Five key challenges facing the US fashion industry in 2022

Dr Lu agrees and believes CAFTA-DR is a natural choice for companies wishing to diversify production due to its advantages in speed to market and the duty-free benefits.

The report reveals 20% of respondents place more than 10% of their regional sourcing orders from the region compared to only 7% of respondents in 2021.

It also suggests that over the next two years, more than 60% of respondents plan to increase apparel sourcing from CAFTA-DR members as part of their sourcing diversification strategy.

CAFTA-DR is seen as critical for promoting US apparel sourcing from the region with around 80% of respondents taking advantage of the agreement’s duty-free benefits when sourcing apparel, which is up from 50%-60% in the past.

Ethiopia lost it eligibility to the African Growth and Opportunity Act (AGOA) in January 2022 due to civil unrest within the country.

Dr Lu pointed out, however, Ethiopia’s loss of AGOA benefits is negatively impacting sourcing from the country and the entire AGOA region.

Notably, the report reveals none of the respondents plan to move sourcing orders from Ethiopia to other AGOA beneficiaries.

However, the report highlights that three quarters (75%) of US fashion companies do strongly support another ten-year renewal of the African Growth and Opportunity Act (AGOA) and believe it will encourage more apparel sourcing from the region and allow for investment commitments.

Respondents are sourcing from Lesotho, Ethiopia, Kenya, Madagascar, Tanzania, and Ghana this year, but for less than 10% of their total sourcing value or volume.

Despite the challenges US fashion companies are facing from rising inflation and rising costs from every aspect of the supply chain (labour, materials, shipping, compliance and trade regulations), most respondents (77%) still feel optimistic about the next five years.

In fact, 90% of respondents expect their sourcing value or volume to grow in 2022, but more modestly than last year. Plus, nearly all respondents (97%) plan to increase hiring over the next five years.

The report highlights US fashion companies are adopting a more diverse sourcing base in response to supply chain disruptions and the need to mitigate growing sourcing risks.

Asia remains the dominant sourcing base for US fashion companies with eight of the top ten most-used sourcing destinations being Asia-based, led by China, Vietnam, Bangladesh and India.

However, over half of respondents (53%) are sourcing apparel from over ten countries in 2022, compared with only 37% in 2021.

Reducing the reliance on China is one crucial driver of US fashion companies’ sourcing diversification strategy with a third of respondents sourcing less than 10% of their apparel products from China this year.

Managing the risk of forced labour in the supply chain is seen as a top priority in 2022, especially with the new implementation of the Uyghur Forced Labor Prevention Act (UFLPA).

Most (95%) of respondents expect the act’s implementation to affect their company’s sourcing and over 85% of respondents plan to cut their cotton apparel imports from China, and another 45% to further reduce non-cotton apparel imports from the country.

Almost all respondents currently track Tier 1 and 2 suppliers and with the help of new traceability technologies, 53% of respondents have started tracking Tier 3 suppliers this year. The report explains this is a substantial increase from 25%-36% in the past and this mapping will be used to address the forced labour risks in the supply chain.