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Sourcing Outlook: Experts on What to Expect in 2017

Uncertainty was the word of the year in sourcing as global markets shifted, separated and changed hands.

What will happen with trade, raw material costs and labor rates remains to be seen, but here’s a look at what experts say we can expect for sourcing in the coming year.

Marc Compagnon, executive director of Li & Fung

What will be the key challenges facing sourcing in the coming year?

“Speed and the pace of change will continue to put pressure on the industry. Ongoing geopolitical uncertainty, changing demographics, rapid technological advances, continual promotional environment, the rise of e-commerce and changes within retail itself, where demand-driven companies such as Amazon and Zara are winning, are all challenging sourcing strategies. I think one of the big opportunities, which we are already moving on, is the need for manufacturers and suppliers to upgrade their capabilities and digitalize their processes to help them move faster. The key here is that change must happen along the entire supply chain, not just one part.

Then there is political uncertainty in the U.S. Donald Trump’s new administration is gearing up for some significant change to the status quo. He campaigned to eliminate the Trans-Pacific Partnership deal and advocated bilateral trade agreements. Any changes in trade pacts will of course influence future strategic sourcing decisions and the supply chains of retailers and brands. The winners will be those who can quickly respond and leverage their sourcing networks across multiple production markets.”

What will sourcing look like in 2017?

“I think it’s still going to be pretty challenging for retailers in 2017. E-tailing and fast fashion will continue to put pressure on traditional brick-and-mortar retailers. Interest rates are set to rise again in 2017 and that could put additional pressure on apparel companies. If the U.S. raises duties, companies that are dependent on imports will have to rethink their operations.

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While it will be a challenging year, we think that there is ripe opportunity for the industry to embrace new technology and digitalize their operations and supply chains to boost speed and innovation.”

Guido Schlossmann, president and CEO of Synergies Worldwide

What will be the key challenges facing sourcing in the coming year?

“Sourcing will become much more complex and uncertain and at the same time there is an increasing push for shorter lead times and lower prices. Multiple sourcing shifts are anticipated due to change or abolishment of trade agreements (TPP, NAFTA), geopolitical risks (Turkey, Ethiopia), security situation (Pakistan, Bangladesh, Turkey), transfer of technologies (computer flat knit machines now being available in Bangladesh), lack of workers (China), volatile currencies (e.g. Brazil, Mexico, Turkey) and increasing corporate social responsibility demands.”

What will sourcing look like in 2017?

“To address all those challenges a smart multi sourcing channel strategy is needed (own offices, virtual manufacturers, low cost sourcing partners, importers, vendor direct). Proper communication flow and leaner decision making processes will be key and could be achieved by strategic partnerships, physical visits and smart usage of online (visual) communication tools.

There are more and more endeavors to digitize the supply chain and automate production operations by applying available and new technologies. Due to those increasing sourcing demands, the role of the middleman will change dramatically.

Agents need to change into low cost sourcing partners and/or virtual manufacturers and/or single service providers, such as quality control or social compliance. We foresee smaller agents will disappear from the market due to the increasing demand for service levels and traditional large agencies will dramatically lose volume if their commission fee is much above the operating cost of its customers.”

William E. Connor II, CEO of The Connor Group

What will be the key challenges facing sourcing in the coming year?

“Retailers are under pressure and we will see more store closures in 2017. Consumer spending has shown a recent uptick, but remains a key challenge. As a result, orders are smaller and we will see some suppliers consolidating or refusing non-profitable orders.

How might politics and uncertainty across the globe affect the sourcing sector?

“Market uncertainty and security concerns highlight the need to have a geographically diverse and scalable supply chain that can quickly respond to dynamic changes. Lower duty rates in emerging markets will create immediate demand to source high quantity apparel categories.”

What will sourcing look like in 2017?

“Consumers’ move to online shopping will continue. Brick-and-mortar retailers must find the right balance between e-commerce and in-store spend. One outcome is that retailers are placing more test orders, which include smaller order sizes and an even greater emphasis on speed to market.

With continued margin pressure, retailers will focus on private label merchandise to differentiate themselves and better control their margins.

As emerging markets grow share, we will witness increased consumer demand for transparency, sustainability and improved worker conditions.”

Mike Flanagan, CEO of Clothesource

What will be the key challenges facing sourcing in the coming year?

“The same as in 2016, plus four new ones.

Static rich-country apparel markets, Western retailers still struggling with over-investment in stores at home earlier this century, Western brands and retailers mostly looking at continuing losses in unsuccessful overseas expansions at the same time, almost the entire industry incurring net losses from movements into e-commerce, and retail prices tumbling both because of overcapacity throughout the supply chain and through the easier spread of price-cutting the internet has brought about.

The four new ones: The specifically sourcing-related uncertainties caused by rising populist movements in the West; the economic uncertainties triggered merely by fear of those movements; signs of renewed rising costs in energy and freight; with the Bangladesh Accord and Alliance due to expire in mid-2018, the activist community is going to keep far more pressure on retailers and brands than the Bangladeshi government will be happy with.”

How might politics and uncertainty across the globe affect the sourcing sector?

“In reverse order:

Uncertainty – Uncertainty differs by territory—and by who you think’s going to set policy.

In the U.S., most discussion has been about how much of Donald Trump’s pre-election rhetoric is meant to be taken literally. This is affecting all planning concerning imports, or even planned imports from China and Mexico already. Since many of his team’s assertions (like “they tax our exports: we don’t tax theirs”) are plain wrong for apparel, there’s a legitimate fear he’ll turn his guns onto other sources, like Bangladesh or Vietnam.

But the tax reform proposals the Republican party were tabling even before Trump’s victory create much greater uncertainty for our industry even though they’ve attracted far less publicity. Their “destination-based” taxing of company profits will savage apparel importers more than any other sector of the U.S. economy. Those proposals may be heavily changed as they go through Congress—but debate on them will start almost immediately.

In Europe, there’s far greater uncertainty about the future of the entire continent’s economy, with continuing doubts over the future of the euro and the results of elections during 2017 in France, Holland, Germany – and possibly in Italy, Spain and even the U.K. But practically no concerns at all about any material changes in rules governing sourcing until Britain leaves the EU – which almost certainly won’t happen before spring 2019. Worries about relative exchange rates, widely varying inflation and further collapses of consumer confidence, though, will be a constant background concern throughout the next few years.

If Trumponomics means economic sanctions against China, of course, importers in Europe and affluent Asia will likely see a sharp improvement in Chinese apparel competitiveness – which will hit other Asian manufacturers far harder than the relatively sparse textile making resources of Europe or affluent Asia.

Otherwise, with TPP off the agenda, importers in affluent Asia will see a far more settled environment for sourcing than we’ve expected for ages. There’ll be endless talk about a China-dominated cross-Pacific free trade area but it won’t progress beyond talk till 2020 at the earliest.

The serious and immediate uncertainty about the attitudes to imports in the world’s biggest apparel importing country means apparel exporters throughout the world, though, are facing deep uncertainty right now. And that’s going to go on for the foreseeable future.

Don’t expect much serious new investment for some years.

Politics – The real worry. I doubt Trump-inspired trade wars will go far, because all parties are too commercially interdependent. But our industry is surrounded by political pinch-points: the South China Sea, North Korea, the U.S.-Mexico border, Europe’s many boundaries with the underdeveloped world, Han China’s borders with Islam and the whole of the Middle East. There’s an almost infinite set of scenario where tensions could spill into almost anything – from trade routes getting closed to real violence closing business down altogether.”

What will sourcing look like in 2017?

“It’s going to be a tricky ride.”