Data source: Euromonitor Passport (2016)
The report can be downloaded from HERE
Key Findings of the study:
I. Business environment and outlook in the U.S. Fashion Industry
- Overall, respondents remain optimistic about the five-year outlook for the U.S. fashion industry. “Market competition in the United States” is ranked the top business challenge this year, which, for the first time since 2014, exceeds the concerns about “increasing production or sourcing cost.”
II. Sourcing practices in the U.S. fashion industry
- U.S. fashion companies are more actively seeking alternatives to “Made in China” in 2016, but China’s position as the No.1 sourcing destination seems unlikely to change anytime soon. Meanwhile, sourcing from Vietnam and Bangladesh may continue to grow over the next two years, but at a slower pace.
- U.S. fashion companies continue to expand their global reach and maintain truly global supply chains. Respondents’ sourcing bases continue to expand, and more countries are considered potential sourcing destinations. However, some companies plan to consolidate their sourcing bases in the next two years to strengthen key supplier relationships and improve efficiency.
- Today, ethical sourcing and sustainability are given more weight in U.S. fashion companies’ sourcing decisions. Respondents also see unmet compliance (factory, social and/or environmental) standards as the top supply chain risk.
III. Trade policy and the U.S. fashion industry
- Overall, U.S. fashion companies are very excited about the conclusion of the Trans-Pacific Partnership (TPP) negotiations and they look forward to exploring the benefits after TPP’s implementation.
- Thanks to the 10-year extension of the African Growth and Opportunity Act (AGOA), U.S. fashion companies have shown more interest in sourcing from the region. In particular, most respondents see the “third-country fabric” provision a critical necessity for their company to source in the AGOA region.
- Free trade agreements (FTAs) and trade preference programs remain underutilized in 2016 and several FTAs, including NAFTA and CAFTA-DR, are utilized even less than in previous years. U.S. fashion companies also call for further removal of trade barriers, including restrictive rules of origin and remaining high tariffs.
The benchmarking study was conducted between March 2016 and April 2016 based on a survey of 30 executives from leading U.S. fashion and apparel brands, retailers, importers, and wholesalers. In terms of business size, 92 percent of respondents report having more than 500 employees in their companies, while 84 percent of respondents report having more than 1,000 employees, suggesting that the findings well reflect the views of the most influential players in the U.S. fashion industry.
For the benchmarking studies in 2014 and 2015, please visit: https://www.usfashionindustry.com/resources/industry-benchmarking-study
The global apparel and footwear industry enjoys a 5 percent value growth in 2015. Asia Pacific remains the world’s largest apparel and footwear market, with market value increased by $30 billion USD in 2015. In particular, the United States, China and India contributed more than half the absolute increased value.
Market growth in Western Europe remains stagnant in 2015. However, some countries performed better than others. For example, apparel and footwear sales continued to experience significant losses in Greece and Italy with 7 percent and 2 percent declines in 2015, respectively. France didn’t do very well either and size of the French market is expected to contract by $1.5 billion USD by 2020. In comparison, UK, Western Europe’s largest market, posted modest 1 percent growth in 2015. Performance in Germany remained overall stable.
The US market continues to perform well with healthy value growth of 4 percent in 2015. However, the performance of key players such as J Crew and Gap, both of which plan to close a significant number of physical stores and lay off employees, highlight the increasingly competitive trading environment. US consumers overall remain cautious and adopt a value- driven approach to buying clothes resulting in a continuous discounting cycle, negatively impacting profit margins and slowing growth for the industry as a whole. From 2013 to 2014, volume growth of apparel sales in the United States exceeded value, primarily due to discounting, the proliferation of fast fashion brands and greater availability of low prices online. However, value growth returned to a more robust position in 2015, as a strengthening economy, improvements in the labor market and rising wages support future growth.
Sportswear is maintaining its momentum, increased by 8 percent in market value from 2014 to 2015, faster than any other apparel product categories. Consumers no longer consider sport a task that needs to be checked off on a day-to-day basis but instead it has become a lifestyle. Athleisure remains a heavily prominent trend as more consumers adopt an active and healthy lifestyle, increasing the demand for athletic products that are technically advanced and fashionable. In response to the evolving athleisure trend, major sportswear brands have turned their attention to women’s sports apparel and footwear. With Skechers, Lululemon, Under Armour and Nike reporting growth of 33 percent, 20 percent, 19 percent and 12 percent, respectively, in 2015.
Currency weakness, political unrest and tough economic environments continue to result in slowing growth among the emerging markets. However, internet retailing & e-commerce is a spotlight. Apparel and footwear sales through internet retailing grew by 23 percent in 2015 globally and are expected to continue providing impressive growth for apparel brands to 2020. Global mobile internet retailing has grown at a rapid of 92 percent over 2011-2015, highlighting the increasingly vital role mobile is playing within the buying process. Notably, emerging markets are accounting for a significant proportion of growth and are expected to boast a higher market size than developed markets by 2018.
Data source: Euromonitor Passport
How to deal with China as a sourcing destination remains a tough and controversial issue facing U.S. apparel retailers and fashion brands in 2016. Although companies are of grave concerns about China’s continuous rising production cost (especially labor cost), few other lower-wage countries can beat China in terms of industry integration, supply chain efficiency, and reliability.This blog post intends to add to the discussion by taking a look at the supply side, i.e. what is happening in the China textile and apparel (T&A) industry.
First, China’s production capacity remains unparalleled in the world. In 2014, the latest statistics available, textile fiber production in China exceeded 50 million tons, accounting for 54.36 percent of world share. By 2013, as much as 64.2 percent of the world’s chemical fibers, 64.1 percent of synthetic fibers and 26.2 percent of cotton were produced in China (see the table blew). On the other hand, apparel production in China reached 29.9 billion units in 2014, up 10.4 percent from 2013. Given China’s vast production capacity, very likely it will remain the top apparel sourcing destination for most EU and US fashion apparel companies for many years to come. For example, Vietnam’s apparel production in 2015 totaled 2.85 billion units, which was only around 10 percentage of China’s production scale in 2014.
Second, China’s T&A industry is growing slower. Specifically, output of China’s T&A industry (measured by value added) grew only 7.0 percent between 2013-2014, a significant drop from 10.3 percent between 2009-2010. Other major economic indicators in the industry, from sales revenue, net profit to investment, followed a similar pattern (see the figure below). Additionally, for the first time since the 2008 financial crisis, China’s T&A exports suffered a 3.9 percent decline in 2015 (-1.3% for textiles and -5.4% for apparel). Given the downward pressure on China’s economy and uncertainties in the world marketplace, such a slow-growth pattern is likely to continue in the years ahead.
Third, China’s T&A industry is undergoing important structural adjustment. Within the total industry output, the ratio of apparel, home textiles and industrial textiles has turned from 51:29:20 in 2010 to 46.8: 28.6: 24.6 in 2014, reflecting China’s efforts to move towards making more value-added and technology-intensive textile products. This ratio is expected to become 40:27:33 by the end of 2020 (i.e. the end of China’s 13th five-year plan). In order to overcome the pressure of rising labor and production cost, China’s T&A manufacturing base is gradually moving from the east coast to the western and central part of the country (accounting for 22.5 percent of China’s T&A production in 2014, up from 16.8 percent in 2010; this share may further increase to 28 percent by 2020). Additionally, T&A companies in China are encouraged to increase spending on research and development (R&D), which on average had accounted for 0.47 percent of T&A companies’ sales revenue in 2013, up from 0.43 percent in 2011.
Fourth, T&A companies in China are actively seeking business opportunities in the domestic retail market. Apparel retail sales in China reached 893.6 billion yuan in 2014 (around $137.5 billion), among which 30.77 percent were sold online (up from 14.54 percent in 2011). Apparel retail price on average rose 2.6 percent between 2013-2014, compared with 2.0 percent increase of China’s overall CPI over that period. However, it shall be noted that apparel retail sales in China’s tier 1 and tier 2 cities achieved almost zero growth in 2014, partially reflecting the negative impact of retail price increase on consumers’ demand. In comparison, apparel retail sales in China’s tier 3 & 4 cities as well as rural areas remain robust and strong. Additionally, financial performance of T&A companies in China is becoming more polarized. Companies that follow the traditional business model of manufacturing and exporting are facing their most difficult time since the 2008 financial crisis. However, there are also many success stories of apparel companies that focus on function upgrading, i.e. moving from simply “manufacturing” products to “serving” the market needs.
Recommended reading: China’s 13th five-year plan for its textile and apparel industry: Key numbers
According to the factsheet released by the U.S. Department of Commerce, the Trans-Pacific Partnership (TPP) will create exciting new export opportunities for the U.S. textile and apparel (T&A) industry. The report highlights Vietnam and Japan as two promising markets in TPP for certain T&A products “Made in USA”, including:
- Cotton fiber, yarn, and Cotton woven Fabric (U.S. exported $394 million in 2014 with 16% market share only after China; tariff will be cut from 12% to zero on day one)
- Non-woven fabrics (U.S. exported $23million in 2014, up 951% from 2009; tariff will be cut from 12% to zero on day one)
- Synthetic fiber, yarn, and fabric (U.S. exported $61 million in 2014, up 61% from 2009; tariff will be cut from 2.7%-10% to zero on day one)
- Industrial and advanced textile fabrics (U.S. exported $91 million in 2014, the fourth largest supplier after China, Taiwan, South Korea; tariff will be cut from 8.2% to zero on day one)
- Men’s and boy’s apparel (U.S. exported $32.6milion in 2014, up 30.9% from 2009; tariff will be cut from 9.8% to zero on day one)
The factsheet also argues that TPP is a “balanced” deal for the U.S. T&A industry: long U.S. tariff phaseout schedule, strict “yarn-forward” rules of origin and textile safeguard mechanism in TPP will serve the interests of those stakeholders that seek protection of U.S. domestic T&A manufacturing, whereas duty savings from import tariff cut and the short supply list will create greater market access opportunities for U.S. fashion brands and retailers.
According to the report, the United States is the fourth largest textile exporter in the world. 54% of total U.S. T&A exports went to TPP markets in 2014. The United States is also the single largest importer of T&A in the world. 372,300 T&A manufacturing jobs remained in the United States in 2014.
The following discussion questions are proposed by students enrolled in FASH455 (Global Apparel & Textile Trade and Sourcing) Fall 2015 after learning the unit on textile and apparel industry & market in the Asia-Pacific region. Please feel free to leave your comment and engage in our online discussion.
- We’ve heard so much about China’s superior involvement in the textile & apparel sectors globally, but how are these industries contributing to the local economy?
- As rules on working conditions and minimum wage have been enforced in Mainland China many business people have moved their operations to Southeast Asia, do you think the Southeast Asia will eventually become like mainland China forcing businessmen to seek low wages elsewhere?
- Will Vietnam shift its sourcing of yarns and fabrics from China to US after TPP? What are some setbacks associated with this? What are some potential opportunities?
- While Vietnam is currently one of the primary exporters of apparel to the United States, what should be the actions taken by the United States if they continue to “refuse” to cut out Chinese Textiles? Or, should the United States continue their trading patterns with Vietnam despite their reliance on Chinese Textiles?
- The Asia pacific region is made up of a variety of countries with different strengths and political infrastructure. How does the variety of policies and governments affect how we do business abroad, and is there a way to set standards that are not individualized to each country?
- China and the US can be seen as a threat to one another. However the president of China said the “Pacific Ocean has enough space for the two large countries”. Do you think they are threats to each other, or are they ultimately helping each other’s economies grow?
- What will happen as more and more countries that used to produce apparel move into producing more capital intensive production?
- What are the advantages or disadvantages of excluding China from international trade agreements such as TPP?
- If the T&A industry in China is envisioned by policymakers as beginning to focus more on technical textiles, how will the textile industry in China compete with the industry in the United States?
- Why has East Asia become one of the most economically interconnected regions in the world?
- What are some of the reasons that China still remains one of most price competitive export markets in the World? Also, does China face challenges in losing their top spot as leader in price competitiveness? If so, what are some of the reasons they are in danger of competition?
- How is the discussion about yarn forward rules of origin different in regards to TPP countries than the same discussion between the NAFTA/CAFTA-DR countries?
[Discussion for this post is closed].
(photo credit: WGSN)
Wearing 3D-printed apparel is no longer a dream (see the pictures above)! But what is the implication of 3D-printing technology on apparel sourcing? Here is my personal vision:
First, 3D printing may create brand new T&A supply chains and business models. 1) Because 3D printing is highly technology and capital intensive with little input from low-skilled labor, it implies that developed countries rather than developing countries may enjoy the comparative advantage in manufacturing 3D-printed apparel. 2) Because apparel will be directly printed by machines, cross-the-border transportation can be largely reduced in the 3D printing era, generating potential cost-saving opportunities both for manufacturers and consumers. 3) 3D printing will empower consumers to more directly involve in the product development process. Yet given consumers’ limited technical knowledge and equipment, many new types of customer services ranging from design assistance to on-site apparel printing may emerge in the 3D printing era.
Second, 3D printing may result in a more sustainable T&A supply chain. 1) Because 3D printing is digital-based, it may help reduce waste during the product development process. 2) Because 3D printing is highly customized and can produce on-demand, it may result in less overproduction in the textile and apparel (T&A) industry. 3) 3D printing has the potential to be made by recycled material. 3D printed apparel itself may be recycled as well, resulting in almost zero carbon emission in the whole product life-cycle.
However, 3D printing my create new challenges for apparel sourcing. 1) When 3D printed apparel substitute traditionally-made apparel among ordinary consumers, demand for apparel sewing workers will be substantially reduced. Millions of unskilled or low-skilled workers currently employed in the T&A sector may have to find new jobs. 2) Workforce in the T&A industry may have to substantially update their knowledge structure in the 3D printing era. The T&A industry may even be short of talents for certain positions such as 3D printing designers and engineers. 3) The application of 3D printing will require an update of the current legal system to better address issues such as intellectual property right protection, consumer privacy protection and data security in a digital-based context.
What is your vision for the future of apparel sourcing in the 3D-printing era?