Whether intended or not, President Trump’s tariff battles with key trading partners has apparel and textile executives dealing with high anxiety.
For the second straight year, “protectionist trade policy agenda in the United States” was ranked as the top challenge for the U.S. fashion industry in the recently released fifth annual U.S. Fashion Industry Association (USFIA) “Fashion Industry Benchmarking Study.”
In the survey of executives from nearly 30 leading fashion brands, retailers, importers, and wholesalers, more than 60 percent of respondents ranked this issue among their top five business challenges, with more than one-third placing it as No. 1 or No. 2, far exceeding concerns about other issues on the list. Between 2014 and 2016, respondents consistently ranked trade protectionism between eighth and 11th in terms of challenges.
Conducted in conjunction with Dr. Sheng Lu, associate professor in the University of Delaware’s Department of Fashion & Apparel Studies, the survey asked respondents about the business outlook, sourcing practices, utilization of Free Trade Agreements and preference programs, plus views on trade policy.
The pressure of “increasing production or sourcing cost” rose this year, with 54 percent of executives ranking cost among their top five business challenges in 2018, a notable increase from 34 percent in 2017.
Lu said in an accompanying report that there are two possible explanations: one, that cost could be rising in absolute terms, and two, that the intensified trade tensions caused by the protectionist trade policy agenda may force companies to switch to more expensive sourcing destinations.
Julia K. Hughes, president of USFIA, said in the report that at the time the survey was being conducted in April and May, “we were waiting to see whether the Trump Administration would launch a trade war.”
“As we release the study, it appears the trade war could be here, with the United States and several key trading partners—including, and especially, China, the industry’s top-ranked supplier of textiles and apparel—trading jabs and new, punitive tariffs on a variety of products, including some fashion and home products,” Hughes continued. “What’s next? Let’s just say ‘uncertainty’ is one of the most popular words for brands and retailers right now.”
Looking at sourcing strategies, diversification was top of mind for many executives. Most respondents said they continue to maintain a diverse sourcing base, with 60.7% currently sourcing from 10 or more different countries or regions, up from 57.6% in 2017. Reflecting the U.S. fashion industry’s growing global reach, respondents reported sourcing from as many as 51 countries or regions overall in 2018, the same as in 2017. Asia continued to be the dominant sourcing region, however, with the growing importance of speed-to-market and flexibility, the Western Hemisphere is becoming a more vital sourcing base.
Roughly 46 percent of respondents sourced from the U.S. in 2018, putting it in 10th place, and down from 70 percent in 2017.
“As an apparel sourcing base, the United States enjoys the competitive advantage in ‘speed to market’ and ‘low risk of compliance,’ but cost is a notable disadvantage,” the report noted.
The most popular sourcing strategy remained “China plus Vietnam plus many,” according to the report, but more companies plan to further diversify their production in response to the changing business and trade policy environment—particularly regarding China. The country now accounts for about 11 percent to 30 percent of companies’ total sourcing value or volume, compared with 30 percent to 50 percent in previous surveys.
“Although China’s position as the top sourcing destination is unshakable, companies are actively seeking alternatives to Made in China,” the report noted. “This does not seem to be due to concerns about cost, but rather the worries about the escalating U.S.-China trade tensions. Benefiting from the diversification away from China, Vietnam and Bangladesh are expected to play a bigger role as apparel suppliers for the U.S. market in the near future.”
As the industry becomes more globalized and speed becomes more important, companies’ sourcing decisions will be about striking a balance. Three criteria–speed to market, sourcing cost and risk of compliance–have the most significant impacts on sourcing decisions, according to the survey. Vietnam, China, Mexico and Central America Free Trade Agreement countries are regarded as the most balanced, giving them competitive advantages as preferred sourcing destinations.
Likely boosted by the strength of the U.S. economy, executives were more confident about the five-year outlook for the U.S. fashion industry in 2018 than they were a year ago, despite the concerns about trade policy and cost. However, that confidence has not fully recovered to levels seen in 2015 and 2016, according to the report.
A full 100 percent of respondents said they plan to hire more employees in the next five years, compared with 80 percent to 85 percent in previous studies. Jobs expected to be the most in-demand in the coming years are market analysts, data scientists, sustainability and compliance-related specialists or managers, and supply chain specialists.
With roughly 76 percent of survey respondents coming from organizations with more than 1,000 employees, including 64 percent with more than 3,000, USFIA said this suggests the findings reflect the views among the most influential players in the domestic fashion sector.