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After Decades of China Dominance, Sourcing Seeks a New Way Forward

As the world continues to reel from myriad challenges, one wonders if the events of 2020 will read, in future history books, like a dystopian drama.

A global pandemic has managed to dismantle supply chains and deflate consumer confidence. And even though some stir-crazy shoppers are now eager—after so many months at home—to part with a few dollars for a pick-me-up, the contagion’s unabated spread has made it impossible for the retail sector to return to business as usual.

Stores and shopping centers, for the most part, remain deserted. And though e-commerce has accelerated tremendously, the uptick in online orders has still fallen far short of what many legacy businesses need to survive.

This year represents an inflection point for the industry, with the word “unprecedented” being thrown around liberally. But the problems that plagued apparel’s sourcing sector began long before the globe became familiar with the term, “coronavirus.”

Over the past two years, tariffs on goods from China have forced the U.S. apparel businesses to reexamine their dependence on the country. Rising labor costs, currency devaluations and rumblings about human rights abuses have also presented unfavorable conditions for healthy trade, and brands have been slowly, through necessity, engaging partners elsewhere.

What’s more, the ethos of the fashion industry is changing—and not in China’s favor. Its massive capacity and unending supply helped the country burgeon into a hub for fast fashion, but disposable clothes are quickly going out of style. While the region has the ability to produce just about anything, from luxury goods to mass market wares, a Made in China tag still carries unfavorable implications.

The stall and restart cadence of 2020 has shone a light on some harsh truths, according to Munir Mashooqullah, founder and chairman of global sourcing firm Synergies Worldwide. Even after normal trade resumes, sourcing is unlikely to return to the status quo, he told Sourcing Journal. “I don’t want to say never, but the possibility of that happening is very low,” he said.

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China has been dealt a handful of blows, he added, citing the continued trade war, currency issues, and of course, the Covid crisis that began to radiate outward from Wuhan in January, eventually infecting the globe. “Naturally, when a country is facing all these headwinds, your interest and investment is going to be diluted,” Mashooqullah added.

Synergies has both factories and offices in China, and Mashooqullah said he’s seen an uptick in interest from brands and fashion firms looking to stake out new relationships or further diversify away from the country. “Movement has accelerated,” he stated. Synergies is in a unique position to observe these trends as it also has factories in nine other countries, including key players like Bangladesh, India, Pakistan, Portugal, Turkey and Cambodia.

Mashooqullah believes that China’s reign as a singular sourcing superpower is over. And contenders for the giant’s business aren’t just waiting in line for a piece of the pie—they’re actively digging in.

Bangladesh and India are emerging as leaders in unstructured casual clothing, denim and children’s wear, while Pakistan has cornered the market in popular fleece styles. Vietnam’s technical skill is nearly unrivaled, with an ability to produce highly sophisticated synthetic performance products, Mashooqullah said. Still, the country imports more than half of its raw materials and inputs from outside markets, including China, making it tough to verticalize operations.

Some suppliers based in China and Hong Kong heard the canary in the coal mine years ago, and have worked to set up factories in these other locales to circumvent tariffs and tap into different skill sets. And brands have since followed, Mashooqullah said. “I think the departure to other countries with Chinese expertise has already happened.”

Hong Kong-based multicategory supplier Lever Style has employed such a tactic, seeking to diversify its own sourcing operations so that its clients don’t have to. According to executive chairman Stanley Szeto, the optimal supply chain is a network of strategic sourcing partners, each equipped with unique capabilities spanning a range of product categories.

Lever Style, which once served retail stalwarts like J. Crew and Banana Republic, has evolved its strategy in recent years. It now focuses on direct-to-consumer brands, which Szeto believes to be the business model of the future. When the firm went public in fall of last year, one of his stated goals was to focus on the acquisition of smaller, more categorically diverse suppliers to better serve these specialty startups.

Lever Style's offices in Hong Kong.
Lever Style’s offices in Shenzen, China. Lever Style

“We’ve been trying to be as flexible as possible for our clients, and that’s why we have factories all over the place,” Szeto said, adding that Lever Style operates on an asset-light strategy with quick turns and low minimum order quantities—all key qualifiers for DTC clients like Stitch Fix, Bonobos and Everlane.

“Before the trade war, China was by far our largest production base,” he added, but now Vietnam is larger, accounting for about half of Lever Style’s production. In July, the firm acquired Vista Apparels, a China-based knitwear supplier that specializes in sweaters, with the intent to bring those operations to a new factory in Vietnam. And in August, Lever Style bought Hong Kong’s Liwaco Overseas Marketing Limited, a technical outerwear company responsible for the high-performance gear sold by brands like Mammut and Helly Hansen.

Operational diversification makes Lever Style a one-stop shop for its customers, who can work with the company on the creation of all types of garments without worrying about managing multiple downstream relationships. “Whenever they have to find a new supplier and onboard them, it’s actually very cumbersome,” Szeto said. “And that’s why the narrower the sourcing base that our clients have, the better off they are. They can more focus on the front end, and what they’re good at.”

Szeto believes that having factories in multiple markets also reduces the risk for brands. “By working with us, they’re not putting all their eggs in one basket in terms of a single factory and a single country,” he said. Lever Style, he added, can shift manufacturing amongst its factories “as the winds blow.”

A sampling center in Shenzhen, China.
A sampling center in Shenzhen, China. Lever Style

“If, let’s say, Donald Trump tomorrow says we’re going to slap tariffs on Vietnam,” Szeto theorized, referencing the United States Trade Representative’s recent announcement that it would be investigating the country on charges of currency manipulation, “we can move operations for our clients.” Lever Style’s growing network of factories and materials suppliers is designed to allow the company to react to shifts in trade relationships quickly, without disrupting production.

Speed and versatility are paramount, especially set against the uncertain backdrop of a Covid-ridden world. As the fashion industry marches forward into the unknown, Szeto believes brands will increasingly rely on “test-and-react strategies” where trends are vetted swiftly and fast reorders are key.

“Some manufacturers will adapt to the new quick-turn, high-mix-low-volume demands from brands,” he said. “Others may let companies like ours take over their businesses so we can do the hard work of transformation.”

Large-scale denim manufacturer Saitex is in the midst of just such a metamorphosis, according to founding CEO Sanjeev Bahl. “People lose business quite frequently because of this nonsensical system we have,” Bahl said, referring to the longstanding reliance on high minimum order quantities, long lead times and strict seasonal calendars. “These are all antiquated.”

“We thought, ‘Let’s try and create a speed-to-market model that is totally integrated,’” he added. The Vietnam-based B Corp has recently verticalized its operations in the country by setting up its own denim mill, lending speed and agility to its processes, and providing traceability from a materials perspective.

“Being a factory in Vietnam didn’t cut it,” Bahl said, as he felt constrained by mill partners’ limitations. “There’s no transparency, there are quality issues, and there are pricing constraints because there’s nothing you can do about the material cost.”

Owning its own mill allows Saitex to streamline production, testing fabrics for shrinkage, double-checking measurements, and creating optimal washes “in-house.”

Vietnam denim manufacturer Saitex has opened its own fabric mill.
Inside Saitex’s denim factory in Vietnam. Saitex

Saitex has also been laying the groundwork for its first Los Angeles factory, set to be up and running sometime in Q4. Closer to the company’s U.S. brand partners and their target market, Bahl sees the outpost as a “factory of the future,” containing all of the robotics, artificial intelligence and digitized technology he’s employed in his Vietnam operations. The factory’s initial output will be about 600,000 units per year, though he hopes to see it churn out more than one million at peak capacity.

The L.A. factory will enable American brands to re-up on successful styles during the selling season—a feat that’s nearly impossible within the confines of the traditional fashion supply chain, and one that Zara has employed with reported success. According to Bahl, if a brand wants more units of a denim style that’s flying off the shelves, they have to coordinate with their mills, trim suppliers and manufacturers to rush the order. It’s a costly process, and the goods often arrive too late.

Saitex’s L.A. operations will help brands test styles with small quantities of product, and then re-order their top sellers in time to fulfill demand. “If you’re launching a new style, you could have a read on it super fast,” he said. “It’s about getting a good handle on a product before you commit to inventory and take risks, and you have the ability to chase so you don’t lose out on dollars.” Brands are also less apt to be left with excess inventory ripe for markdowns.

Saitex has plans to open denim manufacturing operations in Los Angeles by the end of 2020.
Denim jeans being washed at Saitex’s factory in Vietnam. Saitex

While the California factory will initially rely on denim from Saitex’s Vietnam mill, Bahl is actively working to develop mills closer to the U.S. market, in Mexico for example, which would allow for a quicker response to brand needs.

If the new factory pans out as he hopes, Bahl wants to expand the concept globally. “This whole plan—on-shoring and verticality—has been in place for the past 10 years now,” he said. “I’ve been insisting that this model is the only way for manufacturers to be successful in the future.”

Saima Chowdhury, founder of Noi Solutions, has espoused a similar vision for her family’s business in Bangladesh, touting self-reliance as a key to success. The company’s fleet of factories, which manufacture yarn, denim, printed fabrics, knits and sweaters, has operated vertically since 1976.

According to Chowdhury, whose company creates private-label garments for global brands that cater to teens and millennials, Bangladesh has seen heightened interest from U.S. companies looking to diversify sourcing away from China because of tariffs, rising labor costs and human rights abuses. But they’re not just fleeing those issues—they’re looking to be enticed by forward-looking solutions.

Bangladesh has served up strong alternatives to China for a number of reasons, and chief among them is the country’s “dual supply chain,” Chowdhury said. “We have a large number of yarn-to-garment vertical factories,” she added, “but we are also able to work with imported inputs, which allows for more flexibility in raw material innovation.”

While Noi Solutions spins its own yarns and knits its own fabrics, the company has a longstanding collaborative relationship with U.S. cotton suppliers, sourcing about 80 percent of its fibers from American farmers. That flexibility and global worldview provides a strong counterpoint to China’s nationalistic insularity.

Fabric production at Noi Solutions' factory near Dhaka, Bangladesh.
Fabric production at Noi Solutions’ factory near Dhaka, Bangladesh. Noi Solutions

Well more than half of the country’s apparel exports in 2019 (62 percent) went to the E.U., because of its duty-free access, while just 18 percent of its clothing output reached U.S. shores, Chowdhury said, citing data from the Bangladesh Garment Manufacturers and Exporters Association. “Bangladesh was not a preferred sourcing destination for the U.S.,” she said, but she’s witnessed this reality slowly shifting due to continued tariff tensions with China.

Bangladesh touts a balance between price and capabilities that allows it to compete with China, she added, with McKinsey calling it the “next-largest sourcing country” for apparel in 2019. In fact, clothing is Bangladesh’s largest export, and the four-million-strong industry is working to scale production for much shorter lead times. A focus on agility will help its factories appeal to DTC brands, Chowdhury said, which are pulling market share from mass-market competitors.

And as U.S. shoppers engage in more conscious consumerism, Bangladesh is making “huge strides in social and environmental compliance,” she added. “The Bangladesh garment industry has committed to making sustainability a necessity for doing business,” with 90 LEED-certified (Leadership in Energy and Environmental Design) factories, according to Chowdhury. Noi Solutions has used United Nations guidelines to craft its own goals around waste reduction, energy efficiency, clean water and sanitation, health care, fair wages and safe working conditions.

Chowdhury said the industry has also played a key role in creating employment opportunities for Bangladeshi women, who make up 85 percent of the country’s garment workers, according to data from London-based non-profit War on Want. “This industry is important to the country for economic and social stability,” Chowdhury said, “which has led to a significant amount of investment in the industry vertical operations, state of the art factories, and sustainability.”

Consumers’ growing concerns about their clothing’s origins have been a major factor prompting brands to look outside of China for sourcing, Aseem Kumar, owner of Fashion Images Overseas, told Sourcing Journal.

Kumar’s Rajasthan, India-based factory has seen an uptick in interest over the past few years, as “brands are becoming more interested in transparency and telling the story of how their clothing is made,” he said.

Fashion Images Overseas specializes in clothing made from natural materials like cotton, jute, rayon and silk.
Fashion Images Overseas specializes in clothing made from natural materials. Fashion Images Overseas

Pre-Covid, much of his business’ growth came from “brands with a mission” to become more sustainable. “India, and my company, specialize in natural fibers,” he said, noting it is “almost impossible to find polyester dyers” in Jaipur. Instead, manufacturers opt for locally sourced cotton, jute, silk and rayon. “As a community we have placed importance on using less toxic methods,” he added.

Throughout the Covid crisis, Kumar said businesses like his have seen increased interest from those desperate to diversify their supply chains. “India has good international relations, and thanks to upgrades in infrastructure over the past decade, it is set to compete in a global market,” he said. A capacity for block-printing, machine printing, hand and schiffli embroidery and sequin work should also prove appealing to international brands.

Hand embroidery is one of India's specialties, Kumar said.
Hand embroidery is one of India’s specialties, Kumar said. Fashion Images Overseas

“Every state of India has unique designs which belong to their culture and are shown through their art,” he added, giving designers a large scope of skills to tap into. The country is also looking to augment its capabilities beyond natural materials to include the novelty and performance fabrics that have proven indispensable to the apparel market through shoppers’ obsession with athleisure and streetwear.

Those consumer trends also stand to benefit the small but growing manufacturing sector in the U.S., centered chiefly in Los Angeles.

On-demand manufacturer Ari Jogiel’s eponymous company serves American labels in markets across the country, specializing in contemporary apparel. The manufacturer—which produces and fulfills garment orders within days, only after a consumer has purchased online—has seen a blossoming desire for lounge and streetwear as the long days at home have worn on.

Most of his clients are direct-to-consumer, Jogiel said, though some still dabble in the wholesale business.

“At the beginning some of our bigger projects were canceled,” he said, but immediately following Los Angeles Mayor Eric Garcetti’s “Safer At Home” order in April, which required residents to remain in their residences and barred non-essential businesses from operating, Jogiel’s business picked up. He engaged with the City of Los Angeles in addressing the PPE shortage, working with the L.A. Protects program to create non-medical-grade masks.

Ari Jogiel's Los Angeles office.
Ari Jogiel’s Los Angeles office. Ari Jogiel

The effort kept operations humming, and shortly afterward, the company’s apparel business “picked right back up,” he said. “In the last two months we have signed seven new brands and have seen a spike in demand for ‘American Made.’”

The sourcing landscape is “changing quickly,” he added, with many overseas-reliant clients “now having issues with importing and lead times.”

In a sense, the pandemic illuminated an already existing need for a total makeover of the fashion supply chain. As the gravity of the situation began to settle in earlier this year, brands scrambled to cancel orders and liquidate inventory that was no longer relevant to homebound shoppers. Many were unable to pivot quickly enough to cash in on emerging trends, like comfortable, casual lounge sets and sweats, which have become the unofficial Covid uniform.

In light of missing out on opportunities this spring, brands are looking for solutions that offer a quicker turnaround, like made-to-order products and domestic production.

A sewer at Ari Jogiel's Los Angeles factory.
A sewer at Ari Jogiel’s Los Angeles factory. Ari Jogiel

“I also believe that we are living in very tough times,” Jogiel said. Across his home city, businesses have shuttered—some of them likely for good. “Some Americans are realizing the importance of supporting local businesses, and being patriotic in a way.”

For decades, shoppers operated on a “don’t ask, don’t tell” policy when it came to the origins of their clothing. Few made a habit of vetting brands for sustainable and ethical practices, or even checking tags to see which far-flung locale their graphic T-shirt or trendy jeans came from. But as more conscious consumers age into their purchasing power, those considerations stand to become paramount to a brand’s success.

The industry also appears to have realized that the only path forward is a new one. Trade tensions aside, the old model of near-complete dependence on China was riddled with flaws. New sourcing players are rising to prominence across the globe, testing business models that reduce waste, promote efficiency and showcase the talents of regional makers.

Saitex’s Bahl warned that attempting to retrofit a fix on an already broken model for sourcing is likely a futile exercise. Instead, the industry must continue to evolve.

“You can’t believe that the same course of problems and solutions we’re seeing today will be replicated in the future,” he said. “Two years from now, we could see something even crazier than what we have today. This is the world we live in now.”