Challenges facing Sub-Saharan Africa (SSA) as an Apparel Sourcing Base

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Sub-Saharan Africa (SSA) is widely regarded as a growing apparel-souring destination. Particularly, U.S. Congress established the African Growth and Opportunity Act (AGOA), a non-reciprocal trade preference program, in 2000, to help developing SSA countries grow their economy through expanded exports to the United States. Because apparel production plays a dominant role in many SSA countries’ economic development, apparel has become one of the top exports for many SSA countries under AGOA. Notably, the “third-country fabric provision” under AGOA allows US apparel imports from certain SSA countries to be qualified for duty-free treatment even if the apparel items use yarns and fabrics produced by non-AGOA members, such as China, South Korea, and Taiwan. This special rule is deemed as critical as most SSA countries still have no capacity in producing capital and technology-intensive textile products.

That being said, to play a bigger role as an apparel sourcing base, SSA is not without significant challenges:

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Challenge 1: limited industry upgrading and local textile production capacity

Theoretically, as a country’s economy advances, it should gradually be producing and exporting more capital and technology-intensive textiles versus labor-intensive apparel products. This is the notable trends in many Asian countries (such as China and Vietnam), where the textile/apparel export ratio has been rising steadily between 2005 and 2017. However, as a reflection of the stagnant industry upgrading, the textile/apparel export ratio remains fairly low in SSA, including in Lesotho, Kenya, and Mauritius, the top three largest apparel exporters in the SSA region.

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Challenge 2: Slow and no progress in export diversification

Ideally, as the economy becomes more sophisticated, textiles and apparel (T&A) should account for a declining share in a country’s total merchandise exports. Countries such as China, Vietnam, and ASEAN demonstrate perfect examples. However, in some SSA countries (e.g., Lesotho), T&A has stably accounted for over 80% of their total merchandise exports over the past 17 years, a sign of slow or no progress in export diversification. In other SSA countries, T&A accounted for less than 10% of their total merchandise exports, suggesting the sector is not a priority to the local economy.

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Challenge 3: Intense competition both in key export markets and domestic market

As of 2017, over 96% of SSA countries’ T&A exports went to three markets: the United States, the EU, and other SSA members. However, because of the intense competition, except for the regional SSA market, SSA countries account for merely 1.4% and 0.2% of total U.S. and EU textile and apparel imports in 2017 respectively.

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Even more concerning, the T&A industry in SSA countries is facing growing competition in the domestic market with cheap imports, mostly from Asia. Notably, SSA countries import MORE apparel than they export, a phenomenon rarely seen among developing countries in a similar stage of economic development.

Challenge 4: U.S. companies remain low interest in investing in the region directly

According to several recent studies, leading U.S. fashion brands and retailers remain low interest in investing in the SSA region directly, even though companies admit more investments in areas such as infrastructure are critical to the success of SSA countries serving as competitive apparel sourcing bases. Some argue that the “temporary” nature of AGOA make companies hesitant to build factories in SSA. However, should AGOA become a permanent free trade agreement, which follows the principle of reciprocity, SSA countries would have to lower their trade barriers to U.S. products, including eliminating the tariffs and non-tariff barriers, in exchange for the reciprocal market access benefits from the United States. It doesn’t seem most AGOA members are ready for that stage yet.

by Sheng Lu

Further reading: Challenges for sub-Saharan Africa as an apparel sourcing hub

U.S. Apparel Retailers’ Shifting Sourcing Strategy for “Made in China” under the Shadow of the Tariff War

The full article is available HERE

Key findings:

First, U.S. fashion brands and retailers are sourcing less from China, particularly in quantity. Notably, the number of “Made in China” apparel newly launched to the market had significantly dropped from 26,758 SKUs in the first quarter of 2018 to only 8,352 SKUs in the first quarter of 2019 . Nevertheless, consistent with the macro-level trade statistics, China remains the single largest apparel supplier to the U.S. retail market.

Second, apparel “Made in China” are becoming more expensive in the U.S. retail market, yet remain price-competitive overall. Notably, apparel “Made in Vietnam” is becoming more expensive in the U.S. retail market too—an indication that as more production is moving from China to Vietnam, apparel producers and exporters in Vietnam are facing growing cost pressures.

Third, U.S. fashion retailers are shifting what apparel products they source from China. U.S. apparel retailers have been sourcing less lower value-added basic fashion items (such as tops, and underwear), but more sophisticated and higher value-added apparel categories (such as dresses and outerwear) from China since 2018. The shifting product structure could also be a factor that contributed to the rising average retail price of “Made in China” in the U.S. market.

On the other hand, U.S. retailers adopt a very different product assortment strategy for apparel sourced from China versus other regions of the world. There seems to be much fewer alternative sourcing destinations for more sophisticated product categories, such as accessories and outerwear. Somehow ironically, moving to source more sophisticated and higher value-added products from China could make U.S. fashion brands and retailers even MORE vulnerable to the tariff war because of fewer alternative sourcing destinations.

In conclusion, the results imply that China will remain a critical sourcing destination for U.S. fashion brands and retailers in the near future, regardless of the scenario of the U.S.-China tariff war. Meanwhile, we should expect U.S. fashion companies continue to adjust their sourcing strategy for apparel “Made in China” in response to the escalation of the tariff war.

Related reading: Trade war to hit high-end US fashion brands dependent on specialized Chinese manufacturing

USITC Economic Assessment Report on USMCA—Textile and Apparel Sector Summary

On April 19, 2019, the U.S. International Trade Commission (USITC) released its independent assessment report on the likely economic impact of the U.S.-Mexico-Canada Free Trade Agreement (USMCA or NAFTA2.0). Below are the key findings of the report:

Impact of USMCA on the U.S. economy

USITC found that because of the size of the U.S. economy relative to the size of the Mexican and Canadian economies and the reduction in tariff and nontariff barriers that has already taken place among the three countries under the North American Free Trade Agreement (NAFTA), the overall impact of USMCA on the U.S. economy is likely to be moderate. For example, USITC’s computable general equilibrium (CGE) model suggests that compared to the base year level in 2017, USMCA could increase the U.S. GDP by 0.35% (or $68.2 billion) and create 0.17 million new jobs when other factors held constant.

Impact of USMCA on the textile and apparel sector

First, USITC found that the USMCA overall is a balanced deal for the textile and apparel sector, particularly regarding the rules of origin (RoO) debate. As USITC noted, USMCA eases the requirements for duty-free treatment for certain textile and apparel products, but tighten the requirements for other products. For example, USMCA eliminates the NAFTA requirements that visible linings must be sourced from members of the agreement; however, USMCA adds more restrictive new requirements for narrow elastic fabrics, sewing thread, and pocket bag fabric.

Second, USITC found that the USMCA changes to the Tariff Preference Level (TPLs) would not have much effect on related trade flows. As USITC noted in its report, where USMCA would cut the TPL level on particular U.S. imports from Canada or Mexico, the quantitative limit for these product categories was not fully utilized in the past.  Meanwhile, the TPL level for product categories typically fully used would remain unchanged under USMCA. The only trade flow that might enjoy a notable increase is the U.S. cotton and man-made fiber (MMF) apparel exports to Canada—the TPL is increased to 20million SME annually under USMCA from 9 million under NAFTA.

Third, USITC suggested that in aggregate, the changes under USMCA for the textile and apparel sector will more or less balance each other out and USMCA would NOT affect the overall utilization of USMCA’s duty-free provisions significantly. Notably, the under-utilization of free trade agreements (FTAs) by U.S. companies in apparel sourcing has been a long-time issue. Data from the Office of Textiles and Apparel (OTEXA) shows that of the total $4,292.8 million U.S. apparel imports from the NAFTA region in 2018, only $3,756.1 million (or 87.5%) claimed the preferential duty benefits under the agreement. As noted in the U.S. Fashion Industry Benchmarking Study, some U.S. fashion companies do not claim the duty savings largely because of the restrictive RoO and the onerous documentation requirements.

However, interesting enough, the USITC report says little about the potential impact of USMCA on U.S. textile and apparel manufacturing.

Timeline

On 30 September 2018, the United States reached USMCA with Canada and Mexico. On 30 November 2018, USMCA was officially signed by Presidents of the three countries. According to the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (the picture above), after the release of the USITC economic assessment report on USMCA, the Trump Administration will need to work with U.S. Congress to develop legislation to approve and implement the agreement. However, there remains huge uncertainties over USMCA’s prospect.

Related reading:

Cambodia May Lose Its Eligibility for European Union’s Everything But Arms (EBA) Program

Last week in FASH455, we discussed the unique critical role played by textile and apparel trade in generating economic growth in many developing countries. The developed countries also use trade policy tools, such as trade preference programs, to encourage the least developed countries (LDCs) making and exporting more apparel. However, a debate on these trade programs is that they have done little to improve the genuine competitiveness of LDCs’ apparel exports in the world marketplace, but instead have made LDCs rely heavily on these trade programs to continue their apparel exports. Here is one more example:

With growing concerns about “the deterioration of democracy, respect for human rights and the rule of law in Cambodia”, in a statement made on February 12, 2019, the European Union says it has started the process that could lead to a temporary suspension of Cambodia’s eligibility for EU’s Everything But Arms (EBA) program. Specifically, the EU process will include the following three stages:

  • Stage 1: six months of intensive monitoring and engagement with the Cambodian government;
  • Stage 2: another three months for the EU to produce a report based on the findings in stage 1
  • Stage 3: after a total of twelve months in stages 1 & 2, the EU Commission will conclude the procedure with a final decision on whether or not to withdraw tariff preferences; it is also at this stage that the Commission will decide the scope and duration of the withdrawal. Any withdrawal would come into effect after a further six-month period.

However, the EU Commission also stressed that launching the temporary withdrawal procedure does not entail an immediate removal of Cambodia’s preferential access to the EU market, which “would be the option of last resort.”

Developed in 2001, the EBA program establishes duty-free and quota-free treatment for all Least Developed Countries (LDCs) in the EU market. EBA includes almost all industries other than arms and armaments. As of February 2019, there are 49 EBA beneficiary countries.

The EBA program has benefited the apparel sector in particular given clothing accounts for the lion’s share in many LDCs’ total merchandise exports. Because of the preferential duty benefits provided by EBA, many LDCs can compete with other competitive apparel powerhouses such as China. Notably, the EBA program also adopts the “cut and sew” rules of origin for apparel, which is more general than the “double transformation” rules of origin typically required by EU free trade agreement and trade preference programs. Under the “cut and sew” rule, Cambodia’s apparel exports to the EU can enjoy the import duty-free treatment while using yarns and fabrics sourced from anywhere in the world.

Cambodia is a major apparel supplier for the EU market, accounting for approximately 4% of EU’s total apparel imports in 2017. Exporting apparel to EU through the EBA program is also of particular importance to Cambodia economically. In 2016, the apparel sector created over 500,000 jobs in Cambodia, of whom 86% were female, working in 556 registered factories. According to Eurostat, of EU’s €4.9bn imports from Cambodia in 2017, around 74.9% were apparel (HS chapters 61 and 62). Meanwhile, of EU’s €3.7bn apparel imports from Cambodia in 2017, as high as 96.6% claimed the EBA benefits. Understandably, losing the EBA eligibility could hurt Cambodia’s apparel exports to the EU significantly.

Trade Wars, Tariffs and Strategic Textile and Apparel Sourcing


Lenzing Texworld USA Winter 2019 Educational Series

Speaker: Gail Strickler, President of Global Trade Brookfield Associates, LLC & former Assistant U.S. Trade Representative for Textiles;

Topics covered:

  • The state of trade in textiles and apparel
  • Trans-Pacific Partnership (TPP)—what is now without the United States?
  • Latest on the U.S. Section 301 tariff against China
  • Updates on free trade agreements and textile and apparel (including USMCA, KORUS, US-EU FTA, CAFTA-DR, and AGOA)

Demystify the “Made in the USA” Apparel Sourcing Strategy

While the majority of apparel consumed in the United States come from overseas, “Made in the USA” is growing in popularity. According to the 2018 U.S. Fashion Industry Benchmarking Study released by the U.S. Fashion Industry Association (USFIA) in July 2018, 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.  Likewise, the State of Fashion 2019 report published by Business of Fashion (BOF) and McKinsey & Company in November also forecasts that over 20 percent of U.S. fashion companies’ sourcing volume could be from nearshore by 2025, thanks to automation technology and consumers’ increasing demand for speed to market.

However, the detailed practice of the “Made in the USA” apparel sourcing strategy–including who is sourcing, what products are sourced, and what the typical price range of these products remain largely unknown.

To answer these questions, we recently analyzed the pricing, product assortment and inventory information of over 90,000 fashion retailers and 300,000,000 fashion apparel products at the Stock-Keeping Unit (SKU) level based on EDITED, a big data and business analytics tool developed for the fashion industry. For the research purpose, we selected apparel products newly launched to the U.S. market in the past twelve months (i.e., between 1 December 2017 and 30 November 2018) with “Made in the USA” explicitly mentioned in the product description. Below are the key findings:

First, “Made in the USA” apparel overall are treated as a niche product in U.S. fashion brands and retailers’ sourcing portfolio.

During the 12 months we examined (1 December 2017-30 November 2018), 94 out of the total 348 retailers (or 27 percent) sold “Made in the USA” apparel in the U.S. market. The top 10 sellers list includes BOTH retailers that focus on the value market such as Walmart and relatively high-end department stores such as Bloomingdale and Saks Fifth Avenue. However, even for these top sellers, “Made in the USA” apparel accounted for less than 8 percent of their total product offers on average.

Second, U.S. fashion brands and retailers are most likely to source“Made in the USA” apparel for relatively fashion-oriented items, particularly bottoms (such as skirts, jeans, and trousers), dresses, all-in-ones (such as playsuits and dungarees), swimwear and suits-sets.

The competitive edge for these product categories in the retail market, in general, increasingly depends on unique designs, high product quality, and speed to market, which makes sourcing from the United States commercially beneficial. In comparison, imported products are more concentrated on basic fashion items often competing on price in the U.S. retail market, including tops (such as T-shirt and polo shirt), underwear, and nightwear.

It is also interesting to note that “Made in the USA” apparel were predominately women’s wear (92 percent), whereas imported clothing adopted a more balanced gender combination (63 percent women’s wear and 37 percent men’s wear). Because the fashion trends for women’s wear usually are shorter-lived and harder to predict, this result once again indicates that seeking quick response and shorter lead time for stylish and trendy items could be an important incentive for local sourcing by U.S. fashion brands and retailers.

Third, consistent with the common perception, “Made in the USA” apparel overall are pricier than imported ones in the U.S. retail market.

Taking the U.S. apparel retail market as a whole, close to 40 percent of “Made in the USA” offering in the past 12 months targeted the premium or luxury market, compared with only 20 percent of imported products.  In contrast, as few as 18 percent of “Made in the USA” offering were in the value market, which, however, accounted for approximately 60 percent of all imported apparel sold in the U.S. market. In totality, it seems U.S. fashion brands and retailers are purposefully targeting “Made in the USA” apparel for less price-sensitive segments of the market to balance the high domestic production cost.

On the other hand, when examining U.S. fashion brands and retailers’ pricing strategy at the product level, “Made in the USA” clothing was still priced much higher than imported ones for almost all major apparel categories, except hosiery. Notably, in the past 12 months, the average unit retail price of “Made in the USA” clothing was 99.2 percent higher than imported ones in the value and mass market and 36.0 percent higher in the premium and luxury market. This interesting phenomenon supports the arguments that U.S. consumers somehow are willing to pay a premium price for products with the “Made in the USA” label.  

Additionally, during the past 12 months, around 46.3 percent of “Made in the USA” apparel were sold at a discount compared with more than 54.6 percent of imported ones. The advantage of proximity to the market, which makes speedy replenishment for in-season items possible, is an important factor behind the more successful control of markdowns for “Made in the USA” products. For example, data shows that U.S. fashion brands and retailers replenished approximately 12.7 percent of their “Made in the USA” offering in the past 12 months but only 2.8 percent of imported clothing.

In conclusion, the findings of this study concur with the view that “Made in the USA” apparel are still relevant today. Meanwhile, it does not seem to be the case that “Made in the USA” apparel and imported ones are necessarily competing with each other in the U.S. retail market. With apparel sourcing increasingly requiring striking a balance among various factors ranging from cost, flexibility, compliance to speed to market, it is hopeful that “Made in the USA” apparel will continue to have its unique role to play in U.S. fashion brands and retailers’ merchandising and sourcing strategies.

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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Evolving Sourcing Strategies of U.S. Apparel Companies

The full article is available HERE

To better understand companies’ latest sourcing practices, we recently examined the detailed sourcing portfolios of the 50 largest U.S.-based apparel companies ranked by the Apparel Magazine. Specifically, we conducted a content analysis of each company’s publicly released annual reports and their financial statements from 2014 to 2017 (the latest information available), with a focus on the following two research questions: 1) How have the sourcing strategies of U.S. apparel companies evolved? 2) How have the evolving sourcing strategies affected companies’ financial performance? Here are the key findings:

First, U.S. apparel companies overall adopt a diverse sourcing base. Among the 50 companies we examined, on average they sourced from over 20 different countries or regions using more than 200 vendors in 2017. These results echo the findings of the 2018 U.S. Fashion Industry Benchmarking Study released by the U.S. Fashion Industry Association (USFIA) in July. Based on a survey of nearly 30 executives from leading U.S. fashion brands and apparel retailers, the study also found companies with more than 1,000 employees typically source from more than ten different countries and regions. Also, larger companies, in general, adopt a more diverse sourcing base than smaller ones.

Second, while U.S. 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. Specifically, among the top 50 U.S. apparel companies examined, around 28 percent increased the number of countries or regions they use as sourcing bases between 2014 and 2017. However, over the same period, 52 percent chose to consolidate their existing sources base, but on a small scale. Likewise, among the top 50 U.S. apparel companies examined, approximately half reduced the number of vendors they use between 2014 and 2017, compared with 33 percent that chose to source from more vendors.

Third, for risk control purposes, most U.S. apparel companies avoid relying too much on any single vendor; however, some companies have begun to allocate more sourcing orders to its largest vendors. The top 50 U.S. apparel companies we examined on average assigned no more than 10 percent of their total sourcing value or volumes to any single vendor in 2017. This practice suggests that minimizing supply chain risks is a critical consideration of U.S. apparel companies’ sourcing strategy. Nevertheless, between 2014 and 2017, around 45 percent of apparel companies we examined raised the cap slightly.

Fourth, regarding the financial implications of the adjustment of sourcing strategies, companies that diversified their sourcing bases between 2014 and 2017, in general, were able to reduce sourcing cost and improve gross margin. In comparison, U.S. apparel companies we examined that consolidated their sourcing base between 2014 and 2017 suffered a slight decline in their gross margin percentage.

On the other hand, however, there was no clear pattern between a company’s choice of sourcing strategy and their net profit margin. While multiple factors could come into play, one possible explanation for the results is that that either diversifying or considering the sourcing base would incur additional management cost for the company.

Recommended citation: Luetje, J., & Lu, S. (2018).How do apparel sourcing shifts impact the bottom line?. Just-Style. Retrieved from https://www.just-style.com/analysis/how-do-apparel-sourcing-shifts-impact-the-bottom-line_id134604.aspx

Regional Supply Chain Remains an Import Feature of World Textile and Apparel Trade

The full article is available HERE

Key findings:

The deepening of the regional production and trade network(RPTN) is a critical factor behind the increasing concentration of world textile and apparel exports. RPTN refers to the phenomenon that geographically proximate countries form a regional supply chain.

In general, three primary textile and apparel regional supply chains are operating in the world today:

Asia: within this regional supply chain, more economically advanced Asian countries (such asJapan, South Korea, and China) supply textile raw material to the less economically developed countries in the region (such as Bangladesh, Cambodia, and Vietnam). Based on relatively lower wages, the less developed countries typically undertake the most labor-intensive processes of apparel manufacturing and then export finished apparel to major consumption markets around the world.

Europe: within this regional supply chain, developed countries in Southern and Western Europe such as Italy, France, and Germany, serve as the primary textile suppliers. Regarding apparel manufacturing in EU, products for the mass markets are typically produced by developing countries in Southern and Eastern Europe such as Poland and Romania, whereas high-end luxury products are mostly produced by Southern and Western European countries such as Italy and France. Furthermore, a high portion of finished apparel is shipped to developed EU members such as UK, Germany, France, and Italy for consumption.

Western-Hemisphere(WH): within this regional supply chain, the United States serves as the leading textile supplier, whereas developing countries in North, Central andSouth America (such as Mexico and countries in the Caribbean region) assemble imported textiles from the United States or elsewhere into apparel. The majority of clothing produced in the area is eventually exported to the UnitedStates or Canada for consumption.

Associated with these regional production and trade networks, three particular trade flows are important to watch:

First, Asian countries are increasingly sourcing textile inputs from within the region. In2017, close to 80 percent of Asian countries’ textile imports came from other Asian countries, up from around 70 percent in the 2000s.

Second, the pattern of EU intra-region trade for textile and apparel stays strong and stable. Intra-region trade refers to trade flows between EU members. In 2017, 55 percent of EU countries’ textile imports and 47 percent of EU countries’ apparel imports came from within the EU region. Over the same period, 68 percent of EU countries’ textile exports and 75 percent of their apparel exports also went to other EU countries.

Third, trade flows under the Western-Hemisphere textile and apparel supply chain are becoming more unbalanced. On the one hand, textile and apparel exporters in the Western-Hemisphere still rely heavily on the region. In 2017, respectively as much as 80 percent of textiles and 89 percent of apparel exports from countries in the Western Hemisphere went to the same region.  However, on the other hand, the operation of the Western-Hemisphere supply chain is facing growing competition from Asian suppliers. For example,  in 2017, only 24.8 percent of North, South and Central American countries’ textile imports and 15.7 percent of their apparel imports came from within the region, a record low in the past ten years.

Look ahead, it will be interesting to see how will the reaching and implementation of several new free trade agreements, such as CPTPP, RCEP, EU-Vietnam FTA, and the potential US-EU and US-Japan FTAs,  affect the regional pattern of world textile and apparel trade.

Recommended citation: Lu,S. (2018). How regional supply chains are shaping world textile and apparel trade. Just-Style. Retrieved from https://www.just-style.com/analysis/how-regional-supply-chains-are-shaping-world-textile-and-apparel-trade_id135021.aspx

Patterns of Canada’s Apparel Sourcing and Trade

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The full article is available HERE

Key findings:

First, Canada is one of the largest and fastest growing apparel import markets in the world. Data from the UN Comtrade show that the value of Canada’s apparel imports totaled $10.7bn in 2017, which ranked the fifth in the world, only after the European Union (EU), the United States, Japan, and Hong Kong.

Second, the Asian region as a whole is the dominant apparel supplier for Canada. Measured in value, as much as 80.9 percent of Canada’s apparel imports in 2017 came from Asia. Specifically, China (40.6 percent), Bangladesh (11.1 percent), Cambodia (8.1 percent) and Vietnam (7.7 percent) were the top individual supplier for Canada in 2017, and all of them are located in Asia. Meanwhile, Canadian apparel companies are gradually diversifying their sourcing base: the Herfindahl Index (HHI), a commonly adopted measure of market concentration, declined from 0.3 in 2010 to 0.19 in 2017.

Third, the NAFTA-region remains an important apparel-sourcing base for Canada, but its overall influence is in decline. Measured in value, the United States and Mexico were the 6th and 9th top apparel supplier for Canada in 2017 respectively. However, facing the competition from Asia, the United States and Mexico combined accounted for only 6.4 percent of Canada’s apparel imports in 2017, a significant drop from 9.8 percent back in 2007.

Fourth, free trade agreements and trade preference programs provide duty-saving opportunities for apparel sourcing in Canada. In 2017, Canada applied an average tariff rate of 17.1 percent on imports of knitted apparel (HS Chapter 61) and 15.9 percent on woven apparel (HS chapter 62). As of August 2018, Canada has 17 free trade agreements (FTAs) and trade preference programs (TPAs) in force, offering preferential or duty-free market access to Canada. Traditionally, a substantial portion of Canada’s FTA partners come from the Western Hemisphere, such as Chile, Costa Rica, Colombia, Peru, Honduras, and Panama. However, in recent years, Canada has been actively negotiating and reaching new FTAs with countries in Asia (such as South Korea, India, and Japan) and Europe (including the European Union and Ukraine). 

Compared with the United States, in general, Canada adopts more liberal rules of origin (RoO) for apparel products. Quite a few Canada FTAs allow companies to source yarns or even fabrics from anywhere in the world – with the finished products still enjoying duty-free treatment when exported to Canada.

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China’s Changing Role in the World Textile and Apparel Supply Chain (updated October 2018)

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Following the steps of many countries in history, China is gradually shifting its role in the world textile and apparel supply chain. While China unshakably remains the world’s largest apparel exporter, its market shares measured by value fell from 38.6 percent in 2015 to 33.7 percent in 2017.  China’s market shares in the world’s top three largest apparel import markets, namely the United States, EU, and Japan, also indicate a clear downward trend in the past five years. This result is consistent with several recent survey studies, which find that fashion brands and retailers are actively seeking alternative apparel sourcing bases to China. Indeed, no country, including China, can forever keep its comparative advantage in making labor-intensive garments when its economy becomes more industrialized and advanced.

However, it is also important to recognize that 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. We observe similar trends 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. 

So maybe the right question to ask in the future is: how much value of “Made in China” actually contains in Asian countries’ apparel exports to the world?

China’s Textile and Apparel Factories Today

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Related readings: 

Are Textile and Apparel “Made in China” Losing Competitiveness in the U.S. Market? (updated October 2018)

A fact-checking review of trade statistics in 2017 of a total 167 categories of textile and apparel (T&A) products categorized by the Office of Textiles and Apparel (OTEXA) suggests that T&A products  “Made in China” still have no near competitors in the U.S. import market. Specifically, in 2017:

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  • Of the total 11 categories of yarn, China was the top supplier for 3 categories (or 27.3%);
  • Of the total 34 categories of fabric, China was the top supplier for 26 categories (or 76.5%);
  • Of the total 106 categories of apparel, China was the top supplier for 87 categories (or 82.1%);
  • Of the total 16 categories of made-up textiles, China was the top supplier for 11 categories (or 68.8%);

In comparison, for those Asian T&A suppliers regarded as China’s top competitors:

  • Vietnam was the top supplier for only 5 categories of apparel (less than 5% of the total);
  • Bangladesh was the top supplier for only 2 categories of apparel (less than 2% of the total)
  • India was the top supplier for 1 category of fabric (2.9% of the total), 1 category of apparel (1% of the total) and 5 categories of made-up textiles (41.7% of the total)

Notably, China not only was the top supplier for many T&A products but also held a lion’s market shares. For example, in 2017:

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  • For the 26 categories of fabric that China was the top supplier, China’s average market shares reached 40.5%, 22 percentage points higher than the 2nd top suppliers for these categories
  • For the 87 categories of apparel that China was the top supplier, China’s average market shares reached 52.4%, 36 percentage points higher than the 2nd top suppliers for these categories.
  • For the 11 categories of made-up textiles that China was the top supplier, China’s average market shares reached 58%, 43 percentage points higher than the 2nd top suppliers for these categories.

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Furthermore, T&A “Made in China” are demonstrating even bigger price competitiveness compared to other suppliers in the U.S. market. For example, in 2017, the unit price of apparel “Made China” was only 74% of the price of “Made in Vietnam” (in 2015 was 80%), 86% of “Made in Bangladesh” (in 2015 was 93%), 85% of “Made in Mexico” (in 2015 was 90%) and 86% of products by members of CAFTA-DR (in 2012 was 98%).

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Last but not least, the U.S.-China tariff war apparently has NOT affected China’s textile and apparel exports to the United States significantly. From January to August this year, China’s apparel exports to the U.S. declined by 1% in value and 0.3% in quantity from a year earlier, but China’s textile exports to the U.S. increased by 12.3% in value and 7.2% in quantity.  China’s market shares in the U.S. market also remains overall stable.

Are the results surprising? How to explain China’s increasing price competitiveness despite its reported rising labor cost? What’s your outlook for the future of China as a sourcing destination for U.S. fashion brands and retailers? Please feel free to share your views. 

Suggested citation: Lu, Sheng. (2018). Are Textile and Apparel “Made in China” Losing Competitiveness in the U.S. Market? (updated October 2018). Retrieved from https://shenglufashion.com/2018/10/28/are-textile-and-apparel-made-in-china-losing-competitiveness-in-the-u-s-market-updated-october-2018/ 

2018 U.S. Fashion Industry Benchmarking Study Released

The 2019 U.S. Fashion Industry Benchmarking Study is now availablecover

The report can be downloaded from HERE

Key findings of this year’s study:

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

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

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

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

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

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

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

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

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

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

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

Resources for Learning about Cotton: FASH455 Exclusive Interview with Shannon Brady, CottonWorks™ Student Ambassador

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The picture above: Shannon Brady, Junior, UD Fashion Merchandising Major (Fourth one from the left in the front row) visited Cotton Inc together with other Cotton Student Ambassadors.

Question: What is the CottonWorks™ Ambassador program about and what is your role as an ambassador?

The CottonWorks™ ambassador program is a program where students in fashion and apparel related majors get to promote CottonWorks™ on their college campuses. Ambassadors are charged with helping faculty and students understand the resources available through CottonWorks™ as well as promote this resource through social media. This semester there are twelve ambassadors (including myself) from 12 different schools across the country.

My role as an ambassador is to raise awareness about CottonWorks™ on campus as it is a new program here at the University of Delaware. In January of this year, I had the opportunity to visit the Cotton Incorporated Headquarters in Cary, North Carolina. I, along with other CottonWorks™ ambassadors participated in an all-day CottonWorks™ training as well as a tour of the production facilities at Cotton Incorporated. I got to see everything from raw cotton to state-of-the-art laser finished denim. It was a unique experience and such a cool way to see the material I learned about in class come to life. 

Question: Cotton Incorporated recently launched a new CottonWorksTMprogram to help industry professionals and emerging professionals (like our FASH students) know more about cotton. Can you give us an overview of the program, particularly the learning resources related to the sourcing of cotton products?

CottonWorks™ is a free website where students and professionals can access a multitude of resources about cotton and the fashion and apparel industry.  The site offers many learning resources. Detailed guides are offered on topics such as sourcing and manufacturing, retail and marketing, fabric and technology, fashion and trend, and sustainability. These topics really apply to the fashion curriculum at UD. Additionally, the site offers a mobile-friendly textile encyclopedia where students can look up any textile related word anytime, anywhere.

However, the site offers more than just learning resources. CottonWorks™ is a great supplemental learning tool, but the site also offers emerging professionals ways to get engaged with their industry. Free webinars and workshops are offered through the website and are a great way to engage with industry professionals and learn about the issues pressing the industry right now. Their next webinar is on Tuesday 24 April 2018 registration is open on the CottonWorks™ website, and the topic of discussion is Cotton’s Biodegradability in Aquatic Environments.

Particularly regarding learning resources on sourcing cotton products, the sources and manufacturing topic on the website offers dozens of guides all kinds of cotton products, ranging from denim to cotton nonwovens.

Last but not the least, the Executive Cotton Update and Monthly Economic Letter, both posted every month at cottonworks.com/news are great resources for students and industry professionals interested in knowing what is happening in the U.S. and world cotton industry.

Question: Developing a sustainable supply chain is critical for the textile and apparel industry. So how is cotton related to sustainability? What are the facts important to know?

Cotton Incorporated is committed to being at the forefront of cotton sustainability, and the CottonWorks™ site offers many resources on how cotton is related to sustainability, including guides on responsible cotton production and manufacturing because sustainability happens throughout the lifecycle of cotton.

Cotton is a natural fiber, unlike some manmade fibers such as polyester it can biodegrade. If you log on to CottonWorks™ website you can view a recap of their webinar last month that went in depth about cotton’s biodegradability in soil and septic environments.

Additionally, CottonWorks™ has information on campaigns such as Cotton LEADS™ and Blue Jeans Go Green™ to promote the sustainability of cotton. Cotton LEADS™ is a joint program with Australia and the United States that supports a reliable and responsible cotton supply chain through five core principles of sustainability, use of best practices and traceability in the supply chain. Blue Jeans Go Green™ initiative collects denim sent to landfills and recycles it in partnership with Bonded Logic Inc. You can learn more about both these initiatives on the CottonWorks™ site at cottonworks.com/topics/sustainability.

Question: What are the opportunities for our FASH and UD students to get involved with CottonWorks™ and learn more about cotton?

Students can get started today! By registering for a free account on cottonworks.com, they have access to all of the amazing resources I touched on and many more. Additionally, they can follow @cotton_works on Instagram and Twitter to learn more about cotton and get cotton inspiration for their projects. 

I will also be hosting a tabling event where students can learn more about these resources, talk to me, and win free food and prizes on Thursday 19 April 2018 in Perkins! There will be more tabling events in the future that I will be posting about in my social media as well.

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Apparel Sourcing in 2018: Results from the Just-Style State of Sourcing Survey

The latest Just-Style State of Sourcing Survey suggests a few trends of apparel sourcing in 2018:

First, apparel companies are attaching greater importance to speed-to-market in their sourcing decisions. According to the result, the need for a faster, more responsive supply chain is being driven by consumers’ increasing demands for immediacy and constant newness, as well as the speed with which social media can spread new trends.

Second, respondents say the rising sourcing and production cost remains one of their top business challenges in the New Year. Key drivers of cost increase include wage of production workers, raw material price and the social and environmental compliance cost. Notably, almost half expect their sourcing budget to go up, with 15.3% seeing an increase of more than 5%, and 32.8% anticipating a rise of between 1% and 5%. A further 32.1% see their budgets staying the same in the year ahead.

Third, the survey result confirms that China’s dominance of global apparel manufacturing is unlikely to change anytime soon. Asked about their China sourcing plans in 2018, 21.1% of respondents said they would buy more here over the next 12 months, some 30.5% expect their China sourcing to remain roughly the same year-on-year, and 28.9% expect to source less. Respondents say that “no other country can match China regarding the size of its supply base, its range of skills, its quality levels, its product variety and the completeness of its supply chain. The country also continues to lead the way when it comes to efficiency and infrastructure.” Meanwhile, Bangladesh and Vietnam continue to be seen as the two sourcing markets most likely to grow in importance in the next five years.

Fourth, respondents also expressed concerns about uncertainty over trade agreements (64.5%), particularly how the Trump Administration may do with the North American Free Trade Agreement (NAFTA). However, the impact of uncertainty created by Brexit seems to be limited.

What Do You Take Away from FASH455?

I encourage everyone to watch the above two short videos, which provide an excellent wrap-up for FASH455 and remind us the meaning and significance of our course.

First of all, I do hope students can take away essential knowledge about textile and apparel (T&A) trade & sourcing from FASH455. So far in the course we’ve examined the phenomenon of globalization and its implications; we also discussed various trade theories and the general pattern of the evolution of T&A industry in a country’s industrialization process; we further explored three primary T&A supply chains in the world (namely the “Western-Hemisphere” supply chain, “Factory Asia” supply chain based on the flying geese model and the phenomenon of intra-region T&A trade in Europe); last but not least, we looked at trade policies that are unique to the T&A sector (e.g.,: MFA and yarn-forward rules of origin) as well as the complicated economic, political and social factors behind the making of these trade policies. No matter your dream is to be a fashion designer, buyer, merchandiser, sourcing specialist or marketing analyst, understanding how trade and sourcing work will be highly relevant and beneficial to your future career given the global nature of today’s fashion industry.

Second, I hope FASH455 helps students shape a big picture vision of the T&A industry in the 21st-century world economy and provides students a fresh new perspective of looking at the world. Throughout the semester, we’ve examined many critical, timely and pressing global agendas that are highly relevant to the T&A industry, from apparel companies’ social responsibility practices, the debate on the renegotiation of the North American Free Trade Agreement (NAFTA) and Trump Administration’s trade policy agenda to the controversy of second-hand clothing trade. It is critical to keep in mind that we wear more than just clothes: We also wear the global economy, international business, public policy and trade politics that make affordable, fashionable, and safe clothes possible and available for hardworking families. This is also the message from many of our distinguished guest speakers this semester and I do hope you find these sessions enlightening and inspiring. 

Likewise, I hope FASH455 puts students into thinking the meaning of being a FASH major (as well as a college graduate) and how to contribute to the world we are living today positively. A popular misconception is that T&A is just about “sewing,” “fashion magazine,” “shopping” and “Project Runway.” In fact, as one of the largest and most economically influential sectors in the world today, T&A industry plays a critical and unique role in creating jobs, promoting economic development, enhancing human development and reducing poverty. As we mentioned in the class, globally over 120 million people remain directly employed in the T&A industry, a good proportion of whom are females living in poor rural areas. For most developing countries, T&A usually accounts for 70%–90% of their total merchandise exports and provide one of the very few opportunities for these countries to participate in globalization. Indeed, T&A is such an impactful sector and we are as important as any other majors on the campus!

Last but not least, I hope from taking FASH455, students can take away meaningful questions that can inspire their future study and even life’s pursuit. For example:

  • How to make the growth of global textile and apparel trade more inclusive?
  • What trade policy can promote and support textile and apparel manufacturing in the United States?
  • How to make sure that tragedies like the Rana Plaza building collapse will never happen again?
  • How to distribute the benefits & cost of globalization among different countries and groups of people more equally?
  • How to use trade policy as a tool to solve some tough global issues such as labor practices and environmental standard?
  • Is inequality a problem caused by global trade? If global trade is the problem, what is the alternative?

These questions have no real answer yet. But they are waiting for you, the young professional and the new generation of leaders, to write the history, based on your knowledge, wisdom, responsibility, courage, and creativity!

So what do you take away from FASH455? Please feel free to share your thoughts and comments.

Apparel Sourcing in U.S. Trade Preference Program Countries

Speakers:

  • Tarek Kabil – Egyptian Ministry of Trade & Industry
  • Ashraf Rabiey – QIZ Minister of Egypt
  • Gabi Bar – QIZ Minister of Israel
  • Mark D’Sa – Special Project Director for Haiti
  • Moderator: Gail Strickler – former Assistant US Trade Representative for Textiles

Discussion questions:

  1. What are the financial incentives for US brands and retailers to source apparel in preference program countries? Why do U.S. apparel imports from members of AGOA, QIZs and HELP overall remain at a fairly low level despite the trade preference programs? How to improve the situation?
  2. Overall, why or why not should the US keep the trade preference programs or any critical reforms are needed?
  3. Any other interesting points you learned from the video or questions you may have?

Interview with Dr. Marsha Dickson, Co-founder of Better Buying

 Dr. Marsha Dickson, Irma Ayers Professor, Department of Fashion and Apparel Studies at the University of Delaware discusses her co-founded Better Buying project(http://www.betterbuying.org), a meaningful effort to improve the social responsibility practices in the global apparel industry. The video is produced by Mallory Metzner, reporter of channel 49 of the University of Delaware.

Trade Issues Facing the U.S. Apparel and Retail Industry

Panel:

  • 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.

Topic discussed

  • 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

Outlook of Sourcing from Vietnam (Updated: August 2017)

State of Vietnam’s Textile and Clothing Industry

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Vietnam has a substantial textile and clothing industry comprising around 4,000 enterprises, of which the majority were located in the country’s two principal population centers—Ho Chi Minh City and Hanoi. Around 70% of these enterprises were involved in the manufacture of clothing. A further 17% were involved in the fabric sector, 6% in the yarn sector, 4% in the dyeing sector and 3% in the accessories sector.

It is estimated that around 70% of Vietnam’s textile and clothing production is dependent on the cut and trims operations, using imported textiles and other inputs predominantly from China. This problem is not limited to a single category as the country needs to import man-made fibers, yarns, fabrics, and accessories as well as raw cotton.

The dyeing and finishing segments of the supply chain remain fairly underdeveloped. In the past, the Vietnamese government has issued tightly controlled permits for these operations. Also, there has been a deficiency of investment in these segments because of unclear regulations, and this has resulted in a bottleneck in the supply chain.

Similarly, high added-value design and “downstream” activities rely on the input of foreign companies are also underdeveloped. Consequently, in carrying out these activities, the industry relies heavily on the help or participation of foreign companies.

State of Vietnam’s Textile and Apparel Export

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Vietnamese textile and clothing exports began to gain momentum in 2001 when trading relationships were established with Western countries (e.g., the US-Vietnam Textile Agreement). The industry’s exports received a further boost after Vietnam joined the World Trade Organization (WTO) at the start of 2007, and the quotas which had been restricting imports of Vietnamese goods in the US market were eliminated.

In 2016, Vietnam’s textile and clothing exports totaled $28 billion (84% were clothing), which represented 16.0% of Vietnam’s total merchandise exports. Globally, Vietnam was the world’s third largest apparel exporter in 2015, after China and Bangladesh (WTO, 2016).

The Vietnam Textile & Apparel Association (VITAS) expects Vietnam’s textile and clothing exports to enjoy an average 15% annual growth in the next four years and exceed $50 billion USD by 2020.

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Vietnam’s textile and clothing exports went to around 180 countries. The United States is Vietnam’s top export market (around 40%), followed by the EU (around 12.5%), Japan (10.3%) and South Korea (8.1%).

Outlook of Sourcing from Vietnam by US Fashion Companies

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According to the 2017 US Fashion Industry Benchmarking Study, Vietnam is the 2nd most used sourcing destination by respondents. Particularly, the most commonly adopted sourcing model is shifting from “China Plus Many” to “China Plus Vietnam Plus Many”:

  • China typically accounts for 30-50 percent of respondents’ total sourcing value or volume. 
  • Vietnam typically accounts for 11-30 percent of companies’ total sourcing value or volume. 
  • For the “many” part, each additional country (such as US, NAFTA members and CAFTA members, EU countries and members of AGOA) typically accounts for less than 10 percent of respondents’ total sourcing value or volume.

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Respondents also see Vietnam overall a balanced sourcing destination, regarding “speed to market”, “sourcing cost” and “compliance risk”.

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Additionally, U.S. fashion companies intend to source more from Vietnam through 2019, but imports may grow at a relatively slow pace, possibly due to the United States’ withdrawal from the Trans-Pacific Partnership (TPP) and the increasing labor costs in the country.

References:Textile Outlook International (2017); WTO (2017); UN Comtrade (2017)

2017 U.S. Fashion Industry Benchmarking Study Released

The 2018 U.S. Fashion Industry Benchmarking Study is now availablecover

The report can be downloaded from HERE

Key findings of the study:

While the majority of respondents remain confident about the five-year outlook for the U.S. fashion industry, the percentage of those who are “optimistic” or “somewhat optimistic” dropped to a record low since we began conducting this study in 2014. This change could be due to concerns about the “protectionist trade policy agenda in the United States” and “market competition in the United States from e-commerce,” the top two concerns this year.

  • The percentage of those who are “optimistic” or “somewhat optimistic” fell from 92.3 percent in 2016 to 71.0 percent in 2017, a record low since we began conducting this study in 2014. As many as 12.9 percent of respondents are “somewhat pessimistic” about the next five years, mostly large-scale retailers with more than 3,000 employees.
  • Despite the challenges, demand for human talent in the industry overall remains robust. This year, around 80 percent of respondents plan to hire more employees in the next five years, especially supply chain specialists, data scientists, sourcing specialists, and marketing analysts.
  • Cost is no longer one of the top concerns; respondents are less stressed about “increasing production or sourcing cost,” which slipped from #2 challenge in 2016 to #7 challenge in 2017. Only 34 percent rate the issue among their top five challenges this year, significantly lower than 50 percent in 2016 and 76 percent in 2015. Labor cost remains the top factor driving up sourcing cost in 2017.

Although U.S. fashion companies continue to seek alternatives to “Made in China,” China’s position as the top sourcing destination remains unshakable. Meanwhile, sourcing from Vietnam and Bangladesh may continue to grow over the next two years, but at a relatively slow pace.

  • 91 percent of respondents source from China; while 100 percent sourced from China in our past three studies, China is still the top-ranked sourcing destination this year, and the percentage of those expecting to decrease sourcing from the country fell from 60 percent in 2016 to 46 percent this year—and many more expect to maintain their current sourcing value or volume from the country in the next two years.
  • Likely reflecting the United States’ withdrawal from the Trans-Pacific Partnership (TPP) and the expectation of increasing labor costs, only 36 percent of respondents expect to increase sourcing from Vietnam in the next two years, much lower than 53 percent who said the same in 2016.
  • Respondents are cautious about expanding sourcing from Bangladesh in the next two years, with only 32 percent expecting to somewhat increase sourcing While “Made in Bangladesh” enjoys a prominent price advantage over many other Asian suppliers, respondents view Bangladesh as the having the highest risk for compliance.

U.S. fashion companies continue to maintain truly global supply chains.

  • Respondents source from 51 countries or regions in 2017, close to the 56 in last year’s study.
  • 57.6 percent source from 10+ different countries or regions in 2017, up from 51.8 percent in last year’s survey. In general, larger companies have a more diversified sourcing base than smaller companies. Additionally, retailers maintain a more diversified sourcing base than brands, importers/wholesalers, and manufacturers.
  • Around 54 percent expect their sourcing base will become more diversified in the next two years, up from 44 percent in 2016; among these respondents, over 60 percent currently source from more than 10 different countries or regions.
  • The most common sourcing model is shifting from “China Plus Many” to “China Plus Vietnam Plus Many.” The typical sourcing portfolio today is 30-50 percent from China, 11-30 percent from Vietnam, and the rest from other countries.
  • While Asia as a whole remains the dominant sourcing region for U.S. fashion companies, the Western Hemisphere is growing in popularity. This year, we see a noticeable increase in sourcing from the United States (70 percent, up from 52 percent in 2016) and countries in North, South, and Central Americas, which offer a shorter lead time and relatively lower risk of compliance.

Today, ethical sourcing and sustainability are given more weight in U.S. fashion companies’ sourcing decisions. Respondents also see unmet compliance (factory, social and/or environmental) standards as the top supply chain risk.

  • 5 percent of respondents say ethical sourcing and sustainability have become more important in their company’s sourcing decisions in 2017 compared to five years ago.
  • 100 percent of respondents currently audit their suppliers, including how suppliers treat their workers, suppliers’ fire safety, and suppliers’ building safety. The majority (93 percent) use third-party certification programs to audit, with a mix of announced and unannounced audits.
  • As many as 90 percent of respondents map their supply chains, i.e., keep records of name, location, and function of suppliers. More than half track not only Tier 1 suppliers, suppliers they contract with directly, but also Tier 2 suppliers, i.e. supplier’s suppliers. It is less common for U.S. fashion companies to map Tier 3 and Tier 4 suppliers though, which could be because of the difficulty of getting access to related information with such a globalized and highly fragmented supply chain.

Free trade agreements (FTAs) and trade preference programs remain underutilized, and several FTAs, including CAFTA-DR, are utilized even less this year than in previous years.

  •  Of the 19 FTAs/preference programs we examined this year, only NAFTA is used by more than 50 percent of respondents for import purposes.
  • Even more concerning, some U.S. fashion companies source from countries/regions with FTAs/preference programs but, for whatever reason, do not claim the benefits. For example, as many as 38 percent and 6 percent of respondents, respectively, do not use CAFTA-DR and NAFTA when they source from these two regions.

Respondents unanimously oppose the U.S. border adjustment tax (BAT) proposal and call for the further removal of trade barriers, including restrictive rules of origin and high tariffs.

  • 100 percent of respondents oppose a border adjustment tax; 84 percent “strongly oppose” it.
  • Respondents support initiatives to eliminate trade barriers of all kinds, from high tariffs to overcomplicated documentation requirements, to the restrictive yarn-forward rules of origin in NAFTA and future free trade agreements.
  • Respondents say the “complex standards on labeling and testing”, “complex rules for the valuation of goods at customs” and “administrative and bureaucratic delays at the border” are the top non-tariff barriers they face when sourcing today.

The benchmarking studies from 2014 to 2016 can be downloaded from https://www.usfashionindustry.com/resources/industry-benchmarking-study 

Pattern of U.S. Textile and Apparel Imports (Updated: September 2016)

textile and apparel imports 2015

U.S. textile and apparel imports enjoy steady growth from 2000 to 2015. Specifically, the value of U.S. textile imports reached $26,763 million in 2015, up 4.2 percent from 2014 and 85.1 percent from 2000. The value of U.S. apparel imports reached $85,165 million in 2015, up 4.1 percent from 2014 and 48.8 percent from 2000.  It is forecasted that the value of U.S. textile and apparel imports could reach $27,355 million (up 2.2 percent) and $85,719 million (up 0.7 percent) respectively in 2016.

product structure

Because the United States is no longer a major apparel manufacturer but one of the largest apparel consumption markets in the world, apparel products accounted for 76.1 percent of total U.S. textile and apparel imports in 2015, followed by made-up textiles (16.9 percent), fabrics (5.8 percent) and yarns (1.3 percent).

top supplier

In terms of source of products, U.S. imported apparel from as many as 150 countries in 2015. However, Herfindahl index reached 0.15 for knitted apparel (HS chapter 61) and 0.18 for woven apparel (HS chapter 62) in 2015, suggesting this is a market with a high concentration of supplying countries. Specifically, all top apparel suppliers to the United States in 2015 (by value) are developing countries and most of them are located in Asia, including China (35.9 percent), Vietnam (12.4 percent), Bangladesh (6.3 percent), Indonesia (5.8 percent), India (4.3 percent) and Mexico (4.2 percent).

price

U.S. textile and apparel imports are also becoming even cheaper. For example, U.S. apparel imports in 2015 on average was only 85.7 percent of the price in 1990 and the price of imported fabrics cut almost by half over the same period.

fast growing categories

From 2013 to 2015, the fastest growing textile and apparel import categories unusually include several fabric products, such as blue denim (OTEXA code 225, up 74.8%), Cheesecloths (OTEXA code 226, up 74.3%) and woven fabrics (OTEXA code 611, up 49.3%).  It is likely that the growing business of apparel “Made in USA” has led to an increased demand for imported fabrics.  

growth rate

Additionally, U.S. apparel imports overall mirror the pattern of apparel retail sales in the U.S. market. This reflects the fact that the performance of the U.S. economy is the leading factor shaping the size of demand for imported apparel. It is also interesting to note that the value of U.S. apparel imports grew at a faster rate than the value of U.S. apparel retail sales in 2015 (4.1 percent v.s. 1.7 percent), suggesting import penetration ratio (i.e. the percentage of apparel consumed in the United States that is supplied by imports) continues to rise.

Data source: Office of Textiles and Apparel (OTEXA), U.S. Department of Commerce

by Sheng Lu

Apparel “Made in America” of Imported Fabrics

clinton

Presidential candidate Hillary Clinton recently launched a new website “Made In America: A Buyer’s Guide for Donald Trump”, which highlighted hundreds of U.S. manufacturers for products ranging from men’s ties, suits to furniture. 

Joseph Abboud is one of the companies highlighted by the website for making “Made in America” suites and shirts. But does “Made in America” mean a Joseph Abboud branded suit or shirt is 100% made in the United States from yarns, fabrics to the cut-and-sew process? Not necessarily!

joseph abboud

According to information submitted by Joseph Abboud to the “Made in USA” database managed by the Office of Textiles and Apparel under the U.S. Department of Commerce, some of its products actually are “partially made in U.S.A. with imported fabrics”.

This is evidenced both by Joseph Abboud’s product label and information provided by some retailers which sell Joseph Abboud’s branded products (See pictures below).

joseph-abboud-brown-black-wool-made-in-usa-sport-coat-jacket-big-tall-44xl-fadae0181dabefde4a3e87afdb831478

men

Hamilton Shirts of Houston is another company highlighted by Clinton’s “Made in USA” website. But similar as the case of Joseph Abboud, a Hamilton branded shirt priced at $215-$245 is typically “Hand cut and sewn in the USA. 100% cotton Italian fabric.”

Untitled

Actually, Joseph Abboud is a brand owned by JA Holding, Inc., which was acquired by Tailored Brands for $94.9 million on August 6, 2013. As of June 2016, Tailored Brands also owns the Men’s Wearhouse and Jos. A. Bank.

Like most other US apparel companies/fashion brands today, Tailored Brands commits to global sourcing. In fiscal year 2015, the company “sourced approximately 60% of direct sourced merchandise from Asia (36% from China) while 13% was sourced in the U.S., 12% in Mexico, and 15% was sourced in other regions.” (Source: Tailored Brands Annual Report, 2015)

Tailored Brands uses the factory in New Bedford, MA (the one highlighted by Clinton’s website) to make tailored clothing under the Joseph Abboud label, including designer suits, tuxedos, sport coats and slacks which they sell in Men’s Wearhouse stores as well as Joseph Abboud’s flagship store. Tailor Brands also sells Joseph Abboud branded products in Moores stores, which are made in Canada by a third party.

Related article: Clothing Label Reveals the Global Nature of the Textile and Apparel Industry 

Disclaimer: All blog posts on this site are for FASH455 educational purposes only and they are nonpolitical and nonpartisan in nature. No blog post has the intention to favor or oppose any particular presidential candidate, nor shall be interpreted in that way.

Turning Africa into a Global Textile and Apparel Hub

Before the 2016 Source Africa Trade event in June 2016, CNBC interviewed Tim Armstrong, Investment Promotion Director for the Textile Development Unit at the Ministry of Industry and Trade in Tanzania. Three questions were discussed during the interview:

  • Are free trade agreements/trade preference programs such as the African Growth and Opportunity Act (AGOA) translating into tangible results we can see that help African clothing exporters?
  • What has AGOA extension done to the textile and apparel industry in Africa, particularly in the context of Tanzania? What are the impacts of rules of origin on investment in the region?
  • Can apparel “Made in Africa” compete in the global marketplace when raw material such as yarns and fabrics has to be sourced from elsewhere?

What is your view on these issues?

2016 U.S. Fashion Industry Benchmarking Study Released

The 2018 U.S. Fashion Industry Benchmarking Study is now available
usfia 2016 cover_Page_1

The report can be downloaded from HERE

Key Findings of the study:

I. Business environment and outlook in the U.S. Fashion Industry

  • Overall, respondents remain optimistic about the five-year outlook for the U.S. fashion industry. “Market competition in the United States” is ranked the top business challenge this year, which, for the first time since 2014, exceeds the concerns about “increasing production or sourcing cost.”

II. Sourcing practices in the U.S. fashion industry

  • U.S. fashion companies are more actively seeking alternatives to “Made in China” in 2016, but China’s position as the No.1 sourcing destination seems unlikely to change anytime soon. Meanwhile, sourcing from Vietnam and Bangladesh may continue to grow over the next two years, but at a slower pace.
  • U.S. fashion companies continue to expand their global reach and maintain truly global supply chains. Respondents’ sourcing bases continue to expand, and more countries are considered potential sourcing destinations. However, some companies plan to consolidate their sourcing bases in the next two years to strengthen key supplier relationships and improve efficiency.
  • Today, ethical sourcing and sustainability are given more weight in U.S. fashion companies’ sourcing decisions. Respondents also see unmet compliance (factory, social and/or environmental) standards as the top supply chain risk.

III. Trade policy and the U.S. fashion industry

  • Overall, U.S. fashion companies are very excited about the conclusion of the Trans-Pacific Partnership (TPP) negotiations and they look forward to exploring the benefits after TPP’s implementation.
  • Thanks to the 10-year extension of the African Growth and Opportunity Act (AGOA), U.S. fashion companies have shown more interest in sourcing from the region. In particular, most respondents see the “third-country fabric” provision a critical necessity for their company to source in the AGOA region.
  • Free trade agreements (FTAs) and trade preference programs remain underutilized in 2016 and several FTAs, including NAFTA and CAFTA-DR, are utilized even less than in previous years. U.S. fashion companies also call for further removal of trade barriers, including restrictive rules of origin and remaining high tariffs.

The benchmarking study was conducted between March 2016 and April 2016 based on a survey of 30 executives from leading U.S. fashion and apparel brands, retailers, importers, and wholesalers. In terms of business size, 92 percent of respondents report having more than 500 employees in their companies, while 84 percent of respondents report having more than 1,000 employees, suggesting that the findings well reflect the views of the most influential players in the U.S. fashion industry.

For the benchmarking studies in 2014 and 2015, please visit: https://www.usfashionindustry.com/resources/industry-benchmarking-study

African Growth and Opportunity Act and Textile & Apparel

(In the video: Gail Strickler, former Assistant US Trade Representative for Textiles, highlights the immense opportunities created by the renewal of AGOA for duty-free access to the massive US market for African textile and apparel producers.)

The African Growth and Opportunity Act (AGOA) is a non-reciprocal trade agreement enacted in 2000 that provides duty-free treatment to U.S. imports of certain products from eligible sub-Saharan African (SSA) countries. AGOA intends to promote market-led economic growth and development in SSA and deepen U.S. trade and investment ties with the region. (note: non-reciprocal means SSA countries do not need to offer equivalent benefits to imports from the United States.)

Because apparel production plays a dominant role in many SSA countries’ economic development, apparel has become one of the top exports for many SSA countries under AGOA.  Like many trade agreements and trade preference programs, AGOA also set unique rules of origin for textile and apparel (T&A):

First, to enjoy the duty-free and quota-free treatment in the US market, eligible T&A products made in qualifying AGOA countries need to be one of the following categories:

  • Apparel made with US yarns and fabrics;
  • Apparel made with Sub-Saharan African (SSA) regional yarns and fabrics, subject to a cap;
  • Apparel made with yarns and fabrics not produced in commercial quantities in the United States;
  • Certain cashmere and merino wool sweaters; and
  • Eligible hand-loomed, handmade or folklore articles and ethnic printed fabrics.

Second, under a special rule called “third-country fabric” provision, AGOA countries with lesser-developed countries (LDBC) status can further enjoy duty-free access in the US market for apparel made from yarns and fabric originating anywhere in the world (such as China, South Korea, and Taiwan). This special rule is deemed as critical because most SSA countries still have no capacity in producing capital and technology-intensive textile products. [Note: Although the US imports of apparel made with third-country fabric are subject to a cap, the cap has never been reached].

According to a 2014 comprehensive study conducted by the USITC, the “third-country fabric” provision has three major benefits to the AGOA members:

1) Increase exports of apparel. This can be evidenced by the fact that most US apparel imports under AGOA came from those countries that are eligible for the “third-country fabric” provision, such as Lesotho, Kenya, Mauritius, and Swaziland. In comparison, because South Africa is not eligible for the “third-country fabric” provision, its apparel exports to the United States had significantly dropped since 2003 and only accounted for 0.6% among AGOA countries in 2013.

2) Encourage foreign investment. From 2003 to 2013, a total 21 T&A FDI projects were made in SSA, among which 18 projects (or 85.7%) were greenfield FDI. The third-country fabric provision is the main driver for these FDI projects. For example, many Chinese and Taiwanese investors had opened apparel factories in Ghana, Kenya, Lesotho, Madagascar, Malawi, Mauritius, Namibia, Nigeria and Tanzania as a source of exports to the United States and the EU.

3) Enhance trade diversification. Theoretically, relaxing rules of origin (RoO) such as the third-fabric provision can free up companies’ resources and allow them to expand export product lines. As observed by a few empirical studies, AGOA’s third-country fabric provision helped related countries increase the varieties of apparel exports between 39 and 61 percent.

AGOA receives new authorization in 2015, which will last for 10 years until 2025 (including the 3rd country fabric provision). This ten-year renewal of AGOA is regarded as critical and necessary to encourage more long-term investment in the region. As put by Florizelle Liser, Assistant US Trade Representative for Africa “What we know is that African producers of apparel, like producers of apparel all around the world, need to have the flexibility to source their input from wherever of those can be produced most effectively, cost effectively for the products that they are sewing. So we want through the “third country fabric” provision to give the African producers of apparel that flexibility. We do know in terms of establishing textiles business on the ground producing those inputs right there in Africa and that more of that indeed is going to happen. The reason is that as U.S. buyers of apparel and this is an enormous market for apparel… as U.S. buyers of apparel source more of their apparel from Africa, then investors in textile mills, which are very expensive, will be incentivized and are being incentivized to actually establish those fabric mills right there in Africa, and then be able to save time, in terms of getting those inputs that are needed for the clothing that is being produced. So we see that happening already: it’s happening in Kenya, it’s happening in Ethiopia and around the continent. And that is what we need to have more of as we go forward in this ten-year extension of AGOA.”

AGOA 1

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