2015 U.S. Fashion Industry Benchmarking Study
Based upon a study of the USFIA U.S. Fashion Industry Association, TextileFuture presents to you a portrait of the actual American Fashion Industry with an outlook to the future. The study was performed by the authors Dr. Sheng Lu Assistant Professor Department of Textiles, Fashion Merchandising & Design University of Rhode Island in collaboration with USFIA
After several very intense months, and years of advocacy work on our priority issues, initiatives like the African Growth and Opportunity Act (AGOA), the Generalized System of Preferences (GSP), preferences for Haiti, and of course, Trade Promotion Authority (TPA), were finally under discussion in Washington, D.C.
As of this writing in June 2015, we’ve still got work to do to finalize these programmes—and of course, to conclude the TPP Trans Pacific Partnership (meanwhile completed see TextileFuture News of October 6, 2014 4051), and TTIP, the Transatlantic Trade and Investment Partnership, but I’m pleased to find that our advocacy activities align with our members’ priorities.
There are a lot of fascinating results in the following pages. I especially want to highlight the importance of AGOA. This year, AGOA is ranked fourth among all Free Trade Agreements and preference programmes by survey respondents in terms of Utilisation, with, more than one third using the agreement to save money on duties and support the region’s developing manufacturing industry.
Even more respondents support long term renewal as well as renewal of the third country fabric provision, evidence that we might see even more companies heading to Africa if the programme is renewed soon. AGOA represents an important sourcing opportunity, especially when you consider that almost every other trade programme is utilised by 30 % or fewer respondents, and many are not utilised at all.
The TPP remains central, with 79 % saying the agreement will impact their business practices.
We are still a long way from realising benefits for the industry, and we have a lot of work to do to ensure it’s worthwhile for fashion brands and retailers, since 83 % support abandoning the “yarn–‐forward” Rule of Origin in Free Trade Agreements, and 45 % say the TPP Short Supply List should be expanded.
“We thank the 30 companies, both USFIA members and non-members, who participated, and especially to Dr Sheng Lu at the University of Rhode Island for helping us develop the questions, crunch the numbers, and deliver the final report for the second year in a row” writes Julia K. Hughes, President United States Fashion Industry Association.
Overall, respondents remain optimistic about the five year outlook for the U.S. fashion industry.
Like last year, they are most concerned about increasing production or sourcing costs, but they expect increases to be more modest this year.
• Respondents remain positive about the five year outlook for the industry, with 89 % optimistic or somewhat optimistic – the exact same percentage as last year.
• This optimism seems it will lead to job growth in the industry.
More than half of respondents expect to hire more employees in the next five years, including sourcing specialists, fashion designers, supply chain/logistics specialists, buyers and merchandisers, and market analysts.
• 43 % rank rising production or sourcing costs as their greatest or second greatest business challenge in 2015, compared with 81 % in 2014. Nearly 90 % also report rising costs as one of the top three restraints on increased profitability in 2015.
• Nevertheless, cost pressure seems to be reduced this year 62 % expect either modest or slight cost increases, down from 78 % in 2014. Around 10 % even expect costs to decline this year, while nobody expected so in 2014. Consistent with the 2014 findings, U.S. fashion companies are not moving away from China, and Bangladesh remains a popular sourcing destination with high growth potential, though not quite as high as last year.
• 100 % of respondents report sourcing from China, and 50 % source from Bangladesh in 2015.
• Consistent with last year’s findings, as many as 43 % of respondents expect no change or even a slight increase in sourcing value or volume from China in the next two years. Another 47 % percent expect a slight decrease. For most respondents, it is not a realistic option to move away from China yet, which remains a mature and reliable sourcing base with no ideal replacement.
• Bangladesh is regarded as one of the top five sourcing destinations with the highest growth potential. 42 % of respondents expect to increase sourcing value or volume from Bangladesh in the next two years, though this figure declined from 65 % in 2014. Companies continue to diversify their sourcing, though FTAs Free Trade Agreements and preference programmes remain underutilised. The results further show that abandoning the strict “yarn forward” Rule of Origin and reducing documentation, requirements could lead to more companies taking advantage of trade agreements.
• Respondents source from 41 countries in 2015. China, Vietnam, India, Indonesia, and the United States are the top five by volume or value, consistent with the official trade statistics.
• More than half of respondents (53 %) source from 10+ countries, an increase from 41 % last year. In general larger companies seem to have a more diversified sourcing base than smaller companies.
• FTAs and preference programmes remain underutilised. The top FTAs and preference programmes among respondents CAFTA-DR, NAFTA, and the U.S.-Jordan FTA—are utilised by more than 50 % of respondents. The fourth ranked programme, AGOA, is utilised by 37 % of respondents.
However, all other agreements and preference programmes have utilisation rates of 30 % or lower, if they are utilised at all.
• 87 % support reducing documentation, requirements for importing and exporting textiles and apparel under FTAs and preference programmes, while 83 % support abandoning the strict “yarn forward” Rule of Origin and adopting a more flexible one in future trade agreements.
The U.S. fashion industry is a critical TPP Trans-Pacific Partnership stakeholder, as close to 80 % of respondents expect implementation will impact their business practices. However, the restrictive rules in the agreement limit the potential.
• Respondents currently source from five TPP partners: Vietnam, the United States, Peru, Mexico, and Malaysia.
• TPP has a huge potential to create new trade opportunities and shape new patterns of textile and Apparel trade in the Asia – Pacific region in the long term. 72 % of respondents indicate they will source more textiles and apparel from TPP partners after the implementation of the agreement. Additionally, 48 % expect to strategically adjust or redesign their supply chain based onTPP.
• However, the restrictive rules limit TPP’s potential. In fact, 45 % of respondents say the TPP Short-Supply List should be expanded, and comments indicate the proposed “yarn-forward” Rule of Origin is a major hurdle to the industry realising real benefits from TPP. For companies to increase sourcing from the African Growth and Opportunity Act (AGOA), long term renewal as well as renewal of the “third-country fabric” provision are critical.
• Respondents currently source from five AGOA beneficiaries: Mauritius, Kenya, Lesotho, Madagascar, and South Africa.
• 48 % and 41 % respectively, support long term renewal of AGOA and renewal of the “third country fabric” provision. Approximately one third support immediate renewal of the agreement and extension of the “third country fabric” provision to all beneficiaries.
• Additionally 37 % believe renewing AGOA will benefit their companies while 26 % will source more from AGOA, if the programme is renewed for a longer term. U.S. fashion companies continue to express interest in expanding sourcing in the United States in the next two years as they further diversify their sourcing. However, there is no evidence that companies are shifting their business models back to manufacturing.
• The United States ranks fifth among respondents’ sourcing destinations, with 53 % sourcing at home. These companies also source from 22 other countries, including 100 % from China and 100 % from Vietnam.
• Nearly 39 % expect to increase sourcing value or volume from the United States in the next two years; 80 % of those companies are already sourcing in the United States.
• Consistent with the findings in 2014, overall, larger companies with more diversified sourcing bases are more likely to increase their sourcing from the United States than smaller companies and/or companies with less diversified sourcing bases.
• Among those respondents planning to increase sourcing from the United States in the next two years, as many as 60 % intend to further diversify their sourcing, as well. Furthermore, almost all respondents planning to increase sourcing from the United States also expect to increase sourcing from Asia, Central America, and the Caribbean Basin.
The challenges to cope with
To gauge the overall business environment of the U.S. fashion industry, USFIA asked respondents to select the top five existing or potential issues that pose the greatest challenge to their businesses in 2015, and rank the issues in order of importance (Figure 1).
First, despite the decline in the price of oil and the appreciation of the USD, increasing production or sourcing cost remains the top concern by the U.S. fashion industry in 2015, with 43 % of respondents ranking the factor as either their greatest or second greatest business challenge.
Nearly 90 % also report rising costs as one of the top three restraints on increased profitability in 2015.
Second, the market environment poses greater challenges for the U.S. fashion industry than internal management issues. Compared with last year’s study, respondents are more concerned about market environment challenges, including: market competition in the United States, meeting consumers’ demand and building consumers’ confidence, the economic outlook in developed countries, compliance with trade regulations, currency value and impact of exchange rates on competitiveness, political tensions in developing countries (Table 1).
Meanwhile, challenges posed by internal management issues seem less pressing this year compared with last year, including: managing supply chain risk, finding a new sourcing bases other than China, investment and upgrading technology, recruitment and retention of human talent (Table 1).
Third, respondents expect non-economic factors to have a more significant impact on their businesses. Among the top ten challenges in 2015, three are policy or political issues: compliance with trade regulations, political tensions in developing countries, and trade protection risk in countries other than the United States (Figure 1).
Moreover, 42 % of respondents say policy regulations are among the top three restraints on increased profitability in 2015, an increase from 33 % in 2014. The results remind us that as the U.S. fashion companies become more global.
The author, Dr Sheng Lu is an assistant professor from the Department of Textiles, Fashion Merchandising and Design at the University of Rhode Island. With over 40 publications in academic and trade journals. Sheng’s research focuses on the economic and business aspects of the global soft goods industry (textile, apparel and related retailing), including international trade, trade policy, and the governance of global apparel value chain. Sheng received the 2014 Rising Star Award from ITAA, the International Textile and Apparel Association in recognition of his research and teaching excellence. He is also the recipient of the Paper of Distinction Award at the 2014 ITAA annual conference for his study on the textile and apparel specific sectoral impact of the TPP Trans-Pacific Partnership. Sheng received his Ph.D. from University of Missouri in Textile and Apparel Management in 2011. From 2009 to 2010, Sheng worked with the U.S.- China Business Council in Washington D.C., conducting policy analysis and market research for U.S. multinationals having business with China. Sheng will join the Department of Fashion and Apparel Studies at University of Delaware as an assistant professor in fall 2015.
USFIA, the United States Fashion Industry Association represents the fashion industry: textile and apparel brands, retailers, importers, and wholesalers based in the USA and doing business globally. Founded in 1989 as the United States Association of Importers of Textiles & Apparel with the goal of eliminating the global apparel quota system, USFIA now works to eliminate the tariff and non-tariff barriers that impede the industry’s ability to trade freely and create economic opportunities in the United States and abroad. Headquartered in Washington, D.C., USFIA is the most respected voice for the fashion industry in front of the U.S. government as well as international governments and stakeholders. With constant, two way communication, USFIA staff and counsel serve as the eyes and ears of its members in Washington and around the world, enabling them to stay ahead of the regulatory challenges of today and tomorrow. Through its publications, educational events, and networking opportunities, USFIA also connects with key stakeholders across the value chain including U.S. and international service providers, suppliers, and industry groups.