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BRANDS SHOULD RETHINK SUPPLY CHAINS IN A TIME OF VOLATILITY

By Guest Author | 3rd July 2018

The uncertainty of potential tariffs affecting the clothing and textile sector – and a Trump administration that appears poised to levy more of them – loomed large over the latest annual Sourcing Conference organised by the American Apparel & Footwear Association (AAFA) in Washington DC. But speakers also talked about the need for brands to forge intimate relationships with suppliers as the industry moves towards a future in which trading relationship lines are more blurred and customers expect products to be delivered more quickly and intuitively.

One speaker compared the rapid rate of change in the garment industry to the sudden changes the United States and other countries faced in the wake of the Cold War, when predictable patterns of warfare gave way to sudden regime changes.

"As supply chain and sourcing professionals, we are experiencing a similar rapid change in our environment," said John Lund, senior vice president of supply chain and operations for Chico's FAS Inc, which oversees the Chico's, White House Black Market and Soma clothing brands for women.

Lund said he spent the first decade of his career trying to predict future national security concerns for a Washington DC-area contractor. It was there he encountered a military acronym that he says applies to the apparel and footwear industry today: VUCA, which stands for Volatility, Uncertainty, Complexity and Ambiguity.

The old certainties of the free-market economy, he said, no longer apply as the accepted rules for trade – and the sudden surge of populist sentiments across the world – threaten to unsettle them.

If you think of the economy like warfare, "tariffs are like biological weapons: they're clumsy, imprecise and, worst of all, contagious"

"The potential unwinding of trade agreements could upend the collaborative business relationships we have worked so hard to create," Lund said. If you think of the economy like warfare, "tariffs are like biological weapons: they're clumsy, imprecise and, worst of all, contagious."

"No more tariffs"

Rick Helfenbein, president and CEO of the American Apparel & Footwear Association (AAFA), opened the conference – held at the Ronald Reagan Building and International Trade Center – with a sobering update on the Trump administration's latest proposals to levy tariffs that could have far-reaching consequences for the industry he represents.

"Make no mistake, this president likes the idea of tariffs," Helfenbein said, noting that AAFA lobbyists have "got out in front of this issue" to tell the administration: "No more tariffs."

Their efforts have been partly successful in warding off tariffs on clothing and textile products said Helfenbein, who noted the association had argued that the apparel and footwear industry represents just 6% of imports into the United States – yet pays 51% of existing tariffs. So, when the administration proposed adding another 25% on top of that, Helfenbein said he had this response: "Are you absolutely crazy?"

While tariffs specific to apparel and footwear have not yet been proposed, that does not mean the industry is unscathed. The list of China-made items touched by US$50bn worth of new tariffs under Section 301 of the Trade Act in a row with Beijing over alleged intellectual property thefts includes some textile and footwear machinery sold to US manufacturers. And China has included uncombed cotton on its list of US products subject to retaliatory duties.

Helfenbein hopes the proposal is a negotiating ploy and that China's threats to impose tariffs on US clothing and input exports from the US are not enacted and then mirrored by Washington. The European Union (EU) has made similar threats regarding retaliations to President Trump's currently suspended plans to impose tariffs on EU metal exports.

If tariffs were ultimately aimed at China's clothing and outerwear output, that could have an acute impact on the industry represented at the conference. 71% of footwear and 42% of apparel currently coming into the US is imported from China, according to the AAFA.

"We feel particularly vulnerable when you talk about adding tariffs to goods coming out of China"

"We feel particularly vulnerable when you talk about adding tariffs to goods coming out of China. We're not going to sit by and say, 'It's OK,'" Helfenbein said. Trying to make sense of Trump's trade wars with several of the US's top trade partners, he added: "Either the guy is a genius and this is all going to work out well – or we have totally disrupted everybody's supply chain in this entire room."

Business decisions

Some conference attendees – representing a mix of brand and retailers, manufacturers and service providers – said the uncertainty of potential changes to the US's trade relationship with China has already impacted business decisions. Many are taking small steps away from the uncertainty that surrounds Chinese manufacturers and towards supply chains in other countries, for example.

Several speakers at the event talked about the need for brands to forge intimate relationships with suppliers, especially as the industry moves towards a future in which trading relationship lines are more blurred and customers expect products to be delivered more quickly and intuitively.

Lund suggested the industry think about their supply chains more as "supply ecosystems." While a supply chain is defined by its strength, the health of an ecosystem is determined by its resiliency and ability to weather storms.

For example, Lund said, strong relationships with Chico's suppliers meant they could step into the gap to keep product flowing to store when Hurricane Irma closed the company's Fort Myers, Florida, campus for 11 days last autumn.

Philippa Abeles, senior vice president of global sourcing for Ann Inc, which manages the brands Ann Taylor, Loft and Lou & Grey, said strengthening supplier relationships had helped the company be more efficient and innovative.

"Every time I get out of my Time Square office, I realise the suppliers have it together more than we do in New York. They've been forced to stay innovative," she said. "I come back from trips so inspired and bring back new ways of working."

Abeles said her firm hosts regular "sourcing summits," or townhall-like meetings, to glean feedback from suppliers while giving designers and the rest of the team time on the factory floor.

Continuous improvement

Joseph Mellaci, vice president of business development in the Americas for Impactiva, a quality control service provider, said brands benefit when they learn to have more empathy for the challenges facing their suppliers – even as they work to hold them accountable to certain standards.

"The factories have been challenged with a perfect storm – higher labour costs, smaller purchase orders, social problems – all of this squeezes the factories, and quality and speed can suffer," he said. "A focus on just making money is not the right approach. It's about continuous improvement."

Bryan Wolfe, vice president of international trade at Ascena Retail Group, highlighted how bad news and challenges can promote change by referring to the tragic collapse of the Rana Plaza garment factory complex in Bangladesh, which happened on the first day of AFAA's same conference, five years ago.

"That type of event, as well as a lot of others over the past 15 years, have caused us to really step up our game," he said.

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