Uncertainty led the charge for sourcing in 2018, and the ramifications of an up-in-the-air trade environment show little signs of abating.
What has become increasingly clearer, is that apparel brands and retailers are making a dash to diminish their reliance on China for sourcing in light of what’s transpired in trade this year, and regardless of how the trade war and presently-on-hold-tariffs shake out in the first quarter of the New Year, the exodus will have already begun to take shape, likely refashioning the sourcing map as the industry knows it.
To gain some insight into what 2018 really meant for apparel sourcing, Sourcing Journal caught up with three key experts in the space, all of whom are based in Hong Kong and well versed in how current Sino-U.S. relations have played out for their respective businesses.
Hear from Synergies Worldwide president and CEO Guido Schlossman, Luen Thai CEO Raymond Tan and Li & Fung executive director and group president Marc Compagnon on what arose for the year in sourcing.
Schlossman: Sourcing in the year 2018 was challenging! The year started with an appreciation of the Chinese currency, which led to an (unplanned) increase of FOB prices before Chinese New Year; the price increase accelerated by the government crackdown on mills and dying houses—many of those have been violating environmental laws and standards.
Triggered by increasing FOB prices and a (potential) trade war between China and the U.S., many companies—especially U.S. retailers—started to shift orders to alternative production countries (Vietnam, Cambodia, India, Bangladesh, Pakistan). At the same time, brands and retailers started a massive transformation process to become e-commerce players with a retail network or real omnichannel operators, now imposing new needs and requirements to their supply chain. These changes were quite dramatic and many mistakes in the supply chain and sourcing have happened.
Tan: The U.S.-China trade war uncertainty is definitely the highlight of 2018 as many U.S. customers are trying to move their production out of China. Some brands and manufacturers are better prepared than others. This challenge becomes opportunities for those who are better prepared; for those who relied too much with Chinese production, it might be a little too late to react. Hopefully, U.S.-China could reach an agreement to give more time for everyone to gradually move their productions out of China.
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No matter what will be the final result, brands will continue to move their production outside China for the U.S. market. We expect to see a lot of factories shutting down after the upcoming Chinese New Year, creating quite a bit of social problems for the Chinese government as many manufacturers could not afford the huge separation pay, which will also impact orders in the pipeline and create financial problems further down the supply chain for suppliers to those factories who will be shutting down.
I expect to see Chinese brands and international brands expanding in China to source more from China taking advantage of the Chinese excess capacity while creating a more competitive China-for-China supply chain for themselves. This is a temporary setback for the Chinese manufacturers but I wouldn’t underestimate the ability of the Chinese manufacturers to get out of this stronger. International brands who are expanding in China should definitely take this opportunity to rethink their China (or Asia) supply chain model.
Not only the Chinese goods will be more expensive for the U.S. consumers, we also expect to see a rise in prices outside of China. For so many years, non-Chinese manufacturers had been facing price pressure; it is now time for these players to demand a higher price. With a strong U.S. economy, we will finally see some upward price adjustment in the U.S. market.
My major takeaway from 2018 is that one has to decide to stay in the industry with passion and courage to change, or you should move forward with other opportunities. There was a period that some reasonable strong players were changing but not with enough commitment, they could still survive with their past successes and relationships. The time is up that this transition period is over as brands are left with no choice but to make difficult decisions to break away with these long-term relationships for their own survival.
Compagnon: For us, I would say that sourcing this year was defined by the need to incorporate speed into supply chains to make them more agile and efficient. In doing so, you build supply chains that are more flexible and thus responsive to change—whether it’s change in the form of shorter product cycles so you can get new products to market faster, or change at the macro-level, like dealing with the consequences of the U.S.-China trade war.
Digital also defined sourcing in 2018. The retail sector went through a tremendous amount of change, disruption and transformation in 2018, and technology played a major role in driving a lot of that change at the retail and consumer level. Of course, the supply chain also has to change in order to meet the new needs and expectations of brands and retailers, as well as consumers, and that’s what is driving Li & Fung’s ongoing digital transformation. This year, we saw positive momentum behind our Three-Year Plan (3YP) vision of creating the supply chain of the future. With the positive market response to our digital strategy and the traction we’ve gained with customers in areas like 3-D design and sampling, we’re now more focused than ever to continue executing our digital strategy.