Top sourcing challenges facing US fashion firms
Ongoing trade uncertainty, and a spike in the cost of sourcing from Bangladesh, Vietnam and India – the main alternatives to China – are the biggest concerns currently facing US fashion industry executives
The latest annual snapshot of sourcing sentiment shows the impact of trade wars and uncertainty about trade policies – especially the threat of additional tariffs on imports from China – is weighing heavily on executives from leading US fashion brands, retailers, importers, and wholesalers.
The '2019 Fashion Industry Benchmarking Study' published by the United States Fashion Industry Association (USFIA) also points to falling optimism about the five-year outlook for the US fashion industry.
But the biggest challenge right now is the impact of increasing production and sourcing costs, some of which are linked to the US’s imposition of punitive tariffs on imports from China.
“The year-long US-China trade war has already seen additional punitive tariffs of up to 25% imposed on $250bn in goods from China, including many consumer products like hats, leather and accessories.”
The year-long US-China trade war has already seen additional punitive tariffs of up to 25% imposed on $250bn in goods from China, including many consumer products like hats, leather and accessories. In retaliation, China has imposed its own tariffs on key US exports including cotton.
And US plans are now in place to expand the tariffs to virtually all Chinese imports by the end of the year – including textiles, apparel and footwear.
"As we look at the data, we see some other insights that are very troubling," explains USFIA president Julia Hughes. "Not just costs in China are increasing, but the costs to source in the main alternatives to China – especially Vietnam, Bangladesh and India – also are soaring. And the uncertainty seems to also affect logistics and transportation costs."
While sourcing executives are increasingly moving production out of China in response to the threat of new tariffs, the main beneficiaries are Asian suppliers. There is no evidence that reshoring for Made-in-USA production or near-shoring for Western Hemisphere production is significantly increasing.
Respondents also say they may have to increase their retail prices to offset higher China tariffs, but are reluctant to do so.
Among its findings, the research shows US fashion companies continue to maintain a relatively diverse sourcing base, with 57% currently sourcing from 10+ different countries or regions. Asia as a whole remains the dominant supply region.
'China plus Vietnam plus Many' is still the most popular sourcing model, but the mix is changing. Around 25% of respondents say they now source more from Vietnam than from China, although there are concerns about Vietnam's limited production capacity and the increasing cost of sourcing from the country.
There is also interest in expanding Bangladesh sourcing in the next two years. However, despite its price advantages, Bangladesh still lags behind many of its competitors with regards to speed-to-market, flexibility and agility, and risk of compliance.
The overall outlook for sourcing from China suggests the country remains the dominant textile and apparel supplier to the US market. There are no near competitors in terms of the variety of products it can make, as well as offering the best balance of speed-to-market, sourcing cost, flexibility and agility, and compliance risk. In response to the trade tensions many Chinese vendors have also lowered their prices to keep orders.
Reshoring and Made-in-USA
For most US fashion brands and retailers Made-in-USA apparel is a niche product in their sourcing portfolios. The advantage of proximity to the market, which makes speedy replenishment for in-season items possible, is an important factor in helping control markdowns.
Survey respondents also pointed to a few disadvantages and challenges likely to prevent them from sourcing more Made-in-USA products in the next five years, including high price, limited fabric options, a shortage of skilled labour, and the need for more information about US based textile and apparel mills.
Free trade agreements
Increasing sourcing costs also mean US fashion companies are taking a closer look at duty-saving opportunities through US free trade agreements and trade preference programmes.
Not surprisingly, of particular interest are those with countries in the Western Hemisphere, such as the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA), the Caribbean Basin Trade Partnership Act (CBTPA), and the Haitian Hemispheric Opportunity through Partnership Encouragement (HOPE and HOPEII) Act and the Haiti Economic Lift Program (HELP).
Sustainability and social responsibility
The survey suggests US fashion companies overall maintain a high commitment to sustainability and social compliance in sourcing, with almost two-thirds of respondents saying they will allocate more resources here over the next two years.
All map their supply chains – that is, keep records of name, location, and function of suppliers – despite challenges that include insufficient internal budgets and/or staff, suppliers not being fully cooperative, and sourcing from too many countries/vendors.
The vast majority currently use third-party certification programmes to audit, with more announced and unannounced audits taking place this year than last. Brands and retailers also indicate they are carrying out more comprehensive audits than in the past.
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