From USA-ITA OFF THE CUFF for August 30, 2013
From August 18-21, SOURCING at MAGIC took over the Las Vegas Convention Center’s North Hall as the largest, most comprehensive sourcing trade show in North America. The show featured suppliers and manufacturers from over 40 countries, as well as service and technology providers, international government agencies, and additional resources across the supply chain.
USA-ITA President Julia K. Hughes (center) joins SOURCING at MAGIC Vice President Christopher Griffin and a delegation of textile and apparel manufacturers in India to cut the ribbon on the show floor in August 2013. (Credit: USA-ITA)
While China remains the largest apparel supplier to the United States with 41.69 percent of the market share—and nearly 1,000 exhibitors in the sourcing hall—companies are increasingly diversifying their sourcing beyond China for a variety of reasons. After all, it’s no longer just about price—and, in fact, China isn’t always the cheapest option anymore.
PwC: Sourcing Strategies for the Next Decade
This was the theme of the first seminar in the Executive Suite Series, which featured expert panelists from PwC, The NPD Group, and The Otto Group discussing sourcing strategies and consumer trends.
Damon Paling, Partner at PwC Shanghai and familiar face to USA-ITA members, said that while cost is still the key driver in sourcing decisions, it’s not necessarily the key focus—product quality, speed to market, the need for flexible production requirements, transportation logistics and costs, and of course, compliance, are among the other factors companies consider when make sourcing decisions.
China remains at the top of the list for good reason, especially with VAT refund rates increasing and export duties decreasing, as well as more trade facilitation programs. Yet China is simply not as competitive as it used to be, said Paling. China’s labor advantage has eroded, especially in comparison to Vietnam, the second-largest supplier of apparel to the United States with 9.38 percent of the market share. Other countries, including Indonesia (5.32 percent of market share) and India (3.49 percent of market share) are also gaining traction when it comes to the quality-for-price ratio.
Where should companies look to find the right product at the right price? As mentioned, the ASEAN (Association of Southeast Asian Nations) option is a good one, with countries like Vietnam and Indonesia, as well as Cambodia, Malaysia, the Philippines, and Thailand all producing apparel products. These countries have less inflation pressure, no export VAT leakage, and a strong free trade network (as well as the possibility of the Trans-Pacific Partnership down the road). Companies should also look at expanding use of existing free trade agreements, such as AGOA, CAFTA-DR, CBTPA, Haiti HOPE & HELP, and NAFTA. Finally, Paling’s colleague Maytee Pereira concluded, companies can also consider First Sale, a valuation strategy that provides “more bang for your buck” especially when you combine it with FTAs.
Damon Paling & Maytee Pereira at SOURCING at MAGIC in August 2013 (Credit: USA-ITA)
Fresh Horizons: New Places, New Strategies for Fashion Sourcing
The next day, attendees heard how companies are actually diversifying their sourcing strategies. Following an introduction by USA-ITA President Julia K. Hughes highlighting sourcing trends [DOWNLOAD PRESENTATION], two long-time sourcing executives participated in an informal discussion: Joseph Harris, SVP of Global Supply Chain at Astor & Black, a men’s custom clothing company, and Amy Leonard, SVP of Sourcing for USA-ITA member J.C. Penney.
These two companies have vastly different sourcing portfolios. On the one hand, Astor & Black is a men’s custom clothing company geared toward individuals more concerned about quality and customer service than price. Harris said the company maintains a catalogue of 6,000 fabric options, with manufacturing operations in China, Mauritius, and the United States. On the other hand, J.C. Penney is an iconic retailer of quality, affordable clothing for American families. Leonard said that recently, J.C. Penney has been shifting the focus back to its private label brands, as well as updating products and maintaining the right inventory levels. While the Astor & Black customer may be willing to wait a few weeks for the perfect custom suit, the J.C. Penney customer wants to go into the store and be able to find the shirt or jeans they need right away, and won’t always be willing to come back another day.
Yet, despite the companies’ differences, they have the same conclusions about the need to diversify sourcing strategies. It’s no longer simply about price and quality; it’s about the whole equation. In particular, compliance and risk mitigation are increasingly important, said Leonard. “Compliance is a necessity, not an afterthought,” she stated.
Amy Leonard of J.C. Penney at SOURCING at MAGIC in August 2013 (Credit: USA-ITA)
Both Harris and Leonard also agreed that, while country of origin diversification is important, there is no real substitute for China just yet. Harris said that while Astor & Black has operations in Mauritius and Los Angeles, he still uses China for bespoke production because their factory is “better than any factory I’ve ever been in.” (And while Mauritius produces excellent product for Astor & Black, logistics in Africa are difficult and expensive, he added.) Leonard said that “there has been talk about ‘the next China’ for 20 years” and many companies, including J.C. Penney, rely on China for raw materials and will likely continue to do so for the foreseeable future.
Astor & Black's Joseph Harris and JCP's Amy Leonard answer questions at SOURCING at MAGIC in August 2013 (Credit: USA-ITA)
It’s worth noting that the same is true of footwear. In a session led by Footwear Distributors & Retailers of America (FDRA) President Matt Priest, footwear sourcing executives discussed their strategies, which were similar to the apparel sourcing executives’ strategies. Priest noted that 95 percent of shoes sold in the United States are imported (comprising $2.4 billion in duties in 2012) and China remains the dominant supplier, despite the fact that there is no duty-savings opportunity there. However, the footwear industry sees more value moving to Vietnam, especially if the TPP is passed. Dan Friedman, President of Global Sourcing & Supply Chain for Brown Shoe Company, echoed the apparel sourcing executives by noting the need to serve the customer not only in terms of price, but also in quality, style, and other demands. Glenn Evans, VP of Global Operations for R.G. Barry Corporation, added that it’s important for companies to be nimble when sourcing, and understand the customers’ wants and needs.
It’s clear that companies have many options for sourcing. China has obvious benefits, but with over 40 countries exhibiting at SOURCING at MAGIC, there are many viable alternatives, too. How do you determine whether or not you should diversify your sourcing strategy, and then, how do you determine where to source?
J.C. Penney’s Leonard had advice: know what’s important to you. It’s that simple. Is it price? Is it quality? Is it using organic or environmentally friendly processes? Is it speed to market? Once you know what’s important to you (and your customer) your sourcing equation will work itself out. (And if not, there’s always the February show!)
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