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

v1

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

v2

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.

v3

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

v4

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.

v5

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

v6

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 

The African Growth and Opportunity Act (AGOA) and How it Will Affect Apparel Sourcing: Discussion Questions from FASH455

agoa1

#1 How will the United States specifically benefit from the AGOA? Who is on the opposing side of the AGOA?

#2 We know sourcing from Asia means “cheap” and sourcing from the Western-Hemisphere means “fast”. But what could be incentives for U.S. companies to source from Africa? In other words, what are the unique competitiveness of Africa as a sourcing destination?

#3 Will the “third-country fabric” provision in the AGOA discourage investment in Africa’s textile industry? Why or why not?

#4 Why do you think the AGOA doesn’t adopt the “yarn-forward” rules of origin? Should it?

#5 It is said that the AGOA has been “underutilized” by the apparel industry. What is your view?

#6 What are the considerations behind the 10-year extension of the AGOA in 2015? To decide whether to further extend the AGOA beyond 2025, what factors should be considered?

Please feel free to share your thoughts and recommend any additional articles/readings/resources relevant to the discussion. Please mention the question # in your reply.

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?