2016 August Sourcing at Magic Debriefing

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New landscape of sourcing

  • Sourcing is turning from regional to global. In the past, U.S. apparel companies/fashion brands set up regional offices to handle sourcing. Nowadays, companies are building a global infrastructure to develop, source and market their products around world. Global rather than regional sourcing also allows companies to improve sourcing efficiency and reduce total product and distribution cost while maintaining quality of their product and services.
  • U.S. apparel companies/fashion brands are going with fewer but more capable vendors (“super vendors”). For example, executive from a leading U.S. apparel brand said their company has shrunk their sourcing base by 40% in the past few years. At the same time, they now expect their vendors to be able to supply on a global scale, including having multiple manufacturing facilities around the world and being able to provide value added services such as design and product development.
  • Related, sourcing is shifting from cut-make-and trim (CMT) to full package. This is consistent with our findings in the latest USFIA benchmarking study which suggests that vendors are highly expected to have the capacity of supplying raw material.
  • U.S. apparel companies/fashion brands are also investing to build a more partnership-based relationship with vendors— help vendors reduce cost, become more innovative and have the same vision looking at the whole picture of the supply chain. At the same time, U.S. apparel companies/fashion brands see vendors as their “ambassadors” and want to know more about them—what they believe, what they can bring to the table and how they treat their workers.
  • Companies are redefining the role of sourcing in their businesses. Sourcing is no longer treated as a technical function, but an integral part of a company’s overall business strategy.  

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Made in USA

  • There is a noticeable interest in sourcing textiles and apparel “Made in USA” at Magic. A dozen U.S.-based apparel companies attended the Magic show and their booths attracted a heavy traffic. According to representatives from these companies, U.S. consumers’ increased demand for apparel “Made in USA” has been a strong support for their business growth in recent years.
  • Nevertheless, apparel “Made in USA” often contain imported inputs today. I specifically asked a few vendors where their fabrics come from. All but one company said fabrics were imported because it was so hard to find domestic suppliers, especially for woven fabrics. Interesting enough, some companies feel OK to label their apparel “Made in USA” even though they use imported fabrics. According to them, apparel can be labeled “Made in USA” as long as “domestic content exceeds 60% of the value of the finished product.”
  • At a seminar, some entrepreneurs which make and sell “Made in USA” apparel and accessories said price and production cost remain one of their top business challenges. I asked the panel whether going high-end is the only option for the future of apparel “Made in USA” given the high labor cost in the country. They disagreed—saying technology advancement and design innovation could help reduce production cost. However, all panelists admit they carry some luxury product lines. Additionally, some companies choose to emphasize concepts other than “Made in USA”, such as “hand-made” and “Pride in Seattle”, in order to make their products look more personal to consumers and allow more flexibility in sourcing raw material.

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Updates of sourcing destinations

  • Ethiopia: as I observe, Ethiopia is THE star at this year’s Sourcing at Magic. The country was repeatedly mentioned by panelists at various seminars as a promising and emerging sourcing destination. Several events at the show were also exclusively dedicated to promoting apparel and footwear “Made in Ethiopia”. A couple of reasons why Ethiopia is so “hot”: 1) the ten year extension of AGOA creates a stable market environment encouraging sourcing from Africa and investing in the region (and for sure the duty free access both to the US and EU market).  2) Located in the middle of Africa, Ethiopia is regarded as a hub that has the potential to take a leadership role in integrating the apparel supply chain in the region. 3) It is said that Ethiopian government is very supportive to the development of the local textile industry.  4) Many U.S. fashion companies feel sourcing from Ethiopia involves less risks of trade compliance than sourcing from some Asian countries such as Bangladesh.  
  • China: China unarguably remains the No.1 textile and apparel supplier to the U.S. market—in terms of numbers, around 60% vendors at the Magic show came from China. But I notice that booths of Chinese vendors didn’t have much traffic this time, an interesting signal for sourcing trend in the upcoming season. Nevertheless, while U.S. apparel companies/fashion brands are placing more emphasis on supply chain efficiency, quality of products, speed to market and added value in sourcing, “Made in China” will continue to enjoy many unique advantages over other suppliers. Plus, Chinse factories are actively investing overseas, from Southeast Asian countries to Africa. This makes Chinese factories likely to grow into “super vendors” that western fashion brands/retailers are looking for. To certain extent, macro trade statistics alone may not be able to fully reveal what is going on in apparel sourcing and trade.   
  • Vietnam: Regarding the future of Vietnam as a sourcing destination for U.S. apparel companies/fashion brands, somehow I hear more concerns than excitements at Magic. The uncertainty surrounding the ratification of TPP by the U.S. Congress definitely has made some companies hold back their investment and sourcing plan in Vietnam. Another big concern is Vietnam’s labor shortage and limited manufacturing capacity: apparel factories in Vietnam are already competing with electronic industry for young skilled workers. US companies also have to compete with their EU counterparts for orders in Vietnam. The newly reached EU-Vietnam Free Trade Agreement (EVFTA), which is very likely to be implemented earlier than TPP, provides Vietnam duty free access also to the EU market. And EVFTA adopts a much more flexible rule of origin than TPP, making it easier for Vietnam factories to actually use the agreement.

Sustainability

The awareness of social responsibility and sustainability has much improved: everyone in the industry is talking about them and have a view on them. On a voluntary basis, some companies are making efforts to improve traceability of their products, i.e. to help consumers know exactly where their clothing comes from and what is happening at the upstream of the supply chain. Yet, how to encourage factories to share their information and control tier 2 and tier 3 suppliers remain a challenge. 

by Sheng Lu

Note: Sourcing at Magic is one of the largest and most influential annual textile and apparel sourcing events hosted in the United States. Special thanks to the Center for Global and Areas Studies at the University of Delaware for funding the trip.

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Author: Sheng Lu

Professor @ University of Delaware

14 thoughts on “2016 August Sourcing at Magic Debriefing”

  1. U.S. consumers take pride in what they buy. Therefore, they have become quite upset with the lack of cultural identity that they can gain from textiles and apparel. This is because much of what we buy today is sourced and manufactured overseas. The fact that at least a dozen U.S.-based apparel companies attended the Magic sourcing event is a great example of how western manufacturers are responding to their consumers. These booths were very popular despite the fact that leading textile and apparel supplier to the U.S., China, was there as well. The Chinese-based booths didn’t receive nearly as much traffic which just goes to show that U.S. consumers are looking for that sense of authenticity in their clothing so that they can take pride in their home country as they pick out their clothing. As long as 60% of a product was sourced domestically, it can be labeled, “Mad in USA”. However, consumers aren’t necessarily concerned with how much more this can cost a manufacturer when factories overseas may have certain resources or more capabilities for mass production.

    1. good comment. One takeaway from attending the event is sourcing is very dynamic in nature–it keeps changing all the time, always you can sense some interesting emerging trends and no one can really dominate the market. Indeed, consumes’ growing interest in “Made in USA” pushes brands and retailers to carry more “Made in USA” labeled products. But another reality is who is going to make these products, especially the apparel supply chain is no longer 100% based in one single country? That’s the dilemma the industry and the policymakers have to work together to figure out.

  2. I think it’s wonderful that there has been an increase in attention to “Made in USA” products in order to support the country. In the blog post it is said that technology and design improvements could increase the country’s outputs: I may be speaking out of lack of knowledge (as I’ve wondered about this concept before), but, what if the country realizes that portions of the T&A industry just aren’t a part of our comparative advantage? If other countries are better with manufacturing due to a more labor intensive economy, then why try to discourage global trading or the buying/sourcing from other countries? I’m also saying that greater attention would have to be on labor civil rights if we relied more heavily on overseas production. I’m just curious for opinions, since sourcing is a global effort…We should all be supporting each other in the sectors that each economy thrives in, shouldn’t we?

    1. Quite agree with your points that import support “Made in USA”: https://shenglufashion.wordpress.com/2016/05/17/international-trade-supports-textile-and-apparel-made-in-usa/

      And you are quite right that competition needs to be on the same level playing field–this is why labor provisions have become important components of free trade agreement today: https://shenglufashion.wordpress.com/2016/07/19/ilo-evaluates-trade-impact-of-labor-provisions-in-free-trade-agreements/

      So hopefully from the article you can see the complexity of “global sourcing”: it is far more than just a business activity, but heavily involves with public policy and politics.

  3. I thought it was really interesting reading that: “Companies are redefining the role of sourcing in their businesses. Sourcing is no longer treated as a technical function, but an integral part of a company’s overall business strategy.” This stuck out to me because it shows that more companies are becoming vertically integrated as opposed to sourcing from tons of different places. I think this may have a lot to do with the fact that US consumers are have become increasingly aware about where their products come from. I also believe it is important to not only understand where our products come from but also understand how it will impact the global economy when more countries start implementing this sourcing in their business.

  4. I think it is slightly unethical for companies who feel that it is okay to label their apparel “Made in USA” even though they use imported fabrics. According to these companies, apparel can be labeled “Made in USA” as long as “domestic content exceeds 60% of the value of the finished product.” In my opinion, this label is deceiving to the U.S. consumer. Allowing an entire 40% of the garment to be made with content that is imported does not mean “Made in the USA” to me. I think there needs to stricter guidelines surrounding the way companies label their garments about where they were made because U.S. consumers deserve to have the choice on whether to buy something that was produced domestically or overseas and this choice is being taken away when companies do this. I am also not surprised that price and production cost at the top challenges for companies who do make apparel domestically. I wonder what changes the United States will see in the upcoming years with President Trump’s desire to increase domestic apparel production and if at the end of his term these will still be the biggest challenges for these companies.

  5. I think this article was interesting to read after just having read Case Study 3 and learning how VF has changed there sourcing methods and have created the “third way” sourcing which combines a “cut and make” with “packaged sourcing”. I think sourcing continues to be one of the sections in the industry that makes it very difficult because of fast fashion and the consumers needs to get products in quickly and not wanting to wait 6 months for a new line to come out makes figuring out how to source faster and more productive without raising costs, is a delicate balance that has not been discovered yet. The part in the blog where it states US consumers have a growing desire to buy “Made in USA” products, I believe is showing that consumers care where the products come from and there is an increasing desire to grow our economy. It will be interesting to see if more “Made in USA” products will arise, even though the fabrics are probably imported. I think it will be interesting where sourcing comes from in the next few years.

  6. Updates of sourcing destinations
    The sourcing/manufacturing industry within the textile and apparel industry is always changing and advancing with new countries coming to the forefront all the time. This is why I was very interested to read about how Ethiopia was the ‘star’ of this event. The 10 year extension of the AGOA and the duty free access both to the US and EU markets that it provides is a huge factor of why Ethiopia is so popular right now, by creating a stable market environment for manufacturing other countries are much more likely to pursue this option. I think it is also very beneficial that the Ethiopian government is so supportive of their developments, this could be great for both their cultural and economic environments, if the country has it’s governments support there is no stopping how far they will be able to go or what they will be able to achieve in the future. China has been the front runner of this industry for so long that I think its great that new countries are developing in order to be seen as competition. I wonder what are the main factors of this; is it simply because these countries are improving and getting on the same level as China or are China’s rising labor wages and other deteriorating factors leaving room for these other countries to come to the forefront and level the playing field? China still remains the number 1 textile and apparel supplier to the U.S. market however, if the industry continues like this where will we be in 5 or 10 years? Does another country have the ability to take over completely?

  7. Having 40% of the gament being allowed to me made from products soourced overseas still allows companies to label their products as being “Made in the USA”. I feel that this is misleading to consumers who would otherwise have no reason to believe that the product they are buying was made with anything outside of the countires. Companies are more responding of a trend in consumer interest rather than actually trying to create American jobs. In order to have more products actually 100% being “Made in the USA”, our country would have to invest a lot of money into new machinery so that it could keep up with fast fashion production times, which would more than likely raise the price of the final product.

  8. “Made in USA” and “Made in China”

    For many retailers, sourcing has become an increasingly important function within the business model. That being said, for retailers it is necessary to scrutinize sourcing nations’ production capabilities.
    Some interesting takeaways from this article fall under the “Made in USA” section. Consumers are very keen to purchase a products made in the USA, but many retailers struggle to afford the high costs of domestic producers. As a result, some companies feel OK labelling products that are not entirely made in the USA, in order to boost their sales. I maintain that this is an unethical practice and companies who participate should be penalized.
    A second interesting takeaway from this article falls under the “Made in China” section. Supposedly, this year, the Chinese booths saw much less foot traffic than usual. This is interesting since it may indicate a decline in sourcing from China this upcoming season. However, it is not surprising given that China is currently experiencing rising labor costs. As Chinese manufacturers attempt to combat these rising costs, only time will tell if their efforts have been worthwhile.

  9. I find it encouraging to hear that many companies are making it a priority to be more transparent and show consumers where clothes are coming from and the different steps that go into producing them. I wonder why it is so much more of a challenge for factories to provide information. Are companies not always sure of details about their factories, or are factories unwilling to provide detailed information about suppliers because of lack of trust within relationships between apparel companies and suppliers? Or is it too much effort for companies to publish information about suppliers?

  10. As Trump takes office, I am curious to see how/if the “Made in USA” apparel trend will continue and/or grow. This post noted that often this apparel contains imported inputs, so the garments are NOT entirely made in the USA. Like many products around us, apparel is “Made in the World.” It will be very difficult for Donald Trump to restrain manufacturing and production to just the USA, as the nature of many industries, especially apparel/textiles, are truly global. This post also noted the growing interest in Ethiopian and Vietnamese sourcing options, illustrating this global interest as well as the rapidly increasing interest in ethical treatment within factories.

  11. Because Trump is the new president, more companies may be more likely to invest in the United States. What I fear will change is the use of fibers from outside countries since it was deemed that only 60% of the total value of the garment’s worth has to be from the United States in order to label it “made in the USA”. If it was passed that a higher percentage or the total percentage must be from the United States in order to claim “made in the USA”, or if sourcing changes so manufactures produce full packages rather than CMT, then what will that do to retail prices for the consumer and the expenses for the companies? Will that increase the costs significantly? Will luxury companies be the only ones to successfully take advantage of the “Made in USA”?

    Also I found it interesting that this read mentioned how sourcing is changing so more partnerships are formed with vendors. This seemed to work for VF as we analyzed their Third Way sourcing strategy in Case Study 3, but how successful will it be if all companies start doing this? Will this trend prevent companies from utilizing short-term contracts due to the lack of availability of vendors?

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