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Gap Inc.’s $150 Million Commitment Boosts Central America Sourcing

Gap Inc. is among a group of U.S. companies that committed $1.9 billion to sourcing from Central America in a bid to strengthen near-shore supply chains, Vice President Kamala Harris announced this week.

The San Francisco clothing giant plans to increase its Central American sourcing by approximately $50 million per year for $150 million total by 2025. The investment is a part of its strategy to increase supply chain resilience by nearshoring production to the Western Hemisphere, it said. Currently, the company’s manufacturing contracts support about 8,200 jobs held primarily by women, a figure expected to grow by 5,000.

Countries like Mexico, Guatemala, Honduras, Nicaragua, El Salvador and Costa Rica will benefit from the expanded opportunities, which developed as a result of Harris’ July 2021 call to action to address the root causes of migration away from the region. The new investments will bring U.S. companies’ efforts to more than $3.2 billion.

Harris said U.S. companies are integral players in the long-term development of northern Central America, and she will continue to draw upon the sector’s resources and expertise to help foster economic growth. This week, Harris met again with CEOs and philanthropic organizations at the Summit of the Americas in Los Angeles at events hosted by the Partnership for Central America and Chamber of Commerce.

National Council of Textile Organizations (NCTO) members SanMar and Unifi have also pledged to increase their Central America purchases. Twelve-year-old Unifi Central America givies the recycled and synthetic yarn maker access to El Salvador’s burgeoning textile workforce. It will continue to pour resources into expanding its footprint and production capacity in and around the country, starting with $15 million over the next five years. The capital will help increase efficiency, reduce energy consumption, and improve innovative texturing technology adoption that could bump El Salvador’s polyester yarn output by 40 percent. It will also enable Unifi to train workers and stimulate job growth.

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Meanwhile, U.S. apparel wholesaler SanMar committed to investing $500 million by 2025 in support of 4,000 new full-time jobs at Elcatex, its part-owned Honduras-based factory. SanMar general counsel and corporate secretary Melissa Nelson said the investment will help supply more than 60,000 SanMar customers, most of are U.S. small businesses.

Nelson said Elcatex will drive SanMar’s expansion in Honduras, as the partners have collaborated on “a number of projects, including cutting and sewing expansion, textiles, and sustainable energy improvements” over more than a decade. “Working closely with them gives us insight into their capabilities a sourcing partner” and promotes visibility into the company’s supply chain, she said, noting Elcatex’s “high quality, sustainable products and consistent supply.”

Vice President Kamala Harris at the Summit of the Americas in Los Angeles, Thursday, June 9, 2022.
Vice President Kamala Harris at the Summit of the Americas in Los Angeles, Thursday, June 9, 2022. Jae C. Hong / Associated Press

SanMar’s investment will focus on producing more knit T-shirts and sweatshirts, the bulk of which are created as private-label inventory for the company’s Port & Company and District brands and end up as team uniforms and similar products. “Most of these T-shirts and sweatshirts will be purchased wholesale by our customers, decorated or screen printed by them, then resold to their end consumers,” Nelson said.

The current effort will serve SanMar’s larger mission of developing a worldwide network for responsible sourcing, she added. “We work to make high quality products, ethically and sustainably, and we do that with a diverse, global manufacturing footprint comprised of over 20 countries around the world,” Nelson said. The company is looking to “bolster existing manufacturing capabilities and contribute to the development of new ones.”

SanMar has grown in the region over the past 10 years as the Honduran textile sector evolves toward more sustainable production. “In another 10 years, you’ll see Central America as a cutting-edge sourcing destination, with greater capacity in both cut-and-sew and synthetic textiles,” said Nelson, pointing to SanMar’s effort helping Elcatex transition to 80 percent renewable energy.

In an op-ed this week, Honduras Secretary of Economic Development Pedro José Barquero Tercero described the Central American nation as “an immediate supply chain alternative.”

Honduran workers employed by American companies could transform U.S. cotton harvested by Texan farmers into a T-shirt in just a few days and create “thousands of jobs in our country,” he said by way of example. “Furthermore, this finished product can later be retailed at a store in California in a matter of days and not weeks.”

“These recent investments exhibit an entirely new opportunity for Honduras to achieve both global prowess and domestic prosperity vis-à-vis the textile and apparel manufacturing sector, all while ensuring that American workers enjoy the same gains,” he said.

Calling the American textile industry’s investments in Central America “historic,” NCTO president and CEO Kim Glas said the commitments are just part of the sector’s contribution to developing Central American sourcing. This year alone, U.S. players will be responsible for investing $1 billion in the region, including Walmart supplier Intradeco‘s $100 million ventures in Honduras and El Salvador.

“The nearshoring trend is happening, driven by a multitude of factors ranging from the Covid pandemic to a break down in Asian supply chains,” Glas said, along with rising freight costs and labor shortages. Shifting production to Central America “will unlock more investment and capacity and dramatically reduce our reliance on Asian supply chains tainted by forced labor and other predatory trade practices,” she added.

Glas believes the movement will benefit U.S. textile and apparel production. A recent Werner International study showed that if the current export levels from Central America and the Dominican Republic to the U.S. double, “an estimated $6 billion in new investment would occur in spinning, weaving and knitting industries in the U.S. and CAFTA-DR countries,” she said. “A win for Central America is a win for domestic manufacturers of inputs, and this co-production is essential to support workers in our collective industry.”

SanMar’s Nelson echoed that sentiment. “The future of Central American sourcing is bright,” she said.