The pandemic planted the seeds of a sourcing shakeup, and over the past year, a number of global supplier relationships have begun to ripen.
A decades-long era of undisputed China dominance in footwear and apparel sourcing appears to be on the wane. And while the superpower held on to its ranking as the No. 1 producer of U.S. fashion imports in 2022, neighbors and global competitors are steadily augmenting their capabilities and capacity in response to demand from brands and retailers keen to explore nearshoring and supply chain diversification.
Sourcing Journal spoke to industry experts about this year’s sourcing MVPs, as well as the players destined to warm the bench in 2023.
Footwear
China produced the most footwear consumed by the U.S. market this year, but the country’s share of the sourcing pie is being steadily eaten up by rivals.
In October, year-to-date numbers revealed that China footwear imports totaled 1.2 trillion pairs—evidence of the brevity of the country’s 2021 bounce-back. China’s U.S.-bound footwear exports dipped below 1 trillion pairs in 2020 for the first time in more than two decades, according to OTEXA. The following year saw some gains for the country, with 1.3 trillion pairs making their way to U.S. shores.
That momentum has stalled, Matt Priest, president and CEO of the Footwear Distributors and Retailers of America (FDRA) told Sourcing Journal. “Now, at the end of 2022, it’s apparent that 2021 was a blip for China’s growth,” he said. Pre-Covid numbers illustrate the extent of its loss of ground: in 2019, the U.S. imported 1.4 trillion pairs of shoes from China, and the three previous years saw imports hit nearly 1.7 trillion pairs.
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Pre-pandemic market-share losses could be attributed to “rising labor costs, labor shortages in traditional production provinces like Guangdong Province and Fujian Province, and this strong desire for the workforce not to make shoes,” Priest said. The country has aimed to develop dominance in other products and services in recent years.
Some of China’s decline has been “worker driven, for sure—but it is buyer driven too.” In 2022, it’s simply too difficult and costly for Western brands to meet with suppliers and develop product, the FDRA lead explained. “You throw in with that the Uyghur Forced Labor Prevention Act, Chinese law prohibiting vendors or suppliers from participating in compliance programs with Western companies, and zero-Covid [policies]—it’s just this brew of uncertainty and challenges.”
Mounting hurdles are prompting companies to diversify. Today, footwear sourcing has returned to an “over-a-decade-long narrative of Vietnam being the rising star in stealing market share from China,” he said.
The country is snapping up the business that China is rapidly shedding. FDRA data showed that shipments of athletic shoes—Vietnam’s core competency—grew by more than 156 percent year on year. In October, year-to-date imports from the country totaled over 541 million pairs, up from over 514 million during 2021. Vietnam’s performance is snowballing; its pre-pandemic output totaled 485 million pairs in 2019, 459 million pairs in 2018 and 404 million pairs in 2017.
“With this surge in activity and exports to the US market, they’ve taken on the ability to make about just about anything,” Priest added. “That may require them to bring in some materials from China, but the fact of the matter is, you can get hiking boots, work boots, athletic, casual—just about anything you can think of.” As the country’s capabilities grow, its capacity remains limited, especially compared with China. But companies are still feeling bullish about moving into Vietnam, and capacity “has yet to hit the ceiling at least for the time being.”
More than 90 percent of footwear import volume originates in China, Vietnam and Indonesia, Priest said, and “everyone else is kind of fighting over the margins.” But one player stood out to FDRA as a sourcing locale to watch.
“I’ve been hearing more about, and actually seeing more product from India in stores,” he said. Import volume totaled more than 35 million pairs year-to-date in October, up from over 29 million in 2021. “India on paper has always been really appealing—it’s got a young population, shared political values when it comes to being a democratic nation, and has raw materials fully integrated,” he added.
Though the numbers have reflected middling growth—Indian footwear imports accounted for about 27 million pairs in 2019, up from over 25 million during 2018 and 2017, respectively—Priest said FDRA is beginning to see more of its membership looking to the country as an option for sourcing. “I think there might be a reckoning of big companies trying to make India work for them, whether it’s with indigenous production or foreign direct investment in India to help bridge the gap and drive more products to the U.S. marketplace,” he said.
Apparel and Textiles
China remains an integral resource for global markets sourcing apparel, but with diversification becoming an imperative for many organizations, the country’s growth is slowing.
China accounted for 35.6 percent of all apparel imports into the U.S. year-to-date in October, 2022—up about 5 percent from the year-ago period, according to OTEXA data analysis. The country was responsible for 9.6 trillion square-meter-equivalents (SME). China’s total market share of U.S. apparel imports was 37.8 percent in 2021, and 36.6 percent in 2020.
Meanwhile, Vietnam, the No. 2 apparel producer for the U.S., saw its shipments rise by nearly 16 percent year-to-date in October, reaching 4.3 trillion SME and accounting for 15.3 percent of American apparel imports. Bangladesh emerged as 2022’s rising star, increasing its U.S.-bound clothing shipments by over 31 percent to 2.7 trillion SME. The country now accounts for about 10 percent of U.S. apparel imports.
India saw a near-26-percent percentage gain year over year in October to 1.3 trillion SME, but still accounts for just 4.7 percent of apparel imports. Similarly, Indonesia gained ground, upping its U.S.-bound export volume by nearly 34 percent to 1.2 trillion SME, earning a 4.3-percent share of the market. Cambodian imports accounted for a similar share, increasing by more than 15 percent to 1.2 trillion SME.
Apparel imports from the Western Hemisphere accounted for more than 13 percent of import volume—up about 2 percent from the previous year by SME. Despite the modest volume gains, the value of those goods rose by 20 percent to $14.5 billion year-to-date in October, and imports from Dominican Republic-Central American Free Trade Agreement (CAFTA-DR) countries, which grew a little over 5 percent year-over-year by SME, accounted for $9 billion—25 percent more than the same period in 2021.
“It comes as no surprise that one of the biggest apparel sourcing winners this year is the Western Hemisphere, including the CAFTA-DR region,” Kim Glas, president and CEO of the National Council of Textile Organizations (NCTO), told Sourcing Journal. CAFTA-DR countries, which include Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua, are on pace to register their best year since the trade agreement was first signed in 2007, she added.
“This data is more proof that the nearshoring trend is strong,” she added, noting that the pandemic’s continued influence on supply chains and complications related to UFLPA have fueled sourcing shifts away from China. The result is record investment in boosting textile and apparel production closer to home.
“Supporting nearshoring in the Western Hemisphere are new textile and apparel manufacturing investments in the CAFTA-DR region totaling $1 billion this year alone,” Glas said. In addition, two-way trade between the U.S. and CAFTA-DR totaled $15 billion for the year ending October 2022, representing an increase of 19 percent compared to calendar year 2021, and an increase of 60 percent compared to calendar year 2020.
Glas believes that recent traumas have made companies eager to “hedge their risks and manage their exposure to the challenges of doing business today.” Closer proximity to partners allows brands and retailers “to better meet demand for their products with quick deliveries, shorter and more sustainable supply chains, and overall speed to market.”
U.S. companies “have been looking to make changes to supply chains over the past several years now, especially with the trade war against China and then all the Covid-related challenges,” Jonathan Gold, vice president of supply chain and customs policy for the National Retail Federation (NRF) told Sourcing Journal. With the shift away from China into other markets, enterprises are hoping to “provide more resiliency into their supply chains.”
While the pandemic accelerated interest in diversified sourcing strategies, it has also hampered their development to some degree. Travel restrictions and general difficulties connecting with and validating potential sourcing partners have also contributed to the slow progress. Despite the challenges, Gold said NRF members have expressed a desire to move at least some portion of their sourcing to other locales. “Vietnam continuously comes up as a place where a lot of folks have made the shift, and India as well,” he said. Others have brought business back to Western Hemisphere with the desire to make use of free-trade agreements like the U.S.-Mexico-Canada Agreement (USMCA) and CAFTA-DR.
As these connections continue to form, Gold said he hopes the U.S. government will bolster advantageous trade relationships through new laws and changes to legislation. He hopes to see a long-term renewal of the African Growth and Opportunity Act (AGOA), as well as changes to rules of origin that would make programs like CAFTA-DR easier to use.
Such developments could spur a deepening of sourcing relationships with China alternatives, but competitors are unlikely to dismantle country’s market share in the near-term.
“There has been a lot talked about onshoring and nearshoring, with some looking across the globe to figure out where the best place is for them to take advantage of those relationships,” Gold said, “but it takes time to develop those relationships, and to make a switch usually takes months, if not years.”