Sourcing at MAGIC attracted over 81,000 attendees

Sourcing at MAGIC attracted over 81,000 attendees

As usual MAGIC, one of the largest fashion trade shows in the United States, held 13-16 August in Las Vegas, was crowded and hot. The event attracted over 81,000 attendees, including vendors, buyers, service providers and educational institutions coming from over 40 countries and regions. Dr Sheng Lu, assistant professor at the Department of Fashion and Apparel Studies at the University of Delaware, presents his thoughts from the event regarding the industry outlook and the changing landscape of apparel sourcing.

Industry outlook remains positive but also "disruptive"

Despite the reported daunting business challenges facing US fashion brands and retailers, from the policy uncertainty in the new Trump administration to the increasing market competition, as I observed from MAGIC, most attendees remain quite optimistic about the industry outlook. In fact, many say their businesses have been growing faster this year thanks to a more favourable economic environment, including a record low unemployment rate, rising wages, recovering housing market and growing consumers' confidence.

Meanwhile, it is a unanimous view at MAGIC that fashion business is quickly changing in nature and somehow in a "disruptive" way. Not surprisingly, how Amazon will shape the future landscape of the industry and how traditional retailers and brands should respond are at the focal point of the discussion. Interesting enough, many industry executives see Amazon more as an opportunity than a threat. For example, recently, some national brands such as Nike have started to work with Amazon instead of competing with this giant online merchant.

Amazon's business practices are also triggering reforms in the fashion industry. For example, some industry experts foresee that Amazon's two-day free shipping for its Prime members will become the new industry standard, which means the lead time for product development needs to be reduced substantially from several months to several weeks.

Related, "speed-to-market," "product differentiation" and "inventory control" are some of the most popular buzzwords in people's conversations this year at the MAGIC.

Vietnam continues to lure US firms

Vietnam is the focus country of this year's Sourcing at MAGIC. According to the 2017 US Fashion Industry Benchmarking Study, which I conducted in collaboration with the US Fashion Industry Association (USFIA), Vietnam is the second most used sourcing base by respondents (88%), next only to China (91%). Notably, Vietnam now typically accounts for 11-30% of a US fashion company's total sourcing value or volume and the most commonly adopted sourcing model has shifted from "China plus Many" to "China plus Vietnam plus Many". Statistics from the Office of Textiles and Apparel (OTEXA) also indicate the growing popularity of Vietnam as a sourcing destination: in the first half of 2017, Vietnam accounted for 14.5% of the value of US apparel imports, a new record high and a substantial increase from only 4% in 2005.

In a panel discussion focusing on the country, industry experts hold a consensus view that with or without the Trans-Pacific Partnership (TPP), Vietnam will continue to be an attractive sourcing base for US fashion brands and apparel retailers. Particularly, Vietnam is regarded as one of the most "balanced" sourcing destinations in Asia regarding its overall performance in sourcing cost, speed to market, and compliance risk. This is a notable advantage when apparel sourcing is increasingly about striking a balance between a range of factors, including cost, speed, reliability, and flexibility.

However, Vietnam's growth potential is not without challenges. For example, because of the limited domestic manufacturing capacity, Vietnam still heavily relies on imported textile inputs, which makes apparel "Made in Vietnam" suffer a disadvantage in competing with China for supply chain efficiency and FOB price. It is also a growing concern that Vietnam may face a shortage of labour to support its further expansion of apparel production and exports in the long run. Some industry executives operating businesses in Vietnam say that they now have to pay even higher to retain skilled labours. Notably, other manufacturing sectors growing fast in Vietnam like electronics are increasingly competing for workers with the apparel industry.

Western-Hemisphere supply chain vs. factory Asia

Apparel sourcing is a highly competitive market, yet the competition is no longer between countries but between major regional supply chains. For example, apparel made in North, South and Central America often contain yarns and fabrics made in the United States (or the so called Western-Hemisphere supply chain). Similarly, leading apparel producers in Asia, such as Vietnam, Bangladesh and Cambodia also rely on imported textile inputs from China, South Korea, Taiwan and Japan (or the so called factory Asia).

It is a notable trend at MAGIC that the competition between Western-Hemisphere supply chain and factory Asia is intensifying. On the one hand, given the growing importance of speed-to-market in US fashion companies' sourcing decisions, apparel suppliers located in the Western-Hemisphere seem to enjoy an increasing advantage over their Asian competitors because of the geographic proximity to the United States. Free trade agreements and trade preference programmes with the US such as NAFTA and CAFTA-DR provide countries in the Western Hemisphere critical cost advantages over Asian suppliers too. Interestingly but not surprisingly, vendors from Guatemala, Honduras, and Mexico, which I talked to at the MAGIC, all feel quite relieved that the Trans-Pacific Partnership didn't come into force eventually.

On the other hand, Asian suppliers are actively seeking new source of competitive advantages too. One strategy they adopt is to provide more value-added services beyond finished garments, such as apparel design, product development, quality inspection, and inventory management. It seems US fashion brands are also more willing to delegate more responsibilities to Asian suppliers for the sake of improving supply chain efficiency and strategically building capacity to serve the growing Asia consumption market.

Automation of apparel manufacturing is coming

While textbooks still say that apparel manufacturing is a labour-intensive process hard to automate, this may no longer be the case in the near future. At this year's MAGIC, several vendors showcased their latest technologies, which have the potential to fully automate the cut and sew process or substantially reduce the labour inputs in garment making.

The emergence of automation technologies has also raised heated debates on their implications for the future landscape of apparel production and sourcing. An interesting question to ask is who is going to adopt these fancy but expensive automation technologies?

A popular view I often heard at MAGIC is that automation could bring apparel manufacturing back to the United States. However, the reality is most US apparel companies have already shifted their business to non-manufacturing functions such as design, marketing and retailing, and there is no sign that these companies are seeing manufacturing as a strategic area in which to invest.

On the other hand, those apparel mills remaining in the United States are predominantly small and medium sized enterprises, and millions of dollars of investment in automation technology are beyond their affordability in most cases. In fact, Asian factories are the ones that currently express the most interest in the apparel automation technologies, which could help mitigate the pressure of rising labour cost. Indeed, in the years ahead, we may see Asia become the biggest market for apparel automation and robot technologies, while maintaining its role as the largest sourcing base for textile and apparel.