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‘The Market Is Realizing That China is Not Everything’: LatAm Producers Poised to Step Up

Last week’s Sourcing at Magic trade show in Las Vegas was a smaller affair, reflecting the coronavirus pandemic’s ongoing impact. Government-imposed travel restrictions and rising Delta-driven coronavirus cases barred a number of sourcing superpowers—including China, India, Brazil, the U.K. and multiple E.U. nations—from coming out in full force.

However, their absence made room for producers from Central and South America. Occupying nearly as many booths as the Chinese manufacturing contingent, exhibitors from countries like Mexico, Peru, Colombia and Guatemala showcased environmentally and socially conscious supply chain processes and sustainable materials.

And as brands contend with international shipping delays, manufacturers based on closer—if not adjacent—continents were working to highlight the benefits of proximity to the U.S. market.

“Finally, the market is realizing that China is not everything,” Michel Chabaneix, CEO of Lima, Peru-based All Cotton Corp. SAC, told Sourcing Journal. The company, which supplies premium Pima cotton staples like T-shirts, dresses, button downs, hoodies and trousers to American brands like Theory, Tory Burch and Rag & Bone, saw a notable uptick in interest at last week’s Sourcing show.

Chabaneix credited his company’s speed to market capabilities as one reason that U.S. labels are taking a harder look. “Price point is important, but it’s more important to have the goods and the quality your customer deserves and have the merchandise on time,” he said. Production and logistics timeframes for goods made in China have ballooned over the past year, while All Cotton’s standard manufacturing and fulfillment estimate ranges from 45-60 days.

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All Cotton Corp. produces goods for brands like Rag & Bone and Tory Burch.
All Cotton Corp. produces goods for brands like Rag & Bone and Tory Burch. Sourcing Journal

“If you have the time to produce in Asia, it’s at least 4-8 months,” he said. “Timing is one of the most important things for our customers, outside of quality and price,” he added. “These fashion goods are perishable.”

Brands are beginning to see stability as a driver for their sourcing relationships, and the ability to return to a factory for a consistent supply of quality goods as an incentive to remain committed. Chabaneix admitted that the higher cost of Peru’s Pima cotton—known for its long, supple fibers—limits the company’s ability to work with the U.S. market’s “biggest customers.”

Instead, the supplier is courting premium labels looking to diversify sourcing away from Asia. All Cotton currently employs about 300 workers, producing up to 150 tons of goods per month, Chabaneix said.

“Cotton is a commodity, and our cotton is very high in cost in comparison [with Asia] so we need to hike to a different level,” he said. “This is why you’re seeing a lot of premium and luxury—there’s no other way for us.”

Beyond seeking speedy fulfillment, brands are also developing long-term strategies centered around sustainability and ethical production, according to Giotex. Brand consultant Silvia Lopez-Luna said that the Mexico-based textile and apparel producer produces all of its materials using either recycled cotton from pre-consumer factory scraps or recycled polyester sourced from recycled plastic bottles.

“It’s been a process of trying and putting science to work and creating new blends that are appealing,” she said, noting that Giotex has built a large color palette growing “richer by the year.” The cotton-based color selection is created through the selective collection and sorting of scraps, while polyester hues leverage a proprietary process adding powdered pigment during fiber extrusion, eliminating the need for chemical dyes.

Giotex recycled polyester-based fabrics.
Giotex recycled polyester-based fabrics. Sourcing Journal

Giotex has “received interest” from nascent, sustainability-focused labels and larger entities interested in reexamining the way they do business, Lopez-Luna said, adding that recycled content, traceability and Global Recycled Standard (GRS) and Higg Index certifications entice American brands looking to decouple from Asia. “They’re very interested in those areas,” she said.

“I’ve seen a lot of customers that are worried about availability and shipping,” she added, noting that rates have risen through the roof for goods sailing to the U.S. Giotex, located in Uman on the Yucatan Peninsula, offers proximity to Gulf of Mexico ports, and is about two hours by plane from Miami. Trucking goods into the U.S. is also another option, and the company’s warehouses stateside offer speedy inventory replenishment, she added.

Giotex also maintains an open-door policy for brand partners. “We have clients coming to our facilities all the time, and we love to have them,” she said. “How often do you think a U.S. designer is going to be able to check in on the labor and the conditions at their factories in China?”

As a result of pandemic disruption, many brands are now “more reflective on their choices and their impact” and less incentivized to settle for cheap and easy, according to Lopez-Luna said.

“A lot of people are trying to optimize their resources and their time, and their closeness to their sourcing,” she continued, “and Mexico is becoming more known and considered in the minds of new consumers as a place to base their business.”

In Guatemala, small-batch manufacturer Direct to Source launched in 2018 on the premise of providing brand partners with assurances of fair labor practices through a commitment to transparency, according to partner and co-founder Holli Gibson, who told Sourcing Journal, “We wanted to build the business to encompass all three legs of the stool in terms of sustainability: recycled or sustainable fibers, high-quality construction and ethical production.”

The company resonated with American brands looking to source closer to their end market. It also became a fixture in the local community, as it offered flexibility and convenience for workers. “Most of our employees walk to work, they go pick their kids up at lunchtime and they go home and have lunch with their families,” Gibson said.

Direct to Source uses Repreve, BCI cotton and Lenzing fibers.
Direct to Source uses Repreve, BCI cotton and Lenzing fibers. Sourcing Journal

After its first year, Direct to Source expanded its operations, and its landlord built a new, WRAP-certified facility to help the company scale. Work on the new facility finished just months before the pandemic spread, and while the plant was forced to temporarily close, the larger space enabled the factory to reopen and continue business under social distancing guidelines. “We were fortunate and able to work with the Guatemalan government and Engineers Without Borders” to sew masks and gowns, even hiring workers laid off by other factories, she said.

Now Direct to Source is focused on expanding its relationships with sustainable fiber makers, from Repreve to Lenzing to Better Cotton Initiative-certified producers, to continue building a roster of eco-minded American brand partners.

Along with leading with its values, Direct to Source is starting to benefit from Guatemala’s duty-free status and proximity to the U.S., especially in light of shipping delays, according to Gibson. “We can ship in one week, and even now, we’ve only extended that by a few days, typically,” she said. Most shipments travel by boat, though the company has had to air-freight some goods this year. “We work with a lot of mid-size brands, so we’re able to aggregate shipments and coordinate for them since they can’t fill up a container on their own,” she said.

While the company is seeing growing interest from U.S. labels, Gibson believes sticker shock might keep brands from moving business from China to Guatemala, home to Central America’s highest minimum wage.

“The brands that are able to transition successfully are the ones that are focused on ethics and sustainability, that have a higher price point,” she said. “Their carbon footprint, quality of goods and being less impactful [are] important to them.”

Still, others are driven by desperation—and that trend may snowball, Gibson said. “We have a new customer that was producing in Asia, and they said, ‘This uncertainty is killing us and we’re not willing to risk our business any longer,’” she said. “So while it has been challenging to put together a program for them from a price perspective, we sat down, we work[ed] together, we figured out where to give and take.”

Central and South American suppliers are positioned to take more of the U.S. market’s business, according to Patricia Medina, owner of Aztex Trading. The Mexican company, which began manufacturing in 2005, has changed its model to better serve a new class of mostly digitally native American brands seeking small production runs and quick replenishment. “We’ve realized that the smaller customers selling through the internet actually grew during the pandemic and have more potential than the bigger brands that were buying larger volumes—now, they’re in financial trouble,” she said.

After an early torrent of Covid order cancellations, Aztex shifted its focus to DTCs and boutique brands. “We’ve decided to really change our customer base to those with whom we can work as partners,” she said. “This show has been good because there have been a lot of these types of brands who have been looking for this kind of service.”

Aztex denim, cotton T-shirt.
Aztex cotton T-shirt, denim jeans. Sourcing Journal

Aztex lowered its MOQs to 300 units to attract a broader range of smaller customers, offering “continuous reorders” and greater accuracy for brands focused on sell-through and reducing waste, she said.

The company sources fabrics both locally and from the U.S., with American-produced cotton benefiting from United States-Mexico-Canada Agreement (USMCA) provisions. “We think that this is the time that we can really complement the supply chains in the Americas,” Medina said, pointing to the lack of applicable tariffs versus China-made goods.

While Mexican producers primarily service the domestic market, the country’s economy is struggling in the wake of the pandemic, making this the “perfect time” for manufacturers to diversify. “These companies are accustomed to working with smaller volumes on a quick response basis, because that’s the way the domestic market operates,” she said, noting the opportunity to serve growing, niche U.S. brands.

When asked if Aztex had seen new interest at the show, Medina said she believes many firms are just beginning to explore the idea of shifting away from China, but Sourcing at Magic helped put Mexico’s manufacturers on the map. “A lot of companies know that they have to do it, but it’s hard for them to know where to go unless they come to a show like this,” she said. “It’s not like there’s a database of suppliers in Mexico, and it’s important for them to know that we do exist.”