The survey asked executives from leading textile, apparel, fashion brands, retailers, importers and wholesalers with core businesses in the U.S. about topics spanning business outlook and sourcing practices to their utilization of Free Trade Agreements and preference programs.
The majority of respondents (89 percent) said they are optimistic about the five-year outlook for the U.S. fashion industry, naming the U.S., Western Europe and Canada as the top three regions where their core business activities will increase in the near future. Asia is another bright spot for growth, as the majority of fashion retailers and importers/wholesalers reported they are “somewhat likely or very likely” to expand their businesses there in the next two years.
Despite the rosy outlook, 81 percent ranked rising cost as their greatest business challenge, even though most only expect moderate increases in 2014. “This comes as no surprise considering the media attention given to rising costs in the industry, but it’s interesting to see which specific costs respondents believe will have the greatest impact, too,” according to the report.
Rising labor cost was named the major factor impacting overall sourcing costs in 2014, followed by raw material costs worldwide and the price associated with compliance with trade policies and regulations.
China appears to remain a conundrum for the fashion industry. While respondents reported they are actively seeking alternative sourcing destinations–primarily due to climbing labor costs and the recent economic slowdown–the country will nonetheless remain a sourcing hub. Half of respondents said their sourcing volume from China would not change in the next two years. The other 50 percent expect their sourcing value from China to decrease in the next two years, but not significantly.
Similarly, despite last year’s tragedies in Bangladesh garment factories, the country is still regarded as a destination with growth potential as 60 percent surveyed said they expect to ramp up sourcing from Bangladesh. Another 15 percent have no plans to change their current sourcing scale there.
“We surmise that the data reflects companies’ commitments to improving factory safety and compliance in Bangladesh, and commitment to continue to source there in the medium to long term,” the report noted. In fact, Asia as a whole remains a dominant sourcing center with interest in Vietnam, Myanmar, Pakistan and Indonesia on the rise.
Given the popularity of “Made in USA” products, respondents overwhelmingly said they support sourcing closer to home. 82 percent of retailers said they intend to increase sourcing from the U.S., and 55 percent of importers/wholesalers concurred. Companies with the most diversified global sourcing bases seemed the most likely to commit to sourcing in the U.S.
More than half of the respondents said they expect their sourcing base will become more diversified in the next two years. However, the report found little correlation between sourcing diversification strategy and reported pressure of rising sourcing costs. Of the respondents who anticipate sourcing costs to moderately grow, only 43 percent plan to diversify their sourcing base. Another 43 percent said they would make no change and the remaining respondents plan to consolidate their sourcing base.
On the topic of U.S. trade policy, the study found there is a low utilization rate of most U.S. Free Trade Agreements (FTAs) and preference programs between the U.S. and its trading partners.
The North American Free Trade Agreement (NAFTA) was rated the most-used FTA by 77 percent of respondents, followed by the U.S. Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) by 52 percent, the African Growth and Opportunity Act (AGOA) by 37 percent, and the U.S.-Korea Free Trade Agreement (KORUS) by 30 percent.
In comparison, the utilization rate by respondents of all other enacted FTAs and preference programs fell lower than 20 percent, while others are not being used at all, the report noted.
Still, respondents welcome the passage or renewal of all new trade agreements that intend to remove trade barriers and encourage international trade. In particular, they are most interested in the completion of the Trans-Pacific Partnership (TPP). The report found that 85 percent of companies strongly want to see the reduction of import tariff rates on apparel, fashion, accessories, and textile products, more flexible rules of origin and the expansion of the short-supply list in the TPP.
The majority also support the inclusion of environmental and labor clauses in future FTAs and preference programs between the U.S. and its trading partners, underscoring the importance of compliance with corporate social responsibility and sustainability.
USFIA surveyed executives from over two dozen U.S.-based fashion companies between March 2014 and April 2014. In terms of business size, 96 percent of respondents reported having more than 100 employees in their companies, suggesting that the findings well reflect the views of the most influential players in the U.S. fashion industry.