Europeans and Americans have grown used to buying clothes made in Asian countries. But apparel-industry sourcing executives are sure that’s changing: By the middle of the next decade, much more of clothes will be made closer to home.
China and Bangladesh are the two biggest suppliers of apparel to Europe. In the US, China and Vietnam are the top two import sources. But almost a quarter of apparel sourcing executives who participated in a study by McKinsey and Germany’s RWTH Aachen University said they expect more than half of the clothes they source to come from “nearshoring” in 2025. This means much of the production for Western countries will move out of Asia to these markets or to neighbouring countries.
The makers of designer clothing have moved some of their production home in recent years to stress their heritage and increase control over supply chains. Burberry and other British fashion labels have moved some of their production as “Made in England” became attractive to luxury buyers after an import boom in the 1990s and early 2000s. Hugo Bosss, the German fashion label, has started selling a “Made in Germany” collection, produced completely (except for some fabrics) in Metzingen, the company’s corporate seat.
Such “value-based reshoring,” however, isn’t an attractive strategy for low-priced and mid-range clothing producers. They must constantly look for a compromise between a low production cost and a short time to market. In recent years, as wages rose in China, they’ve moved production to countries that are still relatively cheap, such as Vietnam and Bangladesh; in 2017, China’s share of apparel imports dropped both in the European Union and in the US. But speeding delivery to market is an increasing necessity, and consumers are increasingly concerned about the low wages and high environmental costs of offshore production.
“Today, the industry is at a crossroads, where speed beats marginal cost advantage and basic compliance is upgraded to an integrated sustainability strategy,” the McKinsey report says. Failure to respond to demand for an item consumers have seen on Instagram may mean huge volumes of unsold clothing. Unable to tell consumers what they should wear, producers must treat short lead times as the No. 1 priority. Fast fashion is giving way to ultra-fast fashion, as practiced by online retailers such as Boohoo, Asos and Lesara. This doesn’t work well with shipping from Asia: Delivery to big Western markets takes about 30 days by sea.
Besides, the Asian clothing market is growing, and eventually, producers in China, Vietnam and Bangladesh will need to concentrate on delivering quickly to markets in their immediate neighbourhood, creating a capacity shortage for Western buyers.
So far, higher production costs near the big Western markets are still an obstacle. McKinsey calculated that cheaper freight and lower duties already make it less expensive to produce a pair of basic jeans in Mexico than in China for the US market and in Turkey for the German market. But Bangladesh still significantly undercuts Turkey for the European market and matches Mexico’s costs for the US. And moving production home – to the US and Germany – is still a non-starter; it increases cost by 17% in the US and by 144% in Germany.
But as lead times gain importance, shortening them compensates for some of the labour cost disadvantages by increasing the share of clothes sold at full price. Raising it by 6.1% for a garment that takes 60 minutes to produce would justify the transfer of production from China to the US, McKinsey calculated.
Besides, automation can drive down the cost in Western countries. Now, sewing a pair of jeans takes an average of 19 minutes, more than half of the total production time. McKinsey and RWTH Aachen figure robotics can cut that time by 40% to 90%. At another important step, distressing the jeans, technology exists to cut the time necessary from about 20 minutes to 90 seconds: Levi’s does it with lasers.
Eighty-two percent of the sourcing managers surveyed by McKinsey say the production of simple garments will be fully automated by 2025. If they’re right, production is coming back – but the jobs aren’t. And China isn’t likely to fritter away its current advantage even as it becomes more expensive: Chinese garment companies are building factories in low cost labour countries closer to Europe such as Ethiopia. With these caveats, it’s likely that the buyers of mass market clothes, not just expensive designer threads, will be dressing in garments from geographically closer countries soon.
US shoppers may pay high price for America’s China addiction
Speeding up the trend is the obvious urge to break the monopoly-like grip that China has on the US market. US companies are scrambling to line up factories and suppliers outside of China as the trade war hikes the cost of importing everything from furniture to toilet paper. But for some products, it’s not that easy.
BBQ grills, luggage, and mattresses are among a long list of consumer items that China has a near stranglehold on when it comes to supplying to the United States. While President Trump’s tariffs are a potential boon for manufacturing rivals from Southeast Asia to Mexico, the reality is that shifting what can often be highly specialised production and training new workers cost time and money.
“People are moving out of China because they are panicked,” Rick Helfenbein, president of the American Apparel & Footwear Association, said in an interview in Hong Kong last week. But “certain things are really, really hard to move.”
The Retail Industry Leaders Association, is seeking exemptions to the levies on a raft of products as companies warn that without a reprieve, they’re almost certain to pass on costs to US shoppers.
That hike is already being felt in the market for luggage, with Samsonite International SA notifying wholesale buyers of a 10% price increase even before the September tariff announcement. The company has said it will likely pass tariff costs to consumers. China makes more than 70% of the travel and sports bags sold in the US, making it one of the sectors most dependent on the Asian nation for supply, according to data from the US International Trade Commission, a federal agency in Washington.
The Travel Goods Association has put the industry’s total reliance on China at 84%.
Trump says US companies worried about the tariffs should move their production home, while a number – of companies are looking at shifting their supply chains elsewhere. Some companies can’t move because of the challenge in finding manufacturers outside China willing to put up with the narrow margins and stringent requirements involved in producing them, he said. “You have to think of it from the factory perspective: You want to do what’s easiest, you don’t want to do what’s hardest,” said Helfenbein. “The only reason these businesses have hung around is people who have been in them for years are specialists.” If Trump extends the tariff hit to cover a further US$ 267 billion in Chinese goods, children’s shoes, baby clothes, and sweaters would be among items that would be hard to shift production or source elsewhere, according to the American Apparel & Footwear Association. Manufacturers of such children’s products as cribs and swings have also weighed in, with Mattel Inc. saying it made investments in China to ensure that suppliers comply with safety standards required to get their products into the US market. Large retailers including J.C. Penney Co. and Dollar Tree Inc. warned before the September tariff hit that companies lack feasible alternatives to China-based suppliers. Rerouting decades-old supply chains could take years, they argued.
Although the 10% tariff may be manageable for many companies – even those operating on thin profit margins – the increase next year will see companies lose the flexibility to shield consumers from higher costs, said Kenneth Jarrett, president of the American Chamber of Commerce in Shanghai.