction of 46. Most of the cuts occurred in China (down 40 factories), Vietnam (down 32 factories), and Cambodia (down 8 factories).  This pattern aligned with the findings of other industry studies, which indicate that many U.S. fashion companies, particularly larger ones, are consolidating their vendor base to prioritize operational efficiency and strengthen the relationships with key vendors.

Second, Gap Inc. has significantly reduced its reliance on China and actively explored emerging sourcing destinations in the rest of Asia, Central America and beyond. According to Gap Inc.’s 2023 annual report (the latest available at the time of writing), its two largest vendors represented approximately 9 percent and 7 percent of the total dollar amount of the company’s purchases. In value terms, in 2023, approximately 29 percent of Gap Inc.’s products were sourced from Vietnam, followed by Indonesia (18 percent).

While China remained the largest source of U.S. apparel imports according to official trade statistics, China now plays a relatively minor role in supplying finished garments for Gap Inc. As of October 2024, the company sourced apparel from 36 factories in China, representing just 7.2 percent of its total apparel sourcing base, making China only the sixth-largest supplier after Vietnam, India, Indonesia, Bangladesh, and Sri Lanka. In an interview conducted in early 2025 (the video above), Gap Inc.’s CEO disclosed that less than 10 percent of the company’s products are sourced from China.

On the other hand, between March 2021 and October 2024, Gap Inc. expanded its sourcing network beyond the traditional top three (China, Vietnam, and Bangladesh), with significant growth in other parts of Asia and Central America, led by India (added 8 more factories) and Guatemala (added 9 more factories).  In 2022, Gap Inc. pledged to source around $150 million in apparel products each year from Central America by 2025.

Third, Gap Inc.’s apparel sourcing base varies by product category. For example, approximately 45% of the company’s contract factories producing denim and woven bottoms were located in Vietnam and Bangladesh, likely due to the availability of cotton and a relatively abundant low-cost labor force. In contrast, factories in Sri Lanka primarily manufactured intimates, performance wear, and swimwear (IPSS) for Gap Inc. Meanwhile, half of the company’s sweater factories were located in China, largely due to the complex manufacturing process and raw material requirements for these products. Additionally, India played a critical role as a sourcing base for Gap Inc.’s woven apparel.

Furthermore, Gap Inc.’s contract garment factories worldwide vary in size, reflecting the company’s diverse sourcing needs. Specifically, in Asia, garment factories in China are typically small or medium-sized, with fewer than 1,000 workers (94.3%). In contrast, nearly 80% of Gap Inc.’s contract garment factories in Bangladesh have more than 1,000 workers, with similar patterns observed in Vietnam (48.7%), India (50%), Indonesia (63.2%), and Pakistan (57.1%). This pattern aligns with other industry studies suggesting that U.S. fashion companies source apparel products from China primarily for orders with relatively small minimum order quantities (MOQs) and those requiring a great variety.

Meanwhile, most garment factories in Central American countries producing products for Gap Inc. have fewer than 1,000 workers, such as Guatemala (100%), Nicaragua (71%), Haiti (67%), and El Salvador (100%). A similar pattern is observed in other regions, such as Egypt (67%) and Turkey (82%). This result suggests that Gap Inc. may still need to rely on Asia to fulfill orders for large-volume items, as it takes time to expand production capacity in other regions.

by Sheng Lu

FASH455 Exclusive Interview with Michael Lambert, Executive Director of Global Trade and Compliance of Urban Outfitters, about Trade Compliance and Global Apparel Sourcing

About Michael Lambert

Michael Lambert is the Executive Director of Global Trade and Compliance at Urban Outfitters (URBN). He also serves as the Vice Chair of the Board of Directors of the United States Fashion Industry Association (USFIA).

Michael has spent over 30 years in the retail fashion business, primarily in the import/export and Customs compliance area. At URBN, Michael is responsible for Customs, Social, Vendor and Regulatory Compliance. Urban Outfitters has a global footprint, with stores in the U.S., Canada, Europe and the United Kingdom.  Urban Outfitters designs and develops products throughout the world, working with a core vendor base across more than thirty countries. Prior to Urban Outfitters, Michael spent nine years with Limited Brands as head of their Import Planning department.  He spent his last two years with Limited Brands in London, setting up Compliance activity for Limited Brands as they expanded overseas.

Michael has been a Licensed Customs Broker since 1998 and is a graduate of Pennsylvania State University, with a Bachelor of Arts in International Politics and Foreign Service.

About Emilie Delaye (Moderator)

Emilie Delaye is a 2024 UD entrepreneurship graduate and an incoming UD graduate student in fashion and apparel studies. Emilie is the recipient of the 2024 UD Alumni Association Alexander J. Taylor Sr. Awards for Outstanding Seniors.

Patterns of US Apparel Imports in the First Half of 2022 and Key Sourcing Trends

First, US apparel imports enjoyed a decent growth but started to face softening demand.

  • Thanks to consumers’ spending, in the first half of 2022, US apparel imports went up 40% in value and 24% in quantity from a year ago.
  • However, due to US consumers’ weakening demand amid the economic downturn, the speed of import expansion is slowing down quickly. As an alert, the US consumer confidence index (CCI) fell to 54.8 in June 2022 (January 2019=100), the lowest since the pandemic. This result suggests that US consumers were increasingly worried about their household’s financial outlook and would hold back their discretionary clothing spending.
  • The month-over-month growth of US apparel imports dropped to only 2.6% in value and nearly zero in quantity in June 2022 from over 10% at the beginning of the year.
  • As the trajectory of the US economy remains highly uncertain in the medium term, we could expect many US fashion companies to turn more conservative about placing new sourcing orders in the second half of 2022 to control inventory and avoid overstock.

Second, fashion companies struggled with hiking apparel sourcing costs driven by multiple factors.

  • The price index of US apparel imports reached 103.9 in June 2022 (January 2019=100), a 3.1% increase from a year ago and the highest since 2019. USITC data further shows that, of the over 200 types of apparel items (HS Chapters 61 and 62) at the six-digit code level, nearly 70% had a price increase in the first half of 2022 from a year ago, including almost 40% experiencing a price increase exceeding 10 percent.
  • According to the 2022 Fashion Industry Benchmarking Study recently released by the US Fashion Industry Association (USFIA), 100 percent of respondents expect their sourcing costs to increase in 2022, including nearly 40 percent expecting a substantial cost increase from a year ago. Further, respondents say that almost everything has become more expensive this year, from textile raw materials, shipping, and labor to the costs associated with compliance with trade regulations.
  • To make the situation even worse, the more expensive “cost of goods” resulted in heavier burdens of ad valorem import duties for US fashion companies. USITC data shows that in the first five months of 2022, US companies paid $6,117 million in tariffs for apparel imports (HS Chapters 61 and 62), a significant increase of 42.9% from a year ago. Of these import duties paid by US companies, about 30% (or $1,804 million) resulted from the controversial US Section 301 action against Chinese imports. Because of the Section 301 tariff action, the average applied US tariff rate for apparel imports also increased from 17.2% in 2018 to 18.7% in the first half of 2022.
  • Even though the US retail price index for clothing reached 102.7 in June 2022 (January 2019=100), the price increase was behind the import cost surge over the same period. In other words, given the intense market competition and weaker demand, US fashion companies couldn’t pass the sourcing cost increase to consumers entirely.

Third, US fashion companies continued to diversify their sourcing base in 2022, which benefited large-scale suppliers in Asia.

  • The Herfindahl–Hirschman index (HHI), a commonly-used measurement of market concentration, went down from 0.11 in 2021 to 0.10 in the first half of 2022, suggesting that US apparel imports came from even more diverse sources. Similarly, the CS3 index, measuring the total market shares of the top three suppliers (i.e., China, Vietnam, and Bangladesh), fell below 50% in the first half of 2022, the lowest since 2018.
  • The Asia region remains the dominant source of apparel for US fashion companies: about 74.4% of US apparel imports came from Asian countries in the first half of 2022 (by value), which has stayed stable for over a decade.
  • One critical factor behind the apparent “contradictory” phenomenon is US fashion companies’ intention to reduce their “China exposure” further. Notably, considering all primary sourcing factors, from cost, speed to market, production flexibility, agility, and compliance risks, relatively large-scale Asian suppliers are the most likely alternatives to “Made in China.” Thus, the CR5 index excluding China (i.e., the market shares of Vietnam, Bangladesh, Indonesia, India, and Cambodia) increased from 40.7% in 2021 to 45.5% in the first half of 2022.

Fourth, US fashion companies’ evolving China sourcing strategy is far more subtle and complicated than simply “moving out of China.”

  • US fashion companies doubled their efforts to reduce sourcing from China in 2022, particularly in response to the newly implemented Uyghur Forced Labor Prevention Act (UFLPA) and the growing geopolitical risks. For example, measured in value, only 13.2% of US cotton apparel imports (OTEXA code 31) came from China in the first half of 2022, which fell from 14.4% a year ago and much lower than nearly 30% back in 2017.
  • Industry sources indicate that US fashion companies are “upgrading” what they source from China, possibly to offset the Section 301 punitive tariffs. The structural change includes importing less basic apparel items (e.g., tops and bottoms) and more sophisticated and higher-valued categories (e.g., dresses). Also, US fashion companies increasingly source from China for apparel items sold in the high-end market. For example, measured by the number of Stock Keeping Units (SKU), about 94% of apparel labeled “Made in China” sold in the US retail market targeted the value segment in 2018. However, of those apparel “Made in China” newly launched to the US retail market between January and July 2022, less than 2% were in the value segment. Instead, items targeting the higher-priced premium and mass market segments surged from 5% to 64%. Another 33% of “Made in China” were luxury apparel items. In other words, US fashion companies no longer see China as a sourcing base for cheap low-end products. Their sourcing decisions regarding China would give more consideration to non-price factors.
  • Further, some US fashion companies still see China as a promising sales market with growth potential. Localizing the supply chain (i.e., made in China for China) could be an increasingly popular practice for these companies. Thus, fashion companies’ vision for China could increasingly differ between those that only import products from China and those that see China as an emerging sales market.

Fifth, US apparel imports from the free trade agreements and trade preference programs partners stayed relatively stable in 2022 but lacked growth.

  • Despite the growing enthusiasm among US fashion companies for expanding near sourcing from the Western Hemisphere, the trade volume stayed stagnant. For example, in the first half of 2022, members of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) accounted for 8.8% of US apparel imports in quantity and 9.9% in value, lower than a year ago (i.e., 9.9% in quantity and 11.1% in value). Likewise, Mexico also reported lower market shares in the US apparel import market in 2022. The results remind us that encouraging more US apparel sourcing from free trade agreements and preference program partners should go beyond offering preferential duty treatment.
  • Product diversification is a critical area that needs improvement, particularly regarding Western Hemisphere sourcing. For example, results show that US apparel sourcing from CAFTA-DR and Mexico generally concentrated on basic items such as tops and bottoms. In comparison, Asian countries, such as China, Vietnam, and Bangladesh, could offer much more diverse categories of products. This explains why US fashion companies treat large-scale Asian countries as their preferred alternatives to “Made in China” rather than moving sourcing orders to CAFTA-DR or Mexico.
  • Even though the ultimate goal is to expand US apparel sourcing from the Western Hemisphere, we need to make more efforts to practically and creatively solve the bottleneck of textile raw material supply facing garment producers in the region.

by Sheng Lu

Suggested citation: Lu, S. (2022). Patterns of US Apparel Imports in the First Half of 2022 and Key Sourcing Trends. FASH455 global apparel and textile trade and sourcing. https://shenglufashion.com/2022/08/08/patterns-of-us-apparel-imports-in-the-first-half-of-2022-and-key-sourcing-trends/