One could say that the textiles and apparel is one complicated ball of thread. For one thing, it’s fast moving; fashions and consumers’ tastes can change on a whim, and sourcing can shifts to different markets around the globe. On top of that, there are tariff issues, trade agreements, transport rates, time considerations, and a business that is evolving from one that involves store fronts to apps.
Textiles and apparel is also a very human industry. Behind the racks of clothing are the faces of those making those garments we wear on our backs. We can all recall too vividly the Rana Plaza clothing factory near Dhaka, Bangladesh that collapsed in April, killing at least 1,100 people. In October ten more people died when another factory in Bangladeshi used by big foreign clothes retailers went up in flames.
In May, Wal-Mart launched an investigation to raise working standards and safety conditions in its Bangladesh supply chain constituting 279 factories. Bangladesh is home to 5,000 such factories, compared to 2,500 in Indonesia and 2,000 in Vietnam. Giving it an advantage is the fact labor costs there are less than elsewhere in Asia, and Bangladesh enjoys duty-free access to the European Union (EU). This has made Bangladesh the second largest apparel exporter in the world and one of the top four exporters to the United States.
Vietnam as a Key Market
The United States imports garments from 21 countries. The other three top exporting nations of apparel to the US are China, Vietnam, and Indonesia. Other import exporters include Mexico, Honduras, Cambodia, and El Salvador.
Vietnam has grown to become the second largest textile and garment exporter in the United States. Helping is the bilateral trade agreement the United States signed with Vietnam in 2000, followed by Vietnam joining the World Trade Organization in 2007.
A number of steamship lines have been expanding their service to Vietnam, with connections to mother ports where cargoes can been transshipped to North America. OOCL, Golden Sea Shipping and Gold Star Line launched a joint intra-Asia service on August 11 that connects Vietnam, Thailand and Malaysia with three container ships with capacities of 1,400 to 1,500 TEUs. The port rotation is Ho Chi Minh; Port Klang and Pasir Gudang, Malaysia; Port Klang again; Bangkok; Laem Chabang, Thailand; Port Klang; and back to Ho Chi Minh.
Evergreen Line is partnering with Hanjin Shipping to create a new service linking South Korea, China, Vietnam, Singapore and Malaysia.
The New Ho Chi Minh Service, which commenced on November 22, employs four ships, each with capacity of 2,500 TEUs. Evergreen supplies one ship, and the others will be supplied by Hanjin. Operating weekly, the service will call at Kwangyang and Busan, South Korea; Shanghai; Shekou, China; Ho Chi Minh City, Vietnam; Singapore; Port Klang, Penang and Tanjung Pelepas, Malaysia; Singapore; Ho Chi Minh City; and Kwangyang.
According to the Vietnam Textile & Apparel Association, textile and apparel export turnover reached $17.2 billion in 2012, a figure that represents about 15 percent of that nation’s total export revenues. Of that figure, the United States represented $7.5 billion; the EU, $2.5 billion; and Japan, $2.02 billion. In 2012, the industry encompassed 6,000 companies and 2.5 million workers.
The Association maintains that if the Trans Pacific Partnership (TPP) free agreement is signed, textile and apparel exports would increase to TPP nations, particularly the United States.
Currently, U.S. tariffs on Vietnamese-made goods are 17.5 percent; the EU, 9.6 percent. With the TPP agreement, tariffs on Vietnamese-made textile and garment exports would be cut to zero.
Consequently, the Association estimates those US exports would jump from the current 7 percent to 12-13 percent per year and could reach $30 billion in 2025. With the TPP, the United States could also account for 55 percent of Vietnam’s total textile and apparel exports, instead of the current 49 percent, the association. Other benefits would be the attracting of investments in Vietnam’s textile and apparel sector, especially in weaving/knitting and dyeing/finishing.
The Association, however, states that rules and other restrictive regulations centering around Fabric Forward rule on yarn. Plus major U.S. buyers and their vendors have expressed little interest in investing in Vietnam to benefit from TPP.
Despite its growth in Vietnam, its textile and apparel industry faces challenges including a raw material shortage, out-of-date technologies and strong dependence on outsourcing. In fact, Vietnam imports 99 percent of its cotton and 50 percent of raw materials such as fiber. This translates to over 19 billion out of over 22 billion feet of cloth coming from other countries.
Uncertain China Market
Asia has been traditionally the source for most US textile and apparel manufacturing with China high on the list. But a report by Capital Business Credit (CBC), a commercial finance company, reported last year that due to uncertain macroeconomic conditions in Europe and China, importers and manufacturers of a wide span of goods from apparel, housewares, home furnishings, fashion accessories, and furniture who sell to America’s retailers continue to be concerned with the economic resources of manufacturers. Consequently, it found that about a quarter of importers of retail goods have moved some of their manufacturing out of China, and 40 percent are considering moving some of their production out of the country.
“While we at CBC continue to believe that China will remain a strong manufacturing partner for retail goods importers in the U.S., there is a shift taking place to either low cost manufacturing destinations like Vietnam and Pakistan, or on the opposite end of the spectrum, to cities in the U.S. where importers can keep an eye on quality control and produce goods faster due to the elimination of overseas shipping times,” says Andrew Tananbaum, executive chairman of CBC.
A CBC survey found that when clients were asked which countries they are moving their manufacturing to, the United States was most popular at 31.3 percent. Other countries clients cited were Vietnam (18.8 percent), Pakistan (10.9 percent), Bangladesh (9.4 percent) and the Philippines (3.1 percent).
Changing Patterns
Meanwhile, the move for near sourcing in the United States is coming home to roost as more companies find advantages to invest in US facilities. In fact, Wal-Mart made a major announcement at the SelectUSA 2013 Summit in Washington, DC that adds to its commitment to purchase an additional $50 billion in U.S.-made products over the next 10 years. At that event, Wal-Mart U.S. President and CEO Bill Simon announced that vendors Elan-Polo, Louis Hornick & Company and EveryWare Global, Inc. will produce footwear, curtains and glassware, respectively, in the United States.
Elan-Polo, Inc., a global footwear and 35-year Walmart supplier, will start production of injection-molded footwear in March 2014 at a factory in Hazelhurst, GA, as part of a joint venture with McPherson Manufacturing. Once at full capacity, this new facility will produce 20,000 pairs of shoes per day. Previously, the company manufactured the shoes overseas.
Louis Hornick & Company, a leading manufacturer and importer of window coverings and home textiles, will invest $2.5 million to establish a new manufacturing facility in Allendale County, SC. The company has been supplying Walmart for 40 years.
US Apparel Exports
According to a study by the Department of Commerce’s Office of Textiles and Apparel (OTEXA), the supply chain for textiles and apparel has become increasingly global. Last year saw an increase in total textile and apparel exports at $22.7 billion, up from $19.7 in 2010, for an increase of 15 percent. As foreign markets rebound and look to increase their purchases of textiles and apparel, U.S. companies have an opportunity to grow their business internationally.
For 2012, the Department of Commerce’s Office of Textiles and Apparel (OTEXA) reports that the top markets for U.S. exports of primarily yarns, fabrics, and finished products to mills, processors, assemblers, and consumers were (compared to 2011): Canada, $5.31 billion, up 6.5 percent; Mexico, $5.21 billion, up 6.4 percent; Honduras, $1.46 billion, down 20.5 percent; China, $1.29 billion, up 1.1 percent; and Japan $720 million, up 12.1 percent.
Based on the exports from—and sorted by countries with 25 percent or more growth in exports of at least one million dollars, OTEXA found that the top five markets for U.S. exports January through May 2013 was: United Kingdom, $286.4 million, up 29.4 percent; Netherlands, $98.1 million, up 21.6 percent; China, $49.1 million, up 44.7 percent; Saudi Arabia, $37 million, up 29.2 percent; and France, $32.6 million, up 23.6 percent.
Shopping Trends
Other big changes are coming to the apparel industry, particularly in the way consumers shop for apparel. Most noteworthy is a scheme called selling direct to consumer (DTC). Abercrombie & Fitch (A&F), for one, is bullish on DTC. Industry analysts believe the retailer could see extreme growth potential through the program, coupled with A&F’s global expansion to markets that include the United Arab Emirates, Japan, and Australia.
A&F operates 1,053 apparel stores in 20 countries. An American retailer, the company is headquartered in New Albany, Ohio.
At the heart of A&F’s DTC operation is its cloud supply chain strategy. In September, A&F extended its contract with GT Nexus largely because it provides a platform by which to improve its visibility into the movement of orders, payments and goods.
“GT Nexus simplifies the way we manage global commerce and allows us to work in a transparent, efficient environment,” says Larry Grischow, Group Vice President Supply Chain for A&F. “We are able to transact more efficiently with suppliers around the world in ways that simply weren’t possible previously. We have fewer people answering calls from factories and handling paper invoices, and more staff focused on strategic initiatives to support our growth.”
Apparel World magazine reports, however, that the DTC concept is nothing new. “Retailers such as J.Crew, Victoria’s Secret, Land’s End and countless others have long offered direct-mail catalogs and phone-order capabilities,” it writes.
What’s novel is the practice of shipping merchandise directly from retail stores to consumers, and/or allowing customers to purchase merchandise online and pick it up in stores.
In fact, Jon Dion of Dionco Inc. reports on what he calls “the on-line going off-line” whereby retailers actually opening brick and mortar establishments to go back on-line and buy the merchandise. “Retailers will not sell product there,” he said in a television interview on First Business. How it works is, customers go to the store to try on merchandise; the clerk takes the customer to a computer where he or she can buy the apparel on line; then presto, the shipment is at their home two days later.
United Parcel Service offers a product that helps retailers do just that. Called UPS Trade Direct, the solution allows retailers to bypass their distribution centers altogether. In fact, product can be moved from overseas suppliers directly to stores or customers’ doors. Its UPS CampusShip product allows retailers to ship products directly from a retail location or a fulfillment center, depending on which location is closest to the customer.
FedEx offers International DirectDistribution. Here packages and freight are consolidated at the factory. Consolidated goods then clear customs as a single entry. The contents are then deconsolidated and delivered directly to multiple end customers. Its FedEx International Direct Distribution Air Solutions moves international shipments from the point of origin to multiple final destinations via a single, fast-moving channel.
In short, DTC allows apparel retailers to use their stores as warehouses. It’s a scheme that large department stores like Nordstrom and Macy’s is implementing, and one that online mega retailers like Zappos and Amazon has been enjoying for some time.
Another phenomenon worth watching is omni-channel retailing, an evolution of multi-channel retailing. Here shoppers can shop, compare products and prices, and buy goods through all available shopping channels, i.e. mobile internet devices, computers, bricks and mortar, television, radio, direct mail, catalog and so on.
