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Hey Retail! Uncle Sam’s Hand Is In Your Pocket

Prince Hamlet understood the problem. He asked whether it was better to “suffer the slings and arrows of outrageous fortunes” or “take arms against a sea of troubles.” If Hamlet had been cast as a modern-day retailer, his lines would have foretold the story of today’s strained relationship between the retail community and government regulations.

Here’s a serious question for the retail world. Has fashion lost the will to fight?

During the recent Sourcing Journal Summit, one excellent speaker after another discussed defensive plans against the many current procurement ills facing the fashion industry. Most speakers accepted the hand they were dealt, and then proceeded to discuss flexibility with different solutions.

Yet, no one discussed the elephant in the room.

Is retail suffering at the hands of newly minted regulations?

Has government become too involved in the retail business?

Is fashion over-regulated?

Perhaps consumers may have forgotten apparel’s history. Perhaps they don’t realize that it was our government that ramped up OSHA requirements in the 1990’s—which indirectly caused brands to offshore their product placements. Some might say that was a period where, as a country, we began to export our pollution—and import our products.

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When the retail fashion movement grew, U.S. brands were regarded as international emissaries, spreading commercialism around the globe—while Washington insiders conceived a notion that the apparel, footwear and accessory industries would be supplying jobs to countries far and near. The foreign employment action added stability to international trouble spots and seemed to calm many countries by providing stable employment and instilling a new-found love for American enterprise.

The emissary situation is quite different today, simply because the U.S. government has switched gears and appears hell-bent on making the sourcing environment somewhat miserable, especially if the product is from China. New regulatory actions are fast eroding U.S. company profit margins, they are inflating costs, and impeding delivery in most areas of imported goods.

It’s pretty clear that the US government played a role in the sourcing industry’s decision to leave, and they created trade agreements to help level the playing field. There was the introduction of NAFTA, CAFTA, and AGOA—to name a few. But, for current members of the retail community, all that movement existed in a prior life and the fashion industry resides in an entirely different place today—a location where trade deals are being weaponized by politicians and motivated entirely by political strategies.

Obviously, the most publicized assault on retail pricing started when former President Trump worked to improve our balance of trade with China—by leveraging the American consumer against imposed tariffs. The former President had sincere motives as he weaponized the tax, but that strategy abruptly ended with the China Phase One Trade Agreement. The bigger problem of the moment is that President Biden—with his strong support for labor—continued the failed tariff program in order to appease the political interests that got him elected.

The tariffs remain in full force to this day and our United States Trade Representative Katherine Tai continues to reinforce the protectionist commentary. With the continuance of tariffs, the apparel and footwear suppliers are still getting nailed, but the savvy travel goods retailers found a back door and switched to countries that were included in America’s Generalized System of Preferences program (GSP).

Other retailers soon flocked to the Miscellaneous Tariffs Bills (MTB) and also ventured into preferential trade agreements like the African Growth and Opportunity Act (AGOA). These moves were created to avoid price increases, avoid instability, and to steer clear of geographic uncertainty. While these switches were in play, sad to say the (previously mentioned) GSP and MTB bills were allowed to expire (by Congress) and have not been renewed since President Biden took office. In addition, as serious conflict arose in the Tigray region of Ethiopia, team Biden pulled the AGOA plug and that action, in turn, negatively affected all of AGOA. The program is set to renew in 2025 but many retailers are concerned about that likelihood.

Other sourcing teams reacted to global uncertainty by moving products to Haiti, to Nicaragua, and to Myanmar—in an effort to rebalance their portfolios—and none of that has worked out very well. The US government went even further in the regulation process when they targeted China with the Uyghur Forced Labor Prevention Act (UFLPA) to combat alleged forced labor and cotton from the Xinjiang area of China. To be clear, no reputable brand will allow forced labor in their supply chain, but the means and methods of product verification under UFLPA are beyond difficult. The difficulty of tracing raw material origin is only exacerbated by the fact that any contested shipment is covered by “rebuttable presumption,” meaning that the importer-of-record is deemed guilty before innocent—with only a 30-day window to prove otherwise.

Of course, government is well meaning and does try to help (even with the tendency to over-regulate). However, there is an on-going concern that “outsiders” are working to influence prominent legislators who then try to regulate fashion companies using the belief that independent fashion companies may not be able to manage their own businesses—especially when it comes to domestic labor, sustainability, or the environment.

Take United States Senator Kirsten Gillibrand (D-N.Y.), for example. The senator is located in the heart of America’s garment industry, but perhaps her office was influenced by outside interests when they introduced a federal bill called the FABRIC Act (Fashioning Accountability and Building Real Institutional Change Act) designed to promote a new standard for domestic manufacturing, while proposing millions to bring apparel assembly back to the US. The legislation would have prohibited paying a “piece rate” and required manufacturers to register with the Department of Labor. It also would allow for the penalty of civil liabilities for brands or individuals who could be in any way associated with paying a factory less than the required wage. This concept may sound interesting on the surface—and was a big hit in pro-labor circles—but it actually has received little support from Capitol Hill or from the garment industry.

If the Gillibrand bill doesn’t rankle your feathers, in New York State, perhaps outside interests also influenced Senator Alessandra Biaggi and Assemblywoman Anna R. Kelles who introduced yet another bill called the Fashion Act (Fashion Sustainability and Social Accountability Act) to ensure that “labor, human rights, and environmental protection are prioritized” in the fashion industry. The legislation indicates that if a company doing business in New York State were to have more than $100 million in revenue, they would need to map 50 percent of their supply chain and add select information about the annual volume of material that the company produces, and the median wage of workers or prioritized suppliers. To cap it off, any citizen could potentially file a civil action against any person or any business that is alleged to be in violation.

These proposed bills suggest an attempt to both pull back and further regulate the apparel assembly business in America, while the federal government is also operating and promoting an independent company called UNICOR which makes uniforms in America for soldiers and for the government. The assembly process for these UNICOR orders is done behind the walls of federal prisons, and they reportedly pay inmates a wage somewhere between 23 cents and $1.15 an hour as they compete for orders against the very-same domestic assembly business that legislators are requiring to pay minimum wage and be under government scrutiny. Funny how the offices promoting these new bills don’t mention UNICOR while promoting their legislative agendas.

It is also quite painful when detached pundits make comments about the garment industry being “unregulated”. In fact, the entire industry is highly regulated, and the standard insider joke is that America’s five pocket jean was created with four pockets for the wearer and one pocket for government. The bottom line of this commentary is that perhaps more industry executives should push back—rather that capitulate. Perhaps they should get closer to their politicians so that the industry can actually hear about legislation before it is commandeered and promoted by others. Perhaps retail executives might articulate directly to government that the industry has had “enough, no more” and remind everyone that:

— it was government that told the industry to off-shore, then restricted the return

— it was government that required USA uniforms to be made in America, and then gave orders to federal prisons

— it was government that added trade agreements, then weaponized these same agreements for political purposes

— it was government that exported pollution, then regulated imported products

— it was government that taxed consumers with duty, then added more tariffs to the tariffs.

And, with all that being said, as the fashion industry approaches this coming holiday season and enters into a new sourcing world for 2023, frustrated retailers, brands, manufacturers, and importers might be inspired by one more Shakespearean comment:

In “Twelfth Night” it was Orsino, the Duke of Illyria, who said:

“Enough, no more: tis not so sweet now as it was before.”

Rick Helfenbein is a retail and fashion industry consultant. He was the former chairman, president and CEO of the American Apparel & Footwear Association. He appears for industry comment on CNN, CNBC, Fox, BBC, Newsy, and Bloomberg.