Predicting future sourcing patterns in any business segment during the time of coronavirus is daunting—even for the all-American denim jeans market. And because the global pandemic came on the heels of the U.S.-China trade war and uncertainty over the transition from the North America Free Trade Agreement to the United States-Mexico-Canada Agreement (USMCA), that has clouded the outlook even more. Denim imports have been hit hard, thanks to retail’s pandemic-prompted pause and the effects that had on trade.
“But we also see another important trend—a shift of sourcing from China to other suppliers, which is part of the industry response to the trade wars,” said Julia Hughes, president of the United States Fashion Industry Association (USFIA). “Imports from China dropped substantially [in 2020] down by 49 percent for men’s denim jeans and down by 47 percent for women’s denim jeans.”
Asian denim suppliers outside of China have benefitted the biggest from the fallout. “Vietnam and Cambodia, in particular, are selling more denim to the U.S. today,” Hughes said. “Outside Asia, women’s denim imports from Turkey are growing, and the largest surge in denim imports comes from duty-free AGOA supplier Ethiopia. Imports of men’s denim jeans grew by 297 percent and women’s denim jeans grew by 128 percent. We see this growth as a positive indicator for the rebound in consumer demand.”
In the first half of 2020, U.S. denim apparel importers slashed orders to the point of bringing down the value of shipments entering the country by nearly 38 percent to $1.08 billion compared to the first six months of 2019, according to the Commerce Department’s Office of Textiles & Apparel (OTEXA).
Cambodia, with a nearly 40 percent increase, and Vietnam, with a less than 1 percent rise in jeans imports, were the only top 10 suppliers without significant declines in the period. With the coronavirus sweeping through the country starting in March, most stores were shut until May or June, and massive unemployment caused even online shoppers to curtail purchasing, leading brands and retailers to cut back on their production around the world.
OTEXA data shows imports from top supplier Bangladesh fell 23.04 percent to $190.14 million in the period, while second-place Mexico’s shipments were off 54.9 percent to $184.94 million. No. 3 Vietnam was able to squeeze out a 0.67 percent increase in the half to a value of $143.57 million, while imports from Cambodia jumped 39.52 percent to $64.03 million.
Much of that market share is being taken from China, which saw a 67.38 percent plunge in first half imports to $120.82 million. China’s market share was cut in half for the year ended June 30 and now holds just a 14.52 percent piece of the jeans import market pie.
Vietnam, by contrast, saw its market share for the 12 months increase 13.54 percent to 12.14 percent, and Cambodia’s market share rose 32.87 percent to 4.69 percent.
In the first half, imports from Ethiopia increased 10.97 percent to $9.36 million in the six months and shipments from Tanzania rose 37.02 percent to $6.59 million.
“Anybody that is still in China is looking to get out,” said Gail Strickler, president of global trade at Brookfield Associates, who said several of her clients make denim in Africa and Egypt, as well as Vietnam. Lesotho, she noted, produces its own denim fabric, as does Egypt, so they would be most likely to pick up new business. “However, China will continue to be the largest denim fabric supplier,” she said. “When it comes to the quality and colorfastness and different treatments, the Chinese mills are the best. I also have clients sourcing denim in India, Turkey and Pakistan, but China is going to emerge as a major player in textiles.”
In the Western Hemisphere, where prices have been notoriously high and manufacturing options fewer and further between, Strickler said “everyone is going to be looking for opportunities to cut costs.”
“The problem is there are limited sourcing of denim in this region,” she said. “I think you will see a return to Mexico, whereas there really isn’t another source of denim supply in Central America. You do have some in Colombia.”
Mexican manufacturers are poised to get a large percentage of any Western Hemisphere denim production for U.S. companies looking to source closer to home thanks to duty free benefits afforded under the USMCA.
What may happen as more companies look to nearshore as access to the greater world continues to be restricted, is that the industry may reorganize itself around regional manufacturing hubs, according to Robert Antoshak, managing director at textile consultancy firm Olah Inc.
“That doesn’t mean the days of the 20,000-mile supply chain are over. That’s always going to be part of the business, but the one thing I have noticed is more emphasis on hemispheric production, closer to market,” he said. “Whether that’s the future of the business or whether that’s a temporary Covid-inspired response, time will tell.” Already, Antoshak noted, he has seen signs of this shift at U.S.-based Vidalia Mills, where nearly all of its production is for the U.S. market.
Mexico and Colombia are most likely to see increases once business gets going again, and the Dominican Republic, Antoshak said, “will be back in a major way.”
The future of denim sourcing boils down to whether the industry will go back to its old ways of chasing cheap and manufacturing wherever affords that, or if it will adapt to conscious consumers’ desire for products that have a story and a transparent supply chain built on sustainability and ethics. If these new consumer values stick, Antoshak said, the old way of doing business won’t do well.
“A new business will come out that will be a lower-volume kind of model and more predicated on speed to market,” he said.