ANALYSIS: US executives share their apparel sourcing plans
US companies with the most diversified global sourcing bases seem more likely to commit to sourcing more domestically
Faced with rising costs, increasing competition, mushrooming regulatory requirements, and a plethora of global risks, what are US brands, retailers, importers and wholesalers planning from their sourcing strategies for the next five years? A new survey finds out.
The United States Fashion Industry Association (USFIA) published the results of its first-ever benchmarking study this week, garnering views from executives at leading textile, apparel and fashion brands, retailers, importers and wholesalers.
Surveyed between March and April, respondents were asked about the business outlook, sourcing practices, utilisation of free trade agreements and preference programmes, and views on trade policy.
Optimism and fears
The survey found the majority of respondents - 89% - are optimistic about the five-year outlook for the US fashion industry, while a similar number - 81% - are worried about rising costs, but expect only moderate cost increases in 2014.
Digging deeper, the report found that rising production or sourcing costs were the top concern for the US fashion industry, with 81% of respondents ranking it as their greatest or second-greatest business challenge.
Others included managing supply chain risks, market competition in the US, meeting consumers' demand, finding new sourcing bases other than China, and the economic outlook in developed and emerging economies. Investment and upgrading technology, and trade protectionism formed part of this.
Interestingly, on the flip side, those challenges that didn't make the top ten list included compliance, recruitment and staff retention, currency, political tensions, and competition outside the US.
The globalisation of the fashion industry was also a key find from the study. Among respondents, the majority of companies - 52% - source from between six to 20 countries, while 26% source from more than 20 countries.
Asia, particularly China and Vietnam, in addition to Central America and the Caribbean Basin region are the most frequently utilised sourcing destinations, the report found. The findings are consistent with official trade statistics, although report authors were surprised to find that nearly 77% of respondents claim they currently source products from the US.
Indeed, the study found a strong interest in expanding sourcing in the Western Hemisphere, including Central America and the Caribbean Basin as well as the US, which received unanimous support from respondents.
At present, 84% source in Central America and the Caribbean Basin, and 76.9% source in the US. The report found that companies with the most diversified global sourcing bases seem more likely to commit to sourcing in the US.
Looking closer, the decision to source in the US appears to be related to company type. Of those who say they plan to increase domestic sourcing in the next two years, 82% are retailers, while perhaps not surprisingly, only 55% are importers/wholesalers.
Second, US companies with the most diversified global sourcing bases seem more likely to commit to sourcing domestically. Around 36% currently source from over 20 different countries, 15% from 11-20 different countries, and 37% from 6-11 different countries.
The growth in 'Made in USA' sourcing, however, does not mean they are cutting back on imports. Sourcing more products domestically appears to be more a component of an overall strategy to diversify sourcing.
Among those who plan to increase sourcing in the US over the next two years, a good portion also express strong interest in sourcing more from Asia, Central America and the Caribbean Basin as well.
This is in contrast with respondents' mixed views towards some Asian countries such as China and Bangladesh.
Due to rising labour costs and the recent economic slowdown, prospects for business expansion in China appears to be mixed and moderate.
Currently, around 100% of respondents source from China. When asked about the next two years, around 50% said they expect a decrease in sourcing value or volume from China. They do, however, anticipate the decrease will only be modest.
So while respondents say they are actively seeking alternatives to China, it appears the country will nonetheless remain an important sourcing base in the years ahead. This also flies in the face of media hype about a move away from the country. The survey suggests China will continue to remain the dominant sourcing destination.
"The respondents not only do not plan to leave Asia, but also indicate interest in increasing sourcing from several Asian countries in the next two years, particularly Vietnam, Burma/Myanmar, Pakistan, Bangladesh, and Indonesia," authors noted.
Vietnam is the second-largest sourcing base for respondents, with nearly 90% currently sourcing there.
Authors added: "Of particular note, despite last year's tragedies in several of its garment factories, Bangladesh overall is still regarded as a popular sourcing destination with growth potential."
Around 60% of those surveyed say they expect to somewhat increase sourcing from Bangladesh in the next two years, and 5% say they expect to "strongly increase" sourcing from Bangladesh over this time. An additional 15% expect no change in their current scale of sourcing in Bangladesh.
"We surmise that this data reflects companies' commitments to improving factory safety and compliance in Bangladesh, and commitment to continue to source there in the medium to long term."
Click here to view the full report.
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