China to Become the World’s Largest Apparel Market in 2019

According to forecast made by the Euromonitor, China will exceed the United States and become the world’s largest apparel market by 2019. Specifically, annual apparel sales in China will reach $333,312 million in 2019, an increase of 25% from $267,246 million in 2014. In comparison, apparel sales in the United States is estimated to reach $267,360 million in 2019, which is only 3% higher than $260,050 million in 2014.

size of apparel market

2However, it shall be noted that China seems to be an even more competitive apparel market than the United States. For example, no apparel brand was able to achieve a market share more than 1% in 2014 in China, whereas in the United States, market shares of several leading apparel brands exceeded 2%. Moreover, domestic brands overall outperform international brands in the Chinese apparel market.

34On the other hand, despite its overall market size, as a developing country, dollar spending on apparel per capita will remain much lower in China than many developed economies around the world. In 2014, each Chinese consumer on average spent $240 on apparel versus $815 in the United States, even though apparel spending accounted for a larger share in household income in China (around 10%) compared with the United States (less than 3%).

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Several personal thoughts based on the data:

First, it is the time that U.S. apparel companies/fashion brands should start to seriously think about their sourcing strategy specifically for the Chinese market.

Second, for many Chinese apparel companies, serving the domestic market will help them more effectively achieve functional upgrading (i.e. shifting from low-value added manufacturing to higher-value added functions such as design, branding and distribution) than through exporting.

Third, controlling sourcing cost will be as important in China as in the United States. When China’s applied tariff rate is still as high as 9.63% for textiles and 16.05% for apparel (WTO, 2015), U.S. fashion companies/fashion brands may not have many options but to use “Made in China” to serve the Chinese consumers. In the long run, however, “Made in China” shall be gradually replaced by “Made in Asia”, especially when several free trade agreements (FTAs) involving China eventually take into effect (such as CEPA). However, China may strategically use rules of origin in these FTAs and encourage apparel manufacturers in the region to use Chinese made textile inputs (just like what U.S. did in NAFTA and CAFTA). Nevertheless, either for managing the apparel supply chain based on “Made in China” or “Made in Asia”, it doesn’t seem U.S. apparel companies/fashion brands will easily enjoy competitiveness over their Chinese competitors.

Data source: Euromonitor Passport(2015)

Does AGOA’s “third country fabric” provision discourage the development of Africa’s local textile industry?

African-textilesThe following Q&A is adapted from the 2015 AGOA Forum Preview (15m:44s)

Question: What is the principal obstacle to the development of a local yarn industry in an apparel exporting country such as Kenya? Does AGOA’s “third country fabric” provision in place for 13 years act as a disincentive to such a development?

Florizelle Liser, Assistant US Trade Representative for Africa: That’s a really good question, but the answer is no. What we know is that African producers of apparel, like producers of apparel all around the world, need to have the flexibility to source their input from wherever of those can be produced most effectively, cost effectively for the products that they are sewing. So we want through the “third country fabric” provision to give the African producers of apparel that flexibility. We do know in terms of establishing textiles business on the ground producing those inputs right there in Africa and that more of that indeed is going to happen. The reason is that as U.S. buyers of apparel and this is an enormous market for apparel… as U.S. buyers of apparel source more of their apparel from Africa, then investors in textile mills, which are very expensive, will be incentivized and are being incentivized to actually establish those fabric mills right there in Africa, and then be able to save time, in terms of getting those inputs that are needed for the clothing that is being produced. So we see that happening already: it’s happening in Kenya, it’s happening in Ethiopia and around the continent. And that is what we need to have more of as we go forward in this ten-year extension of AGOA.

What do you think?

Is Wal-Mart’s $250 billion “Made in the USA” Program Another “Crafted with Pride Campaign”? (II)

walmart-is-committed-to-american-renewal-infographic-s-manufacting-infographic-400pxwide-01

In early 2014, Wal-Mart Store Inc. announced its commitment to buy $250 billion “Made in the USA” products (including textiles and apparel) over the next 10 years ($50 billion annually) with the hope to “help spark a revitalization of U.S.-based manufacturing” and “create jobs in America”.

So how is the program going so far, especially in the textile and apparel (T&A) area?

made-in-usa

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From exploring the company’s website, it is interesting to find that around 30 kinds of “Made in USA” T&A currently are being sold at Wal-Mart. However, majority of these T&A products are basic socks priced less than $10/unit. Wal-Mart also sells two types of men’s jeans, priced at $24/pair and $22/pair respectively. Although such a price level is higher than most jeans sold at Wal-Mart (which range from $8 to $20 per unit on average), it is still at the low-end of the market (see the chart below adopted from a Just Style report on the global jeans market).

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On the other hand, as part of the “Made in USA” program, Wal-Mart sponsors a U.S. Manufacturing Innovation Fund with the purpose of “making it both easier and more competitive to make household goods in the U.S.”. T&A is one area this fund is willing to support as long as the research projects could “reduce the cost of producing textiles and apparel in the U.S., including weaving, fabric dyeing, cut & sew.

So what’s your view on Wal-Mart’s “Made in USA” initiative in the 21st century? How is it different from the “Crafted with Pride Campaign”? Will it bring back manufacturing jobs in the US as its objective stated? Will Wal-Mart repeat its record in history again? Please feel free to share your view.

[Please do not leave comment until after our case study 4]

Additional reading: Is Wal-Mart’s $250 billion “Made in the USA” Program Another “Crafted with Pride Campaign”? (I)

 

How to Save “Made in NYC”: Sewing Skill or New Technology?

The video is a recorded panel discussion hosted by the Texworld USA in July 2015 on the topic of apparel “Made in NYC”. Most panelists have years of experiences working in NYC as a fashion designer, including:

  • Eric Johnson, Director, Fashion & Arts Teams Center for Economic Transformation, NYC Economic Development Corporation
  • Erin Kent, Manager of Programs at The Council of Fashion Designers of America (CFDA)
  • Michelle Feinberg, NY Embroidery Studio
  • (The event was moderated by Arthur Friedman, Senior Editor, Textiles and Trade, WWD)

According to the panelists:

  • “Made in NYC” have a bright future in two niche markets: sample production for fashion designers and high-quality craftsmanship clothing. As one panelist put it “Designer needs to have tangible garment to show to the buyer”. However, there is no mention about “Made in NYC” serving the mass market in the discussion.
  • Two factors are regarded as critical to the survival of “Made in NYC”: training more professions with sewing skills and investing/upgrading equipment and technologies.
  • In support of the development of the local apparel manufacturing sector, several initiatives funded by the city government and private sources have been launched, including NYC Fashion Production Fund (provide financial support to young fashion designers), Fashion Manufacturing Initiative (support purchasing equipment and skill training) and Design Entrepreneurs NYC (equip fashion designers with the skills they need to successfully run a fashion label, including marketing, operations, and financial management).

However, the future of “Made in NYC” is not without major challenges:

  • One panelist lament that “fashion schools do not teach students much on how to make things”. However, another truth is college students today face a high opportunity cost of spending times on practicing sewing skills. This is particularly the case when most fashion jobs available for college graduates in the U.S. are business or merchandising focused. The constant upgrading of technology and manufacturing equipment in the fashion industry further raise the question as to whether learning traditional sewing skills is a worthwhile investment.
  • The brand image of “Made in NYC” overall is still less prestigious than “Made in Italy” and “Made in France” in the eyes of consumers.
  • Fashion designers in NCY heavily rely on imported fabrics (including those imported from Europe) today. Some questions can be asked: what is the meaning of clothing “Made in NYC” in the 21st century global economy? Should NCY promote the development of local textile manufacturing? If so, how to make it happen? Or should fashion designers in NCY support lower tariff rate and removal of trade barriers on imported fabrics?

Background (adapted from the New York City Economic Development Corporation)

New York City’s fashion industry employs 180,000 people, accounting for 6% of the city’s workforce and generating $10.9 billion in total wages, with tax revenues of $2 billion. An estimated 900 fashion companies are headquartered in the city, and in 2012, there were 13,800 fashion establishments here. Home to more than 75 major fashion trade shows plus thousands of showrooms, New York City attracts hundreds of thousands of visitors each year.

Market Size of the Global Textile and Apparel Industry: 2014 to 2018

textile

apparel manufacturing

global apparel retail

Note:

Textile mills market includes yarns and fabrics. The value includes domestic production plus imports minus exports, all valued at manufacturer prices.

Apparel covers all clothing except leather, footwear and knitted items. Non-apparel products include technical, household, and other made-up non-clothing products. The value includes domestic production plus imports minus exports, all valued at manufacturer prices.

Apparel retail industry consists of the sale of all menswear, womenswear and childrenswear. The industry value is calculated at retail selling price (RSP), and includes all taxes and levies.

Data source: MarketLine (2015)

EU-Vietnam Free Trade Agreement (EVFTA) Set Up to 7-year Tariff Phase-out Period for Textiles and Apparel

EVFTA

EU and Vietnam announced on August 4th that they have agreed in principle on a comprehensive and ambitious trade and investment agreement (EVFTA).

According to the released memo, EVFTA will eliminate nearly all tariffs (over 99%) between EU and Vietnam. However, textile and apparel (T&A) is among a few exceptions what will not be able to enjoy duty free treatment on day one. Specifically:

  • The EU will eliminate duties with longer staging periods (up to 7 years) for some sensitive products in the textile apparel and footwear sectors. The elimination of duties, however, will not be an open door for Chinese products to flood the EU market: to benefit from the preferential access, the strict rules of origin for garments will require the use of fabrics produced in Vietnam, with the only exception being of fabrics produced in South Korea, another FTA partner of the EU.
  • The totality of EU textile fabric exports will be liberalized at entry into force.

Statistics shows that Vietnam was EU’s sixth largest extra-region apparel supplier in 2014 (after China, Bangladesh, Turkey, India and Morocco), accounting for 3.1% in value (or €22.3 billion) and 2.6% in volume. On the other hand, EU’s textile exports to Vietnam totaled €169 million.

EVFTA may further encourage investment in Vietnam’s textile industry, because together with TPP, it will make Vietnam become one of the very few regions in the world that can enjoy duty free market access treatment (even not immediately) both in the US and EU, which altogether account for nearly 50% of the global apparel import. The other region that currently enjoys such a benefit is Sub Saharan Africa (based on AGOA and GSP+ programs).

EU textile imports from vietnam

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vietnam