2017 U.S. Fashion Industry Benchmarking Study Released

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The report can be downloaded from HERE

Key findings of the study:

While the majority of respondents remain confident about the five-year outlook for the U.S. fashion industry, the percentage of those who are “optimistic” or “somewhat optimistic” dropped to a record low since we began conducting this study in 2014. This change could be due to concerns about the “protectionist trade policy agenda in the United States” and “market competition in the United States from e-commerce,” the top two concerns this year.

  • The percentage of those who are “optimistic” or “somewhat optimistic” fell from 92.3 percent in 2016 to 71.0 percent in 2017, a record low since we began conducting this study in 2014. As many as 12.9 percent of respondents are “somewhat pessimistic” about the next five years, mostly large-scale retailers with more than 3,000 employees.
  • Despite the challenges, demand for human talent in the industry overall remains robust. This year, around 80 percent of respondents plan to hire more employees in the next five years, especially supply chain specialists, data scientists, sourcing specialists, and marketing analysts.
  • Cost is no longer one of the top concerns; respondents are less stressed about “increasing production or sourcing cost,” which slipped from #2 challenge in 2016 to #7 challenge in 2017. Only 34 percent rate the issue among their top five challenges this year, significantly lower than 50 percent in 2016 and 76 percent in 2015. Labor cost remains the top factor driving up sourcing cost in 2017.

Although U.S. fashion companies continue to seek alternatives to “Made in China,” China’s position as the top sourcing destination remains unshakable. Meanwhile, sourcing from Vietnam and Bangladesh may continue to grow over the next two years, but at a relatively slow pace.

  • 91 percent of respondents source from China; while 100 percent sourced from China in our past three studies, China is still the top-ranked sourcing destination this year, and the percentage of those expecting to decrease sourcing from the country fell from 60 percent in 2016 to 46 percent this year—and many more expect to maintain their current sourcing value or volume from the country in the next two years.
  • Likely reflecting the United States’ withdrawal from the Trans-Pacific Partnership (TPP) and the expectation of increasing labor costs, only 36 percent of respondents expect to increase sourcing from Vietnam in the next two years, much lower than 53 percent who said the same in 2016.
  • Respondents are cautious about expanding sourcing from Bangladesh in the next two years, with only 32 percent expecting to somewhat increase sourcing While “Made in Bangladesh” enjoys a prominent price advantage over many other Asian suppliers, respondents view Bangladesh as the having the highest risk for compliance.

U.S. fashion companies continue to maintain truly global supply chains.

  • Respondents source from 51 countries or regions in 2017, close to the 56 in last year’s study.
  • 6 percent source from 10+ different countries or regions in 2017, up from 51.8 percent in last year’s survey. In general, larger companies have a more diversified sourcing base than smaller companies. Additionally, retailers maintain a more diversified sourcing base than brands, importers/wholesalers, and manufacturers.
  • Around 54 percent expect their sourcing base will become more diversified in the next two years, up from 44 percent in 2016; among these respondents, over 60 percent currently source from more than 10 different countries or regions.
  • The most common sourcing model is shifting from “China Plus Many” to “China Plus Vietnam Plus Many.” The typical sourcing portfolio today is 30-50 percent from China, 11-30 percent from Vietnam, and the rest from other countries.
  • While Asia as a whole remains the dominant sourcing region for U.S. fashion companies, the Western Hemisphere is growing in popularity. This year, we see a noticeable increase in sourcing from the United States (70 percent, up from 52 percent in 2016) and countries in North, South, and Central Americas, which offer a shorter lead time and relatively lower risk of compliance.

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.

  • 5 percent of respondents say ethical sourcing and sustainability have become more important in their company’s sourcing decisions in 2017 compared to five years ago.
  • 100 percent of respondents currently audit their suppliers, including how suppliers treat their workers, suppliers’ fire safety, and suppliers’ building safety. The majority (93 percent) use third-party certification programs to audit, with a mix of announced and unannounced audits.
  • As many as 90 percent of respondents map their supply chains, i.e., keep records of name, location, and function of suppliers. More than half track not only Tier 1 suppliers, suppliers they contract with directly, but also Tier 2 suppliers, i.e. supplier’s suppliers. It is less common for U.S. fashion companies to map Tier 3 and Tier 4 suppliers though, which could be because of the difficulty of getting access to related information with such a globalized and highly fragmented supply chain.

Free trade agreements (FTAs) and trade preference programs remain underutilized, and several FTAs, including CAFTA-DR, are utilized even less this year than in previous years.

  •  Of the 19 FTAs/preference programs we examined this year, only NAFTA is used by more than 50 percent of respondents for import purposes.
  • Even more concerning, some U.S. fashion companies source from countries/regions with FTAs/preference programs but, for whatever reason, do not claim the benefits. For example, as many as 38 percent and 6 percent of respondents, respectively, do not use CAFTA-DR and NAFTA when they source from these two regions.

Respondents unanimously oppose the U.S. border adjustment tax (BAT) proposal and call for the further removal of trade barriers, including restrictive rules of origin and high tariffs.

  • 100 percent of respondents oppose a border adjustment tax; 84 percent “strongly oppose” it.
  • Respondents support initiatives to eliminate trade barriers of all kinds, from high tariffs to overcomplicated documentation requirements, to the restrictive yarn-forward rules of origin in NAFTA and future free trade agreements.
  • Respondents say the “complex standards on labeling and testing”, “complex rules for the valuation of goods at customs” and “administrative and bureaucratic delays at the border” are the top non-tariff barriers they face when sourcing today.

The benchmarking studies from 2014 to 2016 can be downloaded from https://www.usfashionindustry.com/resources/industry-benchmarking-study 

Gail Strickler, Former Assistant US Trade Representative for Textiles, on Trump’s Trade Policy

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Gail Strickler, Assistant U.S. Trade Representative for Textiles (2009-2015), who negotiated the textile chapter under the Trans-Pacific Partnership (TPP), visited UD on April 13 and delivered a public lecture on The Global Apparel Industry – Style and Substance. The event is part of the Fashion and Diplomacy Lecture Series sponsored by the Institute for Global Studies and the Department of Fashion and Apparel Studies.

During the talk, Gail made a few comments regarding trade policy in the Trump administration:

First, Gail believes that the existing U.S. free trade agreements (FTAs), trade preference programs (PTAs) and the U.S. commitments at the World Trade Organization (WTO) are unlikely to be undone by President Trump because retaliatory actions from other trading partners would be inevitable.

Second, regarding the North American Free Trade Agreement (NAFTA), Gail doesn’t think the proposed renegotiation would threaten the benefits presently enjoyed by the U.S. textile and apparel industry. Gail also thinks the Central America Free Trade Agreement (CAFTA-DR) is a lifeline for the U.S. domestic textile manufacturing sector. Notably, NAFTA and CAFTA-DR together account for almost 70% of U.S. yarn and fabric exports.

Third, as observed by Gail, Wilbur Ross, the Commerce Secretary, has been given an expanded role in trade in the Trump Administration. Gail believes Ross’s appointment is likely to bode well for NAFTA and CAFTA-DR on textiles because Ross until recently owned the International Textile Group (ITG), which has significant investments in Mexico and relies heavily on CAFTA-DR for its textile sales.

However, Gail doesn’t think concentrating on trade deficits to define trade policy is a very “good method” of navigating the trade world. Interesting enough, last time when the U.S. trade deficit significantly shrank was during the 2008 financial crisis.  

Gail is also a strong advocator of sustainability in the textile and apparel sector. She believes that trade programs can play a vital role in encouraging sustainable development, improving labor practices and facilitating sustainable regional supply chains. According to Gail, powerful the labor provisions in trade programs can be if strong incentives are coupled with a credible threat of rapid enforcement – little evidence of effectiveness if only one (or fewer) of these conditions is met. However, comparing with enforcing labor provisions, Gail finds promoting and enforcing environmental sustainability standards through trade agreements is much more complex in the textile and apparel sector and will require creativity and strong participation from private sectors and consumers.

Before the public lecture, Gail visited FASH455 and had a special discussion session with students on topics ranging from the textile and apparel rules of origin in TPP, NAFTA renegotiation, AGOA renewal and state of the U.S. textile and apparel industry.

How Americans Knew about Textile and Apparel Trade: New Survey Results

The following results are preliminary findings from the Cooperative Congressional Election Study (CCES) 2016 survey. The survey was administrated by YouGov/Polimetrix and conducted from September to October 2016.

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Acknowledgement:

Thanks to the University of Delaware Office of the Provost, Social Science Data Analytics Initiative, and Center for Political Communication in support of the data collection. For questions about the data, please contact Dr. Sheng Lu (shenglu@udel.edu).

 

Positions on Key Trade Issues: US Fashion Industry Association (USFIA) V.S. National Council of Textile Organizations (NCTO)

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From left to right: Julia Hughes (president of USFIA), Auggie Tantillo (president & CEO of NCTO) and Robert Antoshak (Managing Director of Olah Inc., moderator)

In a panel discussion hosted by Kingpins on February 9, 2017, Julia K. Hughes, President of the United States Fashion Industry Association (USFIA), and Augustine Tantillo, President and Chief Executive of the National Council of Textile Organizations (NCTO) shared their respective perspectives on key trade issues facing the U.S. textile and apparel industry in 2017.

Trade and job creation in the United States

Julia Hughes: Discussion on the relationship of trade and jobs in the public is often misguided. We support U.S. manufacturing. But along the supply chain, from product development, sourcing, marketing to retailing, fashion brands and retailers have also created many well-paid non-manufacturing jobs in the United States. Study further shows that 70%-80% of the retail value of an imported clothing actually stays in the United States.

Auggie Tantillo: Pleased and excited to see the discussion on the possibility of bringing back/expanding manufacturing in the United States. Still the United States produces $65—70 billion worth of textiles annually, which support many manufacturing jobs in the sector.  The U.S. textile industry also makes around $2 billion investment annually (updating machines and equipment). We need to acknowledge the baseline value of manufacturing in the United States.  

Border Adjustment Tax(BAT)

Julia Hughes: BAT is a complicated issue. However, if the current BAT proposal is adopted, it will raise the retail price (meaning ordinary US consumers will have to pay more) and appreciate the U.S. dollar (meaning U.S. exports will get hurt). This is why USFIA along with 100+ companies and industry associations opposes any BAT.

Auggie Tantillo: NCTO strongly believes that updating the tax structure in the United States is long overdue. NCTO welcomes a serious look at the BAT proposal, since the United States is the only major economy in the world that does not adopt BAT. The United States doesn’t need to run such a high trade deficit. Instead, we need to make the tax structure supporting the U.S. manufacturing base.

North American Free Trade Agreement (NAFTA)

Julia Hughes: NAFTA is 20 years’ old and it can be improved. However, raising import tax (tariff) is NOT a good idea. NAFTA supports the Western-Hemisphere supply chain, which is critical for the U.S. textile and apparel industry. We need to defend this supply chain.  

Auggie Tantillo: NAFTA works and benefits its members on all sides of the border, including the United States. NCTO supports the continuation of NAFTA as well as to update and modernize the agreement as necessary.

Yarn-forward Rules of Origin (RoO)

Julia Hughes: Apparel is a global industry and apparel supply chain needs to be nimble. The yarn-forward RoO prevents apparel companies and retailers from fully enjoying the duty-free benefits under a free trade agreement (FTA) since not always the FTA region makes the needed products or their textile components. Exceptions to the yarn-forward rules such as the trade preference level (TPL), provide necessary flexibility.  

Auggie Tantillo: The yarn-forward RoO has been a great success and we need to keep it (in existing and future trade agreements). The only things that need to be improved is the exception to the yarn-forward RoO (such as short supply list and trade preference level). RoO is supposed to keep benefits of a free trade agreement to its members only, yet these exceptions create loopholes and cause damages (to the U.S. textile industry).

On China

Julia Hughes: We need China, which still provides 40% of textiles and apparel consumed in the United States. It will be a disaster to trigger a trade war between the two countries.

Auggie Tantillo: We need to better help the Western-Hemisphere producers (in competing with textile and apparel made in China). China’s  40%+ market shares in the U.S. textile and apparel import market are not all based on its genuine competitiveness. Rather, China’s unfair trade practices such as IPR violation, government subsidy and unacceptable factory working conditions & environmental practices are of grave concerns.

Trans-Pacific Partnership (TPP)

Julia Hughes: TPP is not dead. On the other hand, countries around the world are actively negotiating new bilateral/regional free trade agreements. The United States doesn’t want to be left behind.

Auggie Tantillo: TPP is “in deep hibernation”, but trade agreement will never be really dead. It is still hopeful that TPP will come back later—but very likely to be in a different form, such as bilateral trade agreements. To be noted, many TPP members have already established bilateral/regional trade agreements with the United States.  

Discussion questions: 1) Why do you think Julia Hughes and Auggie Tantillo disagree on many trade issues? On which topics they actually agree with each other and why? 2) What’s your response to Julia Hughes and Auggie Tantillo’s comments on trade issues above? 3) Based on the panel discussion, why do you think textile and apparel companies need to care about trade policy? Please feel free to share your views.

TPP: A Conversation with U.S. Trade Representative Michael Froman

The following summary of the event is written by Natalie Smith, a student in FASH455 Fall 2016.

  • Michael Forman continually talked about the benefits of passing the TPP during the end of Obama’s term and during the lame duck period. If the TPP is not passed during this time, the bill could sit in congress for years since the two presidential candidates are against free trade.
  • Michael Forman also mentions some outstanding issues that have surrounded the TPP. One main problem is the dairy industry, which is export and import sensitive and the need for a balance to set their needs. Additionally, the pork industry has problems with implementation, especially with Japan. There are also concerns with the financial services and data flows.
  • However, Michael Forman stated the urgency of implementing the TPP as quick as possible. If it is not implemented rapidly China has the ability to set the rules of trade. China, similar to the U.S. wants to move into the Asian Pacific market, however the TPP has different objectives then other Chinese trade agreements. The TPP has a focus on labor and environmental standards and IP standards. Although, it seems the goal is to eventually get China to join the TPP. Forman mentioned if China does not end up joining the TPP, we want them to be forced to live in a TPP world, which includes high standards.
  • Michael Forman further discusses the Trans-Atlantic Trade and Investment Partnership (T-TIP), which they hope to soon reach an agreement on with the European Union. They recently finished their thirteenth round of negotiations, the main outstanding problems with the TTIP are the uneven growth, Greek crisis, and euro skepticism. Nevertheless, the TTIP is a positive agenda item to help promote job growth in Europe.

A few things that stuck out to me from this dialogue included Forman’s belief of California being the state to benefit the most from the TPP. Currently, California exports $170 billions of goods and are strong in manufacturing, agricultural, entertainment, IP industries, etc. I also found it interesting that he continually reiterated that we have not lost jobs in the U.S. solely because of globalization but mainly because of automation.

When Will TPP Take Effect? Let’s look at the History

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With the conclusion of the Trans-Pacific Partnership (TPP) negation on Oct 5, people now wonder: when will the agreement eventually take effect?

As shown in the chart above, since the 1985 US-Israel Free Trade Agreement, the average time lag between signing and implementing a free trade agreement (FTA) in the United States is 25.5 months (over 2 years). However, since 2006 the average time lag increased to 48.8 months (around 4 years).

So looks like it will take a while…