Inflation and the state of the economy weighs heavy on the minds of US fashion sourcing execs as they focus on deleveraging China and strengthening sourcing ties with CAFTA-DR members, the USFIA 2023 Benchmarking Study has revealed.

The latest set of results from the tenth United States Fashion Industry Association (USFIA) survey shows US fashion executives are exercising a level of caution as they move into 2024, with only half expecting sourcing volumes to rise, as concerns about inflation and the state of the economy continue.

The tenth edition of the report surveyed 30 executives from fashion companies between April and June 2023. The respondents to the survey included both large US fashion corporations and medium to small companies.

The biggest bugbear executives reveal in the tenth edition of the survey is the fragile US-China business relationship. With both Republicans and Democrats in Congress united in their agenda to lower their reliance on the Asian superpower, fashion businesses have had no choice but to respond, diversifying sourcing and lowering their leverage on China. Nearly 80% of respondents plan to reduce their China sourcing over the next two years.

One of the biggest issues, though not exclusive to China, is forced labour allegations and potential risks in the fashion supply chain. With the launch of the Uyghur Forced Labour Prevention Act (UFLPA) the US fashion industry has doubled down in its efforts to eliminate forced labour from the supply chain.

Exclusive analysis of US fashion sourcing and impact of economy

The report’s author Dr Sheng Lu, associate professor of fashion and apparel studies at the University of Delaware, tells Just Style exclusively: “One notable takeaway of this year’s study is that US fashion companies expressed a new level of anxiety and showed eagerness to reduce “China exposure” to mitigate the growing sourcing risks due to the deteriorating US-China relations and the Uyghur Forced Labor Prevention Act (UFLPA) enforcement.”

He points out that in the past, China was considered an “indispensable” apparel-sourcing destination because of its vast size and wide variety of products.

However, he states this year’s survey indicates that, in most cases, China is no longer the largest source of apparel imports for many US fashion companies regarding sourcing value or volume.

Lu adds: “Recent studies I conducted, which examined hundreds of thousands of actual apparel products sold in the US retail market, further reveal that the five largest Asian apparel suppliers other than China, namely Vietnam, Bangladesh, Cambodia, India, and Indonesia, collectively can offer a diversified product range almost equivalent to that of China. In other words, US fashion companies today are much more prepared to “de-risk” from China than they were in the past.”

Nevertheless, Lu believes the real challenge for “de-coupling” is that China remains a crucial textile supplier for most leading apparel-exporting countries in Asia.

He says: “This regional textile and supply chain continues to strengthen with the implementation of trade agreements, such as the Regional Comprehensive Economic Partnership (RCEP). Additionally, many US fashion brands still view China as a promising sales market with significant business growth potential. Thus, how to deal with China while balancing various interests will remain a heated debate and a key issue for US fashion companies.”

Among the positives, the survey notes the industry’s commitment to increasing apparel sourcing from recycled fibres or other sustainable fibres and strengthening ties with members of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR).

Lu is not surprised by these findings and says: “US fashion companies say finding alternatives to sourcing from China has become more urgent this year. This could potentially benefit suppliers worldwide, from Asian countries other than China, suppliers in the Western Hemisphere, and Africa.”

In terms of the focus on sustainability, he states: “It is encouraging to see that more than half of the respondents have already started to carry clothing made from recycled or other sustainable textile materials. The trend will continue, and it involves tremendous collaboration opportunities between the private sector, policymakers, and academia to jointly explore innovative ways to incentivise more sourcing and production of sustainable clothing products and develop a circular fashion business model.”

USFIA 10th survey – report highlights

The uncertain macroeconomic outlook poses significant business challenges to US fashion companies in 2023.

• Inflation and economic outlook in the US was the most concerning factor for respondents this year, jumping from third place a year ago.
• While only half of respondents expect apparel sourcing to increase in 2023, from 90% a year ago, 69% are still optimistic or cautiously optimistic about the fashion industry in the next five years.
• 85% expect to increase hiring in the next five years with the most demanded positions including supply chain specialists, environmental sustainability-related specialists and data analysts.

US fashion companies are deeply concerned about the deteriorating US-China bilateral relationship and plan to accelerate “reducing China exposure” to mitigate the risks.

• Over 40% of respondents this year said they were sourcing less than 10% of their apparel products from China, Up from 30% in 2022, and 20% in 2019.
• 61% of respondents no longer use China as their top supplier in 2023, up from 50% in 2022.
• While the favoured model was once China + Vietnam + Many, then Asia + Rest of the World, almost all (97%) say at least 40% of their total sourcing value or volume comes from other Asian countries than China.
• While 80% plan to cut China sourcing in the next two years and 15% plan to “strongly decrease” China sourcing, this will be more challenging with raw materials in the short term as more than 70% of respondents are currently sourcing various yarns, fabrics, and textile accessories from China with no practical alternatives.

Tackling forced labour risks in the supply chain remains a significant challenge confronting US fashion companies in 2023, especially with the implementation of the Uyghur Forced Labor Prevention Act (UFLPA) in June 2022.

• Most respondents (80%) said they are relying on vendors to provide more detailed social compliance information, attending workshops and other educational events to understand related regulations better, and intentionally reducing sourcing from high-risk countries.
• US fashion companies are actively seeking to diversify their sourcing beyond Asia to mitigate the forced labour risks, particularly regarding cotton products.

There is robust excitement about increasing apparel sourcing from members of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR).

• Over 80% of respondents report sourcing from CAFTA-DR members in 2023, a notable increase from 60% in the past few years. Also, nearly 30% of respondents placed more than 10% of their sourcing orders with CAFTA-DR members this year, a substantial increase from only 19% of respondents in 2022 and 10% in 2021.
• About 40% of respondents plan to increase apparel sourcing from CAFTA-DR members over the next two years.
• With US fashion companies actively seeking immediate alternatives to sourcing from China and Asia, respondents emphasise the increased urgency of improving textile raw material access to promote further US apparel sourcing from CAFTA-DR members.

Respondents demonstrate a solid dedication to expanding their sourcing of clothing made from recycled or other sustainable textile fibres

• Nearly 60% of respondents say at least 10% of their sourced apparel products already use recycled or other sustainable textile fibres. Another 60% of surveyed companies plan to “substantially increase sourcing apparel made from sustainable or recycled textile materials over the next five years.”
• Addressing the higher sourcing costs and the low-profit margins are regarded as the top challenge for sourcing clothing using recycled or other sustainable fibre.
• About 60% of respondents also call for policy support for sourcing clothing using recycled or other sustainable textile materials, such as preferential tariff rates and guidance on sustainability and recycling standards.

Respondents strongly support and emphasise the importance of the early renewal of the African Growth and Opportunity Act (AGOA) and extending the programme for at least another ten years.

• About 40% of respondents state it is “essential for my company to source from AGOA members.”
• About 60% of respondents say the temporary nature of AGOA “has discouraged them from making long-term investments and sourcing commitments in the region. Many respondents expect to cut sourcing from AGOA members if the agreement is not renewed by June 2024.

Earlier this month, the US Apparel and Footwear Association (AAFA) called AGOA a “success story” and urged Congress to extend the trade agreement ahead of its expiration adding as companies are poised to diversify out of China, Africa “is a logical place for many of them”.

US apparel imports continued to slide during May, according to the latest Otexa data with shipment quantities falling 28.2% compared to the previous year, owing to headwinds in the US economy and weakening consumer confidence.

By Just Style