At every conference or trade show I attend, there is one question that’s always asked: Is manufacturing returning to America?
There has been considerable press about companies looking to re-shore, Walmart has publically announced its commitment to bring production back to America, and luxury e-tailer Everlane, known for its radical transparency, highlights each of its factory partners on its website, many of them in America.
While I do find these examples promising, in my opinion, manufacturing in America is not only not returning, but it is wishful thinking to believe its resurgence is even likely.
Now don’t get me wrong, manufacturing in America does exist. In fact, as I write this story I am actually wearing a domestically produced pair of twill pants from Adriano Goldschmied.
And AG is not alone. American Apparel, J Brand, Save Khaki, Karen Kane, New Balance, and the list goes on and on, all have domestic supply chains in place.
I am not denying the presence of American manufacturing, and by no means am I against the movement. But when we talk about a return to domestic production, we have to be honest about the facts and, more importantly, we have to be honest about the state of the apparel and retail industry.
In the past two decades, apparel imports have surged 160 percent from $35 billion to $91 billion, and now comprise an estimated 95 to 97 percent of all apparel sold at retail. In 2013, apparel imports grew 4 percent on a dollar basis compared to 2012, faster than the growth in the overall apparel market. Companies have been shifting production from China, where labor costs continue to rise, to low-cost countries like Vietnam and Bangladesh. In 2013, apparel imports from Vietnam, for example, surged 14 percent, while those from China grew by a mere 2.5%.
When we talk about the fashion industry, we have to look at the broader picture. Very few consumers are in the market for $200 jeans and $100 T-shirts, typically the types of retail prices you could expect to find from domestically produced apparel.
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That doesn’t mean niche premium brands cannot create healthy, profitable businesses producing locally and selling to the socially conscious, patriotic, consumer, but this is a small fraction of the American market. Consumers in the U.S. are thinking fast fashion, discount retailers, dollar stores and holiday weekend coupons when going out to purchase clothing. Country of origin is not likely at the forefront of their minds.
I have been in many meetings where lowering the cost of goods has been the topic of discussion, and the solution, more often than not, is to explore alternative sourcing locales like China and India. But when it comes to cutting costs, no company of any size has ever asked me how to bring production back to the U.S.
My stance on American manufacturing is very simple: It won’t work on a major scale because of simple economics.
U.S. cut-and-sew wages have increased by more than 13 percent in the past seven years (inflation adjusted), to an average of $14.79 an hour. Let’s assume an average workday is eight hours. That comes to $118.32 per day, a considerable contrast to wage rates in low-cost countries like Bangladesh and Vietnam.
In the past year, Bangladesh’s government finally agreed upon a new salary structure, which took effect Dec. 1, 2013, bringing the nation’s new minimum wage to 5,300 taka ($68), a 77 percent increase from the previous 3,000 taka ($39), yet still the lowest worldwide wage rate in the industry.
Workers in Vietnam saw a monthly minimum wage increase to between VND 1.9-2.7 million (US $90-128) from VND 1.65-2.35 million (US $78-111) for 2014 depending on the region, a raise of 15-17 percent. And in India, also depending on the region, monthly wages range from $130 to $150.
So what does this mean? In one day an American worker will earn what a Bangladeshi worker will earn in two months, or roughly one month in India.
While working conditions in low wage nations have been under scrutiny since the Rana Plaza building collapse in Bangladesh last year, and things are improving, but the reality is that no matter how much costs increase to accommodate better working conditions overseas, labor costs in America will always be higher. U.S. employers have to pay workers’ compensation, social security taxes, keep buildings up to code, pay health insurance policies, vacation time, and on and on. All of these requirements further increase the cost of doing domestic business, and many of these things might be exempt from cost structures in Third World countries.
Then there is the cultural difference. The U.S. has considerable rights for workers, and companies are often overrun with procedures and protocol. American employees have to be paid overtime, underperforming workers have to be documented by human resources, and given warnings and possibly be pushed and coached if an employer is unhappy. If a factory in America didn’t issue the proper overtime, there could be a lawsuit, coupled with national media coverage, public shame for the owners and a strike on the plant.
Let’s just say, if a worker in Cambodia needs to push out extra units to make a delivery and save a factory from forking out dollars to air goods, the factory owner won’t need to do much to get workers to stay and work those extra hours. And whether the factory will pay their workers appropriately for the overtime is still a question mark in many B and C grade factories around the world.
So, you can see why doing business domestically is not only cost prohibitive, but also more complex.
I am certainly not praising the at times subpar labor conditions in the Third World, but there is a reality that exists. If every retailer and buyer is complaining about costs in China, and moving their business to countries like Bangladesh, how is it even conceivable that companies can produce locally?
Let’s even put wages aside for the moment. Since its inception, clothing manufacturing has always attracted unskilled workers. From the NYC’s garment district, to Japan, Korea, China, India, then to Bangladesh, production has migrated from one low-cost country to the next based who could offer the lowest and most competitive price.
Why would we want to bring an industry back home that is having a hard time paying its workers $100 a month in the Third World? Should we not be training and developing the future workforce for higher skilled manufacturing sectors? One where the education and training in America could make us competitive?
That aside, the work environment in some of these developing countries is so shoddy. If we transported a B-grade factory from overseas to the U.S., I’d be surprised if workers would even show up and agree to work.
And a worker showing up is actually a legitimate issue. Over the past decade, U.S. textile and apparel employment has plunged nearly 50 percent, to a record-low 363,000 jobs. According to the U.S. Bureau of Labor Statistics, there are 110,000 cut-and-sew apparel workers in the States, a number that is consistently declining each month. Many who would have worked in factories here during the 70s and 80s are now retired. The baby boomer generation has a limited pool of skilled workers, and those who can work are nearing retirement age. The younger generation has gravitated toward different sectors of work. So factories that have remained in the U.S. are now facing a labor shortage, which is kind of ironic since one of the major reason so many seek to see apparel manufacturing return home is to boost job creation.
Walmart’s Made in USA initiatives, which it claims are designed to create jobs, are even less likely to have an impact. The $50 billion additional onshore buying it vows to do over the next 10 years probably won’t require a major shift in sourcing strategy for the retailer, whose total sales last year were an estimated $491 billion. It is doubtful whether Walmart’s sourcing policies will move the needle on apparel manufacturing employment.
This article may turn heads. I may seem pessimistic or unpatriotic, but I am trying to be honest and realistic about the state of the industry and the reality of bringing manufacturing back to the States. I look at the world not through a domestic lens, but a global one. First and foremost, we need to improve the conditions of the global apparel workforce. We need consumers to allocate just a little more money for clothing so that we can improve conditions in factories and increase workers’ wages.
If America is to see a surge in domestic manufacturing, it will need its current generation of engineers and scientists to develop new machinery, and software that can automate the process, speed up production and lower the costs. There is a lot of promise and opportunity in our industry. I just want to make sure we are allocating the proper resources and energy to the right causes and battles.