83% of fashion companies plan to reduce China sourcing

Image collected
Rising production and sourcing costs and protectionist trade policies are fashion companies' top business challenges in 2019, according to a report from the U.S. Fashion Industry Association. The number of companies holding a positive five-year outlook dropped from 84% in 2018 to 64% in 2019, according to the report's survey.

Due to tariffs and the ongoing trade war with China, 83% of fashion industry respondents said they plan to reduce their sourcing from the country, up from 67% in 2018. Only 6.7% of respondents said they plan to "reduce sourcing significantly" however, demonstrating the continued business value of maintaining a presence in China. Half of the respondents said their Chinese vendors lowered prices in an attempt to keep from losing customers to Vietnam, currently the alternative manufacturing country of choice.

According to the report, "during 2018, American fashion brands and retailers paid more than $12 billion dollars in tariffs on apparel and home textiles. And another $3 billion on imported footwear." In spite of these costs, the effect on U.S. reshoring has been negligible. Firms said the trade war has only "increased the production costs of textiles and apparel 'Made in the USA,' and, while they are reluctant to do so, they will have to raise prices if the China tariffs escalate any further.

Dive Insight:
The fashion industry was largely insulated from the trade war with China until May 2019, when the third tranche of tariffs included $3.7 billion in textile products, according to the report data. The administration's fourth proposed tranche (which would have affected up to $55 billion in key industry imports) was put on hold in favor of new rounds of negotiations after the G20 summit in late June.

While the administration's list three tariffs have made it more expensive for retailers to source from China, 100% of the survey respondents said they continue to import from the country. For some of them, however, the share of their Chinese sourcing has decreased, with 25% of respondents saying they now source more from Vietnam than they do from China.

Import share from Vietnam and Bangladesh, in particular, has skyrocketed in the past two years as these are apparel companies' main alternatives to China. According to the U.S. Reshoring Index, Vietnam captured $36 billion of the $72 billion in imports China lost due to tariffs in 2018. While this has helped some companies circumvent tariffs, USFIA survey respondents said it has had the additional effect of driving up production costs by as much as 20% in Vietnam and other second-choice manufacturing countries like Bangladesh and Indonesia.

Overall, the vast majority of retailers don't see themselves leaving China anytime soon as neighboring countries in the area don't yet have the infrastructure and workforce capability to produce the same variety of SKUs as quickly, the report said.
Source: https://www.supplychaindive.com

Tags :

Share this news on:

Previous Story

Trending Topics

Archive