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SJ President’s Predictions: Three Things That Will Define Sourcing in 2019

More than anything, three things will define sourcing and its success in 2019: uncertainty, sustainability and technology.

And what will perhaps arise as the biggest pain point promising to plague sourcing executives, will be the uncertainty surrounding trade.

“This past year, trade has been the biggest issue for a lot of companies out there and it’s going to continue to be a source of frustration out there for a lot of people,” Sourcing Journal founder and president Edward Hertzman said during a recent talk at the Retail Marketing Society. “This is creating a lot of uncertainty and it’s adding more headache to already an industry that doesn’t need any additional headaches.”

Here, Hertzman highlights what 2019’s headaches will be and how they stand to impact sourcing for apparel and footwear.

Uncertainty in 2019

Whether or not there’s been a 90-day truce on the trade war between the U.S. and China, enough damage has been done when it comes to confidence in China sourcing—and companies are looking to work their way out of producing there. Or to at least minimize China’s share of their sourcing mix.

The most pressing new problem companies will be faced with, however, according to Hertzman, will be where to go from there.

“There’s not enough capacity elsewhere in the world. If you all of a sudden said ‘I’m just going to eliminate China from the map’ and move all of your production to other countries that’s not even humanly possible, there’s just not enough factories,” Hertzman said. “What is going to happen is you have baked in inflation through the whole supply chain, because Vietnam and Cambodia and Indonesia and all these other guys know you’re coming, so the best factories are getting everyone to the door saying ‘Can you countersource this? Can you price this?”

Currently, companies are working on alternative sourcing options and getting products priced in new places as part of their contingency plans, but the countries they’re turning to, like Vietnam and Cambodia, have their own plans in place.

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“These guys also are not dumb, they’re going to raise the price too,” Hertzman said. The bottom line is that if [tariffs do] happen, or if it’s already starting to happen, the prices are going to become more expensive and the consumers are going to bear the biggest burden. So the concept that things are going to be cheaper and there’s going to be more jobs in America, that’s a flawed outlook.”

And according to Hertzman, more tariffs are coming.

“I think he’ll add the 25 percent and it will happen,” Hertzman said referencing the threatened increase to 25 percent of tariffs already in place on $200 billion worth of goods. That threat is currently on pause for the 90-day period President Trump and Chinese President Xi Jinping have agreed to while the work toward a resolution on trade.

The biggest concern, Hertzman said, is how quickly these new tariffs can take effect. The time between the last tariff announcement and when they took effect was just a week, so prices will increase before companies even figure out how to pay for it.

“Go back to your retail partner and ask them if now that it’s 25 percent higher if they’re going to pay a higher price than they agreed to on that PO and I’d like to see their answer,” Hertzman said. “I don’t think there’s any wholesaler out there who could bear that burden because I don’t even think they make 25 percent anymore…So the short term is going to be a big problem, then a little bit longer term, as you do start to shift manufacturing out, then you also have to start to think about where is the material coming from?”

Sustainability in 2019

Sustainability and transparency will continue to gain momentum next year as companies realize there’s little way forward without building these two buzzwords into their business ethos.

“That’s a big topic and companies are trying to figure out what they’re going to do about this. I’m not talking about greenwashing, anyone can put a label on it, but how to do it when it comes to chain of custody and transaction certificates, how to actually be a sustainable company and what does that really mean,” Hertzman said. “I think most companies don’t have any clue what they’re doing when it comes to sustainability.”

The next step in the New Year, will be getting U.S. consumers to be more concerned about the environmental impact their clothing purchases pose and willing to spend more to help minimize the problem, and also for companies to recognize that sustainability can be a savvy business move and not just a marketing effort.

“When you walk into a store it shouldn’t be that this is $9.99 and this is $12.99 because it’s sustainable…We have to get to the point where we can sell the clothes at the same price because this is the best way to do business, because we want to do things ethically,” Hertzman said. “It’s like child labor, you don’t wake up in the morning and say congratulations you have no children in your factory. You wouldn’t get a pat on the back.’

Five years from now, Hertzman said, things like water treatment plants will be more of the norm than a rarity worth being commended for.

“That’s what we’re going to see,” Hertzman said. “The factories that are becoming more and more successful and people want to work with are these grade A factories and they’re the ones that have been able to invest in these sustainable initiatives and are going to help bring down the costs of sustainable products.”

Technology in 2019

Technology has itself become a buzzword of sorts for the apparel industry, and more and more companies are entering the space offering a digital service designed to deliver on some new demand the industry has.

The question, according to Hertzman, however, is not so much what problem these companies are solving but how the industry can utilize the technologies they are offering. It’s how companies can use the data these new technologies and platforms can gather and determine how to reduce inventory, speed up replenishment and be more predictive in sourcing product.

Still, in 2019, Zara will remain the model for success that few can emulate.

“I was in Portugal and we were in a factory and [Zara] sat there with this amazing technology—I’ve never seen anything like it—it was a No. 2 pencil. And they sat there, they saw a piece of fabric, they sketched…they said make this sample, they ordered the things, they went home,” Hertzman said. “I didn’t see any AI or anything going on there. There were no robots. It’s called quick decision making is the culture of how they do business.”

If companies can figure out how to automate more than basics like a T-shirt or pillowcase and the industry can evolve to an on-demand supply chain that companies from thousands of units of inventory that aren’t selling, only then will sourcing really start to experience a shake-up.

“That will completely change the supply chain,” Hertzman said. “You’re finding economies of scale and ways to speed up the process. This is a quicker supply chain, but I think the thing that’s better than all the technology in the world, is empowering your merchants and making faster decisions. Not chasing the cheapest FOB.”